Lego cuts jobs as profit declines amid change of leadership

by BLOOMBERG

Lego A/S reported a decline in sales and profit and said it would cut 8 percent of its workforce as Europe’s biggest toymaker is going through a leadership transition phase after a decade of rapid expansion.

Net income in the first half of the year declined by 3 percent to 3.4 billion kroner ($540 million), the closely held company, which is based in the western Denmark city of Billund, said in a statement Tuesday. Sales declined by 5 percent to 14.9 billion kroner.

“We are disappointed by the decline in revenue in our established markets, and we have taken steps to address this,” Chairman  Jorgen Vig Knudstorp said in the statement. “We are working closely with our partners and we are confident that we have the long-term potential of reaching more children in our well-established markets in Europe and the U.S. We also see strong growth opportunities in growing markets such as China.”

Lego’s slowdown began last year as more of its markets mature, with U.S. sales stagnating despite higher spending on marketing. The deceleration coincided with Knudstorp – the man credited for turning Lego around to become the world’s most profitable toymaker – deciding to step down as CEO to become chairman.

Lego promoted Chief Operations Officer  Bali Padda to CEO as of Jan. 1, but announced already last month that he’ll be replaced Oct. 1 with  Niels B. Christiansen, the former boss of Danish engineering giant Danfoss A/S.

Lego said Tuesday it would cut about 1,400 positions, most before the end of this year. The company, which is controlled by the Danish billionaire Kirk Kristiansen family, currently employs about 18,200 people worldwide.

In the past five years Lego has built “an increasingly complex organization” to support its high growth rates, the company said.

“In the process, we have added complexity into the organization which now in turn makes it harder for us to grow further,” Knudstorp said. “As a result, we have now pressed the reset-button for the entire group. This means we will build a smaller and less complex organization than we have today.”

Retailers have also pointed to the sagging appeal of Lego products. In June, Toys R Us Inc. CEO David Brandon said the toymaker’s sales were suffering from “significant weakness in demand” as the Danish company is “living through a very tough period.” Its Lego Batman movie hasn’t generated the toy sales that Toys R Us or Lego had expected, he said.