Heads Roll As LEGO Announces Losses

From a press release issued earlier today by the LEGO Company:

January 8 2004

Loss of DKK 1.4bn in the LEGO Company in 2003

Executive Vice President and COO, Poul Plougmann, leaves the LEGO Company, which will get a new, simplified management structure, led by CEO and owner Kjeld Kirk Kristiansen.

The LEGO Company expects its 2003 result to show a record loss in the order of DKK 1.4bn, pre-tax. The reasons include an unforeseen development in the world toy markets, which nearly came to a standstill in 2003 and loss of market shares in key markets, which has led to a decline in global sales of 25 percent compared to 2002.

As a consequence of the situation, a significant change of strategy has been initiated. The LEGO Company will focus on the fundamental product idea, as represented by the LEGO brick and the values of the LEGO Brand. It is a timeless and universal idea, which the consumers confirm they value highly, as clearly indicated in 2003: In spite of the general decline in sales, sales of Make & Create, the core products, were more than doubled.

At the same time, the top management of the LEGO Company will be changed, and Poul Plougmann, Executive Vice President and COO, will leave the company.

“We have been pursuing a strategy, which was based on growth, increase in market shares and growth by focusing on totally new products. This strategy did not give the expected results, and if there is a discrepancy between the map and the terrain, you have to follow the terrain. So we will continue to adjust our cost base and simplify our reporting structure to achieve better and faster decision-making. This is a must in relation to the increasing and often very considerable volatility in the market preferences”, says Kjeld Kirk Kristiansen.

Conditions in the toy trade have been – and are – both tough and turbulent, so the demands for competitiveness will also be substantial in the coming years:

“We will focus on profitability, especially the attractive profit potential of our core products. This requires an efficient organisation without surplus capacity. Therefore we trim the sails! We have already carried out the necessary staff reductions in the production areas. Now we have to go through the whole organisation and decide, which functions we have to do – and can do – without. We have started from the top”.

“Our aim for 2004 is to break even. This will be difficult, but it is realistic given the initiatives we have taken already”, says Kjeld Kirk Kristiansen.

The new top management of the LEGO Company will have a simplified structure, and the number of members is reduced from 14 to 9. The new structure will diverge from the present one, where the overall responsibility was placed in the so-called Executive Office. As CEO Kjeld Kirk Kristiansen will have the day-to-day responsibility for the top leadership team, assisted by Jesper Ovesen and Jorgen Vig Knudstorp, who are responsible for Corporate Finance and Corporate Affairs, respectively.

Further, the leadership team will consist of Mads Nipper (Innovation & Marketing), Tommy Gundelund Jespersen (Supply Chain), Henrik Poulsen (European Markets and LEGO Trading (distributor markets)), Soren Torp Laursen (Americas Markets), Arthur Yoshinami (Asia – Pacific Markets) and Dominic Galvin (Brand Retail). Mads Ryder will continue to be responsible for the LEGOLAND Parks.

Francesco Ciccolella, who has been responsible for Corporate Development up till now, will leave the company.

The new leadership team will now determine and implement the necessary organisational adjustments and will not presently give any statement regarding the size of a possible staff reduction. This information will beavailable in a couple of months.

The future strategy of the LEGO Company will emphasise the core products, including a re-launch of the pre-school products.

“We will not be standing still, neither in relation to product development nor marketing, but we have to concentrate on the products that we know the customers want and that we know are profitable”, says Kjeld Kirk Kristiansen.

“I am convinced that we will then return to satisfactory profitability and thus create a basis for continued growth, resting on a solid foundation”.

It is only in the last few years that LEGO has developed its toys through outside licenses such as Star Wars. Hopefully LEGO considers this license one worth continuing with.

This post originally appeared on Rebelscum.com on the 8th of January, 2004.

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