Lego Reports Return to Profitability

Lego Reports Return to Profitability

COPENHAGEN, Denmark — Danish toy maker Lego Group said Wednesday it returned to profitability in 2005 and expects to post a profit in 2006, while warning that it expected a "difficult year" and will move at least some production facilities to low-wage countries.

The privately owned group famous for its colored plastic building blocks posted a net profit of 505 million kroner (euro68 million; US$81 million) in 2005, compared with a net loss of 1.93 billion kroner in 2004, on strong sales led by its Bionicle line of snap-together creatures. The company doesn't give quarterly figures.

"I consider the results satisfactory in view of the very difficult market in which we are operating," said CEO Joergen Vig Knudstorp.

The furor over the publication in a Danish newspaper of cartoons depicting the Prophet Muhammad has led to a widespread boycott in many Muslim countries of goods from Denmark.

But even though Lego is one of the country's best-known international brands, the company said the boycott has had very little effect on its bottom line.

"The Middle East is only around 0.2 percent of our turnover, so it's really a very small part of our sales," said spokeswoman Charlotte Simonsen. "We know that some shops have removed our products from their shelves, but it's not a general picture; some have and some have not."

In addition to the Bionicle line, the group said it also saw growth in its preschool Duplo line, as well as classic products such as Lego City and license-based lines like the Lego Star Wars products.

Overall revenues were up 12 percent to 7.05 billion kroner (euro945 million; US$1.12 billion) in 2005, compared to 6.32 billion kroner the year before.

"The increase in revenue is attributable to global sales increases," Lego said in a statement. "Despite the general recession for traditional toys, the Lego Group has captured market shares on most markets."

After experiencing its worst year in its history in 2003, Lego embarked on an elaborate recovery plan that included increased focus on its classic products.

As part of that plan, Lego announced last August it was closing a production facility in Switzerland and five distribution centers in Denmark, Germany and France, and moving the operations to the Czech Republic.

Also in 2005, the company sold off its four Legoland amusement parks to the U.S.-based private equity group Blackstone Capital Partners for euro375 million.

The company said it would continue to focus on profit by streamlining its operations "which will involve transferring production _ in whole or in part _ to low-pay countries."

"2006 will be another difficult year for the Lego Group," the company said. "The size of the global toy market is still expected to decrease, and the suppliers of traditional toys will therefore still be facing strategic challenges."

Lego said it is eyeing a pretax profit of 500 million kroner (euro67 million; US$80 million) in 2006.

"In the coming years, we will first of all concentrate on improving the group's profitability," Vig Knudstorp said. "This will be done through streamlining and cost savings. Not until satisfactory profitability has been ensured will we turn towards sales growth."

The Lego Group is a family-owned company, based in Billund, which employs some 5,600 people worldwide. Though the company is not publicly listed it has published earning reports since 1997.

Founded in 1932, Lego's name was invented by combing the first two letters of the Danish words "Leg godt" (play well) without knowing then that the word in Latin means "I assemble."