Monday 23 October 2017

Lego building on a successful year as it mints three new billionaires

Tom Metcalf and Robert LaFranco

Lego, the Danish toymaker famous for its colourful building bricks, minted three new billionaires as the company's revenue soared 25pc last year.

The children of Kjeld Kirk Kristiansen, Denmark's richest man, hold a combined 37pc economic interest in the company valued at more than $5.3bn (€4.1bn), according to the Bloomberg Billionaires' Index.

The family-owned company's sales climbed to 23.4bn Danish kroner (€3.1bn) in 2012, according to the company's annual report, helping the 81-year-old operation pass Mattel to become the world's most-valuable toy manufacturer.

"Lego is on fire," says Gerrick Johnson, an analyst with BMO Capital Markets in New York.

"It's the world's biggest toymaker in terms of net income, operating income and Ebitda. It had a 71pc gross margin in its latest results and is posting strong sales growth."

Lego is valued at $14.6bn, based on the valuations put on competitors such as Mattel and Hasbro.

California-based Mattel, which makes Barbie dolls, has a market capitalisation of $14.4bn, after hitting a 52-week high last week. Hasbro, which sells the Monopoly board game, has a $5.4bn market capitalisation.

Mr Johnson values Lego, which manufactured 45.7 billion bricks last year, at about $15bn.

"Using the same multiples investors have given to Mattel, Lego would be worth $17bn," he said.

"I use a discount owing to the fact that Lego isn't as diversified and doesn't have much to fall back on should the construction toy market cool. This multiple, though, would still put Lego's valuation slightly ahead of Mattel."

Kjeld Kirk Kristiansen, the grandson of Lego founder Ole Kirk Kristiansen, has a personal fortune of $5.9bn, according to Bloomberg's ranking. The family controls 75pc of the Lego company.

The remaining quarter is held by the Lego Foundation, a children's charity established by the family in 1986.

Lego was founded in 1932 by Ole Kirk Kristiansen. Its name is derived from the Danish words "leg godt," which translates as "play well"


In 1957, Mr Kristiansen passed the operation to his four sons who, a year later, began selling the company's signature studded bricks that we know today.

One of the brothers – Kjeld Kirk Kristiansen's father, Godtfred – consolidated control of the company in 1961 by buying out his siblings.

Mr Kristiansen became chief executive officer in 1979, and pioneered the concept of play themes, selling Lego sets with castle and town motifs.

He also struck licencing deals, including Lego's popular 'Star Wars' line, which was first released in 1999 with sets such as Anakin's Podracer and X-wing Fighter.

In 2002, the company's momentum sputtered as Lego management became distracted by diversification efforts, including theme parks and video games, according to Per Thygesen Poulsen, author of the 1993 book, 'Lego: A Company and its Soul'.

"They spread out in so many directions that all efficiency was lost," Mr Poulsen said.

"The company had inherited this from Kjeld's father, Godtfred, who was willing to try anything.

"At one point, he even considered building actual houses based on Lego bricks."

Danske Bank, Lego's primary bank, stopped lending the company money in 2004 as its losses mounted.


"It was a big crisis," said Soeren Jakobsen, author of 'Lego Legacy', a book on the Lego heirs.

"Lego's main bank wouldn't provide further loans and the family had to resort to financing the company with its own money and taking up a loan with a new group of banks."

Mr Kristiansen began to implement a turnaround plan, cutting 1,000 jobs and limiting product lines.

He soon stepped aside, ceding control to a hand-picked management team led by Joergen Vig Knudstorp, who is now the company's CEO.

Mr Knudstorp refocused the company's product line and sold businesses he deemed unessential.

"At first, I actually said, 'let's not talk about strategy, let's talk about an action plan to address the debt, to get the cash flow'," he said in a 2011 interview.

"But after that, we did spend a lot of time on strategy, finding out what is Lego's true identity.

"Things like, why do you exist? What makes you unique?"

Today, Mr Kristiansen continues to maintain a low profile, an ethos born out of the moderation his father espoused and that is imbued into Lego's culture, Mr Poulsen says.

"Never be extravagant was part of Godtfred's upbringing." he said.

"He handed that on to his employees and children. Kjeld lives modestly, relatively speaking."

Irish Independent

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