Lego aims to exceed projected growth

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KUALA LUMPUR: Buoyed by optimism from what it calls “very hot interest” in its brand of toys from Malaysian consumers, Lego Group is confident that its growth here will exceed the projected growth of the country’s toy industry over the next decade.

“We think the toy market here will probably grow 10% to 15% year-on-year. It seems our ability to grow should exceed that, simply because we are experiencing very hot interest in the Lego brand from the Malaysian market,” group president and chief executive officer Jørgen Vig Knudstorp told The Edge Financial Daily in a recent interview.

That interest has been stimulated by the brand’s long history in Malaysia as well as the Legoland theme park in Nusajaya, Johor, he said. Couple that with the expected rise in industry volume over the next 10 years due to Malaysia’s relatively young demographic and its people’s rising purchasing power, Lego should exceed that underlying growth in the Malaysian toy market, he said.

In anticipation of this, Lego recently set up Lego Trading (M) Sdn Bhd, its first office in Asia. The Southeast Asian region, in particular, presents the group with untapped opportunity that could fuel Lego’s growth for decades to come, he said.

“The majority of Lego’s business sits in the North [globally] but all the potential sits in the South. It’s bound to come, but probably some ways off.

“In developed economies, Lego is very strong. There is no reason why Lego shouldn’t also be very strong in China and across Southeast Asia, including Thailand, Indonesia, Malaysia and India. That represents a very big growth track for us. I do think that this global expansion growth path has longevity, not just for a decade but for decades to come,” he said.

At the same time, he said Lego should not lose sight of developed markets like the United States and the European Union. The group has managed to grow in these markets thanks to new themes such as Lego Friends, Ninjago, the Lego Star Wars series and the Lego Movie, to name a few.

In 2013, the group’s bestselling series globally included Lego City, Lego Star Wars, Preschool products, Lego Friends and Lego Legends of Chima.

It has been 10 years since Knudstorp first stepped into the role as head of the Danish toymaker, which was on the verge of bankruptcy then. In 2004, Lego incurred a net loss of 1.8 billion Danish kroner. On taking over, Knudstorp led a mammoth task of cleaning up the house. The group flourished under his care and has since been growing for the last 10 years.

“Sooner or later Lego is going to have a year where we don’t grow so much... But we also face a lot of growth potential and the key driver is global demographic development. I think Lego’s long-term growth prospect is a very positive one,” he said.

But with multiple growth regions in sight, Knudstorp admitted that concern has been raised within the organisation about the group’s ability to keep up with demand. “We are almost growing faster than our capabilities allow us to,” he noted.

Presently, Lego is constructing a manufacturing plant in Zhejiang, China, which is set to open in 2017.

However, Knudstorp is confident of Lego’s ability to take on this growth with no added stress on its financials. “Lego has, throughout this growth period, been very cash positive. We have no shortage of cash. In fact, we are probably a very wealthy company,” he said.

The group’s cash balance for the financial year ended Dec 31, 2013, stood at 1.02 billion Danish kroner. After accounting for borrowings, net cash was at 731 million Danish kroner.

For Malaysians, Lego’s allure is synonymous with its theme park in Johor. But Lego’s operations in Malaysia contribute only a minuscule portion to its group income, as it has sold the entire theme park business — Legoland Parks — to The Blackstone Group LP in 2005 for €375 million as part of Knudstorp’s plan to refocus the company on its core, the Lego brick.

Legoland Parks is now owned by Merlin Entertainments plc, which is 70% owned by Blackstone and 30% by Kirbi A/S, the vehicle of Lego’s founding Kristiansen family.

Besides Malaysia, there are five other Legoland parks globally. They are in Billund (Denmark), Germany, Windsor (the United Kingdom), and Florida and California (in the US).

 

This article first appeared in The Edge Financial Daily, on October 27, 2014.