LEGO a victim of its own success as demand for fun outstrips supply

LEGO has reported a rise in revenue for the first half of 2016 although net profits slid, but only because the Danish toy maker needed time to add production capacity to meet increased demand for its colourful building bricks in North America, the company said on Tuesday.

The group, which has become the world’s most profitable toy maker ahead of the Barbie Doll producer Mattel, saw revenue grow 11 per cent in the six months to 15.69 billion Danish kroner (Dh8.63bn), while operating profit was up 1 per cent at 4.66bn kroner. Net profit fell nearly 2 per cent to 3.49bn kroner.

LEGO has increased sales by an average of more than 15 per cent per year in the past 12 years, with a 25 per cent growth rate in 2015. But while sales in Asia and Europe, its most mature market, grew by double digits in the first half of 2016 there was no growth in the Americas.

LEGO simply could not keep up with demand in North America, the world’s biggest toy market in 2015, so it reduced its marketing activities, which led to the slowdown in the first half of 2016, said the chief financial officer, John Goodwin.

“We are working very closely with our retail partners to ensure that as we go into the important holiday season, the back half of 2016, that we’ve got all of the levers pulled to get back on the growth trajectory,” he said.

As part of a global investment plan, the company has invested in a new factory in China, expanded production capacity in Mexico and plans to double the capacity of the group’s plant in Hungary.

As a result the company recruited more than 3,500 new employees in the first half of 2016, an increase of 24 per cent.

“We feel we need to invest, to build some breathing space,” Mr Goodwin said.

“These investments in people and infrastructure will obviously have an impact on our short-term profit growth. But they are part of our long-term plan to sustain the development and delivery of fun.”

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