Lego』s corporate model is key to its brick-by-brick success

{"text":[[{"start":8.83,"text":"Many one-product companies run out of road. "},{"start":11.647,"text":"Small plastic bricks have supported Denmark’s Lego for more than 70 years. "},{"start":15.989,"text":"A clear focus can pay off. "},{"start":18.019,"text":"But, amid a debate over the health of public markets, its success also demonstrates the benefits of its distinctive corporate structure. "}],[{"start":25.689999999999998,"text":"The toymaker’s sales growth of 2 per cent last year was dragged down by a weak performance in China. "},{"start":31.256999999999998,"text":"But it was respectable enough given a seven per cent decline in toy industry sales. "},{"start":35.699,"text":"Lego’s sales are not much less than the combined total of its quoted US rivals Mattel and Hasbro. "}],[{"start":null,"text":"

"}],[{"start":41.51,"text":"Inflation, one cause of the industry’s woes, is subsiding. "},{"start":45.763999999999996,"text":"Low birth rates, another problem, will persist. "},{"start":48.994,"text":"That is partly offset by adult fans of Lego. "},{"start":51.949,"text":"This group — known as Afols — creates a market for costly, complicated kits like the Titanic or Eiffel Tower. "},{"start":58.592,"text":"This “Icons” line made some of the biggest gains of any toy property globally in 2023, according to Circana. "}],[{"start":65.49,"text":"New products accounted for roughly half of Lego’s portfolio last year. "},{"start":69.69399999999999,"text":"Innovation isn’t without risk: novelty can damage profitability if it means fewer universal pieces that can be produced in high volumes for lots of different kits. "},{"start":78.112,"text":"The proliferation of parts contributed to Lego’s downturn in 2003, says academic David Robertson. "},{"start":84.25399999999999,"text":"However, the business has since expanded so it can use more parts without hurting the ratio of sales to profits. "}],[{"start":91.25,"text":"Lego’s operating profit margin fell by 1.7 per cent to 26 per cent, as it spent more on stores, its supply chain and digital operations. "},{"start":100.479,"text":"Even so, that is nearly three times Hasbro’s adjusted operating figure. "},{"start":104.897,"text":"Were it quoted, Lego would be worth much more than the $43bn estimate arrived at by using Hasbro’s trailing EV-to-ebitda ratio of 15.5 times. "}],[{"start":115.86,"text":"But Lego is privately held and there is no sign of that changing. "},{"start":119.489,"text":"Kirkbi, an investment vehicle run by the founding family, owns 75 per cent, with the remainder owned by the Lego Foundation. "},{"start":127.057,"text":"When an heir opted to sell some Kirkbi shares for $930mn last year, family members took up the slack. "},{"start":133.462,"text":"Outside investors’ only exposure to the brand is through Legoland-owner Merlin Entertainments. "},{"start":138.367,"text":"Blackstone and Canadian pension fund CPPIB teamed up with Kirkbi on the £6bn take-private bid in 2019. "}],[{"start":145.25,"text":"External investors might have been less inclined to tolerate last year’s 10 per cent dividend cut to fund investment. "},{"start":151.392,"text":"There is evidence that tightly held companies like Lego benefit from a long-term perspective. "},{"start":156.059,"text":"Building the business, like its product, is an exercise in patience. "},{"start":160.264,"text":"It can yield impressive results. "}],[{"start":162.16,"text":""}]],"url":"https://creatives.ftacademy.cn/album/147687-1711274636.mp3"}