Global toymaker Lego Co., which lost 1 billion Danish kroner ($124 million) last year, is closing two European injection molding plants and cutting 500 jobs.
The moves are part of a regional restructuring that includes shutting down or selling several plants while investing in others.
For example, the company plans to buy about 50 new injection presses for its plant in Willisau, Switzerland, during the next two years, according to global supply chain division director Tommy Gundelund Jespersen. Lego is based in Billund, Denmark.
"The new structure would have been implemented regardless of our financial performance," Jespersen said.
"To maintain the competitiveness of our production in Europe, we needed to establish a more simple structure that can more efficiently respond to changing demand for Lego products within our main markets," he said.
The plants being closed are Lego's older Neuhof and Lattich plants in Baar, Switzerland. They are due to close midyear.
The shutdown follows Lego's decision last year to phase out molding at its Enfield, Conn., plant. That work is being shifted to Europe.
Despite the changes, Lego plans to concentrate on its core activity, injection molding ABS and polypropylene building bricks. Those products represent about 80 percent of the company's sales, said spokeswoman Eva Lykkegaard.
Lego plans to outsource some noncore operations. For example, it will sell a mold-building plant in Hohenwestedt, Germany, and a micro motor plant in Budapest, Hungary.
After the reorganization, Lego's remaining plants will produce a full range of Lego components rather than being dedicated to certain product lines. The company also wants to make better use of plant capacity and to upgrade its injection molding equipment, Jespersen said by telephone.
The company, which currently runs 300 injection lines in Switzerland, will move 50 newer machines from the Baar plants to the bigger, modern unit at Willisau, which now operates only 12 Engel presses. That's in addition to the 50 new machines now slated for Willisau, Jespersen said.
Lego plans to concentrate its in-house mold making in Steinhausen, Switzerland, emphasizing on improving production flow. Other molds will be outsourced.
The company's large, highly automated Billund injection molding plant will remain the company's chief producer of brick products. Jespersen would not reveal the number of lines, but said the plant employs 400.
Lego's strategy is to centralize its European toy component production, while maintaining a string of flexible packing and distribution facilities abroad.
The company will keep the U.S. packing plant in Enfield and another in South Korea.
Lego's announced loss for 2000 is about twice the sum the company had predicted in November.
"Financially, the past year was extremely disappointing," Executive Vice President and Chief Operating Officer Poul Ploughmann said when the company released the results. He said the loss occurred because management had "lost focus."
Lego plans to "refocus on our core business, which is materials for open-ended play for children. We will continue to expand within this area, applying a growth strategy with a huge potential and lower risk," Ploughmann said.
Meanwhile, Lego plans to cut back on initiatives outside its core business including wristwatches and publishing, and postpone plans for its fifth children's park "Legoland 5." Lego has parks in Denmark and Britain with a fourth planned for Germany.
"Some new business initiatives we've started have a steep learning curve and are not cost effective, and they hurt us financially in a difficult year," Ploughmann said.
Lego will lean more on the use of leading-edge technologies in toys, extending the "intelligent brick" concept of Lego Mindstorms and Lego Studios, which lets children make movies.
Lego is seeing strong growth in some of its newer toys including Bionicle, which combines physical and online play with Lego story-building.
The company also sees growth for its themed Harry Potter and Bob the Builder toys.
Chief Executive Officer Kjeld Kirk Kristiansen expects a strong financial rebound in 2001. He assured Lego enthusiasts worldwide that the company "is not in danger" despite a difficult year and stated firmly: "The Lego brand is as strong as ever."
