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Lego tied for top toymaker as Asia sales take off

FRANKFURT, Germany -- Denmark's Lego Group will likely become the leading toymaker in the world this year after its first-half sales came in head to head with Mattel, the U.S. toy company that currently occupies the No. 1 spot. The jump into the leading position was helped along by the company's solid sales and a new theme park in Asia.

     Lego, the maker of various shaped interlocking blocks sold under the namesake brand, saw its sales in the January-June half jump 11% from the same period last year to reach 11.5 billion Danish krone ($1.99 billion).     

Women make up nearly half the workforce at the Lego factory at the Danish firm's headquarters in Billund.

     Mattel, famous for its Barbie dolls, generated $2.008 billion in sales in the first half.

     Lego continues to enjoy robust retail sales in Asia and other regions, but Mattel's sales have been on a downtrend. This presents a strong possibility that the Danish firm will beat its U.S. rival in full-year sales, getting a boost from strong year-end sales.

     The strong performance in the January-June half is the result of the company's efforts to develop and deliver toys that children all around the globe want, Lego CEO Jorgen Vig Knudstorp said.

     The company's retail sales in the U.S., Europe and Asia all marked double-digit growth in the first half, with China leading the way with a 50% gain.

     Compared with the first half of 2008, the latest six-month sales figure stood three times higher. This makes Lego one of the rare European companies that have maintained high levels of business growth since 2008, since most in the region were negatively impacted by the Lehman shock and the ensuing European debt crisis.

Synergy with movies, theme parks

One particularly notable thing about this year's first-half earnings is the contribution from "The Lego Movie," which made a huge hit at the box office around the world. 

     Lego had reevaluated its highly expansion-driven business strategy. This led to the company teaming up with U.S. movie studio Warner Bros. Entertainments in the production of the movie, allowing it to hold down its financial outlay.

     At the same time, sales of movie-related products, such as toys featuring characters in the movie and DVDs, have grown, lifting its bottom line.

     The company also reexamined its policy of developing Legoland theme parks on its own, and has since switched to the strategy of expanding the franchise through licensing.

     Legoland theme parks in various locations have been drawing in crowds and helping to boost sales of Lego brand products. The first Asian Legoland in Malaysia is no exception. This facility in the southern state of Johor has been attracting a lot of visitors.

Highly efficient operation

Lego's operating profit margin for the January-June half stood at 32%, a remarkably high figure for a manufacturer.

     One of the reasons for this success relates to how its factories are designed and operated. The factory in the Danish city of Billund, home to the company's headquarters, is designed to reduce the chance of even minor accidents. Nearly half the workers at the factory are female. And there is no overtime.

     Another feature of this factory is its "highly versatile design that makes it easy to build similar facilities in other countries," according to a company official.

     Making the most of this, Lego has been actively bolstering its production capacities around the world. 

     In China, the company started building its first Asian factory near Shanghai in April. Slated to begin production in 2017, 70-80% of the output from this Chinese factory are expected to be sold in Asia.

     Efforts to expand its Mexican factory, which makes products for the North and Latin American markets, were finished in June. This followed the completion in March of a similar project at the Hungary factory, which is responsible for products for the European and Asian markets. Furthermore, Lego is currently working to upgrade its factory in the Czech Republic.

     The company closed high-cost factories in various locations, such as the U.S. and Switzerland, during a restructuring drive a decade ago. Cost-efficient factories that survived the cull have been expanded lately to keep up with business growth.

     In a stark contrast, Mattel's first-half revenue dropped 7%, making it likely that Lego will come out on top for full-year sales results unless the two firms' business trends reverse.

     But the Danish company is keeping its cool. 

     It is too early to tell how full-year sales will turn out because year-end sales make a high proportion of annual sales, and it is difficult to tell how the success of the movie will translate to sales for the rest of the year, according to Knudstorp.

     Saying how big its business is compared to others' is not important to Lego, the CEO said the company will continue to operate as an unlisted company, and it will not sacrifice what it has for the sake of expanding its business scale.

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