LEGO 5

[robharris]

What are the financial consequences of any of your analysis or
recommendations?

[erzim...@yahoo.com]

Following the decision to bring all this production back in-house, you
can see significant improvements in the financials. In '09 profit
before tax rose over 55% versus the 30% they achieved in '08. ROE
rose over 14% compared to the previous year. You can see investment
has increased significantly, along with the number of employees, but
this has appeared to pay off with also increasing revenues. They've
stablized the company.

[Emily Hackett]

We recommended that they continue to produce in-house as much as they
can. The numbers that Eric talks about support that recommendation.

I also think one of the main areas they need work on is building a
better forecasting model. The model they have been using is +/- 30%,
which is, in my opinion, a useless model. Lego will need to spend
significant $ to get a better forecasting model, but even a 10%
improvement in the accuracy of the forecast will provide significant
cost savings from reduced inventory needs.

On Nov 20, 11:49 am, "erzimme...@yahoo.com" <erzimme...@yahoo.com>
wrote:

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[rddiaperman]

LEGO is a privitely held company so financial data is a little more
difficult to find and verify vs. a publicly held corporation. None the
less the most recent data is available via their 2010 annual report.
In 2005 net profit was 214M DKK (5.49 to 1 USD) or right at 39M USD).
During the 3 years of outsourcing with Flextronics, LEGO averaged
1.22B DKK. The year after the back sourcing net profits increased to
2.2B DKK (5.18 to 1 USD) or 425M USD for an increase percentage wise
of just over 80%. FY 2010 was even better as net profit hit 3.7B DKK
(5.61 to 1 USD) or almost 663M USD for an increase of 69%. Those are
GREAT numbers that support the continued in house production of
product. Looking at historical returns and data it is almost always
easy to make a decision. This case is not an exception as the
outsourcing venture was doomed from the start. This was a business
marriage equivalent of a Kardashian to Humphries marriage. The 2
companies did not have enough in common, communication prior to the
wedding/venture was incomplete, and in the end LEGO wanted the
production/ring back.

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[Curtis Lucas]

I love the anology. Do think that the finicials would have improved
without the outsourcing? Prior to the collaboration LEGO was
hemmoraging cash. Through the failed "marriage" LEGO learned a lot
that allowed them to better align their systems. LEGO took the "ring"
back but Flextronics probably helped them save the house. I would
recommend to continue the course of bringing the business back in
house and driving down product diversity, Hindsight does show that the
marriage did produce some beautiful kids( knowledge and better
documentation.) Sorry I got caught up in the marriage analogy.

[rddiaperman]

I think the financials would not have improved until Kjeld Kirk
Kristiansen was relieved as LEGO's CEO. I believe the company truly
needed someone from the "outside" to step with a different
perspective. Someone who would immediately realize having roughly
11,000 suppliers (more than Boeing used for their airplanes) was a
"tad" too many when your company sold toy plastic bricks.

[Emily Hackett]

Once again, Mark...completely on target.
The other thing is that we can really never know how much LEGO was
impacted, but remember that just two years prior to that the Euro was
introduced and the Danish kroner was one of only three Western
European currencies not connected to it. At the same time (and
possibly related to that) was the (temporary) devaluation of the
kroner against the US dollar. How much of an impact do you guys think
that could have had on LEGO's financials going into 2004?