Losses build in Legoland

THERE are tears in toytown. Lego, maker of the iconic building blocks, may be forced to put its theme parks up for sale in an attempt to stave off a financial crisis that threatens to bring down the 72-year-old empire.

Though Legoland in Windsor, Berks, has delighted millions, it seems to be living on borrowed time. So too are Legoland parks in Europe and America.

The family-controlled firm is about to announce its biggest-ever loss. Chief executive Kjeld Kirk Kristiansen, grandson of Lego founder Ole Kirk Kristiansen, stepped down last month - though he remains on the board - after warning about the losses, which could top £180m.

Lego blamed the crisis on slow markets in the US and Japan, a competitive global market, supply problems in Europe and a strong Danish currency.

But the firm, whose proud claim is that, on average, every person in the world owns 52 Lego bricks, has been swinging between profit and loss for ten years.

As a former director said: 'Accounting has never been Lego's strength.'

Last month, the company said the value of assets had been 'substantially impaired'. Sales have fallen by 30% since 2002. The company has cut its staff by 1,000 and is considering further cuts.

Lego is now headed by 35-year-old Jorgen Vig Knudstorp, and he faces a daunting task. The company could be the target of takeover attention.

Rivals - the more racy, contemporary Mega Bloks made by the Canadian company of the same name, and the US-owned Hasbro's K'Nex building kit design - are gaining market share.

Lego's controlling family is fiercely protective of its founder's vision that the company should cater for the simple pastimes of young children. But that strategy looks outdated in a market driven by media-savvy youngsters.

And because the company has been loyal to its Scandinavian manufacturing base, Lego can be up to 75% more expensive than rival products produced in China.

Worse for sales, Lego toys bought in the Sixties work perfectly well with the bricks bought today. This is great for parents' budgets, but disastrous for sales.

The global toy market is declining by 2% a year - and Lego is falling faster than most.

A company spokeswoman said: 'The construction toy market is still there and we know other companies have been taking market share. It is now up to us to fight back.'

But a senior source in the firm added: 'The company has been in and out of management structures like a fiddler's elbow. Parts of the company have been integrated, split and then reintegrated.'

Lego says the turnaround has begun. Operating losses of one billion Danish kroner (£95m ) last year shrank to £20m to £40m this year, though the headline deficit will still be higher due to asset write-downs.

The company insists: 'We are on track, and next year we will make a profit.' Yet the parks are being shifted to a separate company and a sale is being considered.

The name Lego comes from the first two letters of the Danish words 'Leg godt' or 'play well'.

This simple philosophy won over past generations, but can it compete in a market where youngsters' Christmas lists are topped by interactive computer games?