Lego to cut jobs and shift plants

After a number of difficult years, Lego has returned to profit

Toy building-block company Lego plans to shift a large part of its domestic production abroad, cutting its workforce by as many as 1,200 jobs.

The Danish firm plans to outsource production to Flextronics, a manufacturer with plants in the Czech Republic and across Eastern Europe.

Lego also will shut its factory in the US, moving production to Mexico.

The changes will be implemented over three years as Lego looks to cut costs amid stiff rivalry in the toy industry.

'Essential element'

Lego has seen electronic toys and cheaper goods crimp demand for its multi-coloured building blocks, which have been used by children and adults to build everything from forts to working cars.

"This is the last essential element in the restructuring of the group's supply line," said Joergen Vig Knudstorp, Lego's chief executive.

"We now see the contour of a new business model, where we go from traditional integrated model to a partnership model. This way we can achieve great financial advantages in a very difficult market," he explained.

Lego said it took into account "cost structure considerations and geographic proximity to the major markets".

The family-owned company had a 2005 pre-tax profit of 702m Danish crowns (£64m; $118.6m) compared with a loss of 1.7bn crowns in 2004.

After a number of difficult years, the company decided it needed to cut costs and sold off assets including its Legoland amusement parks in Denmark, the UK, Germany and the US.