Surging Profits Underpin Lego’s Expensive Move to Recycled Plastic

SEATTLE (Scrap Monster):   Lego is paying up to 60 per cent more for plastic resin made mostly from renewable or recycled material as the world’s largest toymaker intensifies its efforts to become fossil-free, a move financed by big increases in sales and profitability.

Niels Christiansen, chief executive, told the Financial Times that 30 per cent of all the resin the privately owned Danish toymaker bought in the first half came from so-called mass-balance sources, meaning it used a blend of fossil-fuel material and recycled or renewable sources, such as used cooking oil.

“It is 40 to 50 to 60 per cent more expensive in material terms. We don’t pass that on to the consumer. It comes out of our Ebit [operating profit] line,” said Christiansen.

He added that Lego was trying to stimulate demand among plastics producers to increase the supply of greener raw materials by buying significant volumes of the resin made from mass-balance sources, up from 18 per cent last year.

Christiansen said he was now “more comfortable” with the toymaker’s 2032 goal of making all of its products from renewable and recycled materials. Lego’s studded bricks are highly durable and strong but the Danish group’s founding family and chief executive have committed to eliminating oil and other fossil fuels from its supply chain, despite the higher costs, because of the product’s role predominantly as a child’s toy.

Lego has suffered some large setbacks, such as last year abandoning its most high-profile attempt to find a fossil-free alternative to its main plastic by using recycled plastic bottles. It found that the new material would in fact lead to higher emissions because of issues such as a need to retool all its factories.

The group is investing heavily in both sustainability and boosting its production facilities with new factories in the US and Vietnam after a period of extraordinary growth. Lego said on Wednesday that its revenues in the first half increased by 13 per cent to DKr31bn ($4.7bn) while operating profit rose by 26 per cent to DKr8.1bn. Both were records and double the equivalent from the first half of 2020. Christiansen said the broader toy market declined by 1 per cent in the first six months of this year, meaning Lego had taken “immense” market share.

He credited Lego’s tie-up with the Fortnite video game and a product line on space for the company’s growth.

But he added: “If you look at a result like this it’s not like I can point to one country or one product; it’s across the board. It’s not one initiative, one silver bullet. The Lego brand globally is performing very well.” Lego has recovered from a brush with bankruptcy two decades ago to become the world’s largest toymaker by sales and profitability.

It is increasingly viewing the likes of Disney as a competitor because of its movies, theme parks and apps. The toymaker has attracted new customers thanks to products such as flower bouquets and large-scale models of football stadiums as well as its partnership with Epic Games, the maker of Fortnite, which Christiansen credited with bringing in more digitally savvy children.

He added that Lego’s competition was anything that placed demands on “children’s time and all the different parts of kids’ play”, pointing to its forays into apps as well as theme park rides. “It’s the totality,” he added.

Courtesy: www.ft.com