Toymaker Brio facing financial train wreck

Swedish wooden toymaker Brio, famous for its small, multicoloured train sets, is teetering on bankruptcy, the company announced on Tuesday.

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"Brio is in a serious situation and the board deems that the group will shortly face an acute liquidity shortage," the Swedish company, which also makes children's furniture and baby carriages, said in its 2008 earnings statement.

"Due to the lack of profitability, one-off costs and the existing need for refinancing, the board deems it necessary for Brio to receive a capital injection of a minimum of 300 million kronor ($43 million)," it added.

Brio, which for the past decade has struggled with significant structural problems, has for many years under-invested in product development and has lost market share "despite its strong brand," the company acknowledged.

"More resources and time have been required than initially estimated to remedy the internal problems and to establish Brio's new position on the market. This has resulted in the group's shareholders equity being all but utilized," it said.

The Swedish company posted a fourth-quarter net loss of 71.5 million kronor, compared to a loss of 8.0 million a year earlier, as its sales dropped six percent to 303.7 million kronor.

For all of 2008, Brio posted a net loss of 75.3 million kronor compared to a net loss of 82.6 million a year earlier, while its net sales slipped from 930 million kronor in 2007 to 892.5 million last year.

"Brio has a pessimistic outlook in terms of consumer trends over the coming years," it said.

"This will probably put extra pressure on the entire industry, which will lead to an increased operating capital requirement for Brio," it said, adding that its "high rate of debt inhibits Brio's possibility of successfully carrying out the restructuring and development necessary."

Following Tuesday's report, trading in Brio shares was suspended on the Stockholm stock exchange.

The company, which is majority owned by the Swedish investment fund Proventus, replaced its chief executive at the beginning of January after laying off 30 of its 400 employees at the end of last year.