Annual Report

1 | LEGO GROUP

S P R E A D I N GCREATIVITY

Annual Report 2012

2 | LEGO GROUP 3 | LEGO GROUP

Stockholder’s Letter

Financial Highlights

Management

Income Statements

Balance Sheets (mDKK)

Statement of changes

Changes in Equity

CONTENTS

Curiosity asks, ”Why?” and imagines explanations or possibilities (if.. then). Playfulness asks what if? and imagines how the ordinary becomes extraordinary, fantasy or fiction. Dreaming it is a first step towards doing it. Free play is how children develop their imagination – the foundation for creativity.

Creativity is the ability to come up with ideas and things that are new, surprising and valuable. Systematic creativity is a particular form of creativity that combines logic and reasoning with playfulness and imagination.

S P R E A D I N GCREATIVITY

Goals & Progress

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6

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12

10

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Report on Consolidated Financial StatementsWe have audited the Consolidated Financial Statements and the Parent Company Financial Statements of LEGO A/S for the financial year 1 January to 31 December 2011, which comprise income statement, balance sheet, statement of changes in equity and notes including summary of significant accounting policies for both the Group and the Parent Company, as well as statement of comprehensive income and cash flow statement for the Group. The Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and any further disclosure requirements of the Danish Financial Statements Act, and the Parent Company Financial Statements are prepared in accordance with the Danish Financial Statements Act.

Management’s Responsibility for the Consolidated Financial Statements and the Parent Company Financial StatementsManagement is responsible for the preparation of Consolidated Financial Statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and further Danish disclosure requirements in accordance with the Danish Financial Statements Act and for preparing Parent Company Financial Statements that give a true and fair view in accordance with the Danish Financial Statements Act. Further Management is responsible for such internal control as Management determines is necessary to enable the preparation of Consolidated Financial Statements and Parent Company Financial Statements that are free from material misstatement, whether due to fraud or error.

Auditor’s ResponsibilityOur responsibility is to express an opinion on the Consolidated Financial Statements and the Parent Company Financial Statements based on our audit. We conducted our audit in accordance with International Standards on Auditing and additional requirements under Danish audit regulation. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the Consolidated Financial Statements and the Parent Company Financial Statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Consolidated Financial Statements and the Parent Company Financial Statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Consolidated Financial Statements and the Parent Company Financial Statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation of Consolidated Financial Statements and Parent Company Financial Statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the Consolidated Financial Statements and the Parent Company Financial Statements.

STOCKHOLDER’S LETTERWe believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. The audit has not resulted in any qualification.

OpinionIn our opinion, the Consolidated Financial Statements give a true and fair view of the Group’s financial position at 31 December 2011 and of the results of the Group’s operations and cash flows for the financial year 1 January to 31 December 2011 in accordance with International Financial Reporting Standards as adopted by the EU and further Danish disclosure requirements in accordance with the Danish Financial Statements Act.

Moreover, in our opinion, the Parent Company Financial Statements give a true and fair view of the Parent Company’s financial position at 31 December 2011 and of the results of the Parent Company’s operations for the financial year 1 January to 31 December 2011 in accordance with the Danish Financial Statements Act.

Statement on Management’s ReviewWe have read Management’s Review in accordance with the Danish Financial Statements Act. We have not performed any procedures additional to the audit of the Consolidated Financial Statements and the Parent Company Financial Statements. On this basis, in our opinion, the information provided in Management’s Review is consistent with the Consolidated Financial Statements and the Parent Company Financial Statements.

Niels JacobsenMogens Norgaard MogensenState Authorized Accountant

Henrik KraghState Authorized Public Accountant

Billund, 21 February 2012PricewaterhouseCoopersStatsautoriseret Revisionspartnerskab


FINANCIAL HIGHLIGHTS The LEGO Group(mkDKK) 2012 2011 2010Income statement Revenue 18,731 16,014 11.661 Expenses 13,065 10,899 8,659 Operating profit 5,666 4,973 2,902 Financial income and expenses (124) (84) (15)Profit before income tax 5,542 4,889 2,887Net profit for the year 4,160 3,718 2,204

Balance sheetTotal assets 12,904 10,972 7,788Equity 6,975 5,473 3,291 Liabilities 5,929 5,499 4,497

Cash flow statementCash flows from operating activities 3,828 3,744 2,712Investment in property, plant 1,451 1,077 1,042Investment in intangible assets 129 123 216Cash flows from financing activities 2,519 3,477 906Total Cash Flows 233 871 558

EmployeesAverage number(full-time) 9,374 8,365 7,286

Financial ratios (in%)Gross margin 70.5 72.4 70.3Operating margin(ROS) 30.2 31.1 24.9Net profit margin 22.2 23.2 18.9Return on Equity(ROE) 66.8 84.8 82.3Return on invested capital (ROIC 1) 133.4 161.2 139.5Return on invested captial (ROIC 2) 134.2 157.9 138.0Equity ratio 54.1 49.9 42.3

“It is a highly satisfactory result reflecting in a solid growth in profit. Growth in the North American Market continued undiminished, and also in most European and Asian markets we were able to report double digit increases in sales.”

Jorgen Vig Knudstorp, LEGO group CEO

FINANCIAL HIGHLIGHTS 8thyear of continued

17%

Operating Profit Yearly Profit

1.214 billion

2012981 million

2011

Group Equity

Sales increased

$3.5 billion from $2.85 billion in 2011

X1,000 happy new employees as a result of increased sales in 2011.

776 million

2012661 million

2012884 million

20121.057 billion

2012

Global Market Shareincreased to 7.1%


MANAGEMENTMANAGEMENT’S STATEMENTThe Management Board and the Board of Directors have today considered and adopted the Annual Report of LEGO A/S for the financial year 1 January – 31 December 2011.

The Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU, and the Financial Statements are prepared in accordance with the Danish Financial Statements Act. Moreover, the Consolidated Financial Statements and the Financial Statements are prepared in accordance with additional Danish disclosure requirements for Financial Statements. Management’s Review is prepared in accordance with the Danish Financial Statements Act.

In our opinion, the Consolidated Financial Statements and the Financial Statements give a true and fair view of the financial position at 31 December 2011 of the Group and the Company and of the results of the Group and Company operations and consolidated cash flows for the financial year 1 January - 31 December 2011.

In our opinion, Management’s Review includes a true and fair account of the development in the operations and financial circumstances of the Group and the Company, of the results for the year and of the financial position of the Group and the Company as well as a description of the most significant risks and elements of uncertainty facing the Group and the Company.

Board of Directors

Management Board

Jorgen Vig Knudstorp

Thomas Kirk KristiansenEva Berneke

Kare ShultzSoren Thorup Sorensen

Torben Ballegaard SorensenNiels Jacobsen

MANAGEMENT’S REVIEW2011 was a year of continued strong growth for the LEGO Group. The sale of LEGO® products grew considerably all over the world, and the Group’s earnings increased.

Intellectual capital resourcesThe average number of full-time employees was 9,374 in 2011 against 8,365 in 2010. The increase is attributable to the large increase in activities in connection with the considerable sales growth.

The continued growth in the number of employees places high demands on the Group in respect of recruiting, welcoming and introducing new employees. Therefore, high priority was given to these activities also in 2011.

An important condition for the continued success of the LEGO Group is the continuous development of the skills of LEGO employees. Therefore, both talent development and general competence development are very important elements of the Group’s People and Culture strategy.

All employees in the LEGO Group are comprised by a Performance Management Program (PMP). This Program ensures that the goals set for the performance of the employees relate directly to the overall objectives of the Group. On a current basis during the year, the manager and the employee follow up on whether the goals are achieved. A differentiated bonus scheme is attached to the Program. A total evaluation of the employee’s performance compared with the defined goals, which is carried out at year end, decides the amount of bonus for each individual employee.

Since 2007 the LEGO Group has doubled in size and insourced the majority of its manufacturing. As a result, the size and complexity of the organization has grown. Toremain resilient, the LEGO Group has in 2011 simplified its organizational set up and created new coherence in its operations. The aim is to create stronger collaboration in the core marketing and operations processes. As a consequence, the Group expects to be more scalable and adaptable to the challenges facing the business, such as growth in emerging markets, and the digitalization of the business.

Research and development activitiesEach year, new launchings account for approximately 60 percent of the LEGO Group’s sales to consumers. Therefore, the Group has considerable development activities, comprising anything from trend spotting and anthropological studies to the actual development of specific products and campaigns. Approximately 140 designers from about 20 different countries make up the creative core of product development.

Moreover, the LEGO Group cooperates with a number of educational institutions concerning various research projects within, among other things, children’s play and new technologies.

Financial income and expensesNet financials amounted to an expense of DKK 124 million in 2011 against an expense of DKK 84 million in 2010.

Corporation taxCorporation tax amounts to DKK 1,382 million against DKK 1,171 million the year before. The effective tax rate for the year is 25 percent, against 24 percent in 2010.

StainabilityIn 2003, as the first company in the toy industry, the LEGO Group signed the UN Global Compact. This was a confirmation of the many years’ support of human rights, labour standards and the environment. Global Compact has later been extended to include anti-corruption.

The LEGO Group confirms its support to Global Compact. The LEGO Group issues Progress Report 2011 describing how the LEGO Group is working within the areas of human rights, labour standards, the environment and anti-corruption. The Progress Report 2011 thus constitutes the statutory statement of social responsibility pursuant to section 99 a of the Danish Financial Statements Act. The Progress Report 2011 also describes the LEGO Group’s efforts to achieve its goals.


GOALS & PROGRESSFIVE OVERALL GOALSZero Product RecallsZero product recalls has been a target for the LEGO Group for many years and is a prerequisite for doing business. We met this target in 2010 and this target will remain our ambition going forward. This target was reached in 2010; no product recalls were made.

Top 10 on Employee SafetyAs we have an ambition to pioneer safety for our employees, we took on the target of becoming among the top 10 companies globally in this area. Our target is a 2015 injury rate of 0.6 injuries per million working hours (compared to our target for 2009 of 6.0 per million working hours). We will continuously work towards achieving our long-term target of 0.6 per million working hours in 2015. The result for 2010 was an injury rate considerable lower than 2009 at 3.0 injuries per million working hours compared with our 2010 target of 5.0.

Support learning for 101 million childrenSupporting children’s right to grow is the essence of what the LEGO Group is all about. In an effort to define a quantitative target, we set our support for children’s development through the number of children we reach – through sales (100 million children in 2015) and through reaching out to underprivileged children for whom LEGO products are financially out of reach by providing significant charitable contribution. We supported learning to approx. 55 million children in 2010 and thereby met our short-term target for 2010. We will continuously work towards achieving our long-term target of reaching 101 million children in 2015. The targets for 2010 were to reach respectively 55 million and 382,000 children. The targets were met.

Minimum 100 percent renewable energyWe have defined a 2020 plan for renewable energy. The 2015 target is to use a minimum of 50 percent renewable energy, increasing to 100 percent in 2020. We also strive to continuously improve our energy efficiency. We met our short term target for 2010 on energy efficiency and started to outline our path to full independence on fossil energy in 2020. In 2010 we joined WWF, the UN Global Compact, and the Global Wind Energy Council as the founding partners to establish a standard for the first consumer label for renewable energy: WindMade.

Zero wasteWe have defined a target of zero waste. This target is part of our vision to create more environmentally friendly products, as well as to recycle waste. We reached our target for recycling our own waste and started initiatives to reduce waste in the LEGO Group value chain. 87 percent of waste was recycled; the target was 80 percent.

OUR GROWTH• Revenue has grown by 105 percent since 2006.

• We are approximately 4,900 colleagues more than in 2006.

• We paid DKK 939 million in corporate income taxes to our local communities.

ZEROproduct recalls and waste

T pTenCompany

55%Reduced our injury rate by

increase in colleagues

progess on long-term children’s learning goals

38%

12 | LEGO GROUP

Annual Report

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