Annual Report 2005
LEGO Group
VIKINGS Viking Fortress:
Toys R Us: On the annual list of the Hottest
New Toys for the 2005 holiday season
KNIGHTS KINGDOM:
Toy Industry Association: Boy Toy of the Year
STAR WARS:
Learning Express Toy Stores:
Best Products Award - Best Construction Toy
KNIGHTS KINGDOM, Castle of Morcia:
Canadian Toy Testing Council:
Children’s Choice Award 2005
TECHNIC Excavator:
National Parenting Center’s:
Seal of Approval Winner Spring 2005
Parents’ Choice:
Recommended Seal Spring 2005: Toys
TECHNIC Street Bike:
iParenting Media: 2005 Greatest Products Call
National Parenting Center’s:
Seal of Approval Winner Fall 2005
Parents’ Choice: Recommended Seal Fall 2005
CLIKITS Pretty in Pink Beauty Set:
Creative Child Magazine:
Seal of Excellence (Creative Play Category)
iParenting Media:
Best Products of 2005 Award - Toys & Games
CLIKITS Flashin’ Fashion Frame:
National Parenting Center’s:
Seal of Approval Winner Fall ‘05
CLIKITS Cool Carry All:
Dr. Toy: Best Vacation Products for 2005
CLIKITS Striped Sunny Jewels:
Dr. Toy: “Smart Play Smart Toy”:
Best Products of Excellence
RACERS Tiny Turbos:
Dr. Toy: Best Vacation Products for 2005
National Parenting Center’s:
Seal of Approval Winner Spring ‘05
Parents’ Choice:
Recommended Seal Spring 2005: Toys
RACERS Dirt Crusher:
Stiftung Warentest:
Test winner in the RC vehicle category
LEGOVILLE Fire Station:
Parents’ Choice: Approved Seal Fall 2005: Toys
DUPLO Dora & Diego’s Animal Adventure:
Dr. Toy: “Smart Play Smart Toy”: Product of Excellence
DUPLO Thomas Load & Carry Set:
National Parenting Center’s: Seal of Approval Winner Fall ‘05
PIRATES Captain Redbeard’s Pirate Ship:
iParenting Media: Best Products of 2005 Award
- Toys & Games
CREATOR Tub:
Dr. Toy: “Smart Play Smart Toy”: Product of Excellence
CREATOR Wild Hunter:
Creative Child Magazine: Preferred Choice Award
(Kids’ Builder Construction Category)
National Parenting Center’s:
Seal of Approval Winner Fall ‘05
Dr. Toy: Top 10 Best Active Products for 2005
Parents’ Choice: Recommended Seal Fall 2005
CREATOR Prehistoric Creatures, Designer Set:
Canadian Toy Testing Council:
Children’s Choice Award 2005
CITY Fire Station:
Dr. Toy: Best Vacation Toy for 2005
iParenting Media:
Best Products of 2005 Award - Toys & Games
National Parenting Center’s:
Seal of Approval Winner Spring ‘05
Parents’ Choice: Approved Seal Spring 2005:
Doing & Learning/Toy
Creative Child Magazine: Seal of Excellence (Kid’s
Builder Construction Category)
CITY Speed Boat:
iParenting Media:
2005 Excellent Products Call - Toys & Games
CITY XXL Mobile Crane:
Dr. Toy: “Smart Play Smart Toys”:
Product of Excellence
CITY Police Station:
National Parenting Center’s:
Seal of Approval Winner Fall ‘05
iParenting Media: 2005 Greatest Products Call
Grandparents Magazine: Best Building Toy 8 and under
Parents’ Choice: Approved Seal Fall 2005: Toys
DINO T-1 Typhoon vs. T-Rex:
iParenting Media: 2005 Greatest Products Call
Selected Product Awards 2005
Financial Highlights – LEGO Group
[
m
DKK
]
2005 2004 2003 2002 2001
Income Statement:
Revenue 7,050 6,315 6,792 9,601 9,000
Expenses (6,582) (6,252) (7,902) (8,795) (8,142)
Profit/(loss) before special items,
financial income and expenses and tax 468 63 (1,110) 806 858
Impairment of fixed assets 95 (723) (172) – –
Restructuring expenses (104) (502) (283) – (122)
Operating profit/(loss) 459 (1,162) (1,565) 806 736
Financial income and expenses (3) (75) 67 (189) (215)
Profit/(loss) before tax 456 (1,237) (1,498) 617 521
Profit/(loss) on continuing activities 331 (1,473) (953) 348 420
Profit/(loss) on discontinuing activities 174 (458) 18 (22) (54)
Net profit/(loss) for the year 505 (1,931) (935) 326 366
Balance Sheet:
Assets relating to continuing activities 7,689 5,657 10,049 12,560 14,093
Assets relating to discontinuing activities – 2,432 – – –
Total assets 7,689 8,089 10,049 12,560 14,093
Equity (incl. minority interest) 3,589 2,948 4,892 6,478 6,225
Provisions and debt relating to
continuing activities 4,100 4,731 5,157 6,082 7,868
Provisions and debt relating to
discontinuing activities – 410 – – –
Cash Flow Statement:
Cash flows from operating activities 1,057 774 944 1,853 1,227
Investment in property,
plant and equipment 265 457 709 1,264 1,478
Cash flows from financing activities (1,070) (29) (560) (1,003) 870
Total cash flows 2,549 538 (215) (290) 771
Financial ratios (in %):
Gross margin 58.0 57.7 61.3 70.0 65.4
Operating margin (ROS) 6.5 (18.4) (23.0) 8.4 8.2
Net profit margin 7.2 (30.6) (13.8) 3.4 4.1
Return on equity 18.1 (46.3) (16.7) 4.6 6.8
ROIC I 19.1 1.2 (12.8) 8.2 9.1
ROIC II 23.2 (23.6) (18.3) 8.2 7.8
Equity ratio 46.7 36.4 48.7 51.6 44.2
Equity ratio (incl. subordinated loan capital) 57.1 46.3 48.7 51.6 44.2
Employees:
Average number of employees (full time),
continuing activities 5,321 5,620 6,542 6,659 6,474
Average number of employees (full time),
discontinuing activities 1,322 1,725 1,756 1,657 1,184
Financial ratios are defined in Accounting Policies.
Comparative figures have been adjusted to reflect the changed classification of expenses relating to
”Contribution to Trade”.
REVENUE
[
m
DKK
]
2001 2002 2003 2004 2005
10.000
9.000
8.000
7.000
6.000
TOTAL ASSETS
[
m
DKK
]
2001 2002 2003 2004 2005
EQUITY RATIO INCL
.
SUBORDINATED LOAN CAPITAL
2001 2002 2003 2004 2005
60%
50%
40%
30%
20%
10%
0%
INVESTMENT IN PROPERTY
,
PLANT AND EQUIPMENT
[
m
DKK
]
2001 2002 2003 2004 2005
1.600
1.400
1.200
1.000
800
600
400
200
0
15.000
14.000
13.000
12.000
11.000
10.000
9.000
8.000
7.000
OPERATING PROFIT
/(
LOSS
)
[
m
DKK
]
2001 2002 2003 2004 2005
800
400
0
(400)
(800)
(1.200)
(1.600)
FREE CASH FLOW BEFORE
FINANCING ACTIVITIES
[
m
DKK
]
2001 2002 2003 2004 2005
4.000
3.500
3.000
2.500
2.000
1.500
1.000
500
0
(500)
CONTENTS
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
REPORT 2005:
MARKET AND RESULTS 2005
The market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Revenue and profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
RESULT OF THE ACTION PLAN FROM MARCH 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Fundamental change of processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Restoration of competitiveness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Rightsizing of activities, cost base and assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
The future strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1) Direct dialogue between the LEGO Group and
LEGO consumers to drive innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2) Strengthened approach to sales and distribution channels to drive
earnings and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3) Continued streamlining and optimisation of Group operations to
improve earnings and service level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ORGANISATIONAL STRUCTURE AND LEADERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Group structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Management team and organisational structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
New Board members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
EMPLOYEES AND CORPORATE CULTURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
A more result-oriented LEGO culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Focused Performance Management Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Developing talent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
CORPORATE RESPONSIBILITY OF THE LEGO GROUP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Global Compact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Revision of LEGO Group Code of Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Product quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Environmental obligations and action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Efforts to reduce workplace accidents and introduction of a global
occupational health and safety policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Charity work. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
EXPECTATIONS FOR 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ACCOUNTS:
Financial Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Accounting Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Management’s Statement on the Annual Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Income Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Cash Flow Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4 | ANNUAL REPORT 2005
Two years ago, the LEGO Group changed
its strategy in order to concentrate on its
core business: the LEGO brick and the
unique building system created around it.
All over the world, LEGO
®
has for genera-
tions given children and their families a
very special playing experience. The
LEGO brick stirs children’s imagination
and challenges their creativity through
fun and creative play. The children “pro-
gram” their play themselves, and their
parents feel secure - not least due to the
superior quality of the LEGO products.
The development on our markets in the
past year has justified our belief in the
uniquely lasting nature of these values.
This confirms the foundation for the
Group’s survival as an independent, fami-
ly-owned enterprise.
The results of the LEGO Group for 2005 –
a profit before special items and financial
income and expenses and tax of DKK 468
million, and a total profit before tax of DKK
702 million – were better than expected
and confirm that we are on the right track.
We therefore consider the results satis-
factory and appreciate the great efforts
made by the LEGO employees every-
where despite the uncertainty and the
changing conditions they are going
through.
The results reflect encouraging sales
increases in respect of the innovated,
classic LEGO products and larger cost-
savings than anticipated, whereas the
improvement of the Group’s financial
position is attributable to the sale of
assets and increased cash flows. The
sale of assets in both the continuing and
the discontinuing parts of the business
accounts for nearly half of the profit for
the year before tax.
Despite general low growth or an actual
decline on the global toy markets, the
LEGO Group enjoyed increased sales
and obtained increased market shares
on all significant markets. This was the
case on the largest toy market, the USA,
and also the German core market saw
considerable increases. Total Group sales
increased by approximately 12 per cent in
2005.
The LEGO Group’s total operating
expenses were reduced by DKK 314 mil-
lion, or 8 per cent, which is however set
off by increasing expenses for royalties,
bonus to employees and currency
effects. Impairment losses and restructur-
ing expenses amounted to DKK 9 million
in 2005.
The liquidity position has improved con-
siderably as the sale of activities and
assets, combined with improved earn-
ings, meant that the Group had financial
INTRODUCTION ■
ANNUAL REPORT 2005
| 5
LEGO Group on the right track
Kjeld Kirk Kristiansen
Vice-chairman
Jørgen Vig Knudstorp
President and CEO
Mads Øvlisen
Chairman
■ INTRODUCTION
6 | ANNUAL REPORT 2005
resources of DKK 2,604 million at the end
of the year. The Group’s equity incl. minori-
ty interests amounted to DKK 3,589 million
and the equity ratio was 47 per cent
against 36 per cent in 2004.
Consequently, the Group’s financial base
has improved considerably although the
earnings from continuing activities have
not yet reached a satisfactory level.
The market for traditional toys is materially
affected by discount products, and in
order to be competitive, we must be able
to manufacture high-quality toys at low
cost. Therefore, labour intensive produc-
tions have for some years taken place
partly in our factory in Kladno, the Czech
Republic, and partly at sub-suppliers, for
example in China. This necessary sourc-
ing process has further accelerated and
in 2005 meant that our factories in Korea
and - partly - in Denmark and Switzerland,
were closed down and the production
was transferred to Kladno and to suppli-
ers in Eastern Europe. The sourcing pro-
cess is expected to continue in the com-
ing years. Corporate Management con-
siders it very important to have an open
dialogue with the employees concerning
the challenges and their possible solu-
tions. Corporate Management has thus
promised to provide timely information on
the effects of the globalisation.
As part of our financial strategy, we sold
the majority shareholding in the LEGO-
LAND Parks to Merlin Entertainments
Group. A decision we were sad to make,
but which was necessary in order to
release financial and management
resources for the survival of the Group.
The LEGO Group and KIRKBI are minority
shareholders in the new enterprise, which
also comprises Merlin’s Sea Life, Dun-
geons and Earth Explorer family attrac-
tions. This was a good solution. The parks
are run by a professional operator, who is
able to create focus and synergy through
the operation of several parks. Moreover,
the parks still offer the special LEGO
experience, respecting the values and
quality level of the LEGO brand.
During the first two years following the
change of strategy, primary focus has
been directed at establishing operational
and financial control as well as stability.
These objectives have now been
reached; however, the new direction con-
tinues. We have not yet reached a safe
port of sustainable, value creating opera-
tions. We reached the goals set for this
year, but we aim at increasing our value
creation year by year. This is the shared
objective of the owners, the Board of
Directors and Corporate Management.
Therefore, the challenge during the next
three years continues to be to increase
the Group’s earnings. Earnings clearly
have priority over top line growth. Not until
the platform now created generates satis-
factory earnings the Group will turn
towards growth. In order to pilot the
Group in this direction, the Board has
decided to extend Corporate Manage-
ment and change and simplify the divi-
sion of responsibilities within Corporate
Management in order to increase focus
on both operational and strategic chal-
lenges in the coming three years. As from
February 2006, Corporate Management
will consist of Jørgen Vig Knudstorp, Pres-
ident and CEO, Jesper Ovesen, Executive
Vice President and Henrik Poulsen, Exec-
utive Vice President.
Considerable challenges are still facing
the LEGO Group and our employees, who
have - in this difficult, and for many also
personally insecure, situation - loyally sup-
ported the Group. The owners, the Board
and Corporate Management are very
grateful for the great effort made by the
LEGO employees during the year. We are
aware that these loyal employees are
among the Group’s most essential
assets, particularly in view of the challeng-
ing future facing the Group.
Billund, February 2006
Mads Øvlisen,
Chairman
Jørgen Vig Knudstorp,
President and CEO
REPORT 2005 / MARKET AND RESULTS 2005 ■
ANNUAL REPORT 2005
| 7
Market and Results 2005
The market
Most toy suppliers witnessed a difficult
year. A year characterised by the lack of
growth, increased supplies and keen
competition at the retail level where, for
example, the supermarket chains’ private
label products - often manufactured in
China - got more and more shelf space.
This trend is most obvious in the USA, the
United Kingdom and Scandinavia, but is
also gaining an impact on the continental
European market. The increasing compe-
tition at the retail level is felt through
increased pressure on prices and conse-
quently increased pressure on toy
manufacturers’ profit margin.
The consumers are still to an increasing
extent choosing the electronic products
instead of traditional toys. Moreover, child-
ren are today at a younger age losing
interest in traditional toys, which are being
replaced by other products, such as
mobile phones. This highly affects the
requirements relating to the product
range of traditional toy-makers. Further-
more, quickly changing fashion trends
among the children are still shortening
the market life cycle of traditional toys.
These development trends mean that toy
manufacturers are required to reduce the
product development time and increase
flexibility in order to maintain their position
on the market.
Although 2005 was a difficult year for the
entire toy industry, the LEGO Group man-
aged to increase its market shares on a
global basis. However, the trends in the
market still indicate considerable chal-
lenges.
Revenue and profit
The LEGO Group’s profit/loss before tax
was considerably improved in 2005 from
a loss of DKK 1,688 million in 2004 to a
profit of DKK 702 million in 2005. The
improvement of DKK 2,390 million is,
among other things, attributable to the
large impairments of fixed assets and the
restructuring expenses incurred by the
LEGO Group in 2004.
The profit/loss before special items, finan-
cial income and expenses and tax
improved from DKK 63 million in 2004 to
DKK 468 million in 2005. The improvement
is attributable to an increase in revenue of
12 per cent, corresponding to DKK 735
million, and at the same time the expens-
es, excluding royalties and bonus, were
reduced by 8 per cent. In view of the fact
that the year was affected by extensive
changes in the Group, and considering
the negative development in the market
for traditional toys, the results are consid-
ered satisfactory.
The development in sales of LEGO prod-
ucts from retailers to the consumers has
also been positive, with an average
increase of 9 per cent compared with
2004. Retailers have reduced their inven-
tories of LEGO products considerably in
2005, and the mix of inventories held by
retailers at the end of the year has
become healthier.
The increasing sales are also attributable
to a better and closer dialogue with retail-
Report 2005
Jørgen Vig Knudstorp,
President and CEO
■ REPORT 2005
8 | ANNUAL REPORT 2005
ers than in previous years, and conse-
quently a better possibility of meeting the
wishes and needs of the retailers.
Products
The increased focus on the LEGO
Group’s core products has had a positive
effect on the results for 2005. The list of
the year’s biggest-selling products
includes classical themes such as LEGO
City, LEGO Vikings and Mobile Crane
from LEGO Technic as well as Ferrari
models from LEGO Racers. An important
element in the focus on core products
has been the ’pre-school’ area with the
reintroduction of the DUPLO line. Classic
products such as DUPLO Airport, DUPLO
Zoo, DUPLO Princess Castle and DUPLO
Knights have contributed to the extensive
growth of the DUPLO line.
The BIONICLE line is still the LEGO Group’s
biggest-selling theme. However, sales did
not live up to expectations in 2005. Two
new market-tuned themes, Vikings and
Dino, both surpassed expectations in
2005, whereas one of the Group’s girls’
products, CLIKITS, saw a decline in sales
compared with 2004 despite several years’
intense efforts in connection with the
launching of the product. Consequently,
the Group will not launch any new CLIKITS
products after 2006.
As in previous years, the LEGO Group has
acquired the rights to manufacture con-
struction toys tying in with cinema films. In
2005 especially
Star Wars™
was a great
success, and - second only to the Bio-
nicle line - the various
Star Wars
prod-
ucts were the LEGO Group’s biggest-sell-
ing product line in 2005. Another success
was the launching of a new
Star Wars
computer game, which – in accordance
with the LEGO Group’s strategy of focus-
ing on core products - took place in
cooperation with an external partner. The
Star Wars
computer game sold more
than 3 million copies and entered the top
10 of computer games sold in the USA.
Result of the Action Plan
from March 2004
At the beginning of 2004, the LEGO
Group faced large challenges which
jeopardised the Group’s survival as an
independent, family-owned enterprise.
The Action Plan for the last two years has
resulted in stability and a considerable
reduction of financial risks.
In the Action Plan, the LEGO Group Board
and LEGO Group Leadership Team
emphasised three main themes:
1. Set clear direction for the LEGO Group
and fundamentally change the way we
do business.
2. Restore competitiveness by focusing
on customers, in particular their profit-
ability.
3. Reduce the level of risk by rightsizing
our activities, cost base and assets to
a lower revenue base.
Fundamental change of processes
The year 2005 primarily focused on fun-
damentally improving the Group’s opera-
tion and processes. The first part of the
extensive restructuring of the value chain
was carried through, as the LEGO Group
Leadership Team decided to move the
production activities from Switzerland to
Eastern Europe and to centralise the
European distribution centres in the
Czech Republic. This is expected to lead
to increased efficiency, improved servic-
ing of the European market and cost sav-
ings. At the same time, the number of
components for the various LEGO mod-
els was reduced, which made the value
REVENUE SPLIT 2004
Americas and Pacific - 28%
Europe, Asia and Emerging - 58%
Direct to consumer - 9%
Other - 5%
REVENUE SPLIT 2005
Americas and Pacific - 27%
Europe, Asia and Emerging - 59%
Direct to consumer - 10%
Other - 4%
REPORT 2005 / RESULT OF THE ACTION PLAN FROM MARCH 2004 ■
ANNUAL REPORT 2005
| 9
■ REPORT 2005
10 | ANNUAL REPORT 2005
chain more flexible and resulted in cost
reductions.
A number of new management process-
es were established, including processes
to improve profitability calculations relat-
ing to both customers and products. The
effort to improve the Group’s processes
also resulted in a more precise produc-
tion planning process which better
ensures the possibility of adjusting the
production capacity to customer
demand. Furthermore, the product devel-
opment process has undergone funda-
mental changes so that the product
development time from the birth of an
idea to the finished product has been
reduced and, for several products, even
halved.
Restoration of competitiveness
The relations to key customers all over
the world were strengthened, and a clos-
er dialogue as well as an extensive cus-
tomer satisfaction analysis increased the
LEGO organisation’s knowledge of the
customers’ priorities and their attitude
towards possible improvements relating
to the LEGO Group. Based on this knowl-
edge, a number of measures have been
initiated, including efforts to increase the
individual customer’s profitability. More-
over, the Group’s sales force has been
strengthened through competence
development and improved processes
(the KAM improvement project). The
increased focus on core products and
the introduction of new product lines
have furthermore resulted in a better bal-
ance in the product portfolio between the
classic lines and more ‘fad-driven’ prod-
ucts.
The strengthening of competitiveness is
reflected by the favourable development
in the LEGO Group’s market shares and
earnings. Similarly, a number of the
Group’s customers have enjoyed better
earnings driven by increased sales of
LEGO products, a better profit margin
and an increased rate of inventory turn-
over.
Rightsizing of activities,
cost base and assets
The reduction of risks through the right-
sizing of activities, cost base and assets
continued in 2005. It was decided to out-
source the production of selected pro-
duct lines, such as Bionicle boxes and
the entire DUPLO range, and the Group’s
own tool factory in Switzerland was sold.
Moreover, considerable cost-savings in all
the functions of the Group have had full
impact in 2005 as a consequence of
measures initiated in 2004. Due to these
measures, the Group’s underlying costs
were reduced by a further DKK 314 million
in 2005 compared with 2004. Since 2003
the cost level has been reduced by more
than DKK 1,600 million. The Group’s total
assets were reduced by nearly DKK 5 bil-
lion in the same period.
As planned, the LEGO Group sold a num-
ber of assets in 2005, including land,
sales and production facilities in the USA,
Australia and Korea as well as company
aircraft. Towards the end of the year, all
the Group’s production facilities in Swit-
Søren Torp Laursen
Senior Vice President
Americas, Australia
& New Zealand
REPORT 2005 / RESULT OF THE ACTION PLAN FROM MARCH 2004 ■
ANNUAL REPORT 2005
| 11
zerland were put up for sale and are
expected sold in 2006. Moreover, the
Group sold off two business activities in
2005, KOMPAN A/S and the LEGOLAND
Parks.
The sale of the LEGOLAND Parks was
decided in the autumn of 2004, as the
parks constituted a business area which
did not directly tie in with the core busi-
ness of the LEGO Group. The sale was
carried through in July 2005 and was
finally approved by the competition
authorities on 24 August 2005. The buyers
were Blackstone Capital Partners in
cooperation with Merlin Entertainments
Group, which owns and runs Sea Life,
Dungeons and Earth Explorer. These
attractions are based on the same funda-
mental values as LEGOLAND and have
proved very successful within the enter-
tainment industry.
The transaction was carried through by
merging the LEGOLAND Parks into a new
company together with Merlin Entertain-
ments Group. Together with KIRKBI, the
LEGO Group holds 30 per cent of the
share capital in the new company. The
sales price for the Parks amounted to
nearly DKK 2.8 billion. Net proceeds for
accounting purposes amounted to DKK
200 million.
The sale contributed to the financial posi-
tion of the Group being improved from a
net interest-bearing debt of more than
DKK 3,000 million in 2002 to positive net
liquidity of DKK 1,292 million at the end of
2005. By implementing the Action Plan,
the Group has thus succeeded in estab-
lishing a considerably improved financial
base.
The financial position stabilised in the
course of 2005. However, the LEGO
Group is still facing considerable strate-
gic challenges, including increasing com-
petition at the retail level, competition
from electronic products and the trend
that children are losing interest in toys at
a younger age. Challenges which should
all be addressed in the prospective strat-
egy in order to ensure long-term survival,
growth and lasting value creation for the
Group.
The future strategy
The overall objective of the Action Plan
was to return the LEGO Group to profit-
ability and financial stability and at the
same time keep the Group in the private
ownership of the Kirk Kristiansen family.
As a natural continuation of the plan for
the period 2004-2005, LEGO Group Lead-
ership Team in 2005 developed a strategy
addressing future challenges.
The strategy is based on a number of
“assets” and values which differentiate the
LEGO Group from other players on the
toy market. The inheritance and history of
the LEGO Group play a decisive role, and
the three classic LEGO values - “Creativ-
ity”, “Fun” and “Quality” - will form the future
basis of the Group, together with its
unique “assets”: the brick, the modular
construction system, the LEGO brand,
LEGO’s loyal consumers and “commu-
nities”. Moreover, the Group’s direct
■ REPORT 2005
12 | ANNUAL REPORT 2005
access to consumers in the form of own
direct sales to consumers and a strong
position as a key partner to retailers is
considered a very important asset.
The Group’s objective in the coming three
years will therefore be to deliver creative
quality toys to core consumers and retail-
ers at a satisfactory profit by refocusing
on the Group’s lasting values and unique
assets. This means that, in the period
2006-2008, the LEGO Group will focus on
improving value creation by still focusing
on the Group’s special “assets”. In that
period, earnings and return on assets are
given higher priority than sales growth.
1) Direct dialogue between
the LEGO Group and LEGO
consumers to drive innovation
A closer relationship should be estab-
lished between LEGO and the consu-
mers. For example, loyal LEGO fans
should be serviced through a number
of measures, such as LEGO Factory. It is
the ambition that product development
and process improvements should take
place in close dialogue with LEGO fans,
who should through different channels
have the possibility of presenting ideas
to the Group’s designers.
The many adult LEGO enthusiasts all
over the world, comprising an increas-
ingly active group of fans, should also
be involved. The Ambassador Pro-
gramme is an official programme
which invites adult LEGO fans to share
their enthusiasm for the LEGO idea
and LEGO products and encourages
interaction in the global LEGO commu-
nities. Moreover, the LEGO Certified
Professionals programme caters for
adult fans who, wholly or partly, live by
their LEGO hobby and therefore wish
to enter into cooperation with the
LEGO Group.
2) Strengthened approach to sales and
distribution channels to drive earn-
ings and sales
The effort of creating extraordinary
value for retail customers should con-
centrate on more efficiently meeting
the wishes and requirements of the
retailers. The Group will continue to
focus on ensuring that the product
portfolio will, on a future basis, consist
of innovative products and new cate-
gories, supplemented with marketing
measures in order to support retail
sales.
3) Continued streamlining and optim-
isation of Group operations to
improve earnings and service level
The new strategy will focus on continu-
ing the modernisation, rightsizing and
optimisation of operating processes.
The objective is, among other things
through outsourcing, to ensure materi-
al improvement of the LEGO Group’s
supply performance at a lower cost.
This effort will strengthen the two other
focus areas of the strategy, as retail
customers will enjoy increased flexibil-
ity, and the consumers will see that
their demand can be met more effi-
ciently.
In the long term, i.e. from 2009 and
onward, there will be focus on creating
moderate growth through the intensified
innovative efforts initiated.
Organisational Structure
and Leadership
Group structure
In the continued efforts to simplify the
structure and adjust the business devel-
opment of the LEGO Group, a number of
subsidiaries were sold within the Group in
Mads Nipper
Senior Vice President
Product- &
Marketing Development
ANNUAL REPORT 2005 | 13
REPORT 2005 / ORGANISATIONAL STRUCTURE AND LEADERSHIP ■
■ REPORT 2005
14 | ANNUAL REPORT 2005
2005 and the ownership was transferred
from Swiss to Danish ownership.
Moreover, as planned the Group’s direct
ownership and operation of the LEGO-
LAND Parks were sold and replaced by a
considerably smaller financial investment
in the form of an ownership share of 15
per cent. (The Group structure is shown
on the cover of the Annual Report.)
Management team
and organisational structure
In order to secure the successful imple-
mentation of the LEGO Group’s strategy,
a new organisational structure was intro-
duced in February 2006 with the estab-
lishment of three main divisions. The inte-
grated market and product development
organisation, the ”Markets & Products”
division, is to focus on creating value for
the customers (the retailers) and at the
same time ensure a higher degree of
innovation in product development driven
by consumer demand and a close dia-
logue with the dealers.
The division “Community, Education and
Direct” is to develop the Group’s existing
and new direct-to-consumer sales chan-
nels and ensure that the unique LEGO
communities are catered for through
direct dialogue. At the same time, this divi-
sion is to ensure that future innovation is
based on the Group’s thorough knowl-
edge of consumer needs and, where
possible, actual cooperation should be
entered into with the consumers.
In order to ensure optimal operation and
efficiency, all supplies of products via the
value chain as well as supplies of servic-
es via support functions, i.e. Supply Chain
and Central Functions, will now be united
in the division “Operations”.
Besides the establishment of the three
main divisions, Corporate Management,
comprising Jørgen Vig Knudstorp, Presi-
dent and Chief Executive Officer (CEO),
and Jesper Ovesen, Executive Vice Presi-
dent and Chief Operating Officer (COO)
(responsible for Supply Chain and Central
Functions), has been strengthened
through the appointment of Henrik Poul-
sen as Executive Vice President respon-
sible for Sales, Product Development and
Marketing.
At the same time, the existing LEGO
Group Leadership Team was dissolved.
The changes in the organisation are
intended to ensure that Corporate Man-
agement will be able to focus on the stra-
tegic direction of the Group, while the
three Division Management Teams have
been authorised to be in charge of day-
to-day operations.
New Board members
At the General Meeting of LEGO Holding
A/S on 2 May 2005, two new Board mem-
bers were appointed.
The new members are Armin F. Broger,
COO of Tommy Hilfiger in Europe, and
Torben Ballegaard Sørensen, CEO of
Bang & Olufsen, replacing Anders
Moberg and Lars Kann-Rasmussen, who
wished to retire from the Board.
Employees and
Corporate Culture
In order to support the successful imple-
mentation of the strategy, 2006 will focus
on strengthening personal leadership
throughout the organisation and on fur-
ther developing competences within sup-
ply chain, key account management and
innovation. Moreover, efforts were made in
2005 to establish a flatter organisation with
a simpler management structure in order
to ensure a more streamlined, responsive
Henrik Poulsen
Executive Vice President
Markets, Product develop-
ment & Marketing
REPORT 2005 / EMPLOYEES AND CORPORATE CULTURE ■
ANNUAL REPORT 2005
| 15
■ REPORT 2005
16 | ANNUAL REPORT 2005
and profitable group. This work will contin-
ue in 2006. Furthermore, the Group’s
incentive-based remuneration scheme
will be further strengthened in order to
continue the efforts towards a more result-
oriented culture within the Group.
A more result-oriented LEGO culture
Also in 2005, the Group worked on direct-
ing the LEGO Group towards a more
result-oriented culture. In order to do so, it
was necessary to modernise and
change communication between man-
agement and employees, promote busi-
ness understanding among the employ-
ees and focus on motivation, develop-
ment and performance-based remunera-
tion to the employees.
The Group is in a process of consider-
able change, which places heavy
demands on the entire organisation. It is
difficult having to face a future where all
employees have to constantly live with
large - internal as well as external - chal-
lenges and changes, without enjoying the
job certainty previously characterising the
LEGO Group.
Corporate Management is therefore work-
ing on ensuring open, honest and timely
communication in all situations. Together
with the introduction of many new dia-
logue possibilities between Corporate
Management and the employees, this
forms the basis of increased understand-
ing of the challenges facing the Group.
Focused Performance
Management Program
For the first time in three years, the LEGO
Group is able to pay Performance Man-
agement Programme (PMP) bonuses to
the employees. The Performance Man-
agement Programme in 2006 has been
simplified and targeted to support the
Group’s strategy for the coming years
and provide the individual employee with
further incentives and possibilities for rec-
ognition of their efforts. The Performance
Management Programme is also intend-
ed to promote the understanding of how
the individual employee may contribute
to the Group’s results and to improve indi-
vidual targets.
Developing talent
During 2005 the LEGO Group still
focused on developing leadership talent.
The objective of this effort is to motivate
and retain high-potential employees and
thus ensure continuity and consistency in
the future leadership of the Group.
Corporate responsibility
of the LEGO Group
Social responsibility towards consumers,
employees and the environment plays a
central role in the LEGO Group’s inheri-
tance and history. Corporate Manage-
ment feels strongly about ensuring that
the Group will also in future maintain this
commitment and that the Group’s activ-
ities and processes are carried out on a
sustainable basis. Therefore, in 2005 the
LEGO Group initiated the preparation of
its first coherent sustainability strategy,
which is expected approved and imple-
mented in the course of 2006. This will
Jesper Ovesen
Executive Vice President
Supply Chain &
Central Functions
REPORT 2005 / CORPORATE RESPONSIBILITY OF THE LEGO GROUP ■
ANNUAL REPORT 2005
| 17
involve increased information and training
of employees and leaders.
Global Compact
The LEGO Group joined the UN Global
Compact in 2003 as the first - and so far
only - enterprise in the toy industry. As a
participant in Global Compact, the LEGO
Group is obliged to continue its work
within the four areas: human rights, labour
standards, environment and the fight
against corruption. In 2005 the LEGO
Group integrated the principles from Glo-
bal Compact into a number of group pol-
icies, so that these reflect the principles
and ideals expressed in Global Compact
and a number of international declara-
tions, for example the UN Declaration of
Human Rights. Particularly as regards the
fight against corruption, Corporate Man-
agement decided in the autumn of 2005
to initiate a project with the objective of
developing and specifying internal guide-
lines for business integrity. The project will
be carried through in 2006.
Revision of
LEGO Group Code of Conduct
The LEGO Group Code of Conduct is a
set of guidelines on the behaviour
expected of the Group and its suppliers
in relation to a number of ethical stan-
dards in decisive areas.
The comprehensive optimising and cost
reduction in the LEGO Group value chain
will result in the relocation, in whole or in
part, of production in the coming years.
Ethical risk analyses were therefore pre-
pared in respect of the countries of the
potential suppliers. This was done in
order to determine whether the Group’s
Code of Conduct sufficiently covered any
new issues that may arise in connection
with the transfer of workplaces to these
countries. This resulted in a revision of the
Code of Conduct in 2005 and a change
of procedures so that new, potential key
suppliers will be subjected to examination
before an actual agreement is signed.
The LEGO Group moreover participates
in the work within the toy industry of
ensuring that working conditions etc. with
the suppliers fulfil a number of minimum
requirements. This work is carried out
under the ICTI-CARE programme. Howev-
er, so far this only applies to China, Hong
Kong and Macau.
In 2005 the number of audits was
reduced from 92 audits in 2004 to 27 aud-
it visits and 12 follow-up visits. The reduc-
tion is attributable partly to the transfer of
the responsibility for the audits to the
licence partners of the LEGO Group, and
partly to the introduction of ICTI-CARE
approval of toy suppliers in China. This
has resulted in considerable cost-savings
and the possibility of using more resourc-
es on follow-up and direct contact with
suppliers.
Product quality
The LEGO Group wants to ensure contin-
ued high product quality and has there-
fore revised its policy for the choice of
materials in 2005. In this connection, the
restrictions in respect of the use of PVC
and phthalates have been specified.
■ REPORT 2005
18 | ANNUAL REPORT 2005
Consequently, the decorative paint used
on play materials has been improved so
that, like the LEGO bricks, it contains no
phthalates. Moreover, closer cooperation
has been introduced between the cus-
tomer service call centres and Product
Development so that consumer com-
ments and wishes are to an even higher
degree taken into consideration in the
product development process.
Environmental obligations and action
It remains LEGO Group policy that envi-
ronmental considerations must be taken
into account in all relevant processes,
and that continuous efforts should be
made to minimise any environmental
impact caused by the Group’s activities.
In 2005 the LEGO Group drew up a new
environmental policy which meets envi-
ronmental requirements, both globally
and locally. The policy will be approved
and implemented in 2006. The LEGO
Group continues to work towards global
implementation of the environmental
management system ISO 14001. In 2005
global procedures and requirements
were developed, and a new environmen-
tal management intranet was established
to improve and simplify the Group’s com-
munication concerning environmental
requirements, both locally and globally.
In Billund a system for the registration of
waste was developed and implemented
in 2005. A system for registering additives
has also been implemented. All sub-
stances have been mapped, and a new
system for directions for use has been
implemented.
Moreover, in 2005 the Group obtained
environmental approval of the plastic
moulding factory at Kornmarken, Billund.
The approval was granted by the Munici-
pality of Billund.
Efforts to reduce workplace accidents
and introduction of a global occupa-
tional health and safety policy
The health and safety of the employees
have always been of special concern for
the LEGO Group. Therefore, efforts are
constantly being made to secure healthy
and safe working conditions at all the
Group’s locations. This is done in recogni-
tion of the human right to an acceptable
working environment as well as the real-
isation that healthy and satisfied employ-
ees are more productive.
In 2005 a new occupational health and
safety policy was drawn up and
approved, covering all the Group’s activ-
ities worldwide. The implementation of the
policy will take place in 2006. A new health
and safety website has been established
for the employees in order to simplify glo-
bal communication relating to working
environment.
The LEGO Group continues to work
towards global implementation of the
occupational health and safety manage-
ment system OHSAS 18001. The Group’s
activities in Denmark were certified in
2003. The implementation in the Czech
Republic and the USA will be completed
at the end of 2006, and at the same time,
Billund must be recertified.
In 2005 working environment at the sites
in Denmark was improved by means of
work place assessments. The number of
registered health and safety problems
was nearly halved in 2005. A new system
for registering and handling working envi-
ronment problems is ready for implemen-
tation in the spring of 2006. Unfortunately,
the number of registered accidents
resulting in absence has doubled from 27
accidents in 2004 to 50 accidents in 2005.
Such a heavy increase in the number of
accidents is not acceptable to the Group,
REPORT 2005 / CORPORATE RESPONSIBILITY OF THE LEGO GROUP ■
ANNUAL REPORT 2005
| 19
■ REPORT 2005
20 | ANNUAL REPORT 2005
and in 2006 the Group will focus on iden-
tifying the reasons for the accidents and
improving the efforts to reduce the num-
ber of accidents.
In 2006 the organisation will continue to
focus on the general work environment
as well as staff well-being. In this connec-
tion, there will be focus on a number of
factors affecting the well-being of the
employees. The programme was intro-
duced in the autumn of 2005 with a
health campaign offering the employees
at Billund health examinations. In 2006
the employees will be offered to partici-
pate in stop-smoking courses and con-
trolled weight reduction programmes.
The registration of environmental and
working environment data will be extend-
ed and standardised at all locations as
the management systems are imple-
mented. This will provide the LEGO
Group with an overall picture of the
Group’s environmental impact and health
and safety issues, which will enable the
Group to make an improved, goal-orient-
ed effort.
Charity work
The Group’s policy for charity work and
product donations also in 2005 aimed at
helping children in need by providing
support for creative play and develop-
ment. In December Danish employees
had the possibility of participating as vol-
unteers in connection with the charity
organisation Save the Children’s distribu-
tion of LEGO Christmas presents to sick
children in Danish hospitals. Moreover,
the employees in the USA carried out
fund raising for the victims of the hurri-
cane Katrina.
The Kirk family foundations also in 2005
supported a number of LEGO projects
and humanitarian and social pro-
grammes, including donations from Edith
& Godtfred Kirk Christiansen’s Fund, via
Save the Children, for relief work in con-
nection with the tsunami disaster in Asia
and donations from Ole Kirk’s Fund for
relief work in Pakistan in 2005.
In 2006 the LEGO Group’s policy for char-
ity work will be directed towards a num-
ber of global initiatives for supporting
children’s possibilities relating to creative
play and development. These initiatives
will to the widest possible extent give the
employees the opportunity of active
involvement.
Expectations for 2006
2006 will be another difficult year for the
LEGO Group. The size of the global toy
market is still expected to contract, and
the suppliers of traditional toys will there-
fore still be facing strategic challenges.
With the continued focus on the reestab-
lishment of a strong core business with
classic construction toys, the Group
expects to maintain its market position in
2006 based on a smaller, but financially
stronger and more competitive Group.
No films supporting existing or new prod-
ucts will be launched in 2006, and Group
revenues are expected to decrease
slightly compared with 2005. The focus
on earnings will continue, both through
product and customer profitability and
through streamlining, which will involve
transferring production - in whole or in
part - to low-cost countries.
On this basis, a profit before tax in the
region of DKK 500 million is expected in
2006 compared with DKK 456 million in
2005, which reflects the need for a further
increase in earnings in the coming years.
REPORT 2005 / EXPECTATIONS FOR 2006 ■
■ REPORT 2005
22 | ANNUAL REPORT 2005
ANNUAL REPORT 2005 | 23
REPORT 2005 ■
■ ACCOUNTS
Annual Report 2005
24 | ANNUAL REPORT 2005
FINANCIAL REPORT ■
ANNUAL REPORT 2005
| 25
The financial report is based on the con-
tinuing activities, the toy business, unless
otherwise stated. The discontinuing activ-
ities relating to LEGOLAND Parks and
KOMPAN A/S are commented on separ-
ately at the end of the financial report.
Highlights
• In 2005 revenue increased by 12 per
cent which is attributable to sales
increases in all business areas.
• The gross margin of 58 per cent is
on the same level as in 2004.
• In 2005 total profit/loss before tax
amounted to DKK 702 million against
DKK -1,688 million in 2004. The profit
of DKK 702 million comprises profit
from continuing activities before tax
of DKK 456 million and profit from
discontinuing activities before tax of
DKK 246 million.
• The profit/loss before special items,
financial income and expenses and
tax amounts to DKK 468 million
against DKK 63 million in 2004.
• Total assets have been reduced by
DKK 400 million to DKK 7,689 million.
The return on invested capital was 19
per cent (ROIC).
• The Group’s financial resources have
been improved from DKK -82 million
at the end of 2004 to DKK 2,604 milli-
on at the end of 2005.
• Equity totals DKK 3,589 million includ-
ing minority interests, corresponding
to an equity ratio of 47 per cent (57
per cent including subordinate loan
capital). Return on equity after tax
was 18 per cent.
• Free cash flows of DKK 2,549 million
have been realised for the year, of
which the majority relates to the
discontinuing activities.
Group structure
As part of the simplification of the Group
structure, LEGO A/S in 2005 acquired a
number of subsidiaries in INTERLEGO AG.
As LEGO Holding A/S owns both LEGO A/S
and INTERLEGO AG, the structural chang-
es have no effect on this Annual Report, cf
also “LEGO Holding A/S Group - Group
structure”.
Net profit/loss for the year
The net profit/loss for the year including
discontinuing activities was a profit of DKK
505 million against a loss of DKK 1,931 milli-
on in 2004, corresponding to an increase
in results of DKK 2,436 million.
The Group’s core business - toys - has
seen considerable operating progress in
2005, and the profit/loss before special
items and financial income and expenses
has increased from DKK 63 million in 2004
to DKK 468 million. The increase is due to a
combination of increasing revenue and
cost savings.
Expenses of a nonrecurring nature paid in
connection with restructuring and impair-
ment of fixed assets in 2005 amount to
DKK 9 million, whereas last year these
amounted to DKK 1,225 million.
Financial net expenses for the year decre-
ased to DKK 20 million, corresponding to
an improvement of DKK 55 million compa-
red to 2004, and are attributable to the
Group’s changed capital structure as well
as exchange gains.
Of the net profit for the year of DKK 505 mil-
lion, DKK 331 million is attributable to profit
from continuing activities, whereas the pro-
fit from discontinuing activities amounts to
DKK 174 million.
Due to the positive development in results
and balance sheet, the Group’s financial
ratios have improved considerably. The
operating margin (ROS) is 7 per cent aga-
inst -18 per cent in 2004. Moreover, the
return on invested capital (ROIC) is 19 per
cent in 2005 against 1 per cent in 2004.
Revenue
In accordance with generally accepted
practice in the toy business, the account-
ing treatment of various contributions to
the retail sector was changed in 2005.
Gross sales were reduced by various con-
tributions granted to the retail sector to
achieve certain gross sales. Previously,
such contributions were classified as
sales expenses. Comparative figures for
previous years have been restated.
In the financial year 2005, the Group achie-
ved revenue of DKK 7,050 million against
DKK 6,315 million in the previous year, cor-
responding to an increase of 12 per cent.
In local currencies sales increased by 9
per cent, whereas the positive effect from
increasing exchange rates amounts to 3
per cent.
The increasing revenue is driven by sales
increases in all business areas, Europe,
Asia and Emerging Markets, the Americas
and the Pacific and Direct to Consumer.
Jesper Ovesen
Executive Vice President
& COO - Supply Chain &
Central Functions
FINANCIAL REPORT
■ FINANCIAL REPORT
Annual Report 2005
26 | ANNUAL REPORT 2005
As in previous years, the exchange rate
effect on the Group’s sales is attributable
primarily to the development of the US dol-
lar. This has increased in 2005 - especially
in the autumn, which is the Group’s peak
season for sales.
Gross margin
The gross margin of 58 per cent is on the
same level as in 2004. The increased reve-
nue in 2005 is set off by increasing pro-
duction costs due to the higher activity.
These expenses are not affected by
changes in exchange rates to the same
extent as revenue.
Expenses
Other operating expenses amount to DKK
3,702 million in 2005 against DKK 3,713 milli-
on last year. Sales and distribution
expenses and administrative expenses
have increased in 2005 due, among other
things, to increased activity and staff
bonus. Other operating expenses have
decreased in spite of increasing royalty
payments based on increased sales.
Licence and royalty expenses
The LEGO Group has entered into a num-
ber of royalty and licence agreements with
inventors, designers and other licensees
with a view to using intellectual rights,
including protected trademarks. In 2005,
DKK 300 million was paid according to
such agreements against DKK 224 million
the year before. Expenses relating to licenc-
es and royalty are included in production
costs and other operating expenses.
Impairment of fixed assets
According to the accounting policies
applied, impairment tests have been per-
formed where there is internal or external
indication of impairment of individual
assets or groups of assets. In 2005, no fur-
ther need for impairment has been identi-
fied, but instead reversals have been
made of impairments previously made of
DKK 46 million and DKK 49 million, respec-
tively, in connection with sale and reas-
sessment of fixed assets.
Restructuring expenses
In continuation of the measures initiated in
2004, expenses for restructuring totalling
DKK 104 million were paid and provided for
in 2005. This comprises expenses for clos-
ing down and moving production as well
as reduction in the number of the Group’s
retail shops. A small part relates to allow-
ances to employees in connection with
discontinuation of their employment.
Profit/loss in associates
The Group’s investment in Merlin Enter-
tainments Group Luxemburg S.á.r.l. yielded
a profit after tax of DKK 17 million. The
investment was made in August 2005.
Financial income and expenses
Net financial expenses amounted to DKK
20 million in 2005, which is an improve-
ment of DKK 55 million compared with
2004. Raising of mortgage loans as well as
release of liquidity at the sale of LEGO-
LAND Parks made it possible to change
the Group’s capital structure and in this
connection settle loans from credit institu-
tions existing at the beginning of 2005.
Consequently, interest expenses were
reduced in 2005.
The interest risk of the LEGO Group is
attempted minimised by ensuring a
match between liabilities and assets. Fur-
thermore, risks from the use of interest
swaps and options are hedged.
The Group’s exchange risk relates to the
lack of balance between income and
expenses in the individual currencies as
well as excess assets over liabilities in sub-
sidiaries. The exchange risks relate primar-
ily to US dollars, EUR, Swiss francs and
Japanese yen and are as far as possible
attempted hedged by matching pay-
ments received and made as well as
deposits and loans in the same currency.
In addition, forward contracts and curren-
cy options are applied.
Net financial expenses for the year are
positively affected by exchange adjust-
ments of DKK 81 million.
Tax
Current Tax for the year amounts to DKK
125 million against DKK 236 million in the
previous year. Irrespective of the loss
before tax, a tax expense was realised in
2004, which is due to the fact that deferred
tax relating to impairments of fixed assets
as well as provisions for restructuring was
not capitalised. Sale of discontinuing activ-
ities, primarily LEGOLAND Parks, did not
immediately result in tax payable. However,
tax has become payable in connection
with the Danish buildings which were
comprised by the sales transaction, but
which were not previously owned by
LEGOLAND A/S.
The deferred tax assets for the year amount
to DKK 430 million and provisions for
deferred tax to DKK 196 million. The deferred
tax assets are primarily attributable to activ-
ities in the LEGO Group’s sales companies,
in which it is expected that tax loss carry-
forwards may be utilised for set-off against
future earnings within a few years.
Balance sheet
In the continued efforts to reduce risks,
further adjustment was made in 2005 of
the Group’s balance sheet to the future
level of activity, and therefore total assets
have been reduced by 5 per cent from
DKK 8,089 million in 2004 to DKK 7,689 mil-
lion. The mix is significantly improved
towards more liquid assets in connection
with the sale of the ownership shares in
the LEGOLAND Parks, KOMPAN A/S and
other fixed assets.
Property, plant and equipment
Property, plant and equipment amount to
DKK 1,199 million, a decrease of DKK 395
million, which is primarily attributable to
buildings and production equipment
which were classified as being available
for sale in connection with the decision to
close down the production in Switzerland.
In accordance with group policy, the
investment level was also low in 2005.
Gross investments in property, plant and
equipment amount to DKK 265 million in
FINANCIAL REPORT ■
ANNUAL REPORT 2005
| 27
2005, a reduction of 42 per cent (DKK 192
million) compared with the previous year.
In 2005 a profit of DKK 79 million was real-
ised from the sale of property, plant and
equipment.
Fixed asset investments
Gross fixed asset investments amount to
DKK 326 million and are primarily attribut-
able to the investment in the associate
Merlin Entertainments Group Luxemburg
S.á.r.l., the jointly owned company which
was founded in connection with the
Group’s sale of the LEGOLAND Parks. Prof-
it after tax from the investment amounts to
DKK 17 million in 2005.
Current assets
At the end of 2005 inventories were on the
same level as in the previous year, where-
as trade receivables are somewhat higher
based on the higher realised sales in the
4th quarter.
The Group’s credit risk relating to debtors’
lack of ability to pay is attempted mini-
mised by using a global credit insurance
programme.
Fixed assets for sale are in all materiality
on the same level as last year, but the mix
of the assets has changed. The majority of
fixed assets put up for sale at the begin-
ning of 2005 have been sold, but the deci-
sion to close down the production facilities
in Switzerland resulted in new assets
being put up for sale at the end of 2005.
Equity
At the end of 2005, equity amounted to
DKK 3,589 million (including minority intere-
sts) against DKK 2,948 million at the end of
2004, an increase of 22 per cent.
The net profit for the year has increased
equity by DKK 535 million, whereas exchan-
ge adjustments of foreign subsidiaries as
well as adjustment of financial instruments
affected equity by DKK 141 million.
Equity including minority interests corre-
sponds to an equity ratio of 47 per cent,
and if the subordinate loan capital of DKK
800 million is included, the equity ratio
amounts to 57 per cent.
Long-term debts
In 2005 the LEGO Group continued its
efforts to change the Group’s capital
structure. Long-term debts to credit institu-
tions have at the beginning of the year
been paid; partly in connection with the
sale of the LEGOLAND Parks, and partly by
raising mortgage loans totalling DKK 551
million. Total long-term debts have been
reduced by 44 per cent or DKK 1,039 milli-
on to DKK 1,312 million.
In connection with the current financing of
investments and operations, the Group
must ensure an adequate and flexible
liquidity base, which is achieved through
continued focus on cash flows as well as
securing adequate drawing rights. The
liquidity base comprises deposits in banks
as well as guaranteed drawing rights.
It is attempted to limit credit risks in con-
nection with financial partners by using
partners with high creditworthiness.
Cash flows
Cash flows from operating activities of the
LEGO Group amounted to DKK 1,057 milli-
on in 2005 against DKK 774 million in 2004.
The positive cash flows in 2005 are prima-
rily attributable to the net profit for the year.
The working capital has moreover been
reduced as a consequence of continued
focus on this.
Total free cash flows, including discontinu-
ing activities, amount to DKK 2,549 million
against DKK 538 million in 2004. A positive
effect of DKK 2,386 million is attributable to
the discontinuing activities, whereas DKK
-1,621 million relates to reduction of the
external loan capital.
Based on the net profit for the year as well
as cash flows from the sale of the LEGO-
LAND Parks, the Group’s financial resour-
ces are significantly improved at the end
of 2005 compared with the previous year.
Discontinuing activities
In 2004, it was decided to sell the Group’s
LEGOLAND Parks, and the transaction
was carried through in July 2005 to Merlin
Entertainments Group, which is owned by
Blackstone Capital Partners, for EUR 375
million. In connection with the sale, a jointly
owned company was established, in
which Blackstone Capital Partners holds
70 per cent, the LEGO Group holds 15 per
cent and KIRKBI holds the remaining 15
per cent. The investment in the associate
Merlin Entertainments Group Luxemburg
S.á.r.l. has been recognised as a fixed
asset investment in the balance sheet.
The profit after tax of the discontinuing
activities amounts to DKK 174 million for
2005 against DKK -458 million in 2004. The
profit for the year includes operating profit
for the period 1 January - 30 June 2005 as
well as profit from the sale of the LEGO-
LAND Parks, a total of DKK 147 million. To
this should be added a profit of DKK 99
million from sale of the remaining KOMPAN
A/S shares.
■ ACCOUNTING POLICIES
Annual Report 2005
28 | ANNUAL REPORT 2005
Accounting Policies
The Annual Report of LEGO Holding A/S
has been prepared in accordance with
the provisions of the Danish Financial
Statements Act applying to large enterpris-
es of reporting class C.
The accounting policies applied are
unchanged compared to previous years.
In order to meet industry standards for the
recognition of expenses relating to “Contri-
bution To Trade” (CTT), it has been decided
to set off these against revenue. Previously,
CTT was classified as sales and distribu-
tion expenses. The amount is DKK 472 mil-
lion for 2005 (DKK 389 million for 2004).
In accordance with international account-
ing standards, the profit from investments
in subsidiaries is recognised after tax. Tax
concerning investments in subsidiaries
was previously stated as a separate item
under corporation tax. The amount is DKK
200 million for 2005 (DKK 210 million for
2004).
The comparative figures have been restat-
ed accordingly.
True and fair view
The LEGO Group has chosen to depart
from the requirements of the Danish
Financial Statements Act as to the format
of the income statement and the balance
sheet in order to give a true and fair view
of continuing and discontinuing activities,
which are presented as separate items.
The departure does not affect the profit,
total assets and liabilities or equity.
Discontinuing activities
A discontinuing activity is defined as a
business area for which a decision con-
cerning discontinuation has been made
and published.
Net profit/loss on discontinuing activities,
profit and loss on disposal of assets and
settlement of liabilities related to this as
well as the related tax effect are presented
as separate items. Assets and liabilities of
discontinuing activities are recognised as
separate items in the balance sheet.
Consolidation
The Consolidated Financial Statements of
LEGO Holding A/S comprise the Parent
Company and the companies in which
LEGO Holding A/S directly or indirectly
holds more than 50 per cent of the votes
or otherwise exercises control. These
companies are listed in the section “LEGO
Holding A/S Group - Group structure”.
The Consolidated Financial Statements
were prepared on the basis of the financial
statements of the companies comprised,
as a combination of items of a uniform
nature and according to the same
accounting policies.
Elimination has been made of intercompa-
ny sales and purchases, interest, divi-
dends, shareholdings, receivables and
payables as well as of intercompany prof-
its and losses.
Minority interests
At the calculation of group results and
group equity, the shares of the results and
equity of the subsidiaries attributable to
minority interests are recognised as sep-
arate items in the income statement and
the balance sheet. Minority interests are
recognised on the basis of remeasure-
ment of acquired assets and liabilities to
fair value at the time of acquisition of the
subsidiaries.
On subsequent changes to minority inter-
ests, the changed share is included in
results as of the date of the change.
Recognition and measurement
Revenues are recognised in the income
statement as earned, including recogni-
tion of value adjustments of financial
assets and liabilities. Furthermore, all
expenses are recognised in the income
statement, including amortisation, depre-
ciation and impairment losses.
Assets are recognised in the balance
sheet when it is probable that future eco-
nomic benefits attributable to the asset will
flow to the LEGO Group, and the value of
the asset can be measured reliably.
Liabilities are recognised in the balance
sheet when it is probable that future eco-
nomic benefits will flow out of the LEGO
Group, and the value of the liability can be
measured reliably.
Assets and liabilities are initially measured
at cost. Subsequently, assets and liabilities
are measured as described for each item
below.
Certain financial assets and liabilities are
measured at amortised cost, which
involves the recognition of a constant
effective interest rate over the maturity
period. Amortised cost is calculated as
original cost less any repayments and with
addition/deduction of the cumulative
amortisation of any difference between
cost and the nominal amount.
Recognition and measurement take into
account predictable losses and risks
occurring before the presentation of the
Annual Report which confirm or invalidate
affairs and conditions existing at the bal-
ance sheet date.
Translation policies
The balance sheets of foreign subsidiaries
are translated into Danish kroner at the
exchange rates at the balance sheet date,
whereas the income statements are trans-
lated at calculated average exchange
rates. Exchange adjustments arising on
consolidation are recognised directly in
equity.
Where intercompany loans are long-term,
these are considered an addition to the
ACCOUNTING POLICIES ■
ANNUAL REPORT 2005
| 29
net assets of the subsidiary, and ex-
change adjustments are recognised
directly in equity. Exchange adjustment of
external loans contracted for the hedging
of such intercompany loans are also rec-
ognised directly in equity.
Other balance sheets in foreign curren-
cies are translated into Danish kroner at
the exchange rates at the balance sheet
date. Realised and unrealised gains and
losses are recognised in the income
statement.
Derivative financial instruments
Derivative financial instruments are initially
recognised in the balance sheet at cost
and are subsequently measured at their
fair values. Positive and negative fair values
of derivative financial instruments are
included as prepayments and deferred
income, respectively.
Changes in the fair values of derivative
financial instruments that are designated
and qualify as fair value hedges of a rec-
ognised asset or a recognised liability are
recognised in the income statement as
are any changes in the fair value of the
hedged asset or the hedged liability.
Changes in the fair values of derivative
financial instruments that are designated
and qualify as hedges of expected future
cash flows are recognised in equity. If the
future transaction results in the recognition
of assets or liabilities, amounts previously
recognised in equity are transferred from
equity and recognised in the cost of the
asset or the liability, respectively. If the
future transaction results in income or
expenses, amounts recognised in equity
are transferred to the income statement in
the period in which the hedged item
affects the income statement.
Income Statement
Revenue
Revenue comprises the value of goods
and services delivered in the period. Reve-
nue is recognised exclusive of VAT and net
of discounts relating to sales.
Amortisation and depreciation
Intangible assets are amortised, and pro-
perty, plant and equipment are depreci-
ated over the expected useful lives of the
assets:
Straight-line amortisation/depreciation:
Intangible assets 5 years
Buildings 25 years
Plant and machinery 2-20 years
Other fixtures and fittings,
tools and equipment 3-10 years
Minor acquisitions are expensed in the
year of acquisition.
Leases
Leases in respect of property, plant and
equipment where the Group does not
assume substantially all the risks and
rewards of ownership are classified as
operating leases and are recognised in
the income statement on a straight-line
basis over the term of the contract.
Incentives (such as rent-free periods, redu-
ced periods, reimbursement of expenses,
etc.) relating to operating leases are
recognised on a straight-line basis over
the term of the contract.
Special items
Special items comprise material amounts
of a nonrecurring nature that do not relate
to ordinary operating activities, including,
for example, impairment of intangible
assets and property, plant and equipment
to recoverable amount, restructuring ex-
penses and reversals, if any.
Profit on investments
in subsidiaries and associates
The proportionate share of the profit for
the year after tax is recognised in the inco-
me statement of the Parent Company.
The same principle is applied for associ-
ates in the Consolidated Financial State-
ments.
Financial income and expenses
Financial income and expenses comprise
interest, financial expenses in respect of
finance leases, realised and unrealised
exchange adjustments, price adjustment
of securities, amortisation of mortgage
loans as well as extra payments and
repayment under the on-account taxation
scheme.
Corporation tax and deferred tax
Current tax for the year, based on calcu-
lated taxable income for the year, is
expensed together with the change for
the year in deferred tax calculated under
the liability method.
Any changes in deferred tax due to chan-
ges to tax rates are recognised in the
income statement.
Provision has been made for calculated
tax payable and for deferred tax on tem-
porary differences between the carrying
amount and the tax base of assets and lia-
bilities calculated at the balance sheet
date.
The provision for deferred tax reflects the
effect of any tax loss carry-forwards etc. to
the extent it is considered likely that these
can be utilised against future taxable inco-
me. To the extent calculated deferred tax
is positive, this is recognised in the balan-
ce sheet as a deferred tax asset at the
expected realisable value.
Balance Sheet
Research and development costs
Research costs are recognised in the
income statement as incurred. Develop-
ment costs including overhead costs are
recognised in the balance sheet as intan-
gible assets if the costs are assessed to
generate future economic benefits for the
■ ACCOUNTING POLICIES
Annual Report 2005
30 | ANNUAL REPORT 2005
Group. Other development costs are
expensed in the period in which they incur.
Development costs are amortised from
the commencement of the commercial
use of the product over its expected use-
ful life.
It is assessed that currently no costs qual-
ify for capitalisation according to these
conditions, as most of the costs relating to
novelty projects are marketing expenses
which relate to the development and
maintenance of the LEGO brand.
Property, plant and equipment
Property, plant and equipment are meas-
ured at cost less accumulated deprecia-
tion and less any accumulated impair-
ment losses. Land is not depreciated.
Cost comprises costs of materials, com-
ponents, sub-supplier services, direct
labour and indirect production costs.
Financial expenses are not included.
Leases in respect of property, plant and
equipment in terms of which the individual
companies assume substantially all the
risks and rewards of ownership are classi-
fied as finance leases. At the inception of
the lease, finance leases are measured in
the balance sheet at the lower of the fair
value of the leased asset and the net
present value of future lease payments.
When computing the net present value,
the interest rate implicit in the lease is
applied as the discount rate or an approxi-
mated value. Assets acquired under
finance leases are subsequently treated
like the other property, plant and equip-
ment of the Company.
The remaining lease obligation is capital-
ised and recognised in the balance sheet
under debt, and the interest element on
the lease payments is recognised in the
income statement over the term of the
lease.
Impairment of fixed assets
The carrying amounts of intangible assets
and property, plant and equipment are
reviewed on an annual basis to determine
whether there is any indication of impair-
ment other than that expressed by normal
amortisation and depreciation.
The recoverable amount of the asset is
calculated as the higher of net selling
price and value in use.
Where a recoverable amount cannot be
determined for the individual asset, the
smallest group of assets for which the
recoverable amount can be determined is
reviewed for impairment.
Properties and other assets for which a
recoverable amount cannot be deter-
mined as the asset does not on an individ-
ual basis generate future cash flows are
reviewed for impairment together with the
group of assets to which they are attribut-
able.
Impairment of intangible assets and prop-
erty, plant and equipment as well as any
reversals of these are recognised in spe-
cial items.
Investments in subsidiaries
and associates
Investments in subsidiaries are recog-
nised in the balance sheet of the Parent
Company under the equity method as the
proportionate ownership shares of the net
asset value of the enterprises.
Investments in associates are included in
the balance sheet of the Group and the
Parent Company under the equity method.
Subsidiaries and associates with a nega-
tive net asset value are recognised at zero.
Receivables from such enterprises are set
off against the negative net asset value.
Should the negative net asset value
exceed the receivable, the amount is rec-
ognised in provisions.
Current asset investments
and other investments
Current asset investments recognised in
fixed asset investments comprise listed
bonds held to maturity. The investments
are measured at amortised cost.
Inventories
Inventories are measured at cost based
on the FIFO principle. Where the cost is
higher than the net realisable value, write-
down is made to this lower value.
Work in progress and finished goods are
measured at direct costs with addition of
indirect production costs. Financial ex-
penses are not included.
Receivables
Receivables are measured at amortised
cost, which usually corresponds to nomi-
nal value.
Provisions for bad debts are made on the
basis of an individual assessment of the
risk relating to each receivable.
Prepayments and
deferred income
Prepayments include expenses incurred
in respect of subsequent financial years,
as well as fair value adjustments of deriva-
tive financial instruments.
Deferred income includes payments
received in respect of income relating to
subsequent financial years, as well as neg-
ative fair value adjustments of derivative
financial instruments.
Securities
Securities available for sale are measured
at fair value at the balance sheet date.
Dividend
Dividend distribution for the year pro-
posed by Management is disclosed as a
separate equity item.
Other provisions
Provisions are recognised when - in con-
sequence of an event occurred before or
on the balance sheet date - the Group
has a legal or constructive obligation, and
it is probable that economic benefits must
be given up to settle the obligation.
ACCOUNTING POLICIES ■
ANNUAL REPORT 2005
| 31
Financial debts
Financial debts are recognised initially at
the proceeds received net of transaction
expenses incurred. Subsequently, the
loans are measured at amortised cost.
Other debts are measured at amortised
cost, usually corresponding to nominal val-
ue.
Cash Flow Statement
The cash flow statement shows cash flows
for the year broken down by operating,
investing and financing activities, changes
for the year in financial resources as well
as financial resources at the beginning
and end of the year.
Cash flows from operating activities
Cash flows from operating activities are
calculated as the net profit/loss for the
year adjusted for non-cash operating
items, changes in working capital and cor-
poration tax paid.
Cash flows from investing activities
Cash flows from investing activities com-
prise payments relating to acquisitions
and disposals of intangible assets, proper-
ty plant and equipment as well as fixed
asset investments.
Cash flows from financing activities
Cash flows from financing activities com-
prise changes in the size or composition
of the share capital and expenses relating
to this, as well as the raising of loans,
repayment of interest-bearing debt and
payment of dividend to shareholders.
Financial resources
Financial resources comprise cash at
bank and in hand etc. that can readily be
turned into cash, and with only an insignifi-
cant risk of value changes, reduced by
short-term debt to credit institutions.
Short-term receivables from and short-
term debt to KIRKBI companies are includ-
ed in financial resources.
Financial ratios
Financial ratios have been calculated in accordance with the “Guidelines and Financial Ratios 2005” issued by the Danish Society of Finan-
cial Analysts.
GROSS MARGIN: Gross profit x 100
Revenue
OPERATING MARGIN (ROS): Profit before financials and tax x 100
Revenue
NET PROFIT MARGIN: Net profit for the year x 100
Revenue
RETURN ON EQUITY: Net profit for the year x 100
Average Equity
ROIC I: EBITA before special items x 100
Average invested capital
ROIC II: EBITA after special items x 100
Average invested capital
Moreover, the following is shown:
EQUITY RATIO: Equity (including minority interests) x 100
Total liabilities and equity, end of year
Average invested capital is calculated as property, plant and equipment, inventories and receivables excluding tax receivables less provi-
sions, excluding provisions relating to restructuring and deferred tax, and less short-term debt, excluding mortgage loans and corporation
tax. At the statement of ROIC II, provisions relating to restructuring are moreover deducted.
■ MANAGEMENT’S STATEMENT ON THE ANNUAL REPORT
Annual Report 2005
32 | ANNUAL REPORT 2005
Management’s Statement on the Annual Report
The Board and Corporate Management
have today presented and adopted the
Annual Report of LEGO Holding A/S for
2005.
The Annual Report was prepared in accor-
dance with the Danish Financial State-
ments Act. We consider the accounting
policies applied appropriate and the esti-
mates made reasonable. Furthermore, we
consider the overall Annual Report pres-
entation true and fair. Therefore, in our
opinion the Annual Report gives a true
and fair view of the financial position of the
Group and the Parent Company and of
the results of the Group and Parent Com-
pany operations and cash flows.
We recommend that the Annual Report be
adopted at the Annual General Meeting.
Board of Directors
Mads Øvlisen, Kjeld Kirk Kristiansen,
Chairman Vice-chairman
Armin Broger Mogens Johansen
Torben Ballegaard Sørensen Lars Gunnar Bertelson Brock
Billund, 14 February 2006
Corporate Management
Jørgen Vig Knudstorp, Jesper Ovesen Henrik Poulsen
President and CEO Executive Vice President Executive Vice President
AUDITORS’ REPORT ■
ANNUAL REPORT 2005
| 33
Auditors’ Report
To the Shareholders
of LEGO Holding A/S
We have audited the Annual Report of
LEGO Holding A/S for the financial year
2005, prepared in accordance with the
Danish Financial Statements Act.
The Annual Report is the responsibility of
Company’s Management. Our responsibil-
ity is to express an opinion on the Annual
Report based on our audit.
Basis of Opinion
We conducted our audit in accordance
with International and Danish Auditing
Standards. Those standards require that
we plan and perform the audit to obtain
reasonable assurance that the Annual
Report is free of material misstatement. An
audit includes examining, on a test basis,
evidence supporting the amounts and
disclosures in the Annual Report. An audit
also includes assessing the accounting
policies applied and significant estimates
made by Management, as well as evaluat-
ing the overall annual report presentation.
We believe that our audit provides a rea-
sonable basis for our opinion.
Our audit has not resulted in any qualifica-
tion.
Opinion
In our opinion, the Annual Report gives a
true and fair view of the Group’s and the
Parent Company’s assets, liabilities, equity
and financial position at 31 December
2005, and of the results of the Group’s and
the Parent Company’s operations and
cash flows for the financial year 2005 in
accordance with the Danish Financial
Statements Act.
Billund, 14 February 2006
PricewaterhouseCoopers
Statsautoriseret Revisionsinteressentskab
Lars Holtug Harald Birkwald
State Authorised Public Accountant State Authorised Public Accountant
■ ACCOUNTS
Annual Report 2005
34 | ANNUAL REPORT 2005
INCOME STATEMENT ■
ANNUAL REPORT 2005
| 35
Parent Company Group
2004 2005 Note 2005 2004
90 122 Revenue 7,050 6,315
(29) (11) Production costs 2 (2,959) (2,672)
61 111 Gross profit/(loss) 4,091 3,643
– – Sales and distribution expenses 2 (2,584) (2,523)
(25) (83) Administrative expenses 1, 2 (599) (587)
115 – Other operating income 79 133
(1) (5) Other operating expenses 2 (519) (603)
150 23 Profit/(loss) before special items, 468 63
financial income and expenses and tax
(46) – Impairment of fixed assets 3 95 (723)
– – Restructuring expenses 4 (104) (502)
104 23 Operating profit/(loss) 459 (1,162)
Profit/(loss) from subsidiaries
(1,659) 363 after tax – –
Profit/(loss) from associates
– 17 after tax 17 –
2 13 Financial income 5 139 104
(42) (47) Financial expenses 5 (159) (179)
(1,595) 369 Profit/(loss) before tax 456 (1,237)
(30) 41 Corporation tax 6 (125) (236)
(1,625) 410 Profit/(loss) from continuing activities 331 (1,473)
50 125 Profit/(loss) from discontinuing activities 7 174 (458)
(1,575) 535 Net profit/(loss) for the year 505 (1,931)
Minority interests’ share of net profit/(loss)
– – for the year (30) (356)
(1,575) 535 LEGO Holding A/S’ share of net profit/(loss) for the year 535 (1,575)
Proposed distribution of profit for LEGO Holding A/S
– – Dividend
(1,575) 535 Retained earnings
(1,575) 535 Distributed
Income Statement 1 January - 31 December
[ mDKK ]
■ BALANCE SHEET
Annual Report 2005
36 | ANNUAL REPORT 2005
Parent Company Group
2004 2005 Note 2005 2004
Assets
29 22 Land and buildings 900 1,172
– – Plant and machinery 187 299
1 1 Other fixtures and fittings, tools and equipment 82 91
Fixed assets under construction and prepayments
– – for property, plant and equipment 30 32
30 23 Property, plant and equipment 8, 9 1,199 1,594
– – Deferred tax assets 12 430 448
2,835 3,375 Investments in subsidiaries 11 – –
– 197 Investments in associates 10, 11 197 –
– – Current asset investments and other investments 10, 11 75 –
2,835 3,572 Fixed asset investments 702 448
2,865 3,595 Total fixed assets 1,901 2,042
– – Inventories 13 709 712
– – Trade receivables 1,856 1,630
198 655 Receivables from subsidiaries 14 – –
– – Corporation tax receivable 68 97
2 2 Other receivables 136 256
– – Prepayments 109 205
200 657 Receivables 2,169 2,188
172 – Fixed assets for sale 301 403
– – Securities 641 –
1 1 Cash at bank and in hand 1,968 312
373 658 Total current assets 5,788 3,615
3,238 4,253 Assets relating to continuing activities 7,689 5,657
239 – Assets relating to discontinuing activities 7 – 2,432
3,477 4,253 Total assets 7,689 8,089
Balance Sheet at 31 December
[ mDKK ]
BALANCE SHEET ■
ANNUAL REPORT 2005
| 37
Balance Sheet at 31 December
[ mDKK ]
Parent Company Group
2004 2005 Note 2005 2004
Liabilities and equity
123 123 Share capital 15 123 123
2,490 3,158 Retained earnings 3,158 2,490
– – Proposed dividend for the year – –
2,613 3,281 Equity 3,281 2,613
– – Minority interests 16 308 335
– – Provision for pensions 67 87
50 21 Provision for deferred tax 12 196 175
– – Other provisions 17 702 645
50 21 Provisions 965 907
800 800 Subordinate loan capital 19 800 800
– 133 Debt to credit institutions 512 1,551
800 933 Long-term debt 18 1,312 2,351
– 1 Debt to credit institutions 5 139
– – Trade payables 630 571
– – Corporation tax 134 78
14 15 Other payables 650 289
– 2 Deferred income 404 396
14 18 Short-term debt 1,823 1,473
814 951 Total debt 3,135 3,824
3,477 4,253 Liabilities and equity relating to continuing activities 7,689 7,679
– – Provisions and debt relating to discontinuing activities 7 – 410
3,477 4,253 Total liabilities and equity 7,689 8,089
Security and contingent liabilities 20
Related parties 23
■ STATEMENT OF CHANGES IN EQUITY
Annual Report 2005
38 | ANNUAL REPORT 2005
Share Retained Proposed
capital earnings dividend Total
Equity at 1 January 2005 123 2,490 2,613
Exchange adjustments relating to foreign subsidiaries 165 165
Fair value adjustment of forward exchange contracts for hedging
of future purchases and sales in foreign currencies (44) (44)
Adjustment of other financial instruments 20 20
Other adjustments (8) (8)
Retained earnings 535 535
Equity at 31 December 2005 123 3,158 – 3,281
Statement of Changes in Equity
[ mDKK ]
CASH FLOW STATEMENT ■
ANNUAL REPORT 2005
| 39
Parent Company Group
2004 2005 Note 2005 2004
Profit/(loss) before tax relating
(1,385) 369 to continuing activities 456 (1,237)
50 163 Profit/(loss) before tax relating to discontinuing activities 246 (451)
79 8 Amortisation, depreciation and impairment losses 437 2,104
1,353 (533) Other adjustments 21 (289) 109
97 7 850 525
Change in working capital:
– – Change in inventories (19) 72
(154) (457) Change in receivables (188) 134
(5) 3 Change in short-term debt 496 111
(159) (454) 289 317
– (27) Corporation tax paid (82) (68)
(62) (474) Cash flows from operating activities 1,057 774
(138) (1) Purchase of property, plant and equipment (265) (457)
– (250) Fixed asset investments made (326) –
– 588 Sale of discontinuing activities 2,604 –
173 – Sale of fixed assets 549 250
35 337 Cash flows from investing activities 2,562 (207)
– – Dividend paid – (19)
– 136 Raising of long-term debt 551 –
800 – Subordinate loan capital – 800
(621) – Repayment of long-term debt (1,621) (810)
179 136 Cash flows from financing activities (1,070) (29)
152 (1) Total cash flows 2,549 538
(151) 1 Financial resources at 1 January (82) (620)
– – Financial ressources relating to disposal of activities 137 –
1 – Financial resources at 31 December 22 2,604 (82)
Items of the cash flow statement cannot be directly
derived from changes in the balance sheet
Cash Flow Statement 1 January - 31 December
[ mDKK ]
■ NOTES
Annual Report 2005
40 | ANNUAL REPORT 2005
Notes
[ mDKK ]
Note 1. Fee to auditors appointed by the general meeting
Parent Company Group
2004 2005 2005 2004
Fee to PricewaterhouseCoopers:
1 1 Audit 7 8
– 3 Non-audit services 9 9
Fee to Ernst & Young:
– – Audit – –
– – Non-audit services – 1
1 4 Total, continuing activities 16 18
The fee concerning discontinuing activities
is disclosed in note 7.
Note 2. Employees and remuneration
Parent Company Group
2004 2005 2005 2004
4 25 Wages and salaries 2,064 2,179
– – Pensions 114 119
– – Other and social security expenses 96 101
425 2,274 2,399
– – Including amount relating to discontinuing activities 171 364
Staff expenses relating to discontinuing
activities comprise only 6 months in 2005.
Including salaries and remuneration to:
– 19 Corporate Management 19 9
– 2 Board of Directors 2 1
–21 21 10
Employees
Average number of full-time employees:
6 6 Continuing activities 5,321 5,620
– – Discontinuing activities 1,322 1,725
NOTES ■
ANNUAL REPORT 2005
| 41
Notes
[ mDKK ]
Note 3. Impairment of fixed assets
According to the accounting policies, impairment tests are performed where there is internal or external indication of impairment of indi-
vidual assets or group of assets. In 2005 a number of impairment tests of the carrying amounts of the Group’s fixed assets were carried
out. The carrying amounts of fixed assets have been compared with the recoverable amount, determined as the higher of the net selling
price and the value in use of the asset. Where the recoverable amount is lower than the carrying amount of the asset, an impairment loss
has been recognised.
The calculations have been made considering the cash flows and the business of the LEGO Group comprising assets related to the fol-
lowing groups: Play Materials, Brand Retail and Shop@Home,
In connection with the tests made in 2005, no need for further impairment of fixed assets was identified; on the contrary, reversals were
made of impairments made in previous years of DKK 46 million in connection with reassessment of fixed assets and DKK 49 million in con-
nection with sales.
Parent Company Group
2004 2005 2005 2004
– – Land and buildings (83) 335
– – Plant and machinery (2) 188
46 – Other fixtures and fittings, tools and equipment (10) 200
46 – (95) 723
Parent Company Group
2004 2005 2005 2004
– – Staff and staff related expenses 37 368
– – Building and lease expenses 54 84
– – Other 13 50
–– 104 502
Note 4. Restructuring expenses
■ NOTES
Annual Report 2005
42 | ANNUAL REPORT 2005
Notes
[ mDKK ]
Note 5. Financial income and expenses
Parent Company Group
2004 2005 2005 2004
Financial income:
1 13 Interest income from subsidiaries – –
1 – Other interest income 59 46
– – Exchange gain 81 59
213 140 105
– – Including amount relating to discontinuing activities 1 1
Financial income relating to
2 13 continuing activities 139 104
Financial expenses:
40 46 Other interest expenses 120 190
– – Other financial expenses 45 –
2 1 Exchange losses – –
42 47 165 190
– – Including amount relating to discontinuing activities 6 11
Financial expenses relating to
42 47 continuing activities 159 179
NOTES ■
ANNUAL REPORT 2005
| 43
Note 6. Corporation tax
Parent Company Group
2004 2005 2005 2004
3 (25) Current tax for the year (132) (63)
(36) 11 Adjustment of deferred tax (39) (207)
– – Other taxes etc – 3
– 17 Adjustment concerning previous years (26) 24
(33) 3 (197) (243)
(3) (38) Including amount relating to discontinuing activities (72) (7)
(30) 41 (125) (236)
Tax on the profit/(loss) for the year is specified as follows:
Parent Company Group
% mDKK mDKK %
Calculated 28% tax on profit/(loss)
(28) (43) for the year before investment and tax (197) (28)
Tax effect of:
– – Higher/lower tax rate in subsidiaries (4) –
– – Non-deductible expenses (48) (7)
19 29 Non-taxable income 121 17
11 17 Adjustment of tax relating to previous years (26) (4)
– – Effect of deferred tax not capitalised (8) (1)
– – Other (35) (5)
23 (197) (28)
(38) Including amount relating to discontinuing activities (72)
41 (125)
Notes
[ mDKK ]
■ NOTES
Annual Report 2005
44 | ANNUAL REPORT 2005
Notes
[ mDKK ]
Parent Company Group
2004 2005 2005 2004
– – Revenue 493 1,230
– (14) Expenses (541) (1,196)
– – Impairment of fixed assets – (528)
– 78 Gain from sale of LEGOLAND Parks 200 –
53 99 Share of profit and gain from sale, KOMPAN A/S 99 53
– – Financial income and expenses (5) (10)
53 163 Profit/(loss) before tax from discontinuing activities 246 (451)
(3) (38) Tax (72) (7)
50 125 Profit/(loss) from discontinuing activities 174 (458)
Fee to PricewaterhouseCoopers:
– – Audit – 1
– 12 Non-audit services 32 1
–12Total 32 2
196 – Fixed assets, cf. note 8 – 2,301
43 – Current assets – 131
239 – Total assets – 2,432
– – Provisions – 12
– – Debt – 398
– – Total liabilities – 410
Cash flows from:
Operating activities (73)
Investing activities 2,533
Financing activities (74)
Total cash flow 2,386
Note 7. Discontinuing activities
In 2004 it was decided to sell the Group’s LEGOLAND Parks and related activities, as these are not considered part of the core business.
The sale was carried through in July 2005, and therefore the amounts for 2005 only comprise the period 1 January - 30 June, whereas the
amounts for 2004 comprise the whole year. Therefore, the figures are not directly comparable.
KOMPAN A/S has also been classified as a discontinuing activity as a consequence of the LEGO Group’s sale of the majority holding in
2004 and the sale of the remaining shares in 2005.
NOTES ■
ANNUAL REPORT 2005
| 45
Other fixtures
and fittings, Fixed assets Dis-
Land and Plant and tools and under con- continuing
buildings machinery equipment struction activities
Cost at 1 January 3,196 3,062 1,138 32 4,391
Exchange adjustment at 1 January 119 32 72 1 194
Additions 8 122 34 30 71
Disposals (1,431) (325) (213) – (4,656)
Transfers – 18 15 (33) –
Cost at 31 December 1,892 2,909 1,046 30 –
Depreciation and impairment losses at 1 January 2,024 2,763 1,047 – 2,090
Exchange adjustment at 1 January 38 24 52 – 91
Depreciation for the year 91 243 88 – 110
Impairment losses for the year 45 – – – –
Reversals of impairments made in previous years (128) (2) (10) – –
Depreciation, assets sold (1,038) (306) (213) – (2,331)
Transfers (40) – – – 40
Depreciation and impairment losses at 31 December 992 2,722 964 – –
Carrying amount at 31 December 900 187 82 30 –
According to the official property assessment, the value of the Danish land and buildings amounts to DKK 629m.
The corresponding carrying amount is DKK 466m at 31 December 2005.
No fixed assets have been capitalised in connection with finance leases.
Notes
[ mDKK ]
Note 8. Property, plant and equipment
Group
■ NOTES
Annual Report 2005
46 | ANNUAL REPORT 2005
Notes
[ mDKK ]
Other fixtures
and fittings, Dis-
Land and tools and continuing
buildings equipment activities
Cost at 1 January 155 4 376
Additions 1––
Disposals (17) (2) (376)
Cost at 31 December 139 2 –
Depreciation and impairment losses at 1 January 126 3 180
Depreciation for the year 8 – –
Depreciation, assets sold (17) (2) (180)
Depreciation and impairment losses at 31 December 117 1 –
Carrying amount at 31 December 22 1 –
According to the official property assessment, the value of the Danish land and buildings amounts to DKK 124m.
The corresponding carrying amount is DKK 22m at 31 December 2005.
No fixed assets have been capitalised in connection with finance leases.
Note 9. Property, plant and equipment
Parent Company
NOTES ■
ANNUAL REPORT 2005
| 47
Notes
[ mDKK ]
Current asset
investments
Investments and other
in associates investments
Cost at 1 January –42
Additions 250 76
Elimination of intercompany gains on purchases (70) –
Disposals –(42)
Cost at 31 December 180 76
Value adjustments at 1 January –(42)
Adjustment for the year 17 (1)
Disposal –42
Value adjustments at 31 December 17 (1)
Carrying amount at 31 December 197 75
Note 10. Fixed asset investments
Group
Current asset
Investments Investments investments
in in and other
subsidiaries associates investments
Cost at 1 January 5,381 – 41
Additions –250 –
Elimination of intercompany gains on purchases – (70) –
Disposals – – (41)
Cost at 31 December 5,381 180 –
Value adjustments at 1 January (2,546) – (41)
Exchange adjustments 184 – –
Net profit/(loss) for the year 363 17 –
Other adjustments (7) – –
Disposal ––41
Value adjustments at 31 December (2,006) (17) –
Carrying amount at 31 December 3,375 197 –
Note 11. Fixed asset investments
Parent Company
■ NOTES
Annual Report 2005
48 | ANNUAL REPORT 2005
Notes
[ mDKK ]
Note 12. Deferred tax
Parent Company Group
2004 2005 2005 2004
– – Deferred tax asset at 1 January 448 588
(14) (50) Provision for deferred tax at 1 January (175) (115)
(14) (50) Deferred tax, net at 1 January 273 473
(36) 29 Change in deferred tax (39) (207)
(50) (21) Deferred tax, net at 31 December 234 266
– – Including amount relating to discontinuing activities – (7)
(50) (21) 234 273
Specified as follows:
– – Deferred tax asset 430 448
(50) (21) Provision for deferred tax (196) (175)
(50) (21) Deferred tax, net at 31 December 234 273
Deferred tax - Group Deferred Provision for Deferred tax Deferred tax
tax asset deferred tax net 2005 net 2004
Fixed assets 17 (40) (23) (63)
Current assets 24 – 24 75
Inventories 116 – 116 96
Provisions 23 4 27 51
Debt 49 3 52 23
Tax loss carry-forwards 199 – 199 147
Other 2 (163) (161) (56)
430 (196) 234 273
2005 2004
Tax assets relating to tax loss carry-forwards have been capitalised based on
an assessment of whether they can be utilised within a few years.
The Group’s capitalised tax losses expires as follows:
Within 1 year –4
Within 2 years ––
Within 3 years 5–
Within 4 years 11 18
Within 5 years 2–
After 5 years 181 125
199 147
The Group’s non-capitalised deferred tax assets amount to DKK 350 million.
Tax loss carry-forwards - Group
NOTES ■
ANNUAL REPORT 2005
| 49
Notes
[ mDKK ]
Note 13 Inventories – Group
2005 2004
Raw materials, components and work in progress 308 240
Finished goods 401 472
Total inventories 709 712
The Parent Company’s share capital consists of:
104 A-shares of DKK 1,000 or multiples hereof
19 B-shares of DKK 1,000 or multiples hereof
123 Total share capital at 31 December
A capital increase of nominal DKK 76 million took place in 2004. Apart from this,
there have been no changes in the share capital during the last 5 years.
Shareholders holding more than 5%
of the share capital:
Kjeld Kirk Kristiansen, DK-7190 Billund
Sofie Kirk Kristiansen, DK-2930 Klampenborg
Thomas Kirk Kristiansen, DK-5390 Martofte
Agnete Kirk Kristiansen, DK-9000 Aalborg
Note 14. Receivables from subsidiaries
Parent Company Group
2004 2005 2005 2004
198 655 Including amount falling due after 1 year – –
Note 15. Share capital
■ NOTES
Annual Report 2005
50 | ANNUAL REPORT 2005
Notes
[ mDKK ]
Note 17. Other provisions
Parent Company Group
2004 2005 2005 2004
– – Balance at 1 January 645 359
– – Exchange adjustment at 1 January 13 (1)
– – Additions 216 530
– – Used (116) (212)
– – Reversed (56) (31)
– – Balance at 31 December 702 645
Other provisions primarily comprise future restructuring expenses in respect of employees, buildings and leases.
Note 16. Minority interests
Parent Company Group
2004 2005 2005 2004
– – Balance at 1 January 335 698
Share of net profit/(loss) for the year (30) (356)
– – Exchange adjustments etc 3 (7)
– – Balance at 31 December 308 335
Total Due within Due after
debt 1 year 5 years
Parent Company:
Subordinate loan capital 800 – 800
Banks and other credit institutions 134 1 123
934 1 923
Group:
Subordinate loan capital 800 – 800
Banks and other credit institutions 517 5 470
1,317 5 1,270
Note 18. Long-term debt
NOTES ■
ANNUAL REPORT 2005
| 51
Notes
[ mDKK ]
Note 20. Security and contingent liabilities
Parent Company Group
2004 2005 2005 2004
– – Guarantees 1 1
– 1 Lease obligations 373 449
– – Other obligations 109 37
–1 483 487
––Including amount relating to discontinuing activities –4
Security:
The following assets have been placed as security for mortgage credit institutes with a carrying amount of:
– 22 Land and buildings 383 –
Group
The Group has entered into forward exchange contracts in the
amount of DKK 2,954 million and currency options of DKK 1,265 million.
In accordance with the accounting policies, unrealised gains and loss-
es at the balance sheet date have been recognised either in the
income statement or directly in equity, depending on the transaction
concerned. At 31 December 2005, unrealised losses totalling DKK 12
million have been recognised in the income statement and unrealised
gains totalling DKK 2 million have been recognised directly in equity.
The Group has entered into contracts with a number of lessors and
suppliers. The contracts involve no obligations other than those occur-
ring in the normal course of business.
Note 19. Subordinate loan capital
Loan from KIRKBI A/S, totalling DKK 800m, is irredeemable from the lender and is due in December 2011.
The loan, on which an interest of CIBOR +3% p.a. is calculated, has been granted on special terms and can be repaid before maturity by
the borrower provided that the equity ratio is at least 40% after repayment. Moreover, the loan is subordinated in favour of all other creditors.
■ NOTES
Annual Report 2005
52 | ANNUAL REPORT 2005
Note 22. Financial resources (cash flow statement)
Parent Company Group
2004 2005 2005 2004
– – Securities 641 –
1 1 Cash at bank and in hand 1,968 312
Short-term debt:
– (1) Banks and other credit institutions – continuing activities (5) (139)
– – Banks and other credit institutions – discontinuing activities – (255)
1 – Total financial resources 2,604 (82)
Note 21. Other adjustments (cash flow statement)
Parent Company Group
2004 2005 2005 2004
(156) (177) Gain/(loss) from sale of fixed assets (378) (176)
(99) 165 Exchange adjustments 55 (39)
1,573 (540) Subsidiaries – –
44 (24) Financial instruments (33) 44
– – Change in provisions 32 277
(9) 43 Other adjustments 35 3
1,353 (533) Total other adjustments (289) 109
Notes
[ mDKK ]
NOTES ■
ANNUAL REPORT 2005
| 53
Notes
[ mDKK ]
Note 23. Related parties
LEGO Holding A/S is controlled by Kjeld Kirk Kristiansen (Billund).
The following transactions were carried out with related parties in which Kjeld Kirk Kristiansen and his family have controlling or significant
influence. All transactions were carried out on an arm’s length basis.
Sale of Interest received Sale of
products to from assets to
LEGOLAND Parks for
the period 1 July – 31 December 51 – 188
KIRKBI AG Group – 1 –
KIRKBI A/S Group – – 175
51 1 363
Service
Rent Interest fee
paid to paid to paid to
LEGOLAND Parks for
the period 1 July – 31 December – – –
KIRKBI AG Group – 2 –
KIRKBI A/S Group 3 42 26
34426
Trademark Other Other operating
fee operating income expenses
paid to received from paid to
LEGOLAND Parks for
the period 1 July – 31 December (15) – –
KIRKBI AG Group 135 – –
KIRKBI A/S Group 105 – –
225 – –
The Group has lease obligations of DKK 3 million at 31 December towards KIRKBI A/S Group.
In 2004 it was decided to sell the Group’s LEGOLAND Parks, as these are not considered part of the core business. In July 2005 the Group
sold the four LEGOLAND Parks to Merlin Entertainments Group, which is owned by Blackstone Capital Partners, at a price of EUR 375m. In
connection with the sale, a jointly owned company was established, of which among others Blackstone Capital Partners holds 70%, the
LEGO Group holds 15% and KIRKBI holds the remaining 15%. Besides the LEGOLAND Parks, the jointly owned company, Merlin Entertain-
ments Group Luxemburg S.a.r.l., owns Merlin Entertainments’ other attractions: Sea Life, Earth Explorer and Dungeons.
Receivable Short-term Long-term
from debt to loans from
LEGOLAND Parks 9 3 –
KIRKBI AG Group 65 1 –
KIRKBI A/S Group – 8 800
74 12 800
54 | ANNUAL REPORT 2005
Ferrari, all associated logos and the distinctive designs are trademarks
of Ferrari S.p.A.
The body of the Ferrari car is protected as Ferrari property under trade
dress and/or design regulations.
© 2006 Lucasfilm Ltd. & TM. All rights reserved. Used under authorisation.
LEGO, the LEGO logo, QUATRO, KNIGHTS’ KINGDOM and CLIKITS logos,
DUPLO, BIONICLE, MINDSTORMS, the Knob configuration and the Minifigure
and LEGOLAND are trademarks of the LEGO Group.
©2006 The LEGO Group
LEGO Group – Corporate Management
Jesper Ovesen
Executive Vice President
& Chief Operating Officer (COO)
Supply Chain & Central Functions
Jørgen Vig Knudstorp
President &
Chief Executive Officer (CEO)
Henrik Poulsen
Executive Vice President
Markets, Products & Marketing
Board of Directors
Mogens Johansen, Gunnar Brock, Armin F. Broger, Mads Øvlisen, Kjeld Kirk Kristiansen, Torben Ballegaard Sørensen
Mogens Johansen
Member of the Board since 1978.
Representing the family. Brother in law to
Kjeld Kirk Kristiansen. Member of the
Board of the LEGO Foundation, and Edith
and Godtfred Kirk Christiansen’s Founda-
tion.
Gunnar Brock
Member of the Board since 1995.
President & CEO and member of the
Board of Swedish Atlas Copco AB. Mem-
ber of the Board of StoraEnso, Suomi.
Member of the Royal Swedish Academy
of Engineering Sciences (IVA).
Armin F. Broger
Member of the Board since 2005.
Chief Operating Officer (COO) of Tommy
Hilfiger in Europe.
Mads Øvlisen
Chairman of the Board since 1996.
Member of the Board since 1991.
Chairman of the Board of Novo Nordisk
A/S until March 2006 and the Danish Royal
Theatre, and member of the Board of the
Wanås Foundation. Adjunct professor of
corporate social responsibility at the
Copenhagen Business School.
Kjeld Kirk Kristiansen
Vice Chairman of the Board since 1996.
Member of the Board since 1975.
Chairman of the Board of KIRKBI A/S, the
LEGO Foundation, Ole Kirk’s Foundation,
and Edith and Godtfred Kirk
Christiansen’s Foundation. President and
CEO for the LEGO Group from 1979-2004.
Majority shareholder of the LEGO Group.
Torben Ballegaard Sørensen
Member of the Board since 2005.
President and CEO of Bang & Olufsen.
Member of the board of SimCorp A/S.
LEGO Holding A/S
Aastvej 1
7190 Billund, Denmark
Tel: +45 79 50 60 70
Fax: +45 75 33 27 25
CVR-no: 18 59 12 35
Incorporated: April 1
st
1995
Residence: Billund
Financial Year: January 1
st
–
December 31
st
Internet: www.LEGO.com
LEGO Group
Denmark
LEGO System A/S
Europe (others)
LEGO Park Holding UK Ltd.
– LEGO Estates Australia Pty. Ltd.
– LEGO Lifestyle International Ltd. (UK)
LEGO Company Limited (UK)
LEGO Belgium n.v.
LEGO Netherland B.V.
LEGO Sverige AB
LEGO Norge AS
LEGO GmbH (Germany)
LEGO Handelsgesells. GmbH (Austria)
LEGO S.A.S. (France)
LEGO S.p.A. (Italy)
LEGO S.A. (Spain)
LEGO Lda. (Portugal)
LEGO Production s.r.o. (Czech Republic)
LEGO Trading s.r.o. (Czech Republic)
LEGO Hungária Kft.
LEGO Polska Sp. z o. o.
OOO LEGO (Russia)
Americas
LEGO do Brazil Ltda.
LEGO Canada Inc.
LEGO New York Inc. (US)
Asia/Africa
LEGO Hong Kong Limited
LEGO Australia Pty. Ltd.
LEGO Korea Co. Ltd.
LEGO South Africa (Pty.) Ltd.
LEGO Japan Ltd.
LEGO Company Ltd. (Hong Kong)
Europe
Oy Suomen LEGO Ab (Finland)
LEGO Estates Limited (UK)
LEGO Schweiz AG
LEGOLAND Estates AG (Switzerland)
KIRK AG (Switzerland)
Americas
LEGO Building Corporation (US)
– LEGO Dacta Inc. (US)
– Dacta and Pitsco LLC, 51% (US)
– LEGO Systems Inc. (US)
– LEGO Direct Marketing Inc. (US)
– LEGO Brand Retail Inc. (US)
LEGO Mexico S.A. de C.V.
Adm. de Serv. LEGO de C.V. (Mexico)
Carlsbad Estate Holding Inc. (US)
Asia
LEGO Singapore Pte. Ltd.
LEGO New Zealand Ltd.
Associates:
LEGOLAND Holding A/S, 49%
Scanesco ApS 23,1% (DK)
Merlin Entertainments Group Luxemburg
S.a.r.l., 15%.
LEGO A/S INTERLEGO AG, Switzerland
LEGO Holding A/S
75%
Ownership is 100% unless stated otherwise.
Annual Report 2005 is published for the LEGO Group by Stakeholder Relations.
Stakeholder Relations · Billund · Denmark · Tel. +45 79 50 60 70 · Fax +45 75 35 33 60
] GRAFISK CENTRUM [ – Foto: Niels Åge Skovbo
LEGO Group – Denmark
Aastvej
7190 Billund
Tel.: +45 79 50 60 70
LEGO Group – Switzerland
Sihlbruggstrasse 3
6340 Baar
Switzerland
Tel.: +41 41 769 20 20
LEGO Group – USA
555 Taylor Road
P.O. Box 1600
Enfield, CT 06083-1600
USA
Tel.: +1 860 749 2291
www.LEGO.com
