Annual Report 2005 LEGO Group · Investment in property, plant and equipment 265 457 709 1,264...

Annual Report 2005LEGO 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’sBuilder 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 D K K ] 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”.

R E V E N U E [ m D K K ]

2001 2002 2003 2004 2005

10.000

9.000

8.000

7.000

6.000

T O T A L A S S E T S [ m D K K ]

2001 2002 2003 2004 2005

E Q U I T Y R A T I O I N C L .S U B O R D I N AT E D L O A N C A P I TA L

2001 2002 2003 2004 2005

60%

50%

40%

30%

20%

10%

0%

I N V E S T M E N T I N P R O P E R T Y,P L A N T A N D E Q U I P M E N T [ m D K K ]

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

O P E R A T I N G P R O F I T / ( L O S S )[ m D K K ]

2001 2002 2003 2004 2005

800

400

0

(400)

(800)

(1.200)

(1.600)

F R E E C A S H F L O W B E F O R E

F I N A N C I N G A C T I V I T I E S [ m D K K ]

2001 2002 2003 2004 2005

4.000

3.500

3.000

2.500

2.000

1.500

1.000

500

0

(500)

C O N T E N T S

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

REPORT 2005:MARKET AND RESULTS 2005

The market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Revenue and profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

RESULT OF THE ACTION PLAN FROM MARCH 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Fundamental change of processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Restoration of competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Rightsizing of activities, cost base and assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10The future strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111) Direct dialogue between the LEGO Group and

LEGO consumers to drive innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122) Strengthened approach to sales and distribution channels to drive

earnings and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123) Continued streamlining and optimisation of Group operations to

improve earnings and service level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

ORGANISATIONAL STRUCTURE AND LEADERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Group structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Management team and organisational structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14New Board members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

EMPLOYEES AND CORPORATE CULTURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14A more result-oriented LEGO culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Focused Performance Management Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Developing talent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

CORPORATE RESPONSIBILITY OF THE LEGO GROUP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Global Compact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Revision of LEGO Group Code of Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Product quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Environmental obligations and action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Efforts to reduce workplace accidents and introduction of a global occupational health and safety policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Charity work. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

EXPECTATIONS FOR 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

ACCOUNTS:Financial Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Accounting Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Management’s Statement on the Annual Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33Income Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38Cash Flow Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

4 | ANNUAL REPORT 2005

Two years ago, the LEGO Group changedits strategy in order to concentrate on itscore business: the LEGO brick and theunique building system created around it.All over the world, LEGO® has for genera-tions given children and their families avery special playing experience. TheLEGO brick stirs children’s imaginationand challenges their creativity throughfun and creative play. The children “pro-gram” their play themselves, and theirparents feel secure - not least due to thesuperior quality of the LEGO products.

The development on our markets in thepast year has justified our belief in theuniquely lasting nature of these values.This confirms the foundation for theGroup’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 468million, and a total profit before tax of DKK702 million – were better than expectedand confirm that we are on the right track.We therefore consider the results satis-factory and appreciate the great effortsmade by the LEGO employees every-where despite the uncertainty and thechanging conditions they are goingthrough.

The results reflect encouraging salesincreases in respect of the innovated,classic LEGO products and larger cost-savings than anticipated, whereas theimprovement of the Group’s financialposition is attributable to the sale ofassets and increased cash flows. Thesale of assets in both the continuing andthe discontinuing parts of the businessaccounts for nearly half of the profit forthe year before tax.Despite general low growth or an actual

decline on the global toy markets, theLEGO Group enjoyed increased salesand obtained increased market shareson all significant markets. This was thecase on the largest toy market, the USA,and also the German core market sawconsiderable increases. Total Group salesincreased by approximately 12 per cent in2005.

The LEGO Group’s total operatingexpenses were reduced by DKK 314 mil-lion, or 8 per cent, which is however setoff by increasing expenses for royalties,bonus to employees and currencyeffects. Impairment losses and restructur-ing expenses amounted to DKK 9 millionin 2005.

The liquidity position has improved con-siderably as the sale of activities andassets, combined with improved earn-ings, meant that the Group had financial

INTRODUCTION ■

ANNUAL REPORT 2005 | 5

LEGO Group on the right track

Kjeld Kirk KristiansenVice-chairman

Jørgen Vig KnudstorpPresident and CEO

Mads ØvlisenChairman

■ INTRODUCTION


resources of DKK 2,604 million at the endof the year. The Group’s equity incl. minori-ty interests amounted to DKK 3,589 millionand the equity ratio was 47 per centagainst 36 per cent in 2004.

Consequently, the Group’s financial basehas improved considerably although theearnings from continuing activities havenot yet reached a satisfactory level.

The market for traditional toys is materiallyaffected by discount products, and inorder to be competitive, we must be ableto manufacture high-quality toys at lowcost. Therefore, labour intensive produc-tions have for some years taken placepartly in our factory in Kladno, the CzechRepublic, and partly at sub-suppliers, forexample in China. This necessary sourc-ing process has further accelerated andin 2005 meant that our factories in Koreaand - partly - in Denmark and Switzerland,were closed down and the productionwas 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 opendialogue with the employees concerningthe challenges and their possible solu-tions. Corporate Management has thuspromised to provide timely information onthe effects of the globalisation.

As part of our financial strategy, we soldthe majority shareholding in the LEGO-LAND Parks to Merlin EntertainmentsGroup. A decision we were sad to make,but which was necessary in order torelease financial and managementresources for the survival of the Group.The LEGO Group and KIRKBI are minorityshareholders in the new enterprise, whichalso comprises Merlin’s Sea Life, Dun-geons and Earth Explorer family attrac-tions. This was a good solution. The parksare run by a professional operator, who isable to create focus and synergy throughthe operation of several parks. Moreover,the parks still offer the special LEGOexperience, respecting the values andquality level of the LEGO brand.

During the first two years following thechange of strategy, primary focus hasbeen directed at establishing operationaland financial control as well as stability.These objectives have now beenreached; however, the new direction con-tinues. We have not yet reached a safeport of sustainable, value creating opera-tions. We reached the goals set for thisyear, but we aim at increasing our valuecreation year by year. This is the sharedobjective of the owners, the Board ofDirectors and Corporate Management.

Therefore, the challenge during the nextthree years continues to be to increasethe Group’s earnings. Earnings clearlyhave priority over top line growth. Not untilthe platform now created generates satis-factory earnings the Group will turntowards growth. In order to pilot theGroup in this direction, the Board hasdecided to extend Corporate Manage-ment and change and simplify the divi-sion of responsibilities within CorporateManagement in order to increase focuson both operational and strategic chal-lenges in the coming three years. As fromFebruary 2006, Corporate Managementwill consist of Jørgen Vig Knudstorp, Pres-ident and CEO, Jesper Ovesen, ExecutiveVice President and Henrik Poulsen, Exec-utive Vice President.

Considerable challenges are still facingthe LEGO Group and our employees, whohave - in this difficult, and for many alsopersonally insecure, situation - loyally sup-ported the Group. The owners, the Boardand Corporate Management are verygrateful for the great effort made by theLEGO employees during the year. We areaware that these loyal employees areamong the Group’s most essentialassets, 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 ■


Market and Results 2005The marketMost toy suppliers witnessed a difficultyear. A year characterised by the lack ofgrowth, increased supplies and keencompetition at the retail level where, forexample, the supermarket chains’ privatelabel products - often manufactured inChina - got more and more shelf space.This trend is most obvious in the USA, theUnited Kingdom and Scandinavia, but isalso gaining an impact on the continentalEuropean market. The increasing compe-tition at the retail level is felt throughincreased pressure on prices and conse-quently increased pressure on toymanufacturers’ profit margin.

The consumers are still to an increasingextent choosing the electronic productsinstead of traditional toys. Moreover, child-ren are today at a younger age losinginterest in traditional toys, which are beingreplaced by other products, such asmobile phones. This highly affects therequirements relating to the productrange of traditional toy-makers. Further-more, quickly changing fashion trendsamong the children are still shorteningthe market life cycle of traditional toys.These development trends mean that toymanufacturers are required to reduce theproduct development time and increaseflexibility in order to maintain their positionon the market.

Although 2005 was a difficult year for theentire toy industry, the LEGO Group man-aged to increase its market shares on aglobal basis. However, the trends in the

market still indicate considerable chal-lenges.

Revenue and profitThe LEGO Group’s profit/loss before taxwas considerably improved in 2005 froma loss of DKK 1,688 million in 2004 to aprofit of DKK 702 million in 2005. Theimprovement of DKK 2,390 million is,among other things, attributable to thelarge impairments of fixed assets and therestructuring expenses incurred by theLEGO Group in 2004.

The profit/loss before special items, finan-cial income and expenses and taximproved from DKK 63 million in 2004 toDKK 468 million in 2005. The improvementis attributable to an increase in revenue of12 per cent, corresponding to DKK 735million, and at the same time the expens-es, excluding royalties and bonus, werereduced by 8 per cent. In view of the factthat the year was affected by extensivechanges in the Group, and consideringthe negative development in the marketfor traditional toys, the results are consid-ered satisfactory.

The development in sales of LEGO prod-ucts from retailers to the consumers hasalso been positive, with an averageincrease of 9 per cent compared with2004. Retailers have reduced their inven-tories of LEGO products considerably in2005, and the mix of inventories held byretailers at the end of the year hasbecome healthier.

The increasing sales are also attributableto a better and closer dialogue with retail-

Report 2005

Jørgen Vig Knudstorp, President and CEO

■ REPORT 2005


ers than in previous years, and conse-quently a better possibility of meeting thewishes and needs of the retailers.

ProductsThe increased focus on the LEGOGroup’s core products has had a positiveeffect on the results for 2005. The list ofthe year’s biggest-selling productsincludes classical themes such as LEGOCity, LEGO Vikings and Mobile Cranefrom LEGO Technic as well as Ferrarimodels from LEGO Racers. An importantelement in the focus on core productshas been the ’pre-school’ area with thereintroduction of the DUPLO line. Classicproducts such as DUPLO Airport, DUPLOZoo, DUPLO Princess Castle and DUPLOKnights have contributed to the extensivegrowth of the DUPLO line.

The BIONICLE line is still the LEGO Group’sbiggest-selling theme. However, sales didnot live up to expectations in 2005. Twonew market-tuned themes, Vikings andDino, both surpassed expectations in2005, whereas one of the Group’s girls’products, CLIKITS, saw a decline in salescompared with 2004 despite several years’intense efforts in connection with thelaunching of the product. Consequently,the Group will not launch any new CLIKITSproducts after 2006.

As in previous years, the LEGO Group hasacquired the rights to manufacture con-struction toys tying in with cinema films. In2005 especially Star Wars™ was a greatsuccess, 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 successwas the launching of a new Star Warscomputer game, which – in accordancewith the LEGO Group’s strategy of focus-ing on core products - took place incooperation with an external partner. The

Star Wars computer game sold morethan 3 million copies and entered the top10 of computer games sold in the USA.

Result of the Action Planfrom March 2004

At the beginning of 2004, the LEGOGroup faced large challenges whichjeopardised the Group’s survival as anindependent, family-owned enterprise.The Action Plan for the last two years hasresulted in stability and a considerablereduction of financial risks.

In the Action Plan, the LEGO Group Boardand LEGO Group Leadership Teamemphasised three main themes:

1. Set clear direction for the LEGO Groupand fundamentally change the way wedo business.

2. Restore competitiveness by focusingon customers, in particular their profit-ability.

3. Reduce the level of risk by rightsizingour activities, cost base and assets toa lower revenue base.

Fundamental change of processesThe year 2005 primarily focused on fun-damentally improving the Group’s opera-tion and processes. The first part of theextensive restructuring of the value chainwas carried through, as the LEGO GroupLeadership Team decided to move theproduction activities from Switzerland toEastern Europe and to centralise theEuropean distribution centres in theCzech Republic. This is expected to leadto increased efficiency, improved servic-ing of the European market and cost sav-ings. At the same time, the number ofcomponents for the various LEGO mod-els was reduced, which made the value

R E V E N U E S P L I T 2 0 0 4

Americas and Pacific - 28%

Europe, Asia and Emerging - 58%

Direct to consumer - 9%

Other - 5%

R E V E N U E S P L I T 2 0 0 5

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 ■


■ REPORT 2005


chain more flexible and resulted in costreductions.

A number of new management process-es were established, including processesto improve profitability calculations relat-ing to both customers and products. Theeffort to improve the Group’s processesalso resulted in a more precise produc-tion planning process which betterensures the possibility of adjusting theproduction capacity to customerdemand. Furthermore, the product devel-opment process has undergone funda-mental changes so that the productdevelopment time from the birth of anidea to the finished product has beenreduced and, for several products, evenhalved.

Restoration of competitivenessThe relations to key customers all overthe world were strengthened, and a clos-er dialogue as well as an extensive cus-tomer satisfaction analysis increased theLEGO organisation’s knowledge of thecustomers’ priorities and their attitudetowards possible improvements relatingto the LEGO Group. Based on this knowl-edge, a number of measures have beeninitiated, including efforts to increase theindividual customer’s profitability. More-over, the Group’s sales force has beenstrengthened through competencedevelopment and improved processes(the KAM improvement project). Theincreased focus on core products andthe introduction of new product lineshave 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 isreflected by the favourable developmentin the LEGO Group’s market shares andearnings. Similarly, a number of theGroup’s customers have enjoyed betterearnings driven by increased sales ofLEGO products, a better profit marginand an increased rate of inventory turn-over.

Rightsizing of activities, cost base and assetsThe reduction of risks through the right-sizing of activities, cost base and assetscontinued in 2005. It was decided to out-source the production of selected pro-duct lines, such as Bionicle boxes andthe entire DUPLO range, and the Group’sown tool factory in Switzerland was sold.Moreover, considerable cost-savings in allthe functions of the Group have had fullimpact in 2005 as a consequence ofmeasures initiated in 2004. Due to thesemeasures, the Group’s underlying costswere reduced by a further DKK 314 millionin 2005 compared with 2004. Since 2003the cost level has been reduced by morethan DKK 1,600 million. The Group’s totalassets 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 companyaircraft. Towards the end of the year, allthe Group’s production facilities in Swit-

Søren Torp LaursenSenior Vice PresidentAmericas, Australia & New Zealand

REPORT 2005 / RESULT OF THE ACTION PLAN FROM MARCH 2004 ■


zerland were put up for sale and areexpected sold in 2006. Moreover, theGroup sold off two business activities in2005, KOMPAN A/S and the LEGOLANDParks.

The sale of the LEGOLAND Parks wasdecided in the autumn of 2004, as theparks constituted a business area whichdid not directly tie in with the core busi-ness of the LEGO Group. The sale wascarried through in July 2005 and wasfinally approved by the competitionauthorities on 24 August 2005. The buyerswere Blackstone Capital Partners incooperation with Merlin EntertainmentsGroup, which owns and runs Sea Life,Dungeons and Earth Explorer. Theseattractions are based on the same funda-mental values as LEGOLAND and haveproved very successful within the enter-tainment industry.

The transaction was carried through bymerging the LEGOLAND Parks into a newcompany together with Merlin Entertain-ments Group. Together with KIRKBI, theLEGO Group holds 30 per cent of theshare capital in the new company. Thesales price for the Parks amounted tonearly DKK 2.8 billion. Net proceeds foraccounting purposes amounted to DKK200 million.

The sale contributed to the financial posi-tion of the Group being improved from anet interest-bearing debt of more thanDKK 3,000 million in 2002 to positive netliquidity of DKK 1,292 million at the end of2005. By implementing the Action Plan,

the Group has thus succeeded in estab-lishing a considerably improved financialbase.

The financial position stabilised in thecourse of 2005. However, the LEGOGroup is still facing considerable strate-gic challenges, including increasing com-petition at the retail level, competitionfrom electronic products and the trendthat children are losing interest in toys ata younger age. Challenges which shouldall be addressed in the prospective strat-egy in order to ensure long-term survival,growth and lasting value creation for theGroup.

The future strategy The overall objective of the Action Planwas to return the LEGO Group to profit-ability and financial stability and at thesame time keep the Group in the privateownership of the Kirk Kristiansen family.As a natural continuation of the plan forthe period 2004-2005, LEGO Group Lead-ership Team in 2005 developed a strategyaddressing future challenges.

The strategy is based on a number of “assets” and values which differentiate theLEGO Group from other players on thetoy market. The inheritance and history ofthe LEGO Group play a decisive role, andthe three classic LEGO values - “Creativ-ity”, “Fun” and “Quality” - will form the futurebasis of the Group, together with itsunique “assets”: the brick, the modularconstruction system, the LEGO brand,LEGO’s loyal consumers and “commu-nities”. Moreover, the Group’s direct

■ REPORT 2005


access to consumers in the form of owndirect sales to consumers and a strongposition as a key partner to retailers isconsidered a very important asset.

The Group’s objective in the coming threeyears will therefore be to deliver creativequality toys to core consumers and retail-ers at a satisfactory profit by refocusingon the Group’s lasting values and uniqueassets. This means that, in the period2006-2008, the LEGO Group will focus onimproving value creation by still focusingon the Group’s special “assets”. In thatperiod, earnings and return on assets aregiven higher priority than sales growth.

1) Direct dialogue between the LEGO Group and LEGO consumers to drive innovationA closer relationship should be estab-lished between LEGO and the consu-mers. For example, loyal LEGO fansshould be serviced through a numberof measures, such as LEGO Factory. It isthe ambition that product developmentand process improvements should takeplace in close dialogue with LEGO fans,who should through different channelshave the possibility of presenting ideasto the Group’s designers.

The many adult LEGO enthusiasts allover the world, comprising an increas-ingly active group of fans, should alsobe involved. The Ambassador Pro-gramme is an official programmewhich invites adult LEGO fans to sharetheir enthusiasm for the LEGO ideaand LEGO products and encouragesinteraction in the global LEGO commu-nities. Moreover, the LEGO CertifiedProfessionals programme caters foradult fans who, wholly or partly, live bytheir LEGO hobby and therefore wishto enter into cooperation with theLEGO Group.

2) Strengthened approach to sales anddistribution channels to drive earn-ings and salesThe effort of creating extraordinaryvalue for retail customers should con-centrate on more efficiently meetingthe wishes and requirements of theretailers. The Group will continue tofocus on ensuring that the productportfolio will, on a future basis, consistof innovative products and new cate-gories, supplemented with marketingmeasures in order to support retailsales.

3) Continued streamlining and optim-isation of Group operations toimprove earnings and service levelThe new strategy will focus on continu-ing the modernisation, rightsizing andoptimisation of operating processes.The objective is, among other thingsthrough outsourcing, to ensure materi-al improvement of the LEGO Group’ssupply performance at a lower cost.This effort will strengthen the two otherfocus areas of the strategy, as retailcustomers will enjoy increased flexibil-ity, and the consumers will see thattheir demand can be met more effi-ciently.

In the long term, i.e. from 2009 andonward, there will be focus on creatingmoderate growth through the intensifiedinnovative efforts initiated.

Organisational Structureand LeadershipGroup structureIn the continued efforts to simplify thestructure and adjust the business devel-opment of the LEGO Group, a number ofsubsidiaries were sold within the Group in

Mads NipperSenior Vice PresidentProduct- & Marketing Development


REPORT 2005 / ORGANISATIONAL STRUCTURE AND LEADERSHIP ■

■ REPORT 2005


2005 and the ownership was transferredfrom Swiss to Danish ownership.

Moreover, as planned the Group’s directownership and operation of the LEGO-LAND Parks were sold and replaced by aconsiderably smaller financial investmentin the form of an ownership share of 15per cent. (The Group structure is shownon 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 developmentorganisation, the ”Markets & Products”division, is to focus on creating value forthe customers (the retailers) and at thesame time ensure a higher degree ofinnovation in product development drivenby consumer demand and a close dia-logue with the dealers.

The division “Community, Education andDirect” is to develop the Group’s existingand new direct-to-consumer sales chan-nels and ensure that the unique LEGOcommunities are catered for throughdirect dialogue. At the same time, this divi-sion is to ensure that future innovation isbased on the Group’s thorough knowl-edge of consumer needs and, wherepossible, actual cooperation should beentered into with the consumers.

In order to ensure optimal operation andefficiency, all supplies of products via thevalue chain as well as supplies of servic-es via support functions, i.e. Supply Chainand Central Functions, will now be unitedin 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 CentralFunctions), has been strengthenedthrough the appointment of Henrik Poul-sen as Executive Vice President respon-sible for Sales, Product Development andMarketing.

At the same time, the existing LEGOGroup Leadership Team was dissolved.The changes in the organisation areintended to ensure that Corporate Man-agement will be able to focus on the stra-tegic direction of the Group, while thethree Division Management Teams havebeen authorised to be in charge of day-to-day operations.

New Board membersAt the General Meeting of LEGO HoldingA/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, andTorben Ballegaard Sørensen, CEO ofBang & Olufsen, replacing AndersMoberg and Lars Kann-Rasmussen, whowished to retire from the Board.

Employees and Corporate Culture

In order to support the successful imple-mentation of the strategy, 2006 will focuson strengthening personal leadershipthroughout the organisation and on fur-ther developing competences within sup-ply chain, key account management andinnovation. Moreover, efforts were made in2005 to establish a flatter organisation witha simpler management structure in orderto ensure a more streamlined, responsive

Henrik PoulsenExecutive Vice PresidentMarkets, Product develop-ment & Marketing

REPORT 2005 / EMPLOYEES AND CORPORATE CULTURE ■


■ REPORT 2005


and profitable group. This work will contin-ue in 2006. Furthermore, the Group’sincentive-based remuneration schemewill be further strengthened in order tocontinue the efforts towards a more result-oriented culture within the Group.

A more result-oriented LEGO cultureAlso in 2005, the Group worked on direct-ing the LEGO Group towards a moreresult-oriented culture. In order to do so, itwas necessary to modernise andchange 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 heavydemands on the entire organisation. It isdifficult having to face a future where allemployees have to constantly live withlarge - internal as well as external - chal-lenges and changes, without enjoying thejob certainty previously characterising theLEGO Group.

Corporate Management is therefore work-ing on ensuring open, honest and timelycommunication in all situations. Togetherwith the introduction of many new dia-logue possibilities between CorporateManagement and the employees, thisforms 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 tothe employees. The Performance Man-agement Programme in 2006 has beensimplified and targeted to support theGroup’s strategy for the coming yearsand provide the individual employee withfurther incentives and possibilities for rec-ognition of their efforts. The PerformanceManagement Programme is also intend-ed to promote the understanding of howthe individual employee may contributeto the Group’s results and to improve indi-vidual targets.

Developing talentDuring 2005 the LEGO Group stillfocused on developing leadership talent.The objective of this effort is to motivateand retain high-potential employees andthus ensure continuity and consistency inthe future leadership of the Group.

Corporate responsibilityof the LEGO GroupSocial responsibility towards consumers,employees and the environment plays acentral role in the LEGO Group’s inheri-tance and history. Corporate Manage-ment feels strongly about ensuring thatthe Group will also in future maintain thiscommitment and that the Group’s activ-ities and processes are carried out on asustainable basis. Therefore, in 2005 theLEGO Group initiated the preparation ofits first coherent sustainability strategy,which is expected approved and imple-mented in the course of 2006. This will

Jesper OvesenExecutive Vice PresidentSupply Chain & Central Functions

REPORT 2005 / CORPORATE RESPONSIBILITY OF THE LEGO GROUP ■


involve increased information and trainingof employees and leaders.

Global CompactThe LEGO Group joined the UN GlobalCompact in 2003 as the first - and so faronly - enterprise in the toy industry. As aparticipant in Global Compact, the LEGOGroup is obliged to continue its workwithin the four areas: human rights, labourstandards, environment and the fightagainst corruption. In 2005 the LEGOGroup integrated the principles from Glo-bal Compact into a number of group pol-icies, so that these reflect the principlesand ideals expressed in Global Compactand a number of international declara-tions, for example the UN Declaration ofHuman Rights. Particularly as regards thefight against corruption, Corporate Man-agement decided in the autumn of 2005to initiate a project with the objective ofdeveloping and specifying internal guide-lines for business integrity. The project willbe carried through in 2006.

Revision of LEGO Group Code of ConductThe LEGO Group Code of Conduct is aset of guidelines on the behaviourexpected of the Group and its suppliersin relation to a number of ethical stan-dards in decisive areas.

The comprehensive optimising and costreduction in the LEGO Group value chainwill result in the relocation, in whole or inpart, 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 inorder to determine whether the Group’sCode of Conduct sufficiently covered anynew issues that may arise in connectionwith the transfer of workplaces to thesecountries. This resulted in a revision of theCode of Conduct in 2005 and a changeof procedures so that new, potential keysuppliers will be subjected to examinationbefore an actual agreement is signed.

The LEGO Group moreover participatesin the work within the toy industry ofensuring that working conditions etc. withthe suppliers fulfil a number of minimumrequirements. This work is carried outunder the ICTI-CARE programme. Howev-er, so far this only applies to China, HongKong and Macau.

In 2005 the number of audits wasreduced from 92 audits in 2004 to 27 aud-it visits and 12 follow-up visits. The reduc-tion is attributable partly to the transfer ofthe responsibility for the audits to thelicence partners of the LEGO Group, andpartly to the introduction of ICTI-CAREapproval of toy suppliers in China. Thishas resulted in considerable cost-savingsand the possibility of using more resourc-es on follow-up and direct contact withsuppliers.

Product qualityThe LEGO Group wants to ensure contin-ued high product quality and has there-fore revised its policy for the choice ofmaterials in 2005. In this connection, therestrictions in respect of the use of PVCand phthalates have been specified.

■ REPORT 2005


Consequently, the decorative paint usedon play materials has been improved sothat, like the LEGO bricks, it contains nophthalates. Moreover, closer cooperationhas been introduced between the cus-tomer service call centres and ProductDevelopment so that consumer com-ments and wishes are to an even higherdegree taken into consideration in theproduct development process.

Environmental obligations and actionIt remains LEGO Group policy that envi-ronmental considerations must be takeninto account in all relevant processes,and that continuous efforts should bemade to minimise any environmentalimpact caused by the Group’s activities.

In 2005 the LEGO Group drew up a newenvironmental policy which meets envi-ronmental requirements, both globallyand locally. The policy will be approvedand implemented in 2006. The LEGOGroup continues to work towards globalimplementation of the environmentalmanagement system ISO 14001. In 2005global procedures and requirementswere developed, and a new environmen-tal management intranet was establishedto improve and simplify the Group’s com-munication concerning environmentalrequirements, both locally and globally.

In Billund a system for the registration ofwaste was developed and implementedin 2005. A system for registering additiveshas also been implemented. All sub-stances have been mapped, and a newsystem for directions for use has beenimplemented.

Moreover, in 2005 the Group obtainedenvironmental approval of the plasticmoulding factory at Kornmarken, Billund.The approval was granted by the Munici-pality of Billund.

Efforts to reduce workplace accidentsand introduction of a global occupa-tional health and safety policyThe health and safety of the employeeshave always been of special concern forthe LEGO Group. Therefore, efforts areconstantly being made to secure healthyand safe working conditions at all theGroup’s locations. This is done in recogni-tion of the human right to an acceptableworking environment as well as the real-isation that healthy and satisfied employ-ees are more productive.

In 2005 a new occupational health andsafety policy was drawn up andapproved, covering all the Group’s activ-ities worldwide. The implementation of thepolicy will take place in 2006. A new healthand safety website has been establishedfor the employees in order to simplify glo-bal communication relating to workingenvironment.

The LEGO Group continues to worktowards global implementation of theoccupational health and safety manage-ment system OHSAS 18001. The Group’sactivities in Denmark were certified in2003. The implementation in the CzechRepublic and the USA will be completedat the end of 2006, and at the same time,Billund must be recertified.

In 2005 working environment at the sitesin Denmark was improved by means ofwork place assessments. The number ofregistered health and safety problemswas nearly halved in 2005. A new systemfor registering and handling working envi-ronment problems is ready for implemen-tation in the spring of 2006. Unfortunately,the number of registered accidentsresulting in absence has doubled from 27accidents in 2004 to 50 accidents in 2005.Such a heavy increase in the number ofaccidents is not acceptable to the Group,

REPORT 2005 / CORPORATE RESPONSIBILITY OF THE LEGO GROUP ■


■ REPORT 2005


and in 2006 the Group will focus on iden-tifying the reasons for the accidents andimproving the efforts to reduce the num-ber of accidents.

In 2006 the organisation will continue tofocus on the general work environmentas well as staff well-being. In this connec-tion, there will be focus on a number offactors affecting the well-being of theemployees. The programme was intro-duced in the autumn of 2005 with ahealth campaign offering the employeesat Billund health examinations. In 2006the employees will be offered to partici-pate in stop-smoking courses and con-trolled weight reduction programmes.

The registration of environmental andworking environment data will be extend-ed and standardised at all locations asthe management systems are imple-mented. This will provide the LEGOGroup with an overall picture of theGroup’s environmental impact and healthand safety issues, which will enable theGroup to make an improved, goal-orient-ed effort.

Charity workThe Group’s policy for charity work andproduct donations also in 2005 aimed athelping children in need by providingsupport for creative play and develop-ment. In December Danish employeeshad the possibility of participating as vol-unteers in connection with the charityorganisation Save the Children’s distribu-tion of LEGO Christmas presents to sickchildren in Danish hospitals. Moreover,the employees in the USA carried outfund raising for the victims of the hurri-cane Katrina.

The Kirk family foundations also in 2005supported a number of LEGO projectsand humanitarian and social pro-

grammes, including donations from Edith& Godtfred Kirk Christiansen’s Fund, viaSave the Children, for relief work in con-nection with the tsunami disaster in Asiaand donations from Ole Kirk’s Fund forrelief 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 supportingchildren’s possibilities relating to creativeplay and development. These initiativeswill to the widest possible extent give theemployees the opportunity of activeinvolvement.

Expectations for 20062006 will be another difficult year for theLEGO Group. The size of the global toymarket is still expected to contract, andthe 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 withclassic construction toys, the Groupexpects to maintain its market position in2006 based on a smaller, but financiallystronger and more competitive Group.

No films supporting existing or new prod-ucts will be launched in 2006, and Grouprevenues are expected to decreaseslightly compared with 2005. The focuson earnings will continue, both throughproduct and customer profitability andthrough streamlining, which will involvetransferring production - in whole or inpart - to low-cost countries.

On this basis, a profit before tax in theregion of DKK 500 million is expected in2006 compared with DKK 456 million in2005, which reflects the need for a furtherincrease in earnings in the coming years.

REPORT 2005 / EXPECTATIONS FOR 2006 ■

■ REPORT 2005



REPORT 2005 ■

■ ACCOUNTS

Annual Report 2005


FINANCIAL REPORT ■


The financial report is based on the con-tinuing activities, the toy business, unlessotherwise stated. The discontinuing activ-ities relating to LEGOLAND Parks andKOMPAN 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 salesincreases in all business areas.

• The gross margin of 58 per cent ison the same level as in 2004.

• In 2005 total profit/loss before taxamounted to DKK 702 million againstDKK -1,688 million in 2004. The profitof DKK 702 million comprises profitfrom continuing activities before taxof DKK 456 million and profit fromdiscontinuing activities before tax ofDKK 246 million.

• The profit/loss before special items,financial income and expenses andtax amounts to DKK 468 millionagainst DKK 63 million in 2004.

• Total assets have been reduced byDKK 400 million to DKK 7,689 million.The return on invested capital was 19per cent (ROIC).

• The Group’s financial resources havebeen improved from DKK -82 millionat 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, correspondingto an equity ratio of 47 per cent (57per cent including subordinate loancapital). Return on equity after taxwas 18 per cent.

• Free cash flows of DKK 2,549 millionhave been realised for the year, ofwhich the majority relates to thediscontinuing activities.

Group structureAs part of the simplification of the Groupstructure, LEGO A/S in 2005 acquired anumber of subsidiaries in INTERLEGO AG.As LEGO Holding A/S owns both LEGO A/Sand INTERLEGO AG, the structural chang-es have no effect on this Annual Report, cfalso “LEGO Holding A/S Group - Groupstructure”.

Net profit/loss for the yearThe net profit/loss for the year includingdiscontinuing activities was a profit of DKK505 million against a loss of DKK 1,931 milli-on in 2004, corresponding to an increasein results of DKK 2,436 million.

The Group’s core business - toys - hasseen considerable operating progress in2005, and the profit/loss before specialitems and financial income and expenseshas increased from DKK 63 million in 2004to DKK 468 million. The increase is due to acombination of increasing revenue andcost savings.

Expenses of a nonrecurring nature paid inconnection with restructuring and impair-ment of fixed assets in 2005 amount toDKK 9 million, whereas last year theseamounted to DKK 1,225 million.

Financial net expenses for the year decre-ased to DKK 20 million, corresponding toan improvement of DKK 55 million compa-red to 2004, and are attributable to theGroup’s changed capital structure as wellas exchange gains.

Of the net profit for the year of DKK 505 mil-lion, DKK 331 million is attributable to profitfrom continuing activities, whereas the pro-fit from discontinuing activities amounts toDKK 174 million.

Due to the positive development in resultsand balance sheet, the Group’s financialratios have improved considerably. Theoperating margin (ROS) is 7 per cent aga-inst -18 per cent in 2004. Moreover, thereturn on invested capital (ROIC) is 19 percent in 2005 against 1 per cent in 2004.

RevenueIn accordance with generally acceptedpractice in the toy business, the account-ing treatment of various contributions tothe retail sector was changed in 2005.Gross sales were reduced by various con-tributions granted to the retail sector toachieve certain gross sales. Previously,such contributions were classified assales expenses. Comparative figures forprevious years have been restated.

In the financial year 2005, the Group achie-ved revenue of DKK 7,050 million againstDKK 6,315 million in the previous year, cor-responding to an increase of 12 per cent.In local currencies sales increased by 9per cent, whereas the positive effect fromincreasing exchange rates amounts to 3per cent.

The increasing revenue is driven by salesincreases in all business areas, Europe,Asia and Emerging Markets, the Americasand the Pacific and Direct to Consumer.

Jesper OvesenExecutive Vice President & COO - Supply Chain & Central Functions

FINANCIAL REPORT

■ FINANCIAL REPORT

Annual Report 2005


As in previous years, the exchange rateeffect on the Group’s sales is attributableprimarily to the development of the US dol-lar. This has increased in 2005 - especiallyin the autumn, which is the Group’s peakseason for sales.

Gross marginThe gross margin of 58 per cent is on thesame 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 bychanges in exchange rates to the sameextent as revenue.

ExpensesOther operating expenses amount to DKK3,702 million in 2005 against DKK 3,713 milli-on last year. Sales and distributionexpenses and administrative expenseshave increased in 2005 due, among otherthings, to increased activity and staffbonus. Other operating expenses havedecreased in spite of increasing royaltypayments based on increased sales.

Licence and royalty expensesThe LEGO Group has entered into a num-ber of royalty and licence agreements withinventors, designers and other licenseeswith a view to using intellectual rights,including protected trademarks. In 2005,DKK 300 million was paid according tosuch agreements against DKK 224 millionthe year before. Expenses relating to licenc-es and royalty are included in productioncosts and other operating expenses.

Impairment of fixed assetsAccording to the accounting policiesapplied, impairment tests have been per-formed where there is internal or externalindication of impairment of individualassets or groups of assets. In 2005, no fur-ther need for impairment has been identi-fied, but instead reversals have beenmade of impairments previously made ofDKK 46 million and DKK 49 million, respec-tively, in connection with sale and reas-sessment of fixed assets.

Restructuring expensesIn continuation of the measures initiated in2004, expenses for restructuring totallingDKK 104 million were paid and provided forin 2005. This comprises expenses for clos-ing down and moving production as wellas reduction in the number of the Group’sretail shops. A small part relates to allow-ances to employees in connection withdiscontinuation of their employment.

Profit/loss in associatesThe Group’s investment in Merlin Enter-tainments Group Luxemburg S.á.r.l. yieldeda profit after tax of DKK 17 million. Theinvestment was made in August 2005.

Financial income and expensesNet financial expenses amounted to DKK20 million in 2005, which is an improve-ment of DKK 55 million compared with2004. Raising of mortgage loans as well asrelease of liquidity at the sale of LEGO-LAND Parks made it possible to changethe Group’s capital structure and in thisconnection settle loans from credit institu-tions existing at the beginning of 2005.Consequently, interest expenses werereduced in 2005.

The interest risk of the LEGO Group isattempted minimised by ensuring amatch between liabilities and assets. Fur-thermore, risks from the use of interestswaps and options are hedged.

The Group’s exchange risk relates to thelack of balance between income andexpenses in the individual currencies aswell as excess assets over liabilities in sub-sidiaries. The exchange risks relate primar-ily to US dollars, EUR, Swiss francs andJapanese yen and are as far as possibleattempted hedged by matching pay-ments received and made as well asdeposits and loans in the same currency.In addition, forward contracts and curren-cy options are applied.

Net financial expenses for the year arepositively affected by exchange adjust-ments of DKK 81 million.

TaxCurrent Tax for the year amounts to DKK125 million against DKK 236 million in theprevious year. Irrespective of the lossbefore tax, a tax expense was realised in2004, which is due to the fact that deferredtax relating to impairments of fixed assetsas well as provisions for restructuring wasnot capitalised. Sale of discontinuing activ-ities, primarily LEGOLAND Parks, did notimmediately result in tax payable. However,tax has become payable in connectionwith the Danish buildings which werecomprised by the sales transaction, butwhich were not previously owned byLEGOLAND A/S.

The deferred tax assets for the year amountto DKK 430 million and provisions fordeferred tax to DKK 196 million. The deferredtax 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 againstfuture earnings within a few years.

Balance sheetIn the continued efforts to reduce risks,further adjustment was made in 2005 ofthe Group’s balance sheet to the futurelevel of activity, and therefore total assetshave been reduced by 5 per cent fromDKK 8,089 million in 2004 to DKK 7,689 mil-lion. The mix is significantly improvedtowards more liquid assets in connectionwith the sale of the ownership shares inthe LEGOLAND Parks, KOMPAN A/S andother fixed assets.

Property, plant and equipmentProperty, plant and equipment amount toDKK 1,199 million, a decrease of DKK 395million, which is primarily attributable tobuildings and production equipmentwhich were classified as being availablefor sale in connection with the decision toclose down the production in Switzerland.

In accordance with group policy, theinvestment level was also low in 2005.Gross investments in property, plant andequipment amount to DKK 265 million in

FINANCIAL REPORT ■


2005, a reduction of 42 per cent (DKK 192million) compared with the previous year.In 2005 a profit of DKK 79 million was real-ised from the sale of property, plant andequipment.

Fixed asset investmentsGross fixed asset investments amount toDKK 326 million and are primarily attribut-able to the investment in the associateMerlin Entertainments Group LuxemburgS.á.r.l., the jointly owned company whichwas founded in connection with theGroup’s sale of the LEGOLAND Parks. Prof-it after tax from the investment amounts toDKK 17 million in 2005.

Current assetsAt the end of 2005 inventories were on thesame level as in the previous year, where-as trade receivables are somewhat higherbased on the higher realised sales in the4th quarter.

The Group’s credit risk relating to debtors’lack of ability to pay is attempted mini-mised by using a global credit insuranceprogramme.

Fixed assets for sale are in all materialityon the same level as last year, but the mixof the assets has changed. The majority offixed assets put up for sale at the begin-ning of 2005 have been sold, but the deci-sion to close down the production facilitiesin Switzerland resulted in new assetsbeing put up for sale at the end of 2005.

EquityAt the end of 2005, equity amounted toDKK 3,589 million (including minority intere-sts) against DKK 2,948 million at the end of2004, an increase of 22 per cent.

The net profit for the year has increasedequity by DKK 535 million, whereas exchan-ge adjustments of foreign subsidiaries aswell as adjustment of financial instrumentsaffected 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 DKK800 million is included, the equity ratioamounts to 57 per cent.

Long-term debtsIn 2005 the LEGO Group continued itsefforts to change the Group’s capitalstructure. Long-term debts to credit institu-tions have at the beginning of the yearbeen paid; partly in connection with thesale of the LEGOLAND Parks, and partly byraising mortgage loans totalling DKK 551million. Total long-term debts have beenreduced by 44 per cent or DKK 1,039 milli-on to DKK 1,312 million.

In connection with the current financing ofinvestments and operations, the Groupmust ensure an adequate and flexibleliquidity base, which is achieved throughcontinued focus on cash flows as well assecuring adequate drawing rights. Theliquidity base comprises deposits in banksas well as guaranteed drawing rights.

It is attempted to limit credit risks in con-nection with financial partners by usingpartners with high creditworthiness.

Cash flows Cash flows from operating activities of theLEGO 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 beenreduced as a consequence of continuedfocus on this.

Total free cash flows, including discontinu-ing activities, amount to DKK 2,549 millionagainst DKK 538 million in 2004. A positiveeffect of DKK 2,386 million is attributable tothe discontinuing activities, whereas DKK-1,621 million relates to reduction of theexternal loan capital.

Based on the net profit for the year as wellas cash flows from the sale of the LEGO-LAND Parks, the Group’s financial resour-ces are significantly improved at the endof 2005 compared with the previous year.

Discontinuing activitiesIn 2004, it was decided to sell the Group’sLEGOLAND Parks, and the transactionwas carried through in July 2005 to MerlinEntertainments Group, which is owned byBlackstone Capital Partners, for EUR 375million. In connection with the sale, a jointlyowned company was established, inwhich Blackstone Capital Partners holds70 per cent, the LEGO Group holds 15 percent and KIRKBI holds the remaining 15per cent. The investment in the associateMerlin Entertainments Group LuxemburgS.á.r.l. has been recognised as a fixedasset investment in the balance sheet.

The profit after tax of the discontinuingactivities amounts to DKK 174 million for2005 against DKK -458 million in 2004. Theprofit for the year includes operating profitfor the period 1 January - 30 June 2005 aswell as profit from the sale of the LEGO-LAND Parks, a total of DKK 147 million. Tothis should be added a profit of DKK 99million from sale of the remaining KOMPANA/S shares.

■ ACCOUNTING POLICIES

Annual Report 2005


Accounting Policies

The Annual Report of LEGO Holding A/Shas been prepared in accordance withthe provisions of the Danish FinancialStatements Act applying to large enterpris-es of reporting class C.

The accounting policies applied areunchanged compared to previous years.

In order to meet industry standards for therecognition of expenses relating to “Contri-bution To Trade” (CTT), it has been decidedto 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 investmentsin subsidiaries is recognised after tax. Taxconcerning investments in subsidiarieswas previously stated as a separate itemunder corporation tax. The amount is DKK200 million for 2005 (DKK 210 million for2004).The comparative figures have been restat-ed accordingly.

True and fair viewThe LEGO Group has chosen to departfrom the requirements of the DanishFinancial Statements Act as to the formatof the income statement and the balancesheet in order to give a true and fair viewof continuing and discontinuing activities,which are presented as separate items.The departure does not affect the profit,total assets and liabilities or equity.

Discontinuing activitiesA discontinuing activity is defined as abusiness area for which a decision con-cerning discontinuation has been madeand published.

Net profit/loss on discontinuing activities,profit and loss on disposal of assets andsettlement of liabilities related to this aswell as the related tax effect are presented

as separate items. Assets and liabilities ofdiscontinuing activities are recognised asseparate items in the balance sheet.

ConsolidationThe Consolidated Financial Statements ofLEGO Holding A/S comprise the ParentCompany and the companies in whichLEGO Holding A/S directly or indirectlyholds more than 50 per cent of the votesor otherwise exercises control. Thesecompanies are listed in the section “LEGOHolding A/S Group - Group structure”.

The Consolidated Financial Statementswere prepared on the basis of the financialstatements of the companies comprised,as a combination of items of a uniformnature and according to the sameaccounting policies.

Elimination has been made of intercompa-ny sales and purchases, interest, divi-dends, shareholdings, receivables andpayables as well as of intercompany prof-its and losses.

Minority interestsAt the calculation of group results andgroup equity, the shares of the results andequity of the subsidiaries attributable tominority interests are recognised as sep-arate items in the income statement andthe balance sheet. Minority interests arerecognised on the basis of remeasure-ment of acquired assets and liabilities tofair value at the time of acquisition of thesubsidiaries.

On subsequent changes to minority inter-ests, the changed share is included inresults as of the date of the change.

Recognition and measurementRevenues are recognised in the incomestatement as earned, including recogni-tion of value adjustments of financialassets and liabilities. Furthermore, allexpenses are recognised in the income

statement, including amortisation, depre-ciation and impairment losses.

Assets are recognised in the balancesheet when it is probable that future eco-nomic benefits attributable to the asset willflow to the LEGO Group, and the value ofthe asset can be measured reliably.

Liabilities are recognised in the balancesheet when it is probable that future eco-nomic benefits will flow out of the LEGOGroup, and the value of the liability can bemeasured reliably.

Assets and liabilities are initially measuredat cost. Subsequently, assets and liabilitiesare measured as described for each itembelow.

Certain financial assets and liabilities aremeasured at amortised cost, whichinvolves the recognition of a constanteffective interest rate over the maturityperiod. Amortised cost is calculated asoriginal cost less any repayments and withaddition/deduction of the cumulativeamortisation of any difference betweencost and the nominal amount.

Recognition and measurement take intoaccount predictable losses and risksoccurring before the presentation of theAnnual Report which confirm or invalidateaffairs and conditions existing at the bal-ance sheet date.

Translation policiesThe balance sheets of foreign subsidiariesare translated into Danish kroner at theexchange rates at the balance sheet date,whereas the income statements are trans-lated at calculated average exchangerates. Exchange adjustments arising onconsolidation are recognised directly inequity.

Where intercompany loans are long-term,these are considered an addition to the

ACCOUNTING POLICIES ■


net assets of the subsidiary, and ex-change adjustments are recogniseddirectly in equity. Exchange adjustment ofexternal loans contracted for the hedgingof such intercompany loans are also rec-ognised directly in equity.

Other balance sheets in foreign curren-cies are translated into Danish kroner atthe exchange rates at the balance sheetdate. Realised and unrealised gains andlosses are recognised in the incomestatement.

Derivative financial instrumentsDerivative financial instruments are initiallyrecognised in the balance sheet at costand are subsequently measured at theirfair values. Positive and negative fair valuesof derivative financial instruments areincluded as prepayments and deferredincome, respectively.Changes in the fair values of derivativefinancial instruments that are designatedand qualify as fair value hedges of a rec-ognised asset or a recognised liability arerecognised in the income statement asare any changes in the fair value of thehedged asset or the hedged liability.

Changes in the fair values of derivativefinancial instruments that are designatedand qualify as hedges of expected futurecash flows are recognised in equity. If thefuture transaction results in the recognitionof assets or liabilities, amounts previouslyrecognised in equity are transferred fromequity and recognised in the cost of theasset or the liability, respectively. If thefuture transaction results in income orexpenses, amounts recognised in equityare transferred to the income statement inthe period in which the hedged itemaffects the income statement.

Income Statement

RevenueRevenue comprises the value of goodsand services delivered in the period. Reve-nue is recognised exclusive of VAT and netof discounts relating to sales.

Amortisation and depreciationIntangible assets are amortised, and pro-perty, plant and equipment are depreci-ated over the expected useful lives of theassets:

Straight-line amortisation/depreciation:Intangible assets 5 yearsBuildings 25 yearsPlant and machinery 2-20 yearsOther fixtures and fittings, tools and equipment 3-10 yearsMinor acquisitions are expensed in theyear of acquisition.

LeasesLeases in respect of property, plant andequipment where the Group does notassume substantially all the risks andrewards of ownership are classified asoperating leases and are recognised inthe income statement on a straight-linebasis over the term of the contract.

Incentives (such as rent-free periods, redu-ced periods, reimbursement of expenses,etc.) relating to operating leases arerecognised on a straight-line basis overthe term of the contract.

Special itemsSpecial items comprise material amountsof a nonrecurring nature that do not relateto ordinary operating activities, including,for example, impairment of intangibleassets and property, plant and equipmentto recoverable amount, restructuring ex-penses and reversals, if any.

Profit on investments in subsidiaries and associatesThe proportionate share of the profit forthe 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 expensesFinancial income and expenses compriseinterest, financial expenses in respect offinance leases, realised and unrealisedexchange adjustments, price adjustmentof securities, amortisation of mortgageloans as well as extra payments andrepayment under the on-account taxationscheme.

Corporation tax and deferred taxCurrent tax for the year, based on calcu-lated taxable income for the year, isexpensed together with the change forthe year in deferred tax calculated underthe liability method.

Any changes in deferred tax due to chan-ges to tax rates are recognised in theincome statement.

Provision has been made for calculatedtax payable and for deferred tax on tem-porary differences between the carryingamount and the tax base of assets and lia-bilities calculated at the balance sheetdate.

The provision for deferred tax reflects theeffect of any tax loss carry-forwards etc. tothe extent it is considered likely that thesecan be utilised against future taxable inco-me. To the extent calculated deferred taxis positive, this is recognised in the balan-ce sheet as a deferred tax asset at theexpected realisable value.

Balance Sheet

Research and development costsResearch costs are recognised in theincome statement as incurred. Develop-ment costs including overhead costs arerecognised in the balance sheet as intan-gible assets if the costs are assessed togenerate future economic benefits for the

■ ACCOUNTING POLICIES

Annual Report 2005


Group. Other development costs areexpensed in the period in which they incur.Development costs are amortised fromthe commencement of the commercialuse of the product over its expected use-ful life.

It is assessed that currently no costs qual-ify for capitalisation according to theseconditions, as most of the costs relating tonovelty projects are marketing expenseswhich relate to the development andmaintenance of the LEGO brand.

Property, plant and equipmentProperty, 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, directlabour and indirect production costs.Financial expenses are not included.

Leases in respect of property, plant andequipment in terms of which the individualcompanies assume substantially all therisks and rewards of ownership are classi-fied as finance leases. At the inception ofthe lease, finance leases are measured inthe balance sheet at the lower of the fairvalue of the leased asset and the netpresent value of future lease payments.When computing the net present value,the interest rate implicit in the lease isapplied as the discount rate or an approxi-mated value. Assets acquired underfinance leases are subsequently treatedlike the other property, plant and equip-ment of the Company.

The remaining lease obligation is capital-ised and recognised in the balance sheetunder debt, and the interest element onthe lease payments is recognised in theincome statement over the term of thelease.

Impairment of fixed assetsThe carrying amounts of intangible assetsand property, plant and equipment are

reviewed on an annual basis to determinewhether there is any indication of impair-ment other than that expressed by normalamortisation and depreciation.

The recoverable amount of the asset iscalculated as the higher of net sellingprice and value in use.

Where a recoverable amount cannot bedetermined for the individual asset, thesmallest group of assets for which therecoverable amount can be determined isreviewed for impairment.

Properties and other assets for which arecoverable amount cannot be deter-mined as the asset does not on an individ-ual basis generate future cash flows arereviewed for impairment together with thegroup of assets to which they are attribut-able.

Impairment of intangible assets and prop-erty, plant and equipment as well as anyreversals of these are recognised in spe-cial items.

Investments in subsidiaries and associatesInvestments in subsidiaries are recog-nised in the balance sheet of the ParentCompany under the equity method as theproportionate ownership shares of the netasset value of the enterprises.

Investments in associates are included inthe balance sheet of the Group and theParent Company under the equity method.

Subsidiaries and associates with a nega-tive net asset value are recognised at zero.Receivables from such enterprises are setoff against the negative net asset value.Should the negative net asset valueexceed the receivable, the amount is rec-ognised in provisions.

Current asset investments and other investmentsCurrent asset investments recognised infixed asset investments comprise listed

bonds held to maturity. The investmentsare measured at amortised cost.

InventoriesInventories are measured at cost basedon the FIFO principle. Where the cost ishigher than the net realisable value, write-down is made to this lower value.

Work in progress and finished goods aremeasured at direct costs with addition ofindirect production costs. Financial ex-penses are not included.

ReceivablesReceivables are measured at amortisedcost, which usually corresponds to nomi-nal value.

Provisions for bad debts are made on thebasis of an individual assessment of therisk relating to each receivable.

Prepayments and deferred incomePrepayments include expenses incurredin respect of subsequent financial years,as well as fair value adjustments of deriva-tive financial instruments.

Deferred income includes paymentsreceived in respect of income relating tosubsequent financial years, as well as neg-ative fair value adjustments of derivativefinancial instruments.

SecuritiesSecurities available for sale are measuredat fair value at the balance sheet date.

DividendDividend distribution for the year pro-posed by Management is disclosed as aseparate equity item.

Other provisionsProvisions are recognised when - in con-sequence of an event occurred before oron the balance sheet date - the Grouphas a legal or constructive obligation, andit is probable that economic benefits mustbe given up to settle the obligation.

ACCOUNTING POLICIES ■


Financial debtsFinancial debts are recognised initially atthe proceeds received net of transactionexpenses incurred. Subsequently, theloans are measured at amortised cost.

Other debts are measured at amortisedcost, usually corresponding to nominal val-ue.

Cash Flow Statement

The cash flow statement shows cash flowsfor the year broken down by operating,investing and financing activities, changesfor the year in financial resources as wellas financial resources at the beginningand end of the year.

Cash flows from operating activitiesCash flows from operating activities arecalculated as the net profit/loss for theyear adjusted for non-cash operatingitems, changes in working capital and cor-poration tax paid.

Cash flows from investing activitiesCash flows from investing activities com-prise payments relating to acquisitionsand disposals of intangible assets, proper-ty plant and equipment as well as fixedasset investments.

Cash flows from financing activitiesCash flows from financing activities com-prise changes in the size or compositionof the share capital and expenses relatingto this, as well as the raising of loans,

repayment of interest-bearing debt andpayment of dividend to shareholders.

Financial resourcesFinancial resources comprise cash atbank and in hand etc. that can readily beturned into cash, and with only an insignifi-cant risk of value changes, reduced byshort-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 100Revenue

OPERATING MARGIN (ROS): Profit before financials and tax x 100Revenue

NET PROFIT MARGIN: Net profit for the year x 100Revenue

RETURN ON EQUITY: Net profit for the year x 100Average Equity

ROIC I: EBITA before special items x 100Average invested capital

ROIC II: EBITA after special items x 100Average invested capital

Moreover, the following is shown:

EQUITY RATIO: Equity (including minority interests) x 100Total 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 corporationtax. At the statement of ROIC II, provisions relating to restructuring are moreover deducted.

■ MANAGEMENT’S STATEMENT ON THE ANNUAL REPORT

Annual Report 2005


Management’s Statement on the Annual Report

The Board and Corporate Managementhave today presented and adopted theAnnual Report of LEGO Holding A/S for2005.

The Annual Report was prepared in accor-dance with the Danish Financial State-

ments Act. We consider the accountingpolicies applied appropriate and the esti-mates made reasonable. Furthermore, weconsider the overall Annual Report pres-entation true and fair. Therefore, in ouropinion the Annual Report gives a trueand fair view of the financial position of the

Group and the Parent Company and ofthe results of the Group and Parent Com-pany operations and cash flows.

We recommend that the Annual Report beadopted 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 PoulsenPresident and CEO Executive Vice President Executive Vice President

AUDITORS’ REPORT ■


Auditors’ Report

To the Shareholders of LEGO Holding A/S

We have audited the Annual Report ofLEGO Holding A/S for the financial year2005, prepared in accordance with theDanish Financial Statements Act.

The Annual Report is the responsibility ofCompany’s Management. Our responsibil-ity is to express an opinion on the AnnualReport based on our audit.

Basis of OpinionWe conducted our audit in accordancewith International and Danish Auditing

Standards. Those standards require thatwe plan and perform the audit to obtainreasonable assurance that the AnnualReport is free of material misstatement. Anaudit includes examining, on a test basis,evidence supporting the amounts anddisclosures in the Annual Report. An auditalso includes assessing the accountingpolicies applied and significant estimatesmade 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.

OpinionIn our opinion, the Annual Report gives atrue and fair view of the Group’s and theParent Company’s assets, liabilities, equityand financial position at 31 December2005, and of the results of the Group’s andthe Parent Company’s operations andcash flows for the financial year 2005 inaccordance with the Danish FinancialStatements Act.

Billund, 14 February 2006

PricewaterhouseCoopersStatsautoriseret Revisionsinteressentskab

Lars Holtug Harald BirkwaldState Authorised Public Accountant State Authorised Public Accountant

■ ACCOUNTS

Annual Report 2005


INCOME STATEMENT ■


Parent Company Group2004 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 63financial 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[ m D K K ]

■ BALANCE SHEET

Annual Report 2005



Assets29 22 Land and buildings 900 1,172– – Plant and machinery 187 2991 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 4482,835 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 1,630198 655 Receivables from subsidiaries 14 – –

– – Corporation tax receivable 68 972 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 – 2,4323,477 4,253 Total assets 7,689 8,089

Balance Sheet at 31 December[ m D K K ]

BALANCE SHEET ■


Balance Sheet at 31 December[ m D K K ]


Liabilities and equity123 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 8750 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 – 4103,477 4,253 Total liabilities and equity 7,689 8,089

Security and contingent liabilities 20Related parties 23

■ STATEMENT OF CHANGES IN EQUITY

Annual Report 2005


Share Retained Proposedcapital earnings dividend Total

Equity at 1 January 2005 123 2,490 2,613Exchange adjustments relating to foreign subsidiaries 165 165Fair value adjustment of forward exchange contracts for hedging of future purchases and sales in foreign currencies (44) (44)

Adjustment of other financial instruments 20 20Other adjustments (8) (8)Retained earnings 535 535Equity at 31 December 2005 123 3,158 – 3,281

Statement of Changes in Equity[ m D K K ]

CASH FLOW STATEMENT ■



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) 10997 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 25035 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 directlyderived from changes in the balance sheet

Cash Flow Statement 1 January - 31 December[ m D K K ]

■ NOTES

Annual Report 2005


Notes[ m D K K ]

Note 1. Fee to auditors appointed by the general meeting

Parent Company Group2004 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 – 11 4 Total, continuing activities 16 18

The fee concerning discontinuing activities is disclosed in note 7.

Note 2. Employees and remuneration


4 25 Wages and salaries 2,064 2,179– – Pensions 114 119– – Other and social security expenses 96 1014 25 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

EmployeesAverage number of full-time employees:

6 6 Continuing activities 5,321 5,620– – Discontinuing activities 1,322 1,725

NOTES ■


Notes[ m D K K ]

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 carriedout. The carrying amounts of fixed assets have been compared with the recoverable amount, determined as the higher of the net sellingprice and the value in use of the asset. Where the recoverable amount is lower than the carrying amount of the asset, an impairment losshas 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 weremade 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.


– – Land and buildings (83) 335– – Plant and machinery (2) 188

46 – Other fixtures and fittings, tools and equipment (10) 20046 – (95) 723


– – 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


Notes[ m D K K ]

Note 5. Financial income and expenses


Financial income:1 13 Interest income from subsidiaries – –1 – Other interest income 59 46– – Exchange gain 81 592 13 140 105– – 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 to42 47 continuing activities 159 179

NOTES ■


Note 6. Corporation tax


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 1711 17 Adjustment of tax relating to previous years (26) (4)– – Effect of deferred tax not capitalised (8) (1)– – Other (35) (5)2 3 (197) (28)

(38) Including amount relating to discontinuing activities (72)41 (125)

Notes[ m D K K ]

■ NOTES

Annual Report 2005


Notes[ m D K K ]


– – 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– 12 Total 32 2

196 – Fixed assets, cf. note 8 – 2,30143 – Current assets – 131

239 – Total assets – 2,432

– – Provisions – 12– – Debt – 398– – Total liabilities – 410

Cash flows from:Operating activities (73)Investing activities 2,533Financing 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 theamounts 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 in2004 and the sale of the remaining shares in 2005.

NOTES ■


Other fixturesand fittings, Fixed assets Dis-

Land and Plant and tools and under con- continuingbuildings machinery equipment struction activities

Cost at 1 January 3,196 3,062 1,138 32 4,391Exchange adjustment at 1 January 119 32 72 1 194Additions 8 122 34 30 71Disposals (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 – 2,090Exchange adjustment at 1 January 38 24 52 – 91Depreciation for the year 91 243 88 – 110Impairment 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) – – – 40Depreciation 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[ m D K K ]

Note 8. Property, plant and equipment

Group

■ NOTES

Annual Report 2005


Notes[ m D K K ]

Other fixturesand fittings, Dis-

Land and tools and continuingbuildings equipment activities

Cost at 1 January 155 4 376Additions 1 – –Disposals (17) (2) (376)Cost at 31 December 139 2 –

Depreciation and impairment losses at 1 January 126 3 180Depreciation 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 ■


Notes[ m D K K ]

Current assetinvestments

Investments and otherin associates investments

Cost at 1 January – 42

Additions 250 76Elimination 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 assetInvestments Investments investments

in in and othersubsidiaries associates investments

Cost at 1 January 5,381 – 41Additions – 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 – – 41Value 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


Notes[ m D K K ]

Note 12. Deferred tax


– – 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 taxtax asset deferred tax net 2005 net 2004

Fixed assets 17 (40) (23) (63)Current assets 24 – 24 75Inventories 116 – 116 96Provisions 23 4 27 51Debt 49 3 52 23Tax loss carry-forwards 199 – 199 147Other 2 (163) (161) (56)

430 (196) 234 273

2005 2004Tax 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 – 4Within 2 years – –Within 3 years 5 –Within 4 years 11 18Within 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 ■


Notes[ m D K K ]

Note 13 Inventories – Group2005 2004

Raw materials, components and work in progress 308 240Finished goods 401 472Total inventories 709 712

The Parent Company’s share capital consists of:

104 A-shares of DKK 1,000 or multiples hereof19 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 BillundSofie Kirk Kristiansen, DK-2930 KlampenborgThomas Kirk Kristiansen, DK-5390 MartofteAgnete Kirk Kristiansen, DK-9000 Aalborg

Note 14. Receivables from subsidiaries


198 655 Including amount falling due after 1 year – –

Note 15. Share capital

■ NOTES

Annual Report 2005


Notes[ m D K K ]

Note 17. Other provisions


– – 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


– – Balance at 1 January 335 698Share of net profit/(loss) for the year (30) (356)

– – Exchange adjustments etc 3 (7)– – Balance at 31 December 308 335

Total Due within Due afterdebt 1 year 5 years

Parent Company:Subordinate loan capital 800 – 800Banks and other credit institutions 134 1 123

934 1 923

Group:Subordinate loan capital 800 – 800Banks and other credit institutions 517 5 470

1,317 5 1,270

Note 18. Long-term debt

NOTES ■


Notes[ m D K K ]

Note 20. Security and contingent liabilities


– – 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 theamount 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 theincome statement or directly in equity, depending on the transactionconcerned. At 31 December 2005, unrealised losses totalling DKK 12million have been recognised in the income statement and unrealisedgains totalling DKK 2 million have been recognised directly in equity.

The Group has entered into contracts with a number of lessors andsuppliers. 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 bythe 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


Note 22. Financial resources (cash flow statement)


– – 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 Group2004 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 31,353 (533) Total other adjustments (289) 109

Notes[ m D K K ]

NOTES ■


Notes[ m D K K ]

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 significantinfluence. All transactions were carried out on an arm’s length basis.

Sale of Interest received Sale ofproducts 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

ServiceRent Interest fee

paid to paid to paid toLEGOLAND Parks for

the period 1 July – 31 December – – –KIRKBI AG Group – 2 –KIRKBI A/S Group 3 42 26

3 44 26

Trademark Other Other operatingfee operating income expenses

paid to received from paid toLEGOLAND 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 Groupsold the four LEGOLAND Parks to Merlin Entertainments Group, which is owned by Blackstone Capital Partners, at a price of EUR 375m. Inconnection with the sale, a jointly owned company was established, of which among others Blackstone Capital Partners holds 70%, theLEGO 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-termfrom debt to loans from

LEGOLAND Parks 9 3 –KIRKBI AG Group 65 1 –KIRKBI A/S Group – 8 800

74 12 800


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 tradedress 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 Minifigureand LEGOLAND are trademarks of the LEGO Group.

©2006 The LEGO Group

LEGO Group – Corporate Management

Jesper OvesenExecutive Vice President& Chief Operating Officer (COO) Supply Chain & Central Functions

Jørgen Vig KnudstorpPresident &Chief Executive Officer (CEO)

Henrik PoulsenExecutive Vice PresidentMarkets, Products & Marketing

Board of Directors

Mogens Johansen, Gunnar Brock, Armin F. Broger, Mads Øvlisen, Kjeld Kirk Kristiansen, Torben Ballegaard Sørensen

Mogens JohansenMember of the Board since 1978.Representing the family. Brother in law toKjeld Kirk Kristiansen. Member of theBoard of the LEGO Foundation, and Edithand Godtfred Kirk Christiansen’s Founda-tion.

Gunnar BrockMember of the Board since 1995.President & CEO and member of theBoard of Swedish Atlas Copco AB. Mem-ber of the Board of StoraEnso, Suomi.Member of the Royal Swedish Academyof Engineering Sciences (IVA).

Armin F. BrogerMember of the Board since 2005.Chief Operating Officer (COO) of TommyHilfiger in Europe.

Mads ØvlisenChairman of the Board since 1996.Member of the Board since 1991.Chairman of the Board of Novo NordiskA/S until March 2006 and the Danish RoyalTheatre, and member of the Board of theWanås Foundation. Adjunct professor ofcorporate social responsibility at theCopenhagen Business School.

Kjeld Kirk KristiansenVice Chairman of the Board since 1996.Member of the Board since 1975. Chairman of the Board of KIRKBI A/S, theLEGO Foundation, Ole Kirk’s Foundation,and Edith and Godtfred KirkChristiansen’s Foundation. President andCEO for the LEGO Group from 1979-2004.Majority shareholder of the LEGO Group.

Torben Ballegaard SørensenMember of the Board since 2005.President and CEO of Bang & Olufsen.Member of the board of SimCorp A/S.

LEGO Holding A/SAastvej 17190 Billund, DenmarkTel: +45 79 50 60 70Fax: +45 75 33 27 25CVR-no: 18 59 12 35Incorporated: April 1st 1995Residence: BillundFinancial Year: January 1st –

December 31st

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

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LEGO Group – DenmarkAastvej7190 BillundTel.: +45 79 50 60 70

LEGO Group – SwitzerlandSihlbruggstrasse 36340 BaarSwitzerlandTel.: +41 41 769 20 20

LEGO Group – USA555 Taylor RoadP.O. Box 1600Enfield, CT 06083-1600USATel.: +1 860 749 2291

www.LEGO.com

Annual Report 2005 LEGO Group · Investment in property, plant and equipment 265 457 709 1,264...

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