Annual Report 2002 LEGO Company CONTENTS

Annual Report 2002 LEGO Company CONTENTS Report 2002 . page 3 Increasing the LEGO® brand strength . page 11 Living the LEGO values . page 13 Global focus on the environment. page 15 Accounts . page 17 The LEGO Company comprises LEGO companies owned by the Kirk Kristiansen Family and to a minority extent by the LEGO Foundation. The accounting information shown here for the LEGO Company is therefore not the accounts of a separate legal entity but is the consolidated accounts of the above group of companies, prepared as if these companies were a group. LEGO A/S Board of Directors: Global Management Team: Mads Øvlisen, Chairman Andrew Black (Americas) Kjeld Kirk Kristiansen, Vice Chairman Francesco Ciccolella (Global Branding) Gunnar Brock Dominic Galvin (Global Brand Retail) Mogens Johansen Tommy G. Jespersen (Global Supply Chain) Lars Kann-Rasmussen Brad Justus (LEGO Direct) Anders Moberg Søren Torp Laursen (Europe North/East) Mark Livingstone (LEGO Interactive) Executive Office: Mads Nipper (Europe Central) Kjeld Kirk Kristiansen, Henrik Poulsen (Global Innovation and Marketing) President and CEO Lars Risager (Europe South) Poul Plougmann, Mads Ryder (LEGOLAND Parks) Executive Vice President and COO Stig Toftgaard (Global Business Support) Arthur Yoshinami (Asia/Pacific) LEGO, the LEGO logo, BIONICLE and LEGOLAND are trademarks of the LEGO Group © 2003 The LEGO Group 2 | ANNUAL REPORT 2002 Annual report 2002 With sales up by DKK 756m and a pre-tax These factors meant that LEGO Company result of DKK 626m compared with DKK was able to maintain a high level of activity 532m the previous year, 2002 may in the – and corresponding level of production – circumstances be regarded as a good throughout the summer months. The aim, year. of course, was to ensure that a similar steep rise in demand during the peak The LEGO Company continues the pattern season would not cause delivery prob- of growth begun last year, with expansion lems. on more or less all markets. We have thus been able to adjust to the major changes Although the second half of the year as in the market situation during the year such was not a bad one for LEGO Compa- under review. ny, it did not entirely live up to the expecta- tions that had been raised in spring. It was a remarkable year in that demand Increasing uncertainty and caution on the and sales fluctuated sharply from the first part of American consumers caused a half of the year to the second, especially in noticeable slowdown in the US economy. the US market, while renewed optimism in These factors held sales at a lower level some of the European markets served to than had seemed likely in springtime. restore some positive balance. The Americas Sales The slowdown in activities in the United The year began extremely well. States during autumn was not a temporary Christmas 2001 had reduced both LEGO phenomenon. It became increasingly Company and retail stocks to a low level, clear as the year progressed, culminating and also in other respects the first few in early December. months of the year witnessed a heavy One consequence was that product demand. stocks held by LEGO Company at the end of the year were substantially higher than The activity level was maintained through- at the beginning. out most of the first six months, stimulated by new product launches and the Viewed in the round, however, the Ameri- première of the new Star Wars film in late can market as a whole again this year spring. Sales of LEGO Harry Potter and accounted for a significant increase in BIONICLE products also remained high. In both earnings and sales. Total sales for the consequence, the first half of the year was year were up by 5% on the previous year. substantially better than had been expect- The US market continues to generate ed when the year began. approx. one-third of the total sales of LEGO Kjeld Kirk Kristiansen, President and CEO ANNUAL REPORT 2002 | 3 Company and is thus the Company’s larg- the Scandinavian countries was particular- est single market. ly pleasing, considering that the increase came on top of already high per-capita Europe Central sales. The large Europe Central market – comprising Germany, Austria and Switzerland – Europe South reported a more uniform flow of business. A very positive rate of growth was also Relatively good sales in Germany over the recorded in the Europe South market, summer may have been positively influ- encouraging an air of optimism for future enced by the opening of the new German years. The LEGO Company has not had LEGOLAND Park. the same vigorous sales tradition on this Unfortunately, there was a corresponding market as in Europe Central and North. decline in sales during the December Europe South comprises France, Italy, peak season, with German consumers Spain and Portugal. clearly cutting back on both the volume During the year the Company has enjoyed and value of Christmas presents. Sales of a significantly higher market profile the large Christmas sets at the more through building events, in-store models, expensive end of the scale were particu- etc. larly badly hit. With sales up by nearly 20%, this market Christmas sales amply illustrated the state has taken a very positive turn. This is espe- of stagnation that has befallen the Ger- cially encouraging following as it does man economy, and the overall result was some disappointing years, which had that total toy sales for the year were down. necessitated major restructuring. The LEGO Company actually recorded a modest rise, thereby increasing its share Europe East of the market. The markets in Switzerland Europe East is also showing signs of and Austria also reported only slight becoming a major market, with Russia and progress. Poland as its biggest segments. Large orders for educational materials – particu- Europe North larly for schools in Moscow – helped boost In contrast, the Europe North market – sales. These orders gave LEGO Education- comprising the Benelux countries, Great al Division a marked increase in turnover. Britain and Scandinavia – increased its sales by more than 10%. This total figure Asia concealed a significantly higher rate of A sharper focus on the Asiatic region has growth in Great Britain and Scandinavia, already generated success, which is the rise in the Benelux countries being expected to gain momentum in the years only modest. The handsome increase in ahead. Sharp rises in growth in Australia 4 | ANNUAL REPORT 2002 and New Zealand have been echoed by potential in this outstanding range for their growth in the large Japanese market. youngest children. EXPLORE products can Korea, too, is very much an expanding help stimulate children’s development at market. One special feature of this region all its phases. is that the Japanese teenage generation These products have undergone a note- has developed a very special interest in worthy change of name – as a result, such the LEGO brand and everything associat- well-known names as PRIMO and DUPLO ed with it in the form of licensed products, have disappeared and re-emerged under etc. the portal name of EXPLORE. Naturally, there has been a down side, also in a Mail-order and Internet sales sales context. But there is no doubt that Mail-order and Internet sales were satis- switching to the new portal structure is the factory in every respect and displayed a right decision and that it will prove itself in steep growth rate. Sales went predomi- the long term. nantly to the American market, which remains the biggest buyer of LEGO prod- Consumers are showing a serious interest ucts via these channels. in the new product ranges, Racers and Sports. During the year sales have multi- Products plied several times. LEGO Racers is now The top-selling product ranges during the the fifth biggest product range in terms of year were again BIONICLE, closely fol- sales. lowed by Harry Potter and Star Wars products. Individual products in the Harry Potter One particular product launch during the series occupied many of the top places. year proved disappointing: The introduc- Hogwarts Castle was the best-selling indi- tion of Galidor products in the United vidual product, with several other Harry States. Potter products close behind. The Galidor TV series from which the products drew their inspiration failed to attract Although the increase in sales of EXPLORE the audience figures in the US that were products for the youngest consumer originally expected. group are not quite up to expectation, the Indications are that the figures in this success of this range nevertheless places range are too distant in their idiom from it on a par with Harry Potter and Star Wars the kind of thing that LEGO products are products. known for. This may be one of the reasons consumers displayed little interest in the But LEGO Company has high expecta- product, which seemed to have the nec- tions for this product range, once parents essary characteristics to expand and everywhere realise the development renew the action-figure category. NET SALES Poul Plougmann, Europe Americas Executive Vice President and COO Other Markets [Japan, Asia, Australia, Africa] ANNUAL REPORT 2002 | 5 NEW PARTNERSHIPS IN 2002 Partnering the NBA PARTNERSHIPS: In May the LEGO Company entered into a busi- Nike ness agreement with the NBA (National Basket- Intel ball Assocation) of the USA covering the global FC Bayern München marketing of a series of new basketball produ- National Basketball Association (NBA) cts. Under the deal, a number of NBA players will National Hockey League (NHL) appear as LEGO minifigures. NASA Williams F1 6 | ANNUAL REPORT 2002 Parks LEGOLAND Billund LEGOLAND Parks also enjoyed a good LEGOLAND Billund broke most of its exist- year.

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