Management‘s Review Annual Report 2019 The LEGO Group Annual Report 2019 CVR no: 54 56 25 19 1 Contents Annual Report 2019 Contents Management's Review 04 Letter from the CEO 05 2019 Performance Snapshot 06 Investing in Strategic Growth Initiatives 07 The LEGO Group at a Glance 08 2019 Financial Review 10 Financial Highlights of the LEGO Group 11 Board of Directors and Management Consolidated Financial Statements 13 Income Statement 13 Statement of Comprehensive Income 14 Balance Sheet 15 Statement of Changes in Equity 16 Statement of Cash Flows 17 Notes Parent Company Financial Statements 52 Income Statement 53 Balance Sheet 54 Statement of Changes in Equity 55 Notes Additional information 63 Management's Statement 64 Independent Auditor's Report 2 Management‘s Review Annual Report 2019 Management’s Review Our ambition is to bring the power of LEGO® play to even more children around the world. Letter from the CEO (p. 4) 3 Management‘s Review Annual Report 2019 We outpaced the toy industry and took steps third of all toys are bought online. At the same to stay ahead of key trends such as e-com- time shoppers continue to seek immersive merce, digitalisation and global socio-eco- brand experiences in stores. Against this back- nomic shifts which are reshaping the sector. drop we invested in developing and expand- ing our retail ecosystem. We partnered with But perhaps most importantly we brought our established retail customers to create LEGO® play to children in new markets and unique brand moments online and in-store. We continued our mission to inspire and develop upgraded our own e-commerce platform and the builders of tomorrow. When you pick up we opened almost 150 branded stores around a LEGO brick, it is identical to the one first the world ending the year with 570 stores. created more than 60 years ago, but its con- tinued success hinges on the ingenuity, ded- Investing in new geographies ication, and passion of my 18,800 colleagues. Our ambition is to bring the power of LEGO It is an honour – and a lot of fun – to work along- play to even more children around the world. side the talented, motivated people who de- In 2019, China continued to be a growth pri- sign our amazing portfolio, mould our ele- ority. We invested in building our brand pres- ments with precision, develop brilliant con- ence and geographic reach and ended the tent, and create immersive brand experiences year with 140 stores in 35 cities. We strength- in our retail stores. We are truly grateful for ened our partnership with local partners to their contribution. broaden our reach on e-commerce and dig- ital platforms. We achieved strong double Investing in innovating play digit growth and are optimistic about the Digitalisation is not just changing how people long-term growth potential in the region. shop, it is also influencing how people play. Make no mistake, the brick will always be the The power of learning through play heart of our business. It offers endless possi- At the LEGO Group children are our role bilities for today’s children and future gener- models. Their curiosity and willingness to try, ations. But integrating digital and physical play fail, and try again is inspiring. As we look to a offers exciting, new possibilities. It is some- future being shaped by innovation, technol- thing we call fluid play. In 2019, we launched ogy and constant change we are excited and Letter from the CEO LEGO® Hidden Side a theme that seamlessly optimistic. Excited by the possibilities to blends building and augmented reality. We will bring learning through play to more children We are very pleased with the progress we made in continue to invest in exploring innovative ways and optimistic that today’s children will have to build and play. the skills and determination to create a bright 2019. We achieved top-line growth and leveraged future. our financial strength to make significant, bold Investing in retail experiences Each year, more and more toy purchases are Niels B. Christiansen investments in initiatives to drive long-term growth. influenced by digital marketing and roughly a CEO, the LEGO Group 4 Management‘s Review Annual Report 2019 2019 Performance Our Contribution to Snapshot Society & the Planet We have a “Planet Promise” – our promise to children that we will help build a sustainable future by having a positive impact on society and the environment. The LEGO Group made good progress Top-selling against its ambition to deliver sustainable Themes We take our responsibility seriously and track our growth. Revenue, consumer sales and profit performance against this Promise as closely as our all grew. All Market Groups delivered year-on- ® financial results. We appreciate that consumers year revenue growth, with established mar- LEGO City ® recognise our commitment. Their feedback placed kets growing single digits and China deliver- LEGO Star Wars™ us #1 on Reputation Institute’s RepTrak survey rank- ing strong double digit growth. The Group LEGO® Technic ings for CSR in 2019. used its strong financial foundations to invest LEGO® Friends in initiatives that will deliver long-term growth. LEGO® Creator Learning through Play Environment Revenue DKK 38.5 bn 6% 1.8 million 100% Revenue growth children reached renewable energy across 26 countries milestone maintained 25% LEGO® Replay through local com- launched in the munity engagement 2019 ® United States. This 9.6 bn programmes, part- The LEGO is a step towards Cash Flow from nerships and Build to Ideas Tree House creating a circular Operations DKK Give, a holiday giving Operating Profit 25% of profit goes to the 185 sustainable, business model for campaign DKK LEGO Foundation. LEGO botanical elements LEGO bricks. The 10.8 bn Foundation brings learn - were used in the trial programme ® 45 ing through play to LEGO Ideas Tree encourages people 69% children in need, includ - House, as we expand to donate unused Return on 35 ing refugees and those the use of elements LEGO bricks for 2019 Invested Capital in underprivileged produced from distribution to 25 communities sustainable materials children in need 15 2017 2018 11,00 5 10,75 10,50 10,25 10,00 2017 2018 Management‘s Review Annual Report 2019 we significantly upgraded our LEGO.com As a result, we are stepping up investment in Investing in Strategic e-commerce platform which drove a 27% in- the growth markets of tomorrow. crease in the number of visitors. We opened Growth Initiatives almost 150 branded stores including flagship We achieved strong double digit growth in stores in Amsterdam and Beijing, which offer China as we expanded our brand and retail shoppers one-of-a-kind experiences includ- presence. This will continue in 2020 as we ing personalised minifigures and self-portraits plan to have more than 220 stores in around Driven by our Mission Sustainable Growth made from LEGO bricks. 40 cities by the end of the year. We will also continue to build our e-commerce presence We are driven by our ambition to bring LEGO® Innovating play We are stepping up investment in all our retail on popular platforms such as Tmall and JD play to more children wordwide. We believe Like LEGO builders everywhere, our talented channels and working closely with our part- and extend our partnership with Tencent to that play has the power to shape lives. When designers are driven by creativity and innova- ners to connect with people wherever and provide unique digital content and games. We children play, they learn. They learn life-long tion. Each year, approximately 60% of our port- however they want to shop. were also pleased with the success of our skills like problem solving, communication, and folio is new. During 2019, this included new new sets designed to celebrate Chinese New collaboration, which are more critical than ever. sets for top-selling core themes such as Expanding into new markets Year, showing there is strong consumer de- A study by the World Economic Forum esti- LEGO® City, LEGO® Technic, LEGO® Friends By 2032, 90% of the world’s two billion chil- mand for culturally-relevant products. mates that given the pace of change 65% of and LEGO® Creator. We also created entirely dren will live outside Europe and North kindergarten children will hold jobs that have new ways to play, such as LEGO® Hidden Side. America, with more than three quarters of not yet been invented. The only way we can This new theme blends augmented reality with these living in Eastern Asia. Continue reading prepare children is to give them skills that can building. We also integrated LEGO play into a be applied universally. wide range of digital experiences including digital games, apps, and voice-based intelli- Play is an effective way to develop these skills gent home assistants. from a young age, and LEGO play is especially powerful as it offers children endless possibil- Investing in fluid play – the intersection be- ities. Just six two-by-four LEGO bricks can tween digital and physical play – will continue make 915 million different combinations. And to be a priority. they are made with such precision that they stick together like glue, but come apart easily Innovating retail so they can be built, unbuilt and rebuilt into The toy retail market is being rapidly re- whatever a child can imagine. shaped by digitalisation and the accelerated growth of e-commerce. Shoppers are seeking Our strategic priorities are designed to deliver different experiences from different channels long-term, sustainable growth and importantly – immersive brand experiences in physical bring the power of LEGO play to even more stores and convenience and value online.