Annual Report 2002 LEGO CompanyANNUAL REPORT 2002 | 3 Annual report 2002 With sales up by DKK 756m...

Annual Report 2002LEGO Company

2 | ANNUAL REPORT 2002

C O N T E N T S

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:

Mads Øvlisen, Chairman

Kjeld Kirk Kristiansen, Vice Chairman

Gunnar Brock

Mogens Johansen

Lars Kann-Rasmussen

Anders Moberg

Executive Office:

Kjeld Kirk Kristiansen,

President and CEO

Poul Plougmann,

Executive Vice President and COO

LEGO, the LEGO logo, BIONICLE and LEGOLAND are trademarks of the LEGO Group© 2003 The LEGO Group

Global Management Team:

Andrew Black (Americas)

Francesco Ciccolella (Global Branding)

Dominic Galvin (Global Brand Retail)

Tommy G. Jespersen (Global Supply Chain)

Brad Justus (LEGO Direct)

Søren Torp Laursen (Europe North/East)

Mark Livingstone (LEGO Interactive)

Mads Nipper (Europe Central)

Henrik Poulsen (Global Innovation and Marketing)

Lars Risager (Europe South)

Mads Ryder (LEGOLAND Parks)

Stig Toftgaard (Global Business Support)

Arthur Yoshinami (Asia/Pacific)

ANNUAL REPORT 2002 | 3

Annual report 2002

With sales up by DKK 756m and a pre-taxresult of DKK 626m compared with DKK532m the previous year, 2002 may in thecircumstances be regarded as a goodyear.

The LEGO Company continues the patternof growth begun last year, with expansionon more or less all markets. We have thusbeen able to adjust to the major changesin the market situation during the yearunder review.

It was a remarkable year in that demandand sales fluctuated sharply from the firsthalf of the year to the second, especially inthe US market, while renewed optimism insome of the European markets served torestore some positive balance.

SalesThe year began extremely well. Christmas 2001 had reduced both LEGOCompany and retail stocks to a low level,and also in other respects the first fewmonths of the year witnessed a heavydemand.

The activity level was maintained through-out most of the first six months, stimulatedby new product launches and thepremière of the new Star Wars film in latespring. Sales of LEGO Harry Potter andBIONICLE products also remained high. Inconsequence, the first half of the year wassubstantially better than had been expect-ed when the year began.

These factors meant that LEGO Companywas able to maintain a high level of activity– and corresponding level of production –throughout the summer months. The aim,of course, was to ensure that a similarsteep rise in demand during the peakseason would not cause delivery prob-lems.

Although the second half of the year assuch was not a bad one for LEGO Compa-ny, it did not entirely live up to the expecta-tions that had been raised in spring.Increasing uncertainty and caution on thepart of American consumers caused anoticeable slowdown in the US economy.These factors held sales at a lower levelthan had seemed likely in springtime.

The AmericasThe slowdown in activities in the UnitedStates during autumn was not a temporaryphenomenon. It became increasinglyclear as the year progressed, culminatingin early December.One consequence was that productstocks held by LEGO Company at the endof the year were substantially higher thanat the beginning.

Viewed in the round, however, the Ameri-can market as a whole again this yearaccounted for a significant increase inboth earnings and sales. Total sales for theyear were up by 5% on the previous year.The US market continues to generateapprox. one-third of the total sales of LEGO

Kjeld Kirk Kristiansen,President and CEO

Company and is thus the Company’s larg-est single market.

Europe CentralThe large Europe Central market – com-prising Germany, Austria and Switzerland –reported a more uniform flow of business.Relatively good sales in Germany over thesummer may have been positively influ-enced by the opening of the new GermanLEGOLAND Park.Unfortunately, there was a correspondingdecline in sales during the Decemberpeak season, with German consumersclearly cutting back on both the volumeand value of Christmas presents. Sales ofthe large Christmas sets at the moreexpensive end of the scale were particu-larly badly hit.Christmas sales amply illustrated the stateof stagnation that has befallen the Ger-man economy, and the overall result wasthat total toy sales for the year were down.The LEGO Company actually recorded amodest rise, thereby increasing its shareof the market. The markets in Switzerlandand Austria also reported only slightprogress.

Europe NorthIn contrast, the Europe North market –comprising the Benelux countries, GreatBritain and Scandinavia – increased itssales by more than 10%. This total figureconcealed a significantly higher rate ofgrowth in Great Britain and Scandinavia,the rise in the Benelux countries beingonly modest. The handsome increase in

the Scandinavian countries was particular-ly pleasing, considering that the increasecame on top of already high per-capitasales.

Europe SouthA very positive rate of growth was alsorecorded in the Europe South market,encouraging an air of optimism for futureyears. The LEGO Company has not hadthe same vigorous sales tradition on thismarket as in Europe Central and North.Europe South comprises France, Italy,Spain and Portugal.During the year the Company has enjoyeda significantly higher market profilethrough building events, in-store models,etc.With sales up by nearly 20%, this markethas taken a very positive turn. This is espe-cially encouraging following as it doessome disappointing years, which hadnecessitated major restructuring.

Europe EastEurope East is also showing signs ofbecoming a major market, with Russia andPoland as its biggest segments. Largeorders for educational materials – particu-larly for schools in Moscow – helped boostsales. These orders gave LEGO Education-al Division a marked increase in turnover.

AsiaA sharper focus on the Asiatic region hasalready generated success, which isexpected to gain momentum in the yearsahead. Sharp rises in growth in Australia



and New Zealand have been echoed bygrowth in the large Japanese market.Korea, too, is very much an expandingmarket. One special feature of this regionis that the Japanese teenage generationhas developed a very special interest inthe LEGO brand and everything associat-ed with it in the form of licensed products,etc.

Mail-order and Internet salesMail-order and Internet sales were satis-factory in every respect and displayed asteep growth rate. Sales went predomi-nantly to the American market, whichremains the biggest buyer of LEGO prod-ucts via these channels.

ProductsThe top-selling product ranges during theyear were again BIONICLE, closely fol-lowed by Harry Potter and Star Wars prod-ucts. Individual products in the Harry Potterseries occupied many of the top places.Hogwarts Castle was the best-selling indi-vidual product, with several other HarryPotter products close behind.

Although the increase in sales of EXPLOREproducts for the youngest consumergroup are not quite up to expectation, thesuccess of this range nevertheless placesit on a par with Harry Potter and Star Warsproducts.

But LEGO Company has high expecta-tions for this product range, once parentseverywhere realise the development

potential in this outstanding range for theiryoungest children. EXPLORE products canhelp stimulate children’s development atall its phases.These products have undergone a note-worthy change of name – as a result, suchwell-known names as PRIMO and DUPLOhave disappeared and re-emerged underthe portal name of EXPLORE. Naturally,there has been a down side, also in asales context. But there is no doubt thatswitching to the new portal structure is theright decision and that it will prove itself inthe long term.

Consumers are showing a serious interestin the new product ranges, Racers andSports. During the year sales have multi-plied several times. LEGO Racers is nowthe fifth biggest product range in terms ofsales.

One particular product launch during theyear proved disappointing: The introduc-tion of Galidor products in the UnitedStates. The Galidor TV series from which the prod-ucts drew their inspiration failed to attractthe audience figures in the US that wereoriginally expected.Indications are that the figures in thisrange are too distant in their idiom fromthe kind of thing that LEGO products areknown for. This may be one of the reasonsconsumers displayed little interest in theproduct, which seemed to have the nec-essary characteristics to expand andrenew the action-figure category.

Poul Plougmann,Executive Vice President and COO

N E T S A L E S

Europe Americas

Other Markets[Japan, Asia, Australia, Africa]


PARTNERSHIPS:

NikeIntelFC Bayern MünchenNational Basketball Association (NBA)National Hockey League (NHL)NASAWilliams F1

NEW PARTNERSHIPS IN 2002

Partnering the NBAIn May the LEGO Company entered into a busi-ness agreement with the NBA (National Basket-ball Assocation) of the USA covering the globalmarketing of a series of new basketball produ-cts. Under the deal, a number of NBA players willappear as LEGO minifigures.

ParksLEGOLAND Parks also enjoyed a goodyear.High visitor figures and an improved econ-omy were the general trend.Investments during the year producedattractions with clear ties to LEGOCompany’s other products – primarilyLEGO Racers. Apart from very consider-able activity (Xtreme Racers) in Billund andRacers miniland settings in Billund andWindsor, 2002 was the first year the samefeature had been launched at all fourparks more or less simultaneously: theLEGO Racers 4D film, which was pro-duced in record time. In addition, each ofthe three “old” parks opened an EXPLOREshowroom to mark the launch of EXPLOREproducts. The parks improved their mar-keting efforts by working in closer harmo-ny with their respective market areas.

LEGOLAND DeutschlandThe opening of the new LEGOLANDDeutschland park in Günzburg was amajor happening. It was a most satisfacto-ry event in every respect. Experience fromthe most recently opened parks enabledthe project to be completed on scheduleand within budget – in fact the parkopened earlier than expected. Althoughthe economic downturn in Germany isalso noticeable in this area, the park’s firstseason indicates that expectations willquickly be fulfilled. The general economicsituation in Germany is the biggestunknown factor.

LEGOLAND BillundLEGOLAND Billund broke most of its exist-ing records. Heavy investment in new fea-tures brought more visitors than ever, high-er visitor satisfaction, and one of the besteconomic results in the history. HotelLEGOLAND also enjoyed a record season.

LEGOLAND WindsorThe season at LEGOLAND Windsor wasalso satisfactory. Admittedly, the park hadfewer visitors than in 2001 but an improvedeconomic result meant that in its 7th sea-son the park is close to turning a profit.The improved result came chiefly from thefact that on average visitors spent moremoney during the season than in the pre-vious year. Surveys also showed that visi-tors were more satisfied with their visitsthan previously.

LEGOLAND CaliforniaLEGOLAND California had a much betterseason than in the previous year. Inresponse to the economic slowdown inAmerica and in order to improve the effi-ciency of the park, opening times havebeen adjusted. LEGOLAND California nowcloses for 66 days a year during the periodin which experience indicates there arefewest visitors. This has improved thepark’s bottomline. Visitor satisfactionremains very high.

All in all, LEGOLAND Parks proved theiroperational success in 2002, and there isnothing to indicate that this situation willnot continue.


The National Hockey League of America is the world’s leading ice-hockeyorganisation. In November the LEGO Company signed a licensing andmarketing deal with the well-established league. A key element of the dealis the ice-hockey products the LEGO Company will launch in spring 2003.The products in the new LEGO sports series will feature the NHL leagueand team logos.


ProductionA general desire to introduce optimumflexibility in the manufacture of LEGO prod-ucts has necessitated certain changes inproduction. As a result, those functionsthat can be automated are for the mostpart handled by the Company’s Danishand Swiss plants. Those productions thatdo not lend themselves to the samedegree of automation have increasinglybeen transferred to LEGO Company’splant in the Czech Republic and to exter-nal suppliers.

Christmas sales were down in some ofLEGO Company’s main markets. As aresult, substantial stocks accumulated inthe retail trade and within LEGO Companyitself. With sales not expected to rise signif-icantly during the coming year, it is likelythat production in 2003 will be rather lowerthan in 2002. The effect of this is alreadybeing felt: The number of production work-ers in Billund has been reduced by about10%.

But even with this reduction, the number ofpeople employed in production in Billundwill still be higher than after the cutbackscaused by the poor economic resultssome years ago.

The brandIn 2002, LEGO Company once againinvested many resources in building upthe LEGO brand. A series of agreementswere signed with various partners duringthe year, and efforts have been made on alarge scale both within and outside LEGO

Company to broaden familiarity with thevalues behind the LEGO brand.The Company has also made majorinvestments in developing a Brand Retailconcept, which is now being tested inpractice. The first three test retail outlets(Brand Stores) in a series were opened inCologne, London and Moscow. A numberof similar retail outlets will follow during2003. Together with experience gainedfrom existing LEGO shops, these testresults will help to form the Company’slong-term plans for making more directcontact with the consumer.

These activities should be seen as animportant step in the Company’s efforts tolearn more about consumers and theirneeds. At the same time the Companywants to examine how it can best informchildren and their parents about the val-ues inherent in learning through play prod-ucts. It is intended that the results drawnfrom the test period and the experiencegained from LEGO retail outlets generallywill benefit not only the consumer and theCompany but also the rest of the retailtrade.

The LEGO Company was very active dur-ing the year in seeking international pro-tection for its brand and products againstthe innumerable attempts at product pla-giarism. In an increasingly competitiveconstruction-toy market, the problem ofcopy products grows correspondingly.One of the more notable successes onthis front was that LEGO Company won alandmark and internationally noted injunc-

LEGO Racers roared into action in 2002. The flagship of the series is the big, blue LEGO TECHNICracing car inspired by the BMW Williams original Formula 1 car. In addition to the car itself, workingwith the Formula 1 team provides an in-depth look into the world of motor racing for children whobuy LEGO Racers products or visit LEGO Racers on the Internet.

BMW WILLIAMS F1


With regard to the Company’s products,environmental matters are regulated bysuch instruments as the European ToyDirective, whose provisions lay down a fun-damental standard. As a very minimum,LEGO Company uses only plastic materi-als which satisfy standards set for materi-als which come in contact with food. AndPVC is not used in LEGO products. A com-prehensive approval procedure and regu-lar internal and independent external aud-its ensure that these standards are strictlyobserved.

Prospects for 2003With 2002 ending on an economic down-turn and disappointing Christmas sales inboth the United States and Europe Central,LEGO Company has found itselfapproaching 2003 with substantial stocksin hand and at retailers. Inevitably, 2003 is likely to start slowly.

The continued prospect of a weak dollar isalso a negative factor. The LEGO Compa-ny is sensitive to exchange fluctuations,and it is unavoidable that the low dollarrate will influence the result for the yearahead. One third of the Company’s salesare paid in dollars.

The LEGO Company, however, can lookforward to a largely unchanged result andturnover in 2003 despite these negativefactors – thanks to its broad product rangeand the efforts of the Company in recentyears to improve efficiency and becomemore competitive.

tion against copy products in the SupremeCourt of China.

The environmentIn 2002 LEGO Company launched a num-ber of initiatives which will help to focus onthe environment in the coming years. It setup a unit whose task will be to further con-centrate environmental efforts globallywithin LEGO Company. In addition, ananalysis was made of energy consump-tion and energy needs in selected parts ofthe Danish production plant.

The objective in analysing and definingenergy consumption and needs is todevelop energy-saving solutions for pro-duction, logistics, maintenance, IT/automa-tion and other parts of the Company.

One important step towards a more deter-mined effort on the environmental front isthe Company’s current policy of adoptinga certificated environmental managementsystem under the ISO 14001 standard. Theprocess began in 2002 and involves,among other things, a tightening-up ofLEGO Company’s environmental policyand objectives.

The LEGO Company is constantly on thelook-out for ways to lessen the environ-mental impact of its packaging. Card-board packaging used in the manufactureof LEGO products is now made of 95%recycled material, and the search contin-ues for ways of reducing packaging con-sumption still further.


FC Bayern MünchenLEGO Company and FC Bayern München, the Germany soccer club, signed a partnership deal in October. Under the agree-ment a large marquee tent will be erected at the club’s Olympic stadium in Munich, where children will be able to play withLEGO bricks while Mum and Dad watch the soccer game. In return the LEGO Company is entitled to feature the club’s jer-seys and logo in its LEGO Football products.

In the light of the current political and eco-nomic situation, consumers in the earlypart of the year are showing uncertaintyand caution. Just how far internationalpolitical events will further influence consu-mer reaction is difficult to foresee – a factwhich in itself represents significant uncer-tainty.

In 2001 and 2002 LEGO Company passedthrough a period in which focus on thebusiness and the Company’s basic valueswas a vital priority. Now the organisation ismoving into a new phase in which theobjective is to lay down a foundation forfuture growth. This phase, which will con-tinue to be a period of further focus andconsolidation, is expected to last someyears.

In the longer term the growth in sales isexpected to average around 10% a year,while LEGO Company profits are expectedto rise at a rather higher percentage rate.

Thanking employeesIn many ways 2002 was a turbulent yearwhich made great demands upon LEGOemployees. The fact that LEGO Companyat the same time is engaged in a processof adjustment does not make thosedemands any easier. There is thereforeevery reason to thank employees for theirextraordinary effort and contribution.

Kjeld Kirk Kristiansen Poul Plougmann


Although we are already rated in the top tenbrand among families with children, wehave the capacity to become even morerecognised, trusted, respected and loved.The perception of our brand is much great-er than the size of our business implies. Wewill become the strongest brand amongfamilies with children through strengthen-ing our core without limiting our brand to apredefined product expression.

During 2002 our brand was furtherstrengthened through focused evolution ofthe underlying strategy and a contempo-rary directional interpretation of the valuesthat over the years have been the fuel ofthe LEGO brand. The strategy has beenfurther developed to narrow the focus andensure a more direct and relevant execu-tion.

Our fundamental beliefs remain that child-ren are our role models. Children are curi-ous, creative, imaginative. They embracediscovery and wonder, they are naturallearners. These are precious qualities thatshould be nurtured and stimulatedthroughout life. Thus our mission is also tonurture the child in each of us.

EvolutionOur values are the most essential elementsof the brand as they describe the core ofthe brand. To reinforce the values as ourguiding tools in everything we do, we haveinterpreted our claim for distinction andadded directive meaning. “Creativity” for theLEGO Company is about “Self-expression”and the empowerment of the individual.

“Imagination” is about “Endless ideas”, curi-ousity, discovery and exploration to bring ide-as to life. “Learning” is about “Playful learning”,learning through play, challenging play,hands-on minds-on play that encouragesaccomplishment. “Fun” is about “Active fun”,social, childlike, adventurous fun and the thrillof creation. And “Quality” is about being val-ued as “Trusted” through product quality, eth-ical values and a consistency in all of ouractions. It is fundamentally important tounderstand that it is the combination of thecore values that makes the LEGO brandunique and nothing can be true to our brandwithout being rooted in all five core values.

Furthermore the positioning of the brandhas been revised. The LEGO brand is notjust about stimulating creativity or motivatingimagination. It is the expansive process ofcreating ideas, of exploration, construction,accomplishment and more… – an infiniteexpansive process of creation. Therefore theLEGO brand positioning is “The Power ToCreate”, where power communicates theempowerment of the user and to createremains consistently the unique propositionof the LEGO brand and taps into the philoso-phy of constructivism. Positioning isanchored in the brand experience andestablishes the brand as an empoweringtool for creation – unrestricted by productcategory, age, gender or culture.

In addition to interpreting values and revisingthe positioning a new architecture has beenestablished to leverage the LEGO brandthrough unique brand experiences. Thearchitecture is relevant to both children and

Increasing the LEGObrand strength

Knowledge resourcesOne of LEGO Company’s most important knowledge resources is its strong brand and a sound knowledge of themarket. The Company engages constantly in developing products which conform with the LEGO values. In addition,it has the skill of forming strong relations with other companies and the drive to ensure that its suppliers complywith strict quality standards both with regard to the product and to the manner in which it is produced. LEGO Com-pany also pursues a consistent policy of furthering the personal development of its employees – to enhance thepleasure and satisfaction they derive from working with the Company.All of these assets are important ingredients in the Company’s ability to maintain and expand its current marketposition – and thus to generate future value.


Nike, the world-famous sporting-goods manufacturer, and the LEGO Company signed a partnership agreement inOctober. Under the deal, Nike will manufacture sports shoes whose packaging and decoration will be based on theBIONICLE universe. The new Nike BIONICLE shoe is aimed especially at children and young people. Each pair ofshoes is accompanied by a set of masks, any of which can be fitted on the nose of the shoe as the wearer wishes.Extra BIONICLE masks are available in a range of different colours. The first BIONICLE shoes were launched in theUnited States at the end of 2002, and the product will reach European shops in 2003.

PARTNERING NIKE

adults while at the same time facilitates astrong and clear communication of theLEGO brand across segments, categoriesand channels. It leads users to a wider per-spective of the LEGO brand through expe-rience-based segmentation and enablesus to prioritise our strategically importantareas instead of solely considering individ-ual product lines and categories. Thebrand architecture consists of four portalsthat act as doorways into the brand. Eachof the portals has a unique identity thatreflects the different experiences they pro-vide. The four portals are:Explore – a complete discovery system tohelp parents help their children growMake & Create – is about construction,building processes and creationsStories & Actions – characters, worlds, sto-ries and games & competitionsNext – highlighting the latest and mostinnovative constructivism of logical con-struction

The visual identity of the LEGO brand hasbeen updated to reflect how our positioningand architecture have evolved so the experi-ence-based portals have their own uniquedesign – although clearly connected throughthe visual language that crosses all portals.

LEGO Learning InstituteLEGO Learning Institute was set up in 2002.The task of the LEGO Learning Institute is toform a basic insight into child developmentand the relationship between play and learn-ing. The Institute carries on its own researchprojects and participates in internationalresearch environments, enabling it continu-ously to update its knowledge. This knowl-edge is shared with employees of the LEGOCompany and with parents, teachers andresearchers throughout the world. At thesame time the LLI concept connects with allresearch in child development.

Advancing towards 2003Increased focus on brand strategy hasalready made strong impact within the LEGOCompany. In everyday life, architecture, posi-tioning and especially values have an impor-tant effect on all employees in their behavi-our and decisions. In addition, 1,000-plusemployees have participated in brandschool workshops which have brought to asignificant part of the Company an evendeeper rooted understanding of the brand,and this will strengthen global implementa-tion of the activities in 2003.

By 2005, our goal is still for the LEGO brand tobecome the world’s strongest brand amongfamilies with children.

Endorsed

Explore

Is a completediscovery system

from birth toschool age.

Is not perceivable as a core LEGO product but it can ultimately migrate to aportal when consumer perception of LEGO values are established.

Make & Create

Is about construc-tion, building pro-cesses and crea-

tions.

Stories & Action

Is driven by a story,universe, characterand/or competition.

Next

Is highlighting thelatest and most

innovative construc-tivism concepts.

Self-expression

Endlessideas

Playfullearning

Fun

Quality Imagination

Learning

Active fun

Creativity

Trusted


Living the LEGO values

A conscious effort to make the LEGO Com-pany a pleasant place to work has paid mea-surable dividends for the third successiveyear.

The aim is to ensure that the Company notonly offers optimum working conditions,career opportunities, personal developmentand work satisfaction but also permits a sen-sible balance between working life and off-duty hours.

LEGO PulseAnnually since 2000 the LEGO Company hasconsulted its employees by conducting aquestionnaire survey designed to gauge theworkplace climate. Entitled LEGO Pulse, thesurvey comprises more than 60 questionsfocusing on LEGO values, workplace environ-ment and management.One of the significant conclusions to bedrawn from the 2002 survey is that employ-ees derive a remarkably high degree of satis-faction from working for the LEGO Company.No fewer than 85% of employees say directlythat they enjoy going to work. That figure is

seven percentage points higher than in thefirst survey three years ago.A total of 80% of employees are satisfied withthe Company, while 6% are not. In the previousyear’s survey the corresponding figures were76% satisfied and 7% not satisfied. In the firstPulse survey (December 2000) the figureswere 65% and 13%.

Progress has been made in all eight main are-as in which analyses were conducted. Thebiggest improvement was in “working condi-tions”, the smallest in “co-operation and taskdelegation”.

Employees’ assessment of management hasalso improved annually and is currently at 71%.

There was also obvious satisfaction at theCompany’s respect for the need for balancebetween working hours and family life. Similar-ly, employees clearly feel that work gives thema good opportunity to develop and to exertinfluence. There was also a favourableresponse to questions on whether managersback up their employees and treat them withrespect.

Approx. 1,000 employees attendedPlayful Learning courses (picture),and a similar number underwent

Brand School courses in 2002.

90

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30

20

10

0

Pulse IPulse IIPulse III

Employeesatisfaction and

commitment

LEGO values andcompetencies

Leadershipcapabilities

Performanceculture


On a more negative note, the latest surveyshows relatively low percentages on thequestion of efficiency and simplicity in work-ing procedures. This is something oneemployee in four has highlighted as being ofmajor significance to the LEGO Company –and it will be a focus area in 2003.For the third consecutive year more andmore people are responding to the survey.The latest response rate was 81%.The Pulse survey is conducted in 10 differentlanguages, attracting responses from more6,600 employees.

The LEGO Company is based on a series ofvalues founded on five core value areas:Creativity, fun, learning, quality and imagina-tion. And to promote and strengthen employ-ee skills the Company has defined a specialpersonnel-development system: Perfor-mance Management Programme (PMP). Itconverts the Company’s long- and short-termstrategies to individual objectives, agreedbetween manager and employee.

Since PMP was introduced in 2000, allemployees have been required annually todraw up clear-cut operational and focusobjectives in consultation with their immediatesupervisor. These objectives are based on theemployee’s primary tasks and activities andon the LEGO Company’s strategic priorities.PMP is supplemented by a bonus scheme.The Company also intends in 2003 preparinga personal-development plan for all of its sala-ried workers. The plan will be based on thefive LEGO competencies: “Living the LEGOvalues”, “leadership”, “customer and brandfocus”, “business orientation” and “profession-al know-how and skills”.Personal-development plans were startedamong the LEGO Company’s 90 senior man-agers in 2001. In 2002 these managers con-ducted development interviews with an addi-tional approx. 300 managers on the layer ofmanagement below them. The objective isthat during 2003-2004 a development plan willbe in place for all employees to consolidateand develop the skills of the individual andsupport the strategy of the LEGO Company.

Learning through playDuring 2002 employees had access to anumber of courses based on LEGO valuesand the LEGO brand. One of these was enti-tled Playful Learning. A total of 800-1000employees attended this course during theyear, gaining an insight into the importance oflearning through the medium of play. More-over, 1000 employees attended BrandSchools. These comprise a two-day seminar,examining the essential nature of the LEGObrand for the LEGO Company.

90

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70

60

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10

0

Pulse IPulse IIPulse III

Teamwork andempowerment

Work conditions Personal andcareer

development

OverallLEGO Company

In June 2003 NASA will send two spacecraft to Mars. A LEGO figure willaccompany the expedition. The partnership between NASA and theLEGO Company and the Planetary Society was announced on Octo-ber 16 during the international space conference in Houston, Texas.

With NASA to Mars

Global focuson the environment

1990: Launch of the “green LEGO wave”.Much of the plastic waste is recycled forproduction of new components – theremainder is converted into patent fuel forheating.Thickness of packaging material isreduced by 30% on switching from PVC toPET.

1991: 90% of our packaging consists ofrecycled cardboard.

1992: Our packaging carries the “GrünePunkt” symbol as proof that we meet therequirements of the packaging regula-tions. Focus on recycling in all our produc-tion companies worldwide.The transport department introduces die-sel with low sulphur content.

1993: LEGO Systems Inc. (USA) receives acommunication award for the environmen-tal brochure The LEGO Promise to PlanetEarth.

1994: An environmental video is launchedfor internal use.More than 200 employees receive trainingin environmental auditing. An environmen-tal action programme is set up.

1995: New cooling equipment is intro-duced – using water as the only coolingagent. LEGO Company receives EuropeanEnvironmental Award for the energy-savingand environment-improving cooling equip-ment.

1996: The volume of plastic waste isreduced to less than 1% of total plasticconsumption.The consumption of silicone in the decora-tion department is halved by means of anew method.

1997: Environmental assessment of LEGOProduktion AG (Switzerland). Introduction ofnew technology in manufacturing andlogistics to improve the environment.Mobile water cleaner for the wetlands atLEGOLAND Billund reduces water con-sumption by approximately 80%.

1998: New method of packaging con-signed goods halves the consumption ofstretch film.

1999-2000: A new plant for mechanicalseparation and recycling of mixed plasticwaste is inaugurated in 2000.

2002: An Occupational Health & SafetyManagement System conforming toOHSAS 18001 is currently being implement-ed in Billund.

2002: A project is launched to implementa global Environmental ManagementSystem conforming to ISO 14001 standards.



Opening of LEGOLAND DeutschlandOn May 17, 2002, Germany got its very own LEGOLAND Park – a year earlier thanplanned. It is the world’s fourth LEGOLAND Park and is located in Günzburg, in the Ger-man state of Bavaria. The new park attracted more than 1.3 million visitors in its first sea-son, who admired the many beautiful LEGO models that 140 modelbuilders had con-structed over a two-year period – using more than 50 million LEGO bricks.

Other events during the year:Opening of LEGOLAND Deutschland. Racers 4D film opens in all LEGOLAND Parks.LEGO Company’s 70th birthday.

LEGO Brand StoreIn October 2002 Kjeld Kirk Kristiansen snippedthe ceremonial ribbon and opened the world’sfirst LEGO Brand Store based on an excitingnew concept. The store is located in the heartof Cologne, Germany, and is the first in a seriesof such test outlets. In November a secondbrand store was opened in Milton Keynesnorth-west of London. And in December aLEGO brand store was opened in the largestshopping centre in Eastern Europe in Moscow.

EVENTS


Accounts 2002

The LEGO Company comprises LEGO companies owned by the Kirk KristiansenFamily and to a minority extent by the LEGO Foundation.

The accounting information shown here for LEGO Company is therefore not theaccounts of a separate legal entity but is the consolidated accounts of the abovegroup of companies, prepared as if these companies were a group.

F I N A N C I A L H I G H L I G H T S [ M . D K K ]

2002 2001 2000 1999 1998Income StatementNet sales 11,426 10,670 9,467 9,808 7,680 Earnings before interest and tax 830 700 (989) 708 (172)Earnings before tax 626 532 (1,190) 516 (282)Net earnings 428 433 (916) 273 (194)

Balance SheetAssets 12,144 13,683 12,280 12,933 11,250 Equity 6,952 6,803 6,283 6,856 5,841

Cash Flow StatementCash flow from operating activities 1,989 874 (142) 419 113 Investment in tangible fixed assets (1,253) (1,453) (1,156) (942) (1,398)Total net cash flow (289) 771 (1,375) 84 (854)

Financial Ratios in %Operating margin 7.3 6.6 (10.4) 7.2 (2.2)Net earnings margin 3.7 4.1 (9.7) 2.8 (2.5)Return on equity (ROE) 6.2 6.6 (13.9) 4.3 (3.4)Equity ratio 57.2 49.7 51.2 53.0 51.9

EmployeesAverage number (full time) 8,297 7,641 7,880 8,190 9,079

I N T R O D U C T I O N

In 2002 sales rose by DKK 756m to DKK 11.4bn and the pre-tax result for the year was DKK94m higher than in 2001 at DKK 626m. Equity increased by DKK 149m, which equates to anequity ratio of 57% – seven percentage points up on 2001. Cash flow from operating activ-ities was more than twice the 2001 level, reaching almost DKK 2bn.

01862-årsrapport 2002 ny UK 13/03/03 15:09 Side 17


Revised accounting policiesAs in earlier years, the annual accounts ofLEGO Company have been prepared in accor-dance with the provisions of the Danish Corpo-rate Accounts Act, and consequently changesin LEGO Company’s accounting policies havebeen necessitated by legislative amendments.

Amendments relating to inter-company loans(i.e. investments in subsidiaries), forward coverand interest have improved the pre-tax resultby DKK 82m and equity by DKK 331m (accu-mulated).

Income statementThe sales increase in 2002 occurred primarilyduring the first half of the year and can beattributed especially to a higher rate of sales inthe Americas, Asia Pacific and the opening ofthe new LEGOLAND Park in Günzburg, Germa-ny. The actual increase in turnover on localmarkets was to some extent counterbalanced,however, by declining exchange rates, primarilyUSD.

Sales rose by DKK 756m to a total of DKK 11.4bn.

Result before tax increased to 626m DKK in2002 compared to 532m DKK in 2001.

The rise in interest costs is related to the newLEGOLAND Park in Germany.

The tax liability for the year rose by DKK 99m toDKK 198m. The large increase may be attribut-ed to the fact that an increasing share of reve-nue stems from high-tax countries and thatunused tax deficits in LEGOLAND Parks werehigher than in earlier years.

Balance sheetLEGOLAND Park Günzburg, Germany, openedin spring 2002, which reduced fixed assetsunder construction but increased investmentin land and buildings and also increased oper-ational assets.

On account of sluggish Christmas sales,stocks rose while receivables fell.

More efficient cash management resulted in alower level of tied funds and a reduction in cur-rent liabilities and long-term debt.

Equity increased by DKK 149m, producing anequity ratio of 57%. Changes in equity wereinfluenced by the positive result, dividendspaid, by negative exchangerate and adjust-ments on investments in foreign subsidiaries.

Cash flowCash flow from operating activities was morethan twice the figure for 2001, reaching almostDKK 2bn.

Investments declined slightly – from DKK 1.3bnin 2001 to DKK 1.2bn in 2002.This is the equivalent of a net increase fromoperations and investments of DKK 800m in2002 compared with a negative contribution ofDKK 400m in 2001 – an improvement of DKK1.2bn.

Accounts 2002

Operating margin: Earnings before interest and tax x 100Net sales

Net earnings margin: Net earnings x 100Net sales

Return on equity (ROE): Net earnings x 100Average shareholders equity

Equity: Shareholders equity x 100Total equity and liabilities

R AT I O S



I N C O M E S TAT E M E N T [ M . D K K ]

2002 % 2001 %Net sales 11,426 100 10,670 100

Operating cost (10,596) (93) (9,970) (93)

Earnings before interest and tax 830 7 700 7

Net interest (204) (2) (168) (2)

Earnings before tax 626 5 532 5

Tax (198) (2) (99) (1)

Net earnings 428 4 433 4

Selected information relating to the income statementThe positive development reported in 2001 continued in 2002, withan increase in net sales and an improvement in pre-tax earnings.

The higher sales for the year were attributable primarily to the USmarket, to Asia and to the new LEGOLAND Park that opened in Ger-many. The actual rise in sales on local markets, however, was tosome extent discounted by declining exchange rates, chiefly in theUSD.

12,000

10,000

8,000

6,000

4,000

2,000

0

1998 1999 2000 2001 2002

Americas

Europe

Other Markets[ Japan, Asia, Australia, Africa ]

N E T S A L E S [ M . D K K ]

1,000

500

0

(500)

(1,000)

(1,500)

10%

5%

0%

(5%)

(10%)

(15%)

1998 1999 2000 2001 2002

R E T U R N O N E Q U I T Y

The tax liability for the year was significantly higher than in earlieryears, due to the fact that a proportionately large share of revenue in2002 was recorded in high-tax countries and that unused deficitswere higher than in earlier years.

N E T S A L E S / E A R N I N G S B E F O R E TA X [ M . D K K ]

12,000

10,000

8,000

6,000

4,000

2,000

0

1998 1999 2000 2001 2002

Net Sales Earnings before Tax



B A L A N C E S H E E T [ M . D K K ]

2002 % 2001 %

Fixed assets 6,962 57 7,076 52

Current assets 5,182 43 6,607 48

Total assets 12,144 100 13,683 100

Equity 6,952 57 6,803 50

Provisions 381 3 322 2

Long term debt 2,113 17 3,069 22

Short term debt 2,698 22 3,489 25

Total equity and liabilities 12,144 100 13,683 100

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

1998 1999 2000 2001 2002

Fixed Assets

Current Assets

T O TA L A S S E T S [ M . D K K ]

Accounts 2002

60%

55%

50%

45%

1998 1999 2000 2001 2002

E Q U I T Y R AT I O

Balance sheetDuring 2002 it was possible to reduce total assetsbelow their previous level, and at the same time thenew LEGOLAND Park in Günzburg was completed.The reduction was mainly in current assets.

In conjunction with the positive result and thus thepositive development in net capital, the decline in totalassets meant a substantial improvement in the equityratio, which now exceeds 57%.


C A S H F L O W S TAT E M E N T [ M . D K K ]

2002 2001Cash flows from:

Operating activities 1,989 874

Investing activities (1,189) (1,306)

Financing activities (1,089) 1,203

Total net cash flow (289) 771

1,800

1,600

1,400

1,200

1,000

800

600

400

200

0

1998 1999 2000 2001 2002

N E T I N V E S T M E N T S [ M . D K K ]

1,000

500

0

(500)

(1,000)

(1,500)

(2,000)

1998 1999 2000 2001 2002

N E T C A S H G E N E R AT I O N [ M . D K K ]

Cash flowsIn contrast to earlier years, 2002 provided a positivenet cash flow before financing activities. The positivecontribution for the year was DKK 800m comparedwith a negative contribution of DKK 432m in 2001.

The positive development was primarily attributable toimprovements in cash flows from operating activities– investment activities were largely at the same levelas in previous years.

Trademark costsTrademark costs totalled DKK 350m, chiefly compris-ing royalty payments to companies in the KIRKBIGroup.


Per 31/12

Average

E M P L O Y E E S(full time)

9,000

8,500

8,000

7,500

7,000

1998 1999 2000 2001 2002

● Concept and product developmentLondon, Milan and Billund

● Production:Enfield, USABaar, SwitzerlandBillund, DenmarkKladno, Czech RepublicSeoul, Korea

● LEGOLAND Parks:LEGOLAND BillundLEGOLAND WindsorLEGOLAND CaliforniaLEGOLAND Deutschland

● Sales companies and LEGO offices


TOP FIVE PRODUCT CATEGORIES IN 2002

© 2003 Lucasfilm Ltd. & TM/MC. All rights reserved. Used under authorization.

HARRY POTTER, characters, names and related indicia are trademarks of and © Warner Bros.Harry Potter Publishing Rights © JKR.

The Williams name, WilliamsF1 Team icon and Williams car design are intellectual property rightsowned by Williams Grand Prix Engineering Limited. All rights reserved.

NBA identifications depicted are the exclusive property of NBA Properties, Inc. and/or the NBAMember Teams, and are used with permission.

NHL and the NHL Shield are registered trademarks of the National Hockey League. All NHLlogos and marks and team logos and marks depicted herein are the property of the NHL andthe respective teams and may not be reproduced without the prior written consent of NHLEnterprises, L.P. © NHL 2003. All Rights Reserved.

The NIKE name is a trademark of Nike, Inc. and its affiliates.

Sales by product categories:

TOP FIVE1. BIONICLE2. LEGO Harry Potter3. LEGO EXPLORE4. LEGO Star Wars5. LEGO Racers

Global Company Communications · Billund · Denmark · Telephone +45 79 50 60 70 · Telefax +45 75 35 33 60 ] G

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The Editorial Committee comprises: Peter Kjelstrup, Vice President (respons. under Danish Press law), Global Company CommunicationsThomas Reil, Editor, Global Company Communications

Søren Lindgaard, Head of Global FinanceHenrik Deneke, Head of Global Consolidated Accounts

Annual Report 2002 is published for the Executive Office by Global Company Communications.

Annual Report 2002 LEGO CompanyANNUAL REPORT 2002 | 3 Annual report 2002 With sales up by DKK 756m...

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