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CVR-no: 54 56 25 19
Financial Highlights
The LEGO Group
(mDKK) Consolidated Income Statement: Revenue Expenses Operating profit Financial income and expenses Profit before income tax Net profit for the year Consolidated Balance Sheet: Total assets Equity Liabilities Consolidated Cash Flow Statement: Cash flows from operating activities Investment in property, plant and equipment Investment in intangible assets Cash flows from financing activities Total cash flows Employees: Average number (full-time) Financial ratios (in %): Gross margin Operating margin Net profit margin Return on equity (ROE) Return on invested capital Equity ratio
2012
2011
2010
2009
2008
10,400
9,374
8,365
7,286
5,388
Financial ratios have been calculated in accordance with the Recommendations and Financial Ratios 2010, issued by the Danish Society of Financial Analysts. For definitions, please see the section on accounting policies. Parentheses denote negative figures.
Contents
Managements Review
2 4 5
8 9
12 13 15 16 17
Consolidated income statement and consolidated statement of other comprehensive income Consolidated Balance Sheet Consolidated statement of changes in Equity Consolidated Cash Flow Statement Notes Parent Company
51 52 54 55 61
Income Statement Balance Sheet Statement of changes in Equity Notes Group Structure
LEGO A/S Aastvej 1 DK-7190 Billund Denmark Tel: +45 79 50 60 70 CVR-no: 54 56 25 19 Incorporated: 19 December, 1975 Residence: Billund Financial Year: 1 January 31 December Internet: www.LEGO.com Annual Report 2012 is published for the LEGO Group by Corporate Finance, Group Finance and Corporate Communications. Design: Kontrapunkt. Print: Scanprint. Printed copies: 50 LEGO, the LEGO logo, DUPLO, the Brick and Knob configurations and the Minifigure are trademarks of the LEGO Group. 2013 The LEGO Group. 2013 Lucasfilm Ltd. & TM. All rights reserved.
Company Information
Management Board
Jrgen Vig Knudstorp President and Chief Executive Officer Mads Nipper Executive Vice President and Chief Marketing Officer John Goodwin Executive Vice President and Chief Financial Officer Bali Padda Executive Vice President and Chief Operating Officer
Board of Directors
Niels Jacobsen Chairman of the Board since 2008.
President and CEO of William Demant Holding A/S. Deputy Chairman of the Board of KIRKBI A/S. Deputy Chairman of the Board of A.P. Mller-Mrsk A/S. Chairman of the Board of ssur hf.
Auditors
PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab
Managements Review
In 2012, the LEGO Group continued its strong growth of recent years. LEGO products increased their market share all over the world, and the Groups Sales increased by DKK 4.7 billion to DKK 23.4 billion. The LEGO Groups profit before tax amounted to DKK 7.5 billion in 2012 against DKK 5.5 billion the year before. The result is considered highly satisfactory. Sales The LEGO Groups revenue increased by 25.0% in 2012 to DKK 23,405 million against DKK 18,731 million the year before. With double-digit growth rates, North America, Asia and Central & Eastern Europe delivered impressive results in LEGO sales in 2012, while the growth rates in some Southern Europe markets were more moderate but still in healthy single digits despite very challenging market dynamics. LEGO Star Wars and LEGO City continue to be the best selling product lines, with LEGO Ninjago, launched in 2011, following closely. The new product line LEGO Friends that was launched at the beginning of 2012 has performed considerably above expectations. Licence and royalty expenses Licence and royalty expenses increased in 2012 to DKK 1,506 million from DKK 1,249 million in 2011. The item includes royalty to the KIRKBI Group for the use of the LEGO trademark, as well as licence agreements with inventors, designers and other licensees for the use of intellectual rights. Licence income from other companies use of the LEGO Groups trademarks increased in 2012 by DKK 26 million to DKK 250 million. Operating profit The LEGO Groups operating profit amounted to DKK 7,952 million in 2012 against DKK 5,666 million in 2011. The operating margin was 34.0% in 2012 against 30.2% in 2011. Financial income and expenses Net financials increased to an expense of DKK
The LEGO Group Annual Report 2012
430 million in 2012 against an expense of DKK 124 million in 2011, mainly related to currency hedging. Corporation tax Corporation tax amounts to DKK 1,909 million against DKK 1,382 million the year before. The effective tax rate for the year is 25.4% against 24.9% in 2011. Profit for the year The LEGO Groups profit for the year amounted to DKK 5,613 million in 2012 against DKK 4,160 million in 2011, which is a higher increase than expected at the beginning of the year. The very positive results are first and foremost related to the continued successful innovation of the product portfolio. As new products make up approximately 60% of the total sales each year, a highly innovative and consumer oriented development process is key to continued success. Furthermore, the companys operating model, and the strategy of manufacturing close to the markets, ensures a constant focus on optimisation and improvement, while securing end to end collaboration to deliver against customer demands. Equity and cash flows The LEGO Groups assets increased by DKK 3,448 million in 2012 and amount to DKK 16,352 million against DKK 12,904 million at the end of 2011. Return on invested capital was 140.2% in 2012 against 133.4% in 2011. The increase is driven by increase in operating margin. After recognition of the profit for the year and distribution of dividend, the LEGO Groups equity has increased by DKK 2,889 million to DKK 9,864 million in 2012. At the end of 2012, the equity ratio of the LEGO Group was 60.3%. Return on equity for the LEGO Group was 66.7% in 2012 against 66.8% in 2011. Cash flows from operating activities amounted to DKK 6,220 million against DKK 3,828 million in 2011.
Capacity investments Due to the strong growth, the LEGO Group continues recent years extensive investments in production capacity. Cash flow investments in property, plant and equipment amounted to DKK 1.7 billion in 2012. In September 2012, the LEGO Group inaugurated a comprehensive expansion of the factory in Kladno, the Czech Republic, and at the same time announced that the plant will be further expanded over the years 2013-2014. At the LEGO factory in Monterrey, Mexico, a new high-bay warehouse was put into use in the fourth quarter of 2012. In 2011, it was decided to build a new factory in Nyregyhza, Hungary, which is to replace the existing leased factory in the same town. Construction of the new plant began in October 2012, and the new factory is expected to open in 2014. Finally in Billund, Denmark, investments are planned in moulding and engineering capabilities. Intellectual capital resources As a consequence of the companys considerable sales growth, a large number of new employees joined the LEGO Group in 2012. The average number of full-time employees was 10,400 in 2012 against 9,374 in 2011. Welcoming a high number of new employees places high demands on the companys capabilities within recruiting and onboarding. In 2012, the strengthening of a global onboarding initiative continued in order to meet this important challenge. The considerable growth, which is expected to continue in the coming years, is only possible because of the skills, dedication and commitment of LEGO employees. It is therefore of the utmost importance for the company to secure continuous development of the skills of its employees. Consequently, both talent development and general competence development are very important elements of the Groups People & Culture strategy.
All employees in the LEGO Group participate in a Performance Management Program (PMP). This Program ensures that the goals set for the performance of the employees relate directly to the overall objectives of the Group. On a current basis during the year, the manager and the employee follow up on whether the goals are achieved. For white collars a differentiated bonus scheme is attached to the Program, whereas blue collars are rewarded on a team based scheme. A total evaluation of the employees and the companys performance compared with the defined goals, which is carried out at year end, decides the amount of bonus for each individual employee. Research and development activities Each year, new launchings account for approximately 60% of the LEGO Groups sales to consumers. Therefore, the Group has considerable development activities, comprising anything from trend spotting and anthropological studies to the actual development of specific products and campaigns. Approximately 160 designers from about 20 different countries make up the creative core of product development that is mainly based at company headquarters in Billund, Denmark. Moreover, the LEGO Group cooperates with a number of educational institutions concerning various research projects within, among other things, childrens play and new technologies. Sustainability In 2003 the LEGO Group was the first company in the toy industry to sign the UN Global Compact. This was a confirmation of the companys many years of support of human rights, labour standards and the environment. The UN Global Compact has later been extended to include anti-corruption. The LEGO Group confirms its support to Global Compact. The LEGO Group has issued its Progress Report 2012 describing how the LEGO Group is working within the areas of human rights, labour standards, the environment and anti-corruption.
The Progress Report 2012 thus constitutes the statutory statement of social responsibility pursuant to section 99 a of the Danish Financial Statements Act. The Progress Report 2012 also describes the LEGO Groups efforts to achieve its non-financial goals. Market development The LEGO Groups main activity is the development, production, marketing and sale of play materials. The market for traditional toys, in which the Group operates, experienced a decline in global value in 2012. North America saw a slight decrease in 2012, and in Europe growth was only seen in the central and Eastern parts of the area. Southern European markets decreased considerably, whereas the toy market in the Northern parts of Europe stagnated or experienced low decline rates. In contrast, the toy market in Asia experienced high growth rates during 2012, except the large Japanese toy market that saw a decrease during the year. LEGO sales It has been a challenge to attract more girls to the LEGO play experience. In an attempt to solve this challenge, the new product line LEGO Friends was launched at the beginning of 2012. During its first year on the market, the product line has proved a huge success, and in spite of a considerable increase of production capacity on this particular line during the year, the very strong demand could not fully be met. LEGO Ninjago which was launched in 2011 continued its popularity in 2012 as the third largest product line in the portfolio, while LEGO City and LEGO Star Wars topped the list of best selling lines again in 2012. Double-digit sales growth rates were achieved in most markets in 2012. The strong growth of recent years in the companys largest market, North America, continued, and in Asia, which is still a relatively small market for the LEGO Group, the sales growth was very strong. This is particularly encouraging since the Asian markets are focus areas for the company in the coming years.
The LEGO Group Annual Report 2012
In Europe, the LEGO Group achieved sales growth in all markets, despite challenging market conditions. Through own online channels and brand retail stores, direct sales to consumers, accounting for some 10% of the LEGO Groups total sales, also saw considerable growth in 2012. Finally, the LEGO Groups sale of products to the educational sector continued its strong growth from the previous year; however, from a relatively small base. Thanks to the growth generated during the year, the LEGO Groups global market share of the toy industry at the end of 2012 amounts to approximately 8.6% up from 7.1% in 2011. Expectations for 2013 Global economic developments are expected to continue to impact the market for traditional toys. Economic forecasts project a continued difficult economic environment in both Western and Southern Europe and in North America, while Asia and parts of Eastern Europe are expected to continue robust growth. Based on the LEGO Groups good momentum at the end of 2012, continued sales growth is expected in 2013. However, the economic challenges in many European and North American markets are expected to result in lower growth rates for the company than achieved in recent years. The LEGO Group expects satisfactory results for 2013.
Managements Statement
The Management Board and the Board of Direc tors have today considered and adopted the Annual Report of LEGO A/S for the financial year 1 January 31 December 2012. The Consolidated Financial Statements are pre pared in accordance with International Financial Reporting Standards as adopted by the EU, and the Financial Statements are prepared in accord ance with the Danish Financial Statements Act. Moreover, the Consolidated Financial Statements and the Financial Statements are prepared in accordance with additional Danish disclosure requirements for Financial Statements. Manage ments Review is prepared in accordance with the Danish Financial Statements Act.
In our opinion, the Consolidated Financial State ments and the Financial Statements give a true and fair view of the financial position at 31 December 2012 of the Group and the Company and of the results of the Group and Company operations and consolidated cash flows for the financial year 1 January - 31 December 2012. In our opinion, Managements Review includes a true and fair account of the development in the operations and financial circumstances of the Group and the Company, of the results for the year and of the financial position of the Group and the Company as well as a description of the most significant risks and elements of uncertain ty facing the Group and the Company. We recommend that the Annual Report be adopted at the Annual General Meeting.
Management
Board of Directors
Kre Schultz
Eva Berneke
Report on Consolidated Financial Statements and Parent Company Financial Statements We have audited the Consolidated Financial Statements and the Parent Company Financial Statements of LEGO A/S for the financial year 1 January to 31 December 2012, which comprise income statement, balance sheet, statement of changes in equity and notes including summary of significant accounting policies for both the Group and the Parent Company, as well as statement of comprehensive income and cash flow statement for the Group. The Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and any further disclosure requirements of the Danish Financial Statements Act, and the Parent Company Financial Statements are prepared in accordance with the Danish Financial Statements Act. Managements Responsibility for the Consolidated Financial Statements and the Parent Company Financial Statements Management is responsible for the preparation of Consolidated Financial Statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and further Danish disclosure requirements in accordance with the Danish Financial Statements Act and for preparing Parent Company Financial Statements that give a true and fair view in accordance with the Danish Financial Statements Act. Further Management is responsible for such internal control as Management determines is necessary to enable the preparation of Consolidated Financial Statements and Parent Company Financial Statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on the Consolidated Financial Statements and the Parent Company Financial Statements based on our audit. We conducted our audit in accordance with International Standards on Auditing and additional requirements under Danish audit
The LEGO Group Annual Report 2012
regulation. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the Consolidated Financial Statements and the Parent Company Financial Statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Consolidated Financial Statements and the Parent Company Financial Statements. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the Consolidated Financial Statements and the Parent Company Financial Statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Companys preparation of Consolidated Financial Statements and Parent Company Financial Statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the Consolidated Financial Statements and the Parent Company Financial Statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. The audit has not resulted in any qualification. Opinion In our opinion, the Consolidated Financial Statements give a true and fair view of the Groups financial position at 31 December 2012 and of the results of the Groups operations and cash flows for the financial year 1 January to 31 December 2012 in accordance with International Financial Reporting Standards as adopted by the EU and further Danish disclosure requirements in accordance with the Danish Financial Statements Act.
Moreover, in our opinion, the Parent Company Financial Statements give a true and fair view of the Parent Companys financial position at 31 December 2012 and of the results of the Parent Companys operations for the financial year 1 January to 31 December 2012 in accordance with the Danish Financial Statements Act.
Statement on Managements Review We have read Managements Review in accordance with the Danish Financial Statements Act. We have not performed any procedures additional to the audit of the Consolidated Financial Statements and the Parent Company Financial Statements. On this basis, in our opinion, the information provided in Managements Review is consistent with the Consolidated Financial Statements and the Parent Company Financial Statements.
10
Allocated as follows: Parent Company shareholders Non-controlling interests 5,583 30 5,613 4,137 23 4,160
Consolidated statement of other comprehensive income: Profit for the year Change in market value of cash flow hedges Reclassification of cash flow hedges from Equity to be recognised in the income statement as part of financial income/expenses Tax on cash flow hedges Currency translation differences Total other comprehensive income for the year Allocated as follows: Parent Company shareholders Non-controlling interests 5,897 30 5,927 3,997 23 4,020 5,613 42 346 (97) 23 5,927 4,160 (228) 44 46 (2) 4,020
12
(mDKK) ASSETS Non-current assets: Development projects Software Licences, patents and other rights Intangible assets Land, buildings and installations Plant and machinery Other fixtures and fittings, tools and equipment Fixed assets under construction Property, plant and equipment Deferred tax assets Investments in associates Other non-current assets Total non-current assets Current assets: Inventories Trade receivables Other receivables Prepayments Current tax receivables Receivables from related parties Cash at banks Total current assets TOTAL ASSETS
Note
2012
2011
37 104 68 12 209 1,688 1,615 746 517 13 19 14 4,566 131 3 134 4,909
12 102 76 190 1,140 1,239 502 514 3,395 114 3 117 3,702
15 16
29 28
13
(mDKK) EQUITY AND LIABILITIES EQUITY Share capital Reserve for hedge accounting Reserve for currency translation Retained earnings LEGO A/S share of equity Non-controlling interests Total equity
Note
2012
2011
17
20 39 (117)
18
LIABILITIES Non-current liabilities: Borrowings Deferred tax liabilities Pension obligations Provisions Other long-term debt Total non-current liabilities Current liabilities: Borrowings Trade payables Current tax liabilities Provisions Other short-term debt Total current liabilities Total liabilities TOTAL EQUITY AND LIABILITIES 22 21 25 608 2,112 96 64 3,180 6,060 6,488 16,352 7 1,611 97 103 3,053 4,871 5,929 12,904 25 19 20 22 21 210 21 54 71 72 428 818 50 55 72 63 1,058
14
(mDKK) Balance at 1 January 2012 Profit for the year Acquisition of non-controlling interest in subsidiaries Other comprehensive income/ (expenses) for the year Dividend relating to prior year Balance at 31 December 2012
Share capital 20 20
LEGO A/S share of equity 6,949 5,583 (16) 314 (3,000) 9,830
(mDKK) Balance at 1 January 2011 Profit for the year Other comprehensive income/ (expenses) for the year Dividend relating to prior year Balance at 31 December 2011
Share capital 20 20
15
(mDKK) Cash flows from operating activities: Operating profit Interest paid etc Interest received etc Income tax paid Other reversals with no effect on cash flows Change in inventories Change in trade and receivables Change in trade and other payables Net cash generated from operating activities Cash flows from investing activities: Purchases of property, plant and equipment Purchases of intangible assets Proceeds from sale of property, plant and equipment Net cash generated from investing activities Cash flows from financing activities: Dividend paid to shareholders Dividend paid to non-controlling interests Acquisition of non-controlling interest Payment to related parties Repayment from related parties Repayments of borrowings Net cash used in financing activities Total cash flows Cash and cash equivalents at 1 January Exchange losses on cash at banks Cash at banks at 31 December
Note
2012
2011
13 12
(3,000) (22) (16) 29 29 (32,564) 31,074 (7) (4,535) (88) 557 (1) 28 468
(2,500) (18) (8,004) 8,010 (7) (2,519) (233) 802 (12) 557
16
Consolidation practice
The Consolidated Financial Statements comprise LEGO A/S (Parent Company) and the companies in which LEGO A/S directly or indirectly holds more than 50% of the votes or otherwise exercises control (subsidiaries). LEGO A/S and these companies are referred to as the LEGO Group. Subsidiaries are fully consolidated from the date on which control is transferred to the LEGO Group. They are de-consolidated from the date on which control ceases.
17
Income Statement
Recognition of sales and revenues Sales represent the fair value of the sale of goods excluding value added tax and after deduction of provisions for returned products, rebates and trade discounts relating to the sale. Provisions and accruals for rebates to customers are made in the period in which the related sales are recorded. Historical data are readily available and reliable and are used for estimating the amount of the reduction in sales. Revenues from the sale of goods are recognised when all the following specific conditions have been met and the control over the goods has been transferred to the buyer. Significant risks and rewards of ownership of the goods have been transferred to the buyer. The revenues can be measured reliably. It is probable that the economic benefits associated with the transaction will flow to the LEGO Group. Costs incurred or to be incurred in respect of the transaction can be measured reliably. These conditions are usually met by the time the products are delivered to the customers. Licence fees are recognised on an accrual basis in accordance with the relevant agreements.
Balance Sheet
Software and development projects Research expenses are charged to the income statement as incurred. Software and development projects that are clearly defined and identifiable and which are expected to generate future economic profit are recognised as intangible non-current assets at historical cost less accumulated amortisation and any impairment loss. Amortisation is provided on a straight-line basis over the expected useful life which is normally 3-6 years. Other development costs are recognised in the income statement. An annual impairment test of the intangible fixed assets under construction is performed.
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The residual values and useful lives of the assets are reviewed and adjusted, if appropriate, at each balance sheet date. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and recognised in the income statement. Cost comprises acquisition price and expenses directly related to the acquisition until the time when the asset is ready for use. The cost of self constructed assets comprises direct expenses for wage consumption and materials. Borrowing costs related to financing self constructed assets that take a substantial period of time to complete and whose commencement date is on or after 1 January 2009 are included in the cost price. Leases Leases of assets where the LEGO Group has substantially all risks and rewards of ownership are capitalised as finance leases under property, plant and equipment and depreciated over the estimated useful lives of the assets, according to the periods listed under the section property, plant and equipment. The corresponding finance lease liabilities are recognised in liabilities. Operating lease expenses are recognised in the income statement on a straight-line basis over the period of the lease. Impairment of assets Assets that are subject to depreciation and amortisation are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets under development are tested for impairment at each reporting date.
Equity
Reserve for hedge accounting The reserve for hedge accounting consists of the effective portion of gains and losses on hedging instruments designated as cash flow hedges. Reserve for currency translation The reserve for exchange adjustments consists of exchange rate differences that occur when translating the foreign subsidiaries financial statements from their functional currency into the LEGO Groups presentation currency. On disposal of the net investment, the reserve for exchange adjustments of that foreign subsidiary is recognised in the income statement. Dividend distribution Dividends are recognised as a liability in the period in which they are adopted at the Annual General Meeting.
Liabilities
Borrowings Borrowings are initially recognised at fair value, net of transaction expenses incurred. Borrowings are subsequently measured at amortised cost. Any differences between the proceeds and the redemption value are recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the LEGO Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
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Gross margin
OPERATING PROFIT (EBIT) X 100 REVENUE NET PROFIT FOR THE PERIOD X 100 REVENUE NET PROFIT FOR THE PERIOD X 100 AVERAGE EQUITY EBITA BEFORE RESTRUCTURING X 100 AVERAGE INVESTED CAPITAL
Equity ratio
20
Note 3. Revenue
Revenue contains sale of goods and licence income. Sale of goods amounts to DKK 23,155 million (DKK 18,507 million in 2011), and licence income amounts to DKK 250 million (DKK 224 million in 2011).
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(mDKK) Wages and salaries Termination benefit and restructuring Pension costs, defined benefit plans Pension costs, defined contribution plans Other expenses and social security expenses Total employee costs for the year Employee costs included in: Intangible assets Property, plant and equipment Total employee costs expensed in the income statement Classified as: Production costs Sales and distribution expenses Administrative expenses Other operating expenses
Note
2012 3,467 5
20
Including Key Management Personnel:1 Salaries Termination benefit Short-term incentive plans Long-term incentive plans 18 8 9 35 Including fee to Board of Directors: Incentive plans comprise a short-term incentive plan based on yearly performance and a long-term incentive plan related to long-term goals regarding value creation. Average number of full-time employees
1
29 3 10 7 49 3
10,400
9,374
22
(mDKK) Licences, patents and other rights Software Buildings and installations Plant and machinery Other fixtures and fittings, tools and equipment
Classified as: Production costs Sales and distribution expenses Administrative expenses Other operating expenses 529 111 13 1 654 441 125 70 1 637
In 2012 the LEGO Group has not had any impairment write down on intangible fixed assets (2011 DKK 99 million). The LEGO Group has had an impairment write down on property, plant and equipment amounting to DKK 29 million (2011 DKK 8 million). The total impairment is expensed with DKK 29 million (2011 DKK 49 million) as production costs and DKK 0 million (2011 DKK 58 million) as sales and distribution expenses.
23
(mDKK) Interest expenses on mortgage loans measured at amortised cost Interest expenses to related parties Interest expenses to credit institutions measured at amortised cost Other interest expenses Loss from derivative financial instruments Exchange loss, net
24
(mDKK) Cost at 1 January 2012 Exchange rate adjustment to year-end rate Additions Disposals Transfer Cost at 31 December 2012 Amortisation and impairment losses at 1 January 2012 Amortisation for the year Disposals Amortisation and impairment losses at 31 December 2012 Carrying amount at 31 December 2012
(mDKK) Cost at 1 January 2011 Exchange rate adjustment to year-end rate Additions Transfer Cost at 31 December 2011 Amortisation and impairment losses at 1 January 2011 Amortisation for the year Impairment losses for the year Amortisation and impairment losses at 31 December 2011 Carrying amount at 31 December 2011
In 2011 the LEGO Group has impaired intangible fixed assets amounting to DKK 99 million. The impairment losses are due to closedown of IT projects. In assessing the value in use the LEGO Group has used a pre-tax discount rate of 13.54%, reflecting the LEGO Groups overall WACC.
25
(mDKK) Cost at 1 January 2012 Exchange adjustment to year-end rate Additions Disposals Transfers Cost at 31 December 2012 Depreciation and impairment losses at 1 January 2012 Exchange adjustment to year-end rate Depreciation for the year Impairment losses for the year Disposals Depreciation and impairment losses at 31 December 2012 Carrying amount at 31 December 2012 Including assets under finance leases
Other fixtures & fittings, tools and equipment 1,061 10 169 (112) 192 1,320
517
Property, plant and equipment in general An obligation regarding the purchase of property, plant and equipment of DKK 388 million exists at 31 December 2012 (DKK 334 million at 31 December 2011). Assets under finance leases Assets under finance leases consist of buildings.
26
(mDKK) Cost at 1 January 2011 Exchange adjustment to year-end rate Additions Disposals Transfers Cost at 31 December 2011 Depreciation and impairment losses at 1 January 2011 Exchange adjustment to year-end rate Depreciation for the year Impairment losses for the year Disposals Depreciation and impairment losses at 31 December 2011 Carrying amount at 31 December 2011 Including assets under finance leases
514
27
(mDKK) Cost at 1 January Cost at 31 December Value adjustment at 1 January Share of profit/(loss) Value adjustment at 31 December Carrying amount at 31 December
Investments in associates comprise of KABOOKI A/S, Denmark. The LEGO Group owns 19.8% of the share capital, and is considered to have significant influence in KABOOKI A/S as the LEGO Group is represented on the Board of Directors of KABOOKI A/S. The company is therefore classified as investment in associates.
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(mDKK) Trade receivables (gross) Provisions for bad debts: Balance at the beginning of the year Exchange adjustment to year-end rate Change in provisions for the year Realised losses for the year Balance at the end of the year Trade receivables (net)
2012 5,002
2011 3,984
All trade receivables fall due within one year. The nominal value is considered equal to the fair value of receivables falling due within one year from the balance sheet date.
The age distribution of gross trade receivables is as follows: (mDKK) Not overdue 0 - 60 days overdue 61 - 120 days overdue 121 - 180 days overdue More than 180 days overdue 2012 4,353 601 7 9 32 2011 3,346 492 19 6 121
5,002 3,984 76% of total trade receivables are covered by insurance (77% in 2011) and therefore this part of the credit risk is reduced to the risk relating to the insurance companies concerned. DKK 1,180 million (DKK 921 million in 2011) corresponding to 24% of trade receivables (23% in 2011) are not covered by insurance. The LEGO Group has no single significant trade debtor, nor are the trade receivables concentrated in specific countries. The LEGO Group has fixed procedures for determining of the LEGO Groups granting of credit. The LEGO Groups risk relating to trade receivables is considered to be moderate. For more information, see note 24.
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30
2011 (mDKK) Non-current assets Receivables Inventories Provisions Other liabilities Other Offset Tax loss carry-forwards Deferred tax asset 98 5 131 72 74 25 (292) 1 114 Provision for deferred tax (20) (125) (4) (46) (147) 292 (50) Deferred tax net 78 5 6 68 28 (122) 1 64
Tax loss carry-forwards Tax assets relating to tax loss carry-forwards are capitalised based on an assessment of whether they can be utilised in the future. DKK 0 million of the LEGO Groups capitalised tax losses expires after 1 year, and DKK 2 million expires after 5 years (DKK 1 million in 2011 does not expire before 5 years).
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(mDKK) The amounts recognised in the balance sheet are calculated as follows: Present value of funded obligations Fair value of plan assets
2012
2011
Present value of unfunded obligations Net liability recognised in the balance sheet Of which included as part of the liabilities Of which included as part of the assets The change in present value of defined benefit obligations over the period is as follows: Present value at 1 January Exchange adjustment to year-end rate Pension costs relating to current financial year Interest expenses Actuarial gains Benefits paid Disposals in connection with cancellation of pension scheme Present value at 31 December
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(mDKK) The change for the period in fair value of plan assets is as follows: Plan assets at 1 January Exchange adjustment to year-end rate Expected return on plan assets Actuarial gains Employer contributions Benefits paid Disposals in connection with cancellation of pension scheme Plan assets at 31 December
2012
2011
(mDKK) Plan assets are specified as follows: Shares Debt instruments Other
2012
2011
78 40 118
4 94 23 121
33
(mDKK) The amount recognised in the income statement is specified as follows: Pension costs relating to current financial year Interest expenses Expected return on plan assets Actuarial losses, net
2012
2011
2 7 (4) (3) 2
1 7 (5) 3 6
Classified as: Administrative expenses 2 2 Movements in the net liability recognised in the balance sheet are as follows: Net liability at 1 January Exchange adjustment to year-end rate Total expenses charged to the income statement Contributions paid Disposals in connection with cancellation of pension scheme Net liability at 31 December The actual return on plan assets amounts to 30 2 (3) 19 48 17 26 1 6 (3) 30 9 6 6
The actuarial assumptions applied in the calculations vary from country to country due to local economic and social conditions. The average assumptions applied are specified as follows:
(mDKK) Discount rate Expected return on plan assets Future salary increases Future pension increases
2012 2% - 5% 3% - 5% 2% - 4% 2% - 3%
2011 2% - 5% 3% - 5% 2% - 4% 2% - 3%
(mDKK) Present value of defined benefit obligation Fair value of plan assets
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(mDKK) Wage-related payables and other charges Debt to related parties Finance lease obligations VAT and other indirect taxes Amortised debt Discounts Other current liabilities
Finance lease obligations The fair value of obligations regarding assets under finance leases corresponds to the carrying amount. The fair value is estimated to equal the present value of expected future cash flows at a market interest rate for similar leases.
(mDKK) Obligations regarding finance leases are as follows: 0-1 year 1-5 years > 5 years
2012
2011
7 26 16 49
7 26 24 57
Reconciliation of carrying amount and gross liability: Carrying amount of the liability Interest expenses not yet accrued 32 17 36 21 57
Gross liability 49 No contingent leases have been recognised in expenses in 2012 or 2011. None of the assets under finance leases have been subleased.
35
2012 (mDKK) Provisions at 1 January Exchange adjustment to year-end rate Additions Used Reversed Provisions at 31 December Specified as follows: Non-current Current 71 64 135 Restructuring 37 9 (32) (7) 7 Other 138 96 (63) (43) 128 Total 175 105 (95) (50) 135
2011 (mDKK) Provisions at 1 January Exchange adjustment to year-end rate Additions Used Reversed Provisions at 31 December Specified as follows: Non-current Current 72 103 175 Provisions for restructuring obligations relate primarily to close-down and reduction of production facilities, close-down of activities, loyalty programmes and redundancy programmes. The majority of these obligations is expected to result in cash outflows in the period 2013-2015. Other provisions consist of various types of provisions, including provisions for legal disputes. The majority of other provisions is expected to be used within the next 2 years. Restructuring 13 (1) 33 (1) (7) 37 Other 65 75 (2) 138 Total 78 (1) 108 (1) (9) 175
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(mDKK) Lease expenses for the year charged to the income statement amount to:
2012 392
2011 283
Future minimum lease payments under non-cancellable operating leases are specified as follows: (mDKK) Related parties: 0-1 year 1-5 years > 5 years 42 68 187 297 Other: 0-1 year 1-5 years > 5 years 330 870 507 1,707 285 642 372 1,299 25 25 2012 2011
Security has been given in land, buildings and installations with a net carrying amount of DKK 178 million (DKK 178 million in 2011) for the LEGO Groups mortgage loans. The Group has utilised tax losses in non-Danish jurisdictions in the Danish joint taxation until 31 December 2004. The deferred tax of this amounts to DKK 116 million, of which DKK 0 million has been recognised as provision for deferred tax. The amount of DKK 116 million is not expected to be recaptured. The Group is part in certain legal disputes. It is Managements assessment, that the settlement of these legal disputes will not impact the financial position of the Group.
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Credit risk
Financial instruments are entered into with counterparties with a credit rating of A- or higher from Standard & Poors. Similarly, the LEGO Group only uses insurance companies with a credit rating of A- or higher from Standard & Poors. The LEGO Group does not use credit ratings when hedging electricity consumption. Credit risk regarding trade receivables is disclosed in note 16. For banks and financial institutions, only independently rated parties with a minimum rating of A- are accepted as main banks. The LEGO Group uses the related company KIRKBI Invest A/S for loans and deposits. No independently rating exists but no significant risks are recognised. The maximum credit risk corresponds to the carrying amount of loans granted and receivables, cf note 25. No significant risks are recognised. The credit risks of the LEGO Group are considered to be low.
The financial instruments included in the foreign exchange sensitivity analysis are the Groups; Cash, Accounts Receivable, Accounts Payable, Current and Non-Current Loans and Foreign Exchange Forwards and Foreign Exchange Options.
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39
31 December 2012 (mDKK) Measured at amortised cost (Liabilities): Debt to credit institutions Trade payables Other debt1 818 2,112 1,929 4,859 Derivative financial instruments: Measured at fair value through the income statement Measured at fair value through other comprehensive income (Cash Flow Hedging) 17 24 41 Total financial liabilities 4,900 17 24 41 4,900 17 24 41 4,670 65 211 17 24 41 4,946 818 2,112 1,929 4,859 613 2,112 1,904 4,629 39 26 65 195 16 211 847 2,112 1,946 4,905 Carrying amount Fair value 0-1 year 1-5 years Over 5 years Total cash flows
Measured at amortised cost (Assets): Trade receivables Other receivables1 Receivables from related parties Cash at bank and in hand 4,950 283 3,442 468 9,143 Derivative financial instruments: Measured at fair value through the income statement Measured at fair value through other comprehensive income (Cash Flow Hedging) 23 76 99 Total financial assets
1
23 76 99 9,242
23 66 89 9,232
10 10 10
23 76 99 9,242
9,242
Prepayments are excluded from the other receivables balance and taxes and duties payable and wage related payables are excluded from other debt balance as this analysis is only required for financial instruments.
40
Measured at amortised cost (Assets): Trade receivables Other receivables1 Receivables from related parties Cash at bank and in hand 3,845 396 1,950 557 6,748 Derivative financial instruments: Measured at fair value through the income statement Measured at fair value through other comprehensive income (Cash Flow Hedging) 8 4 12 Total financial assets
1
8 4 12 6,760
8 4 12 6,760
8 4 12 6,760
6,760
Prepayments are excluded from the other receivables balance and taxes and duties payable and wage related payables are excluded from other debt balance as this analysis is only required for financial instruments.
41
31 December 2012 (mDKK) ASSETS Financial assets at fair value through income statement: Derivative financial instruments Financial assets at fair value through other comprehensive income: Derivative financial instruments (Cash Flow Hedging) Total assets LIABILITIES Financial liabilities at fair value through income statement: Derivative financial instruments Financial liabilities at fair value through other comprehensive income: Derivative financial instruments (Cash Flow Hedging) Total liabilities 24 41 24 41 17 17 76 99 76 99 23 23 Level 1 Level 2 Level 3 Total
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43
Hedging of balance items qualifying for hedge accounting: USD (Sale of currency) JPY (Sale of currency) GBP (Sale of currency) CZK (Purchase of currency) Other (Purchase of currency) Other (Sale of currency) Total Forward contacts Total for which hedge accounting applies 763 53 229 148 51 310 1,554 6,461 10 5 3 18 94 5 6 1 3 15 39 2 months 2 months 2 months 2 months 2 months 2 months
Other forecast transaction hedges for which hedge accounting is not applied: Electricity Energy contracts USD (Time value) Total currency options Total for which hedge accounting is not applied Total of forecast transactions 10 6,471 10 10 5 5 5 99 2 41 2 2 3 months 24 months
44
Other forecast transaction hedges for which hedge accounting is not applied: Other (Sale of currency) Total forward contracts Electricity Energy contracts USD (Sale of currency) Total currency options Total for which hedge accounting is not applied Total of forecast transactions 28 28 28 8,025 4 4 4 4 8 12 6 6 4 4 3 3 13 352 15 months 36 months 1 month
Hedging of assets and liabilities: Other Total forward contracts Total hedging activities 491 491 8,516 12 90 90 442 1 month
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46
Transactions with Koldingvej 2, Billund A/S: Interest received Total transactions with Koldingvej 2, Billund A/S 1 1
Transactions with associates: Purchase of products Trademark fee received Total transactions with associates (6) 7 1 (7) 8 1
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(mDKK) Transactions with other related parties: Sale of products Interest received Donations received Trademark fee received
2012
2011
331 7 6 13 357
Rent charged Interest charged Service fee charged Trademark fee charged
(543)
Remuneration to Key Management Personnel is disclosed in note 6. Transactions with related parties were carried out on an arms length basis. Year-End balances arising from sales/purchases of goods/services: (mDKK) Balances with KIRKBI A/S: Payables (2) (2) Balances with associates: Receivables Payables (1) (1) Balances with other related parties: Receivables Payables 32 (319) (287) 26 (231) (205) 1 (1) (2) (2) 2012 2011
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(mDKK) Balance at 1 January 2012 - Loan investment Loans advanced during the year1 Repayments - loan investment1 Interest received Balance at 31 December 2012 Specified as follows: Current Non-current
Balance at 1 January 2012 - Loan borrowing Loans raised during the year
1
(mDKK) Balance at 1 January 2011 - Loan investment Loans advanced during the year2 Repayments - loan investment Interest received2 Balance at 31 December 2011 Specified as follows: Current Non-current
2
Balance at 1 January 2011 - Loan borrowing Loans raised during the year2 Repayments - loan borrowing2 Balance at 31 December 2011
1 2
Payments to related parties amounting to (32,564) and payments from related parties amounting to 31,074 Payments to related parties amounting to (8,004) and payments from related parties amounting to 8,010
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Parent Company
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Income Statement
1 January 31 December
(mDKK) Revenue Gross profit Other operation expenses Operating profit Dividend from subsidiaries Financial income Financial expenses Profit before income tax Tax on profit for the year Net profit for the year
Note
2 3
1 (28) 3,038
1 3,039
Proposed distribution of profit: Dividend Retained earnings 3,000 39 3,039 3,000 (520) 2,480
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Balance Sheet
at 31 December
(mDKK) ASSETS Non-current assets: Patents Intangible assets Land, buildings and installations Property, plant and equipment Investments in subsidiaries Investments in associates Other non-current assets Total non-current assets Current assets Receivables from subsidiaries Tax receivables Other receivables Total current assets TOTAL ASSETS
Note
2012
2011
10 1 2 13 6,363
21 35 56 5,918
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Parent Company
(mDKK) EQUITY AND LIABILITIES EQUITY Share capital Retained earnings Proposed dividend Total equity
Note
2012
2011
20 55 3,000 3,075
20 16 3,000 3,036
LIABILITIES Non-current liabilities Borrowings Deferred tax liabilities Total non-current liabilities Current liabilities Borrowings Debt to subsidiaries Trade payables Current tax liabilities Other short-term debt Total current liabilities Total liabilities TOTAL EQUITY AND LIABILITIES Contingent liabilities and other obligations 11 9 600 2,614 2 1 65 3,282 3,288 6,363 2,204 5 66 2,275 2,882 5,918 9 10 6 6 600 7 607
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(mDKK) Balance at 1 January 2012 Dividend relating to prior year Net profit for the year Proposed dividend Equity at 31 December 2012
Share capital 20 20
(mDKK) Balance at 1 January 2011 Dividend relating to prior year Net profit for the year Proposed dividend Equity at 31 December 2011
Share capital 20 20
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Parent Company
Income Statement
Recognition of sales and revenues Sales represent the fair value of the sale of goods excluding value added tax and after deduction of provisions for returned products, rebates and trade discounts relating to the sale. Provisions and accruals for rebates to customers are made for the period in which the related sales are recorded. Historical data are readily available and reliable and are used for estimating the amount of the reduction in sales. Revenues are recognised when realised or realisable and earned. Revenues are considered to have been earned when LEGO A/S has substantially accomplished what it must do to be entitled to the revenues. Taxes Current income tax, based on taxable income for the year, is expensed together with changes in deferred tax for the year. Deferred income tax on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts is provided in full using the liability method. The provision of deferred tax reflects the effect of any tax losses carried forward etc. to the extent it is considered likely that such items can be utilised against future taxable income. To the extent calculated deferred tax is positive, this is recognised in the balance sheet as a deferred tax asset at the expected realisable value. Any changes in deferred tax due to changes in tax rates are recognised in the income statement.
The residual values and useful lives of the assets are reviewed and adjusted, if appropriate, at each balance sheet date. The carrying amount of an asset is written down immediately to its recoverable amount if the carrying amount of the asset is higher than its estimated recoverable amount. Gains and losses on disposals are determined as the difference between selling price and carrying amount and are recognised in the income statement. Borrowing costs incurred at the construction of the qualifying asset are capitalised in the period in which the asset is made ready for use. Cost comprises acquisition price and expenses directly related to the acquisition until the time when the asset is ready for use. The cost of self constructed assets comprises direct expenses for wage consumption and materials. Interest re lated to financing self constructed assets is recognised in the income statement. Investments in subsidiaries and associates Subsidiaries of the Parent Company are recognised at cost less accumulated impairment losses. LEGO A/S recognises income from the investments only to the extent that LEGO A/S receives dividend from the subsidiaries. Associates are all enterprises in which LEGO A/S exercises significant influence but not control, generally through a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by using the equity method of accounting and are initially recognised at cost. Receivables Other receivables are initially recognised at fair value and subsequently measured at amortised cost less provisions for losses. Provisions for losses are made on the basis of an individual assessment of the risk relating to each receivable.
Balance Sheet
Translation policies Other balance sheets in foreign currencies are translated into Danish kroner at the exchange rates at the balance sheet date. Realised and unrealised gains and losses are recognised in the income statement. Intangible assets Acquired patent rights are capitalised on the basis of the costs incurred. These costs are amortised over the shorter of their estimated useful lives or the contractual duration.
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56
Parent Company
(mDKK) Current tax on profit for the year Deferred tax on profit for the year Adjustment of tax relating to previous years, current tax Adjustment of tax relating to previous years, deferred tax
(mDKK) Cost at 1 January 2011 Cost at 31 December 2011 Depreciation and impairment losses at 1 January 2011 Depreciation for the year Depreciation and impairment losses at 31 December 2011 Carrying amount at 31 December 2011
Patents 4 4 3 1 4 0
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(mDKK) Cost at 1 January 2012 Disposals Cost at 31 December 2012 Depreciation and impairment losses at 1 January 2012 Disposals Depreciation and impairment losses at 31 December 2012 Carrying amount at 31 December 2012
(mDKK) Cost at 1 January 2011 Cost at 31 December 2011 Depreciation and impairment losses at 1 January 2011 Depreciation and impairment losses at 31 December 2011 Carrying amount at 31 December 2011
Total 13 13 7 7 6
Assets under finance leases No assets have been recognised under finance leases.
58
Parent Company
(mDKK) Cost at 1 January 2012 Additions Disposals Cost at 31 December 2012 Value adjustment at 1 January 2012 Value adjustment at 31 December 2012 Carrying amount at 31 December 2012
Investments in associates 4
4 (1) (1) 3
6,341 6,341
(mDKK) Cost at 1 January 2011 Additions Cost at 31 December 2011 Value adjustment at 1 January 2011 Value adjustment at 31 December 2011 Carrying amount at 31 December 2011
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NOTE 9. Borrowings
2012 (mDKK) Banks and other credit institutions Total debt 600 600 Due within 1 year 600 600 Due between 2 and 5 years
2011 (mDKK) Banks and other credit institutions Total debt 600 600 Due within 1 year Due between 2 and 5 years 600 600
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Parent Company
Group structure
LEGO A/S
Americas
EGO do Brazil Ltda. L LEGO Canada Inc. LEGO Mexico S.A. de C.V Administratin de Servicios LEGO, S. de R.L. de C.V. (Mexico) LEGO Operaciones de Mexico S.A. de C.V. (Mexico) LEGO Real Estate, S.A. de C.V. (Mexico) LEGO System Inc. (US) - LEGO Dacta Inc. (US) - Dacta and Pitsco LLC, 51% (US) LEGO Brand Retail Inc. (US)
Denmark1
L EGO System A/S
Europe (other)
L EGO Park Holding UK Ltd. -L EGO Lifestyle International Ltd. (UK) LEGO Company Limited (UK) LEGO Education Europe Ltd. (UK) LEGO Belgium n.v. LEGO Netherland B.V. LEGO Sverige AB LEGO Norge A/S Oy Suomen LEGO Ab (Finland) LEGO GmbH (Germany) LEGO Handelsgesells. GmbH (Austria) LEGO S.A.S. (France) LEGO Brand Retail 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 Schweiz AG LEGO Hungria Kft. LEGO Manufacturing Kft. (Hungary) LEGO Polska Sp. z.o.o. LEGO Romania S.R.L. LEGO Ukraine LLC OOO LEGO (Russia) LLD Share verwaltungs GmbH (Germany) - LLD Share Gmbh & Co. KG (Germany)
Asia/Africa/ Australia
LEGO Hong Kong Limited LEGO Australia Pty. Ltd. LEGO New Zealand Ltd. LEGO Korea Co. Ltd. LEGO South Africa (Pty.) Ltd. LEGO Japan Ltd. LEGO Company Ltd. (Hong Kong) LEGO Singapore Pte. Ltd. LEGO Trading (Beijing) Co, Ltd.
Ownership is 100% unless stated otherwise. LEGO A/S is 75% owned by KIRKBI A/S and is included in the Consolidated Annual Report of KIRKBI A/S. KIRKBI A/S is the ultimate Parent Company.
1
61
The LEGO Group Aastvej 7190 Billund Denmark Tel.: +45 79 50 60 70 www.LEGO.com
Progress Report In the Progress Report you will find detailed information on the LEGO Groups sustainability results for 2012.
aboutus.LEGO.com