Annual Review

INCOME STATEMENT

The KIRKBI Group’s profit for the year 2018 amounted to DKK 8,681 million against DKK 12,679 million in 2017. The profit exclusive non-controlling interests for 2018 was DKK 6,655 million compared with DKK 10,720 million for 2017.

KIRKBI’s financial result is mainly influenced by the financial yield from investment activities and the performance within the LEGO Group. The financial markets have been challenging during 2018, especially during the last months with the year. The yield for 2018 was negative with 1.5%. We consider the result acceptable as the general development within the financial markets has been volatile and because KIRKBI invests with a long-term horizon.

The performance within the LEGO Group, with a revenue growth of 4% and an EBIT growth of 3%, is considered satisfactory.

The 2018 financial results for the KIRKBI Group is considered satisfactory and in line with the expectations disclosed in the KIRKBI Annual Report 2017.

It is proposed to distribute dividend in the amount of DKK 200 million.

BALANCE SHEET

At the end of the year, the total assets amounted to DKK 103 billion against DKK 95 billion in 2017. The increase is primarily due to investments within the LEGO Group and investment-related securities. The equity ratio was 85.4% against 85.5% in 2017.

CASH FLOWS

In 2018, cash flows from operating activities were DKK 11,191 million against DKK 10,253 million in 2017. Cash flows from investing activities were DKK -7,760 million against DKK -7,987 million in 2017.

DEVELOPMENT IN THE KIRKBI GROUP’S ACTIVITIES AND FINANCIAL POSITION

KIRKBI’s profit before tax for the year 2018 amounts to DKK 11,281 million compared to DKK 16,044 million last year. The negative development in profit for the year of DKK 4,763 million, compared to last year, is mainly due to negative development in return from the investment activities of DKK 4,940 million offset by increased earnings from the LEGO Brand Group activities of DKK 297 million.

For the LEGO Group, 2018 was a year of stabilisation and return to growth. Revenue for the full year increased by 4% to DKK 36.4 billion and profit before tax increased by 3% to DKK 10.5 billion. Due to the increased revenue in the LEGO Group, Royalties increased by 4% from DKK 1,346 million in 2017 to DKK 1,400 million in 2018.

Merlin Entertainments plc improved net revenue with 6% to GBP 1,688 million compared to 2017. Profit for the year was GBP 230 million, an increase of 10% compared to last year. KIRKBI’s share of profit from Merlin activities amounts to DKK 600 million compared to DKK 567 million in 2017. Dividend received from Merlin Entertainments plc was in 2018 DKK 188 million.

Within Renewables, the two wind farms Burbo Bank Extension and Borkum Riffgrund I delivered a stable financial return, despite a lower wind resource than expected throughout the year mainly due to the warm weather

conditions in Europe during the summer of 2018. Net result from Renewables for 2018 amounted to DKK 389 million against DKK 398 million for 2017. Cash flows from operations of Renewables amounted to DKK 616 million compared to DKK 609 million in 2017.

The investment activities yielded a negative return of DKK 940 million compared to a gain of DKK 4,000 million in 2017. The financial markets were challenged in 2018, which also negatively impacted KIRKBI’s return on investment activities. KIRKBI’s investments in Quoted Equities and Long-term Equity were specifically impacted. On the other hand, KIRKBI’s investments within strong Private Equity and Real Estate performed strong and reduced the negative yield from investment activities to a total negative return of 1.5%.

During the year, the investment portfolio increased by around DKK 4 billion to DKK 58 billion, impacted by cash inflow from the LEGO Group, negative return from the investment portfolio and positive cash flow from Renewables.

PEOPLE RESOURCES

In the KIRKBI Group’s core activities, employees are the single most critical resource. The KIRKBI Group’s results are accomplished thanks to the motivation and commitment of the employees. As part of the overall corporate strategy, employees and management work together to continuously secure job satisfaction and a healthy working environment.

In 2018, the average number of full-time employees in the KIRKBI Group was 15,523 against 16,909 in 2017. These numbers are exclusive of the employees in Merlin Entertainments plc. 97% of the employees work in the LEGO Group.

The majority of the employees in the LEGO Group and KIRKBI are subject to a Performance Management Programme, which aims to link business objectives with individual employee objectives. This programme includes a tiered bonus scheme.

RISKS

The KIRKBI Group’s risks primarily relate to developments within the global toy markets where the LEGO Group operates, the market for family entertainment and other leisure activities and the financial markets.

RESEARCH AND DEVELOPMENT ACTIVITIES

The Parent Company does not engage in research or development activities. Group enterprises conduct research and development within their respective business areas.

EXPECTATIONS FOR 2019

The investment activities will be impacted by the development in the global economy in 2019 and hence it is difficult to express clear expectations of the results for the year. The objective for the KIRKBI Group is to create satisfactory long-term returns.

The year 2019 has started strong from a financial point of view. The overall result for 2019 for the KIRKBI Group is expected to exceed the result for 2018.

ABOUT KIRKBI

CONTENTS

14 KIRKBI Fundamentals 16 Billund – The Capital of Children 18 KIRKBI Responsibility 24 Associated Foundations 26 Board of Directors 28 Leadership Team

In 2018, KIRKBI moved in to the new office extension in Billund – a 3,600 m2 extension to the existing office, which has been made entirely out of wood. The wooden materials used for this building have a lower CO2 impact on the planet compared to a similar sized building with a concrete construction.