2022 Financial Review

Focus on long-term value creation

KIRKBI’s financial strategy is to create long-term value to support the company’s purpose of building a sustainable future for the family ownership of the LEGO® brand through generations. The long-term value creation is supported by a continuous focus on delivery of strong stable cash flows.

KIRKBI’s financial result is mainly influenced by the performance of the LEGO Group and the financial return from the Investment Activities. Total assets end of 2022 amounting to DKK 166 billion (DKK 155 billion end of 2021) are as illustrated below mainly related to LEGO Brand Group and Investment Activities.

Assets within LEGO Brand Group increased by DKK 22 billion in 2022 following the investments within Digital Play (Epic Games) and Digital Learning (acquisition of BrainPOP). These LEGO Brand Group investments are made to support the 2032 brand vision to become a global force within Learning-throughPlay and to reach more children in the world. The investments have been funded with KIRKBI’s free cash flow for the year and reallocation of capital from the investment portfolio resulting in a reduction of the total assets within the Investment Activities by DKK 10 billion to DKK 100 billion year-end 2022.

At the end of 2022, KIRKBI’s equity amounted to DKK 140 billion which is an increase of DKK 9 billion or 7 % compared to the year-end 2021. Given the

Allocation of KIRKBI assets (m DKK) Total assets and Equity (m DKK)

relative size of the investment portfolio, the shortterm annual value creation is to a high degree impacted by the development of the global financial markets at any given time and therefore, in the short-term, to a large extent outside the control of the company. KIRKBI’s strategic focus is therefore on the long-term value creation illustrated below by an increase in Equity over the last 5 years of DKK 58 billion or 71 %.

High profit from LEGO Brand Group

The financial year 2022 showed a profit after tax of DKK 10.7 billion (2021: DKK 27.0 billion).

The profit for the year was driven by continued strong performance in the LEGO Group and a significant rebound in Merlin Entertainments after a couple of years with low activity due to the COVID-19 pandemic. Consolidated, the LEGO Brand Group activities contributed with a profit for the year of DKK 18.4 billion (2021: DKK 17.9 billion), negatively impacted by the new investments in Digital Play and Digital Learning.

For the Investment Activities, focus has been on steering the portfolio through an unprecedented eventful year impacted by the war in Ukraine, supply chain challenges, energy crisis in Europe, inflationary pressure, continued COVID-related lock downs in China, and significant interest rate increases. Factors that have contributed to volatility and challenged financial markets throughout 2022. For KIRKBI, the Investment Activities contributed negatively to profit for the year with DKK 4.1 billion vs. a positive contribution of DKK 15.6 billion in 2021 (negative delta of DKK 19.7 billion between 2021 and 2022). Compared to benchmarks, the financial performance of the Investment Activities is considered satisfactory.

The profit for the year was overall lower than the expectations for 2022 disclosed in the annual report for 2021. The LEGO Group and Merlin Entertainments delivered a financial performance above expectations which however was more than offset by the negative investment return.

As illustrated in the 5-year overviews below, the annual net profit for KIRKBI has been volatile mainly impacted by the effect from fluctuations in the financial markets on the Investment Activities. It should be noted that the vast majority of the contribution to net profit from the Investment Activities comprises unrealised value adjustments with no impact on cash flows.

Continued strong cash flows

The KIRKBI Group continues to deliver strong cash flows with the majority coming from the strong financial performance in the LEGO Group. For 2022, the cash inflow from operating activities to KIRKBI (after capex investments in the LEGO Group) amounted to DKK 14.7 billion before tax

(2021: DKK 19.5 billion), impacted by significant capex investments in the LEGO Group to increase production capacity.

Within the Investment Activities, cash flow from interests and dividends is in line with last year. In 2022, the KIRKBI Group paid taxes of DKK 2.9 billion compared to DKK 6.0 billion in 2021. The lower tax payment was driven by the negative financial return from the Investment Activities in 2022.

Over the last 5 years, the after-tax cash inflows to KIRKBI have shown a solid development.

LEGO Brand Group

The LEGO Group

The LEGO Group continued its outstanding performance in 2022 with another year of doubledigit growth in revenue and consumer sales. The LEGO Group’s consumer sales grew 12 % which outpaced the industry’s growth and thereby led to the LEGO Group increasing its market share. The growth was driven by a strong product portfolio, resilient global supply chain, strong retail partnerships, and strong e-commerce platform.

Operating profit split by LEGO Brand Group activities and Investment Activities (m DKK)

Cash flows before and after tax payments (m DKK)

Revenue for the year increased by 17 % to DKK

64.6 billion and the profit before tax ended at DKK 17.7 billion compared to DKK 17.0 billion in 2021. The profit for 2022 was impacted by cost pressure on raw materials, services, and labor as well as impact from the cease of all shipments to the Russian market since February 2022 and COVID-19 lockdowns in China. The LEGO Group continued to invest into initiatives supporting long-term growth, including product innovation, digitalisation and sustainability. Further, the LEGO Group made substantial investments in increasing production capacity at three out of four factories and started construction of new factories in Vietnam and Virgina, US.

Merlin Entertainments Ltd.

On the back of two years severely impacted by the COVID-19 pandemic, Merlin Entertainments started to see a normalised activity level in 2022 with an increased number of visitors especially in the US and Europe while Asia continued to be impacted by lockdown and restrictions. Overall, the recovery was significantly stronger than planned mainly due to visitors spending more on average per visit. This led to higher revenue, improved operating result, and solid cash flows.

Revenue for 2022 amounted to GBP 2.0 million compared to GBP 1.3 million in 2021 and profit for the year amounted to GBP 89 million compared to a loss of GBP 140 million in 2021. KIRKBI’s share of profit was DKK 492 million in 2022 compared to negative DKK -588 million in 2021.

Royalties and other LEGO Brand Group activities

Royalties from the LEGO® and LEGOLAND® trademarks increased by 20 % to DKK 2.5 billion (2021: DKK 2.0 billion). The higher royalty income was driven by the strong revenue growth in the LEGO Group.

Other LEGO Brand Group activities comprising costs and investments to protect, develop, and leverage the full potential of the LEGO brand continued in 2022. In addition to costs centered around the global LEGO brand campaign ‘Rebuild the World’, costs for IPR and legal compliance, the LEGO brand activities were impacted by the significant investments in Digital Play (Epic Games) and Digital Learning (acquisition of BrainPOP). The two new investments impacted profit negatively in 2022 due to impact from purchase price allocation as well as transaction and advisor costs, etc.

Investment Activities

The investment Activities are separated into a Core Capital and a Thematic Capital portfolio.

The Core Capital portfolio was throughout 2022 impacted by the challenging global financial markets with war in Ukraine, supply chain challenges, energy crisis in Europe, inflationary pressure, continued COVID-related lock downs in China, and significant interest rate increases.

The financial return for 2022 was negative with DKK 3.7 billion equal to a return of -4.1 %. Compared to market performance and taking the global financial conditions into consideration, the financial return is considered satisfactory. Especially the Long-term Equity and the Real Estate portfolios showed relative strong returns, while on the other hand, the Quoted Equity portfolio was influenced by declining global financial markets as was the Fixed Income portfolio negatively affected by inflation and increasing interest rates.

As a consequence of the negative financial return and allocation of capital to the investments within LEGO Brand Group, the Core Capital portfolio declined from DKK 98.1 billion in 2021 to DKK 89.6 billion in 2022.

For the Thematic Capital portfolio , the return for 2022 was negative with DKK 0.4 billion, corresponding to -3.4 %. The journey to build-u p organisational capabilities continued in 2022 in line with the strategic direction set out in 2019. In addition to continued investments within Energy Transition and Circular Plastics the highlights for the year comprised the first acquisitions of more than 900 hectares of land within Land Sustainability.

At the end of 2022, the value of the Thematic Capital portfolio amounted to DKK 10.5 billion, which is DKK 1.1 billion lower than the DKK 11.6 billion in 2021. In addition to the negative return, the portfolio value was in 2022 impacted by disposal of ownership stake in the offshore windfarm Borkum Riffgrund.

Support Activities including donations and sponsorships

Costs to operate KIRKBI’s support functions such as HR, IT, Legal, Strategy, and Finance as well as the support for the Investment Activities, including Real Estate, amounted to DKK 0.5 billion in 2022 (2021: DKK 0.5 billion).

Donations and sponsorships totaling DKK 201 million in 2022 (2021: DKK 159 million) comprise donations to, among others, Ole Kirk’s Fond, Danmarks Idrætsforbund (DIF), QATO Foundation, World Nature Fund and Billund Church. KIRKBI has since 2017 supported the Danish athletes striving for the Olympic and Paralympic Games and for the run-up to the 2024 Paris Olympic and Paralympic Games, KIRKBI has committed a donation of DKK 50 million.

Risks

The KIRKBI Group’s risks primarily relate to the development within the global toy markets where the LEGO Group operates, the market for family entertainment where Merlin Entertainments operates as well as the financial markets where KIRKBI has a significant exposure of investments. Please refer to note 4.1 in the consolidated financial statements for a description of the financial risks as well as an overall risk assessment.

Events after the reporting date

No events have occurred after the balance sheet date that would have a significant influence on the annual report for 2022.

Outlook 2023

Expectations for the KIRKBI Group’s financial performance for 2023 are subject to uncertainties related to the global economy impacting the Investment Activities. The overall expectations set out below are therefore to a large extent subject to uncertainties and risks which are beyond KIRKBI’s control and may cause the actual development and results to differ materially from expectations.

LEGO Brand Group activities

KIRKBI expects a result before tax from LEGO Brand Group activities in the level around the 2022 result.

The LEGO Group expects single-digit growth in 2023, staying ahead of the global toy market with further investments within product innovation, digitalisation, sustainability, retail channels, and production capacity.

Merlin Entertainments expects growth in 2023 in both number of visitors, revenue, and earnings compared to 2022, driven by both organic growth as well as the opening of new attractions.

Royalties are expected to increase in line with expected growth of revenue in the LEGO Group and in the LEGOLAND® parks, offset by continued investments in brand protection and development.

Investment Activities

KIRKBI is a long-term investor and a one-year view on the Investment Activities is highly dependent on the development in the financial markets. A normalised return from Investment Activities would be an annual return around 5 % of the investment portfolio.

Cash flows

KIRKBI has high focus on cash flows. For 2023, stable cash flows expect to continue, however with a slower pace than prior years driven by planned significant investments within the LEGO Group increasing capacity as well as higher corporate tax contributions assuming a positive investment return.