The LEGO Group’s strategic focus on its core business and its core products continues to bear fruit. This became clear when the LEGO Group presented its Annual Report for 2007 at a press conference today in Billund, Denmark.

• Profit for the year before tax reached DKK 1,414 million against DKK 1,281 million in 2006.
• Net profit for the year amounted to DKK 1,028 million against DKK 1,290 million in 2006, which gives a return on equity of 71.6%.
• The Group’s equity increased from DKK 1,191 million at the end of 2006 to DKK 1,679 million at the end of 2007.
• Revenue amounted to DKK 8,027 million against DKK 7,798 million in 2006, an increase of 2.9%. Adjusted for exchange rate movements in 2007, the increase would have been approximately 6%.
• Profit before special items, financial income and expenses and tax amounted to 1,471 million in 2007 against DKK 1,405 million in 2006.
• The operating margin (ROS) was 18.1% against 17.0% in 2006.

NB: The LEGO Group changed the accounting principles applied in 2007 through the adoption of International Financial Reporting Standards (IFRS). This involves a change in the recognition of certain items. Moreover, the LEGO Group’s changed company structure and the group affiliation with LEGO Holding, as described in the Annual Report for 2006, affect the comparative figures for 2003-2006, which have been restated to reflect the new structure and accounting policies.

The results are considerably better than expected at the beginning of 2007. At the beginning of the year, both decreasing sales and decreasing revenue were expected, as increasing investment activities and the extensive outsourcing activities were expected to put heavy pressure on the Group. However, the Group succeeded in producing at a level which matched the great demand in the market during the year.

All the LEGO Group’s markets saw sales increases. The highest increases were seen in the classic product lines LEGO City, LEGO Technic and LEGO Creator as well as LEGO Star Wars, which is well on its way to become another classic line. Also the LEGO Group’s sale of educational materials as well as direct sales to consumers showed good growth in 2007.

The year 2007 was characterised by the ongoing relocation of large parts of the Group’s production. The supply chain structure created through the outsourcing forms part of the renewed business platform which the LEGO Group is building these years, and which also includes an updating of the IT platform and the implementation of a new People & Culture Strategy.

Expectations for 2008
The global toy market is subject to great uncertainty in 2008. The trends of stagnation and recession seen in the USA during the last six months of 2007 seem to continue in 2008. The US market constitutes a very large part of the global toy market, and therefore the impact of this can only be partly compensated for by the more positive development expected on the European and Asian toy markets.
However, the LEGO Group wants to utilise the momentum which the Group experienced all over the world in 2007, and which has so far continued into 2008. On this basis, the LEGO Group expects to achieve sales growth of 3-5% in 2008. In 2008 the Group will work intensively on optimising the relocated production in order to achieve the planned cost savings. Moreover, the Group will continue improving the efficiency of the basic operational processes, and will continue its IT and innovation investments. In 2008 profitability will be challenged by a number of external factors. Increasing oil prices affect profitability through increasing expenses in respect of raw materials, energy and transportation. Furthermore, the lower dollar rate will considerably reduce profitability on sales on the large US market. For 2008 the LEGO Group expects – through focus on costs and increased sales – to achieve a profit before special items, financial income and expenses and tax in line with the profit for 2007, when disregarding major exchange rate movements in key currencies and nonrecurring items, if any.

Comments
”In the light of our expectations for 2007, I consider the results very satisfactory,” says Mr. Jørgen Vig Knudstorp, President and CEO. ”It has particularly been very satisfactory for us that we have been able to meet most of the demand for LEGO products despite our extensive relocating activities. This has only been possible through the impressive effort made by our employees.” ”We are still facing heavy challenges in 2008: we will continue the effort to reduce production costs, and we expect the increasing oil prices as well as the declining dollar rate to put the Group’s earnings under pressure,” says Mr. Knudstorp.