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The LEGO Group in 1995:

Increased sales in North America and the Far East - decline in Europe

The LEGO Group's results in 1995 did not fulfil expectations, even though sales by retailers to consumers increased globally by almost 4% from the 1994 figure.

Sales to the retail trade and distributors in a total of 138 markets fell by 2%., compared with an increase of a little over 3% in 1994. This net decline covers both large increases and stagnation or a marked reduction in sales in individual markets. Of total sales, 97% were to customers outside Denmark.

The profit after tax of the LEGO A/S Group (23 of the LEGO Group's 50 companies) was DKK 239.6 million, compared with DKK 470.6 million in 1994.

Sales to retailers and distributors

The year's highlights in sales to retailers were in North America and the Far East. In the USA and Canada, sales to the retail trade increased by almost 6%, compared with a fall of 8% in 1994. In Japan, sales once again increased, by more than 15% - as they also did, for example, in China, Korea and South Africa. In the remaining markets in the Overseas sales region, there was either stagnation or an actual decline in sales. Taiwan and Brazil were particularly disappointing, with the latter experiencing a fall of 32%.

In the European market, as in 1994, sales either stagnated or declined. Sales to retailers were down 6%, compared with a 5% rise in 1994. The LEGO Trading sales area (eastern Europe excluding Hungary) was, however, positive; the overall increase was almost 35%, with particularly buoyant sales in the countries of the former Soviet Union. Spain and Portugal also achieved healthy growth of between 15 and 20%.

Central Europe - Germany, Switzerland, Austria and Hungary - and Great Britain were the year's disappointments, with reductions in sales to retailers of between 12 and 17%.

The market situation - and sales to consumers

Globally, retailers' sales to the LEGO Group's consumers (consumer sales) rose by almost 4%, equivalent to the increase in 1994.

In this context also there were both rises and falls. We can derive particular satisfaction from the trend in North America, where consumer sales rose by almost 15% (-1% in 1994). In the large Overseas sales region, overall growth was more than 10%. In Japan, the rise was almost 4%, while sales declined by 1% in Europe, where there was a 4% rise in 1994.

There are several reasons for this sales trend:

- in 1995, competition in the market for children's products was again marked by big changes, especially in Europe. In particular, PC and CD-ROM products increased their market share. And the retail trade, including traditional toy shops, continued to experience hard times. Among other things, this resulted in intense price competition everywhere. The big became bigger and many of the smaller retailers were forced to close down

- the average family's consumption fell in a number of our most important European markets

- the competition for children's play time has generally increased drastically in recent years. And as our sales are very seasonal - with more than half of sales to consumers taking place in November and December - it is particularly difficult to predict trends

The 10 largest single markets were Germany, the USA, France, Great Britain, Japan, Italy, Korea, the Netherlands, Canada and Switzerland.

Organisation and staff

Four new companies joined the LEGO Group during the year.

LEGO Mexico S.A. de C.V. began its activities in the spring, reporting to LEGO Systems, Inc. in USA. We took over our New Zealand distributors' company and activities, opening LEGO New Zealand Ltd. The status of LEGO Trading A/S's office in Warsaw changed in January; it is now sales company LEGO Polska Sp.Zo.o. And LEGO Company Ltd. was opened in Hong Kong as a purchasing office located strategically close to the growing number of suppliers of semi-manufactures in the Far East.

On 31st December 1995, 8,890 people (including temporary staff) were employed in the LEGO Group's 50 companies in 29 countries on six continents. Of these employees, 4,145 were in Denmark and 4,745 in other countries. There was thus a modest decline in Denmark (fewer temporary staff) and a slight increase abroad, particularly in the sales companies.

Finance

The net turnover of the LEGO A/S Group, which includes 23 of the LEGO Group's 50 companies, declined by 8.6% from the 1994 figure to DKK 5.2 billion. The profit after tax was DKK 239.6 million, or just over half the level achieved in 1994, when the figure was DKK 470.6 million.

The trend in earnings reflects the fact that we substantially strengthened our sales and marketing effort. This had a positive effect on sales to consumers but was not sufficient to prevent a significant fall in Group sales. The trend in foreign-exchange rates also had a negative impact on turnover.

In 1995, the LEGO Group completed investment projects for buildings and equipment totalling almost DKK 750 million. This was a decline from the level in the immediate past as there was no need for additional capacity.

The future - exciting perspectives

The 1995 result did not live up to our expectations. We must therefore reverse the trend and achieve resumed growth in sales and earnings.

The special positioning of the LEGO idea is its combination of fun, development and children's interests - as well as the support it enjoys from parents. We wish to strengthen that position in the years to come. It is precisely the above-mentioned common denominators that are the starting point for the reinforced and accelerated effort that is currently under preparation in all our business areas.

"We must be better at understanding market trends and convert that knowledge into proactive effort throughout the organisation: product development, production, staff training, marketing and collaboration with our partners in the retail trade," says Kjeld Kirk Kristiansen, LEGO A/S's President & CEO and principal shareholder. "The prerequisites are in place in our product concept and very many of our activities. Additional resources have already been applied in these areas. From product development in LEGO Futura, through LEGO Dacta to the family parks and the exciting software activities in which we intensified our efforts in 1995.

"We are not saying that it will be easy," continues Kjeld Kirk Kristiansen. "In short: We have to fight and win! We shall do so through keener financial awareness and a focus on targeted action in 1996. All under the motto Simplification and Renewal."

"There are many positive situations and activities in prospect - in both the short and longer term. We have the world's best product idea. And a product limited only by the imagination of the user. The LEGO logo creates incredibly good associations in every single country and in every age group. These are facts that we must exploit. So there is no reason - and certainly no time - for pessimism. On the other hand, there is a wealth of opportunity to improve our everyday work practices throughout the organisation. We must all ask ourselves what we can do more simply, better and differently," adds Kjeld Kirk Kristiansen.

Many new things are happening in the LEGO universe in 1996. Exciting new products - for example, the launch of a LEGO CD-ROM product by the American company Mindscape, one of the world's leading software suppliers. And a number of fascinating, future-oriented projects have already been started in the LEGO organisation which, in the early months of 1996, is adding between 40 and 50 employees in the digital area. In sum, these are activities that will increase the synergy between our various business areas and that will ensure that the LEGO name stimulates even more exuberance in families with children all over the world.

"So the conditions are right," concludes Kjeld Kirk Kristiansen. "Let us now exploit them, remembering the words of the Danish architect and thinker Poul Henningsen: 'The future happens by itself; progress doesn't'."

© 1996 The LEGO Group
TM and ® Trademarks of the LEGO Group
Page updated April 24, 1996.
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