The LEGO Group Annual Report 2016

Management’s Reviewement’s Review The LEGO Group – Annual Report 2016 It was further announced that the CEO of the LEGO Group Jørgen Vig Knudstorp will chair the new entity in close partnership with deputy chair, Thomas Kirk Kristiansen, and that Jørgen Vig Knudstorp will further be nominated to become Chairman of the Board of LEGO A/S in May 2017. As a consequence, Jørgen Vig Knudstorp stepped down from the post as CEO of LEGO A/S as of December 31, 2016. The new CEO as of January 1, 2017 is former COO Bali Padda. Bali Padda has subsequently appointed the members of a new Executive Leadership Team that will replace the Management Board of the company as of April 1, 2017. The members of the Executive Leadership Team are: Bali Padda, Chief Executive Officer (CEO) Ulrik Gernow, Chief Business Transformation Officer (CBTO) Julia Goldin, Chief Marketing Officer (CMO) Marjorie Lao, Chief Financial Officer (CFO) Carsten Rasmussen, Chief Operations Officer (COO) Loren I. Shuster, Chief Commercial Officer (CCO) Padma Thiruvengadam, Chief People Officer (CPO) Responsible business conduct The LEGO Group wants to have a positive impact on its stakeholders and its surroundings. This is at the core of the Group’s culture and the foundation of the strategy it pursues. In 2003, the LEGO Group was the first company in the toy industry to sign the United Nations Global Compact. This was a confirmation of the company’s many years of support of human rights, labour standards, anti-corruption and the environment. The LEGO Group confirms its support to United Nations Global Compact and has issued its Responsibility Report 2016 (COP report) describing how the Group is working within the areas of human rights, labour standards, the environment and anti-corruption. Pursuant to section 99 a and 99 b of the Danish Financial Statements Act, the Responsibility Report 2016 constitutes the statutory statement of corporate social responsibility. This also includes the required quantitative targets for the underrepresented gender on the Board of Directors. The Responsibility Report furthermore describes the LEGO Group’s efforts to achieve its non-financial goals. The Responsibility Report 2016 is available at: www.LEGO.com/responsibility 10

Management’s Reviewement’s Review The LEGO Group – Annual Report 2016 Market development The LEGO Group’s main activity is the development, production, marketing and sale of play materials. The market for traditional toys, in which the Group operates, saw healthy growth during 2016. North American and most European toy markets experienced mid-single digit growth during the year. Most of the Asian and Pacific toy markets also posted solid growth except for South Korea and Australia that saw a declining toy market in 2016. LEGO sales Most major LEGO markets experienced growth in 2016. However, the growth was very unevenly distributed. The Group’s sales in North America were slightly down in 2016 as were sales in Japan. All European markets saw healthy high single or double digit growth rates, and the Chinese market continued its strong double digit growth. Among the top selling lines in 2016 were core themes like LEGO City, LEGO Star Wars , LEGO NINJAGO , LEGO Friends, LEGO Creator and LEGO DUPLO . The new theme LEGO NEXO KNIGHTS , that combines physical and digital play through building sets, digital gaming and inspirational storytelling, was also a contributor to growth. During the coming years, the LEGO Group expects to grow moderately ahead of the global toy market that is expected to grow low to mid-single digit. This is expected to be achievable due to the Group’s continued focus on innovation and its commitment to global expansion, such as deepening its presence in China. As a consequence of the LEGO Group’s global growth, the company experiences an increase in the risk related to trade receivables. This is reflected in an increase in provisions for bad debts, ref. note 16. The majority of the LEGO Group’s sales are in foreign currency, the risks relating to currency are described in note 25. Events after the reporting date No events have occurred after the balance sheet date that would influence the evaluation of the Annual Report. Expectations for 2017 The LEGO Group expects continued sales growth in 2017, in line with the long-term expectations mentioned above. The LEGO Group expects satisfactory results for 2017. 11

Financial Highlights The LEGO Group – Annual Report 2016 Financial Highlights of the LEGO Group (mDKK) 2016 2015 2014 2013 2012 37,934 35,780 28,578 25,294 23,095 (25,486) (23,536) (18,881) (16,958) (15,489) 12,448 12,244 9,697 8,336 7,606 Income Statement: Revenue Expenses Operating profit Financial income and expenses (57) (96) (206) (97) (84) 12,391 12,148 9,491 8,239 7,522 9,436 9,174 7,025 6,119 5,613 Total assets 29,937 27,877 21,419 17,952 16,352 Equity 20,039 17,751 12,832 11,075 9,864 9,898 10,126 8,587 6,877 6,488 9,084 10,559 7,945 6,744 6,220 92 126 59 103 61 Profit before income tax Net profit for the year Balance Sheet: Liabilities Cash Flow Statement: Cash flows from operating activities Investment in intangible assets 2,908 2,822 3,115 2,644 1,729 (6,575) (6,816) (5,302) (3,466) (4,535) (483) 808 (521) 574 (88) 16,836 13,974 12,582 11,755 10,400 11,273 11,406 8,761 7,250 6,758 Gross margin 72.0 72.6 71.8 70.7 70.6 Operating margin 32.8 34.2 33.9 33.0 32.9 Net profit margin 24.9 25.6 24.6 24.2 24.3 Investment in property, plant and equipment Cash flows from financing activities Total cash flows Employees: Average number (full-time) Key performance indicator: Economic value added (EVA) Financial ratios (in %): Return on equity (ROE) 49.9 60.0 58.8 58.4 66.7 Return on invested capital (ROIC) 90.5 104.7 99.3 106.9 126.8 Equity ratio 66.9 63.7 59.9 61.7 60.3 The Financial Highlights are adjusted as a consequence of a change in classification in the Income Statement. The Financial Highlights for 2012 have not been changed. The key performance indicator is calculated in accordance with the definitions in note 1. Financial ratios, except invested capital, are calculated in accordance with the “Recommendations and Financial Ratios 2015”, issued by the Danish Society of Financial Analysts. For definitions, please refer to note 1. Parentheses denote negative figures. 12

Financial Highlights The LEGO Group – Annual Report 2016 16,836 Average employees 2016 37.9 Revenue 2016 billion (DKK) 9.4 billion (DKK) Net profit 2016 13

Section The LEGO Group – Annual Report 2016 Consolidated Financial Statements 14

Income Statement The LEGO Group – Annual Report 2016 Income Statement and Statement of Comprehensive Income 1 January – 31 December (mDKK) Note 2016 2015 3 37,934 35,780 4,6,7 (10,640) (9,814) 27,294 25,966 (10,584) (9,765) Income Statement: Revenue Production costs Gross profit Sales and distribution expenses Administrative expenses Other operating expenses 4,6,7 4,5,6,7 (2,321) (2,239) 4,6,8 (1,941) (1,718) 12,448 12,244 Operating profit Financial income Financial expenses 9 15 12 10 (72) (108) 12,391 12,148 (2,955) (2,974) 9,436 9,174 9,436 9,174 (55) (537) (60) 734 4 20 25 (53) (55) 79 (9) 2 2 – 9,288 9,419 Profit before income tax Tax on profit for the year Net profit for the year 11 Statement of Comprehensive Income: Profit for the year Items that will be reclassified subsequently to the income statement, when specific conditions are met: Change in market value of cash flow hedges Reclassification of cash flow hedges from equity to be recognised as part of: Revenue in the income statement Production costs in the income statement Tax on cash flow hedges Currency translation differences Items that will not be reclassified subsequently to the income statement: Remeasurements of defined benefit plans Tax on remeasurements of defined benefit plans Total comprehensive income for the year 15

Balance Sheet The LEGO Group – Annual Report 2016 Balance Sheet at 31 December (mDKK) Note 2016 2015 ASSETS Non-current assets: Development projects Software Licences, patents and other rights Intangible assets 12 Land, buildings and installations 39 139 270 138 42 55 351 332 5,352 5,016 Plant and machinery 3,710 3,033 Other fixtures and fittings, tools and equipment 1,193 1,176 1,457 1,076 Property, plant and equipment 13 11,712 10,301 Deferred tax assets 19 611 419 Investments in associates 14 Fixed assets under construction 3 3 Prepayments 159 169 Other non-current assets 773 591 12,836 11,224 15 2,991 2,747 Trade receivables 16,26 7,174 6,410 Other receivables 26 1,036 920 Prepayments 134 179 Current tax receivables 510 254 Total non-current assets Current assets: Inventories Receivables from related parties 26,30 4,350 4,932 Cash at banks 26,29 906 1,211 Total current assets 17,101 16,653 TOTAL ASSETS 29,937 27,877 16

Balance Sheet The LEGO Group – Annual Report 2016 Balance Sheet at 31 December (mDKK) Note 2016 2015 20 20 (80) 6 EQUITY AND LIABILITIES EQUITY Share capital 17 Reserve for hedge accounting Reserve for currency translation Retained earnings 18 Total equity (338) (283) 20,437 18,008 20,039 17,751 LIABILITIES Non-current liabilities: Borrowings 26 178 187 Deferred tax liabilities 19 40 29 Pension obligations 20 198 95 Provisions 22 54 64 23 36 47 Debt to related parties 26,30 600 600 Other long-term debt 21,26 Deferred revenue Total non-current liabilities 197 166 1,303 1,188 Current liabilities: Borrowings 26 41 189 Trade payables 26 2,837 3,080 223 230 72 54 Current tax liabilities Provisions 22 23 237 203 21,26 5,185 5,182 Total current liabilities 8,595 8,938 Total liabilities 9,898 10,126 29,937 27,877 Deferred revenue Other short-term debt TOTAL EQUITY AND LIABILITIES 17

Statement of Changes in Equity The LEGO Group – Annual Report 2016 Statement of Changes in Equity Share capital Reserve for hedgeaccounting Reserve for currency translation Retained earnings Total equity 20 6 (283) 18,008 17,751 Profit for the year – – – 9,436 9,436 Comprehensive income/(expenses) for the year – (86) (55) (7) (148) Dividend paid relating to prior year – – – (7,000) (7,000) 20 (80) (338) 20,437 20,039 Share capital Reserve for hedgeaccounting Reserve for currency translation Retained earnings Total equity 20 (158) (362) 13,332 12,832 Profit for the year – – – 9,174 9,174 Comprehensive income/(expenses) for the year – 164 79 2 245 Dividend paid relating to prior year – – – (4,500) (4,500) 20 6 (283) 18,008 17,751 2016 (mDKK) Balance at 1 January Balance at 31 December 2015 (mDKK) Balance at 1 January Balance at 31 December 18

Cash Flow Statement The LEGO Group – Annual Report 2016 Cash Flow Statement 1 January – 31 December (mDKK) Note 2016 2015 28 12,468 13,850 (36) (40) Cash flows from operating activities: Cash generated from operations Interest paid etc. Interest received etc. Income tax paid Net cash generated from operating activities 15 12 (3,363) (3,263) 9,084 10,559 Cash flows from investing activities: Purchases of intangible assets 12 (92) (126) Purchases of property, plant and equipment 13 (2,908) (2,822) 8 13 (2,992) (2,935) (7,000) (4,500) Proceeds from sale of property, plant and equipment Net cash used in investing activities Cash flows from financing activities: Dividend paid to shareholders Payment to related parties 30 (13,715) (12,144) Repayment from related parties 30 14,297 9,810 Payments to borrowings (157) – – 18 (6,575) (6,816) Total cash flows (483) 808 Cash and cash equivalents at 1 January 1,211 482 178 (79) 906 1,211 Repayments of borrowings Net cash used in financing activities Exchange gains/(losses) on cash at banks Cash at banks at 31 December 29 19

Notes The LEGO Group – Annual Report 2016 20

Notes The LEGO Group – Annual Report 2016 Notes Basis for preparation Note 1. Note 2. Significant accounting policies Significant accounting estimates and judgements 22 30 Income Statement Note 3. Note 4. Note 5. Note 6. Note 7. Note 8. Note 9. Note 10. Note 11. Revenue Expenses by nature Auditors’ fees Employee expenses Depreciation and amortisation Research and development expenses Financial income Financial expenses Tax on profit for the year 31 31 31 32 33 33 33 34 34 Balance Sheet and other disclosures Note 12. Note 13. Note 14. Note 15. Note 16. Note 17. Note 18. Note 19. Note 20. Note 21. Note 22. Note 23. Note 24. Note 25. Note 26. Note 27. Note 28. Note 29. Note 30. Intangible assets Property, plant and equipment Investments in associates Inventories Trade receivables Share capital Dividend per share Deferred tax Pension obligations Other debt Provisions Deferred revenue Contingent assets, contingent liabilities and other obligations Financial risks Financial assets and liabilities Derivative financial instruments Cash generated from operations Cash at banks Related party transactions 35 36 37 38 38 39 40 40 42 44 45 46 46 48 50 53 56 56 57 21

Notes The LEGO Group – Annual Report 2016 Note 1. Significant accounting policies The Consolidated Financial Statements of the LEGO Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and additional Danish disclosure requirements. The Consolidated Financial Statements have been prepared in accordance with the historical cost conversion, as modified by the revaluation of financial assets and financial liabilities (including financial instruments) at fair value. Change in classification in the balance sheet Comparative figures in the balance sheet have been restated to match this year’s presentation. The adjustment of the comparative figures have no effect on total assets or equity. Effects of new and amended accounting standards All new and amended standards and interpretations issued by IASB and endorsed by the EU effective as of 1 January 2016 have been adopted by the LEGO Group. The application of the new IFRS’s has not had a material impact on the Consolidated Financial Statements in 2016 and we do not anticipate any significant impact on future periods from the adoption of these new IFRS’s. The following standards which are not yet effective are relevant for the LEGO Group: IFRS 9, Financial instruments. IFRS 9 is the new standard on classification and measurement of financial instruments. Among other amendments, it introduces a new hedge accounting model that is designed to be more closely aligned with risk management activities. It includes amendments to the treatment of option premiums and the possibility to hedge net positions. The standard is effective for annual periods beginning on or after 1 January 2018. IFRS 15, Revenue from contracts with customers. IFRS 15 deals with revenue recognition and establishes principles for reporting the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18, Revenue. The standard is effective for annual periods beginning on or after 1 January 2018. IFRS 16, Leases. The change in lease accounting requires capitalisation of operational lease contracts, which will have an impact on total assets, and a corresponding impact on the liabilities. Hence this will affect the financial ratios related to the balance sheet. IFRS 16 requires the lease payment to be split between a depreciation charge included in operating costs and an interest expense on lease liabilities. The standard is effective for annual periods beginning on or after 1 January 2019. It is Management’s assessment that IFRS 9 and IFRS 15 will not have any significant impact on the Consolidated Financial Statements upon adoption of these standards. Management has not yet finalised the investigation of the impact of the Consolidated Financial Statements upon adoption of IFRS 16. 22

Notes The LEGO Group – Annual Report 2016 Note 1 (continued) 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. Associates are all entities over which the LEGO Group has significant influence but not control, and are generally represented by a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. Subsidiaries’ accounting policies have been changed where necessary to ensure consistency with the policies adopted by the LEGO Group. Foreign currency translation Functional and presentation currency Items included in the financial statements of each of the LEGO Group’s entities are measured using the currency of the primary economic environment in which the entity operates. The Consolidated Financial Statements are presented in Danish kroner (DKK), which is the functional and presentation currency of the Parent Company. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at balance sheet date exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as reserve for exchange rate adjustments. Group companies The results and financial position of subsidiaries that have a functional currency different from the presentation currency are translated into the presentation currency as follows: Assets and liabilities for each subsidiary are translated into DKK at the closi

The LEGO Group - Annual Report 2016 Cash flows and equity The LEGO Group's assets increased by DKK 2.0 billion in 2016 and amount to DKK 29.9 billion against DKK 27.9 billion at the end of 2015. Cash flows from operating activities amounted to DKK 9.1 billion against DKK 10.6 bil-lion in 2015.