INGKA HOLDING B.V. Annual report for financial year 2016
Ingka Holding B.V. Annual report for financial year 2016
Table of contents
REPORT FROM THE BOARD OF MANAGING DIRECTORS ...... 3
Financial Statements
CONSOLIDATED BALANCE SHEET before profit appropriation ...... 11
CONSOLIDATED INCOME STATEMENT ...... 12
CONSOLIDATED STATEMENT OF CASH FLOWS ...... 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...... 14
COMPANY BALANCE SHEET before profit appropriation ...... 47
COMPANY INCOME STATEMENT...... 48
NOTES TO COMPANY FINANCIAL STATEMENTS ...... 49
Other information
NET INCOME APPROPRIATION ...... 56
SUBSEQUENT EVENTS ...... 56
INDEPENDENT AUDITOR’S REPORT ...... 57
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Ingka Holding B.V. Annual report for financial year 2016
REPORT FROM THE BOARD OF MANAGING DIRECTORS (in millions of EUR, unless otherwise indicated)
Corporate information Ingka Holding B.V. (‘the Company’), Bargelaan 20, 2333 CT Leiden, is the ultimate parent company of the IKEA Group of companies (‘IKEA Group’). IKEA Group’s financial year covering the 12 month period ending August 31 2016 is referred to as ‘2016’ and the comparable year is referred to as ‘2015’.
The IKEA vision is to provide a better everyday life for the many people. As per financial year- end 2016, the operation of the IKEA Group is based on three main areas: Retail, Customer Fulfilment and IKEA Centres. Retail owns and operates 340 stores in 28 countries. Customer Fulfilment owns and operates the distribution centers and supports the retail business with distribution services, retail logistics and other services such as home delivery and installation services. IKEA Centres owns, develops and operates shopping centres in connection with IKEA Retail stores.
At August 31, 2016 IKEA Group sold its product development, supply chain and production companies (‘the Transaction’) to the Inter IKEA Group of companies with its ultimate parent Inter IKEA Holding B.V. (‘Inter IKEA Group’).
Key figures: 2016 2015 Revenue (in EUR million) 35,074 32,658 Personnel (average number) 166,985 156,233 Total number of stores 340 328 Countries with IKEA stores owned by the Company 28 28
Review of the year
Our performance For 2016, IKEA Group’s total sales of goods amounted to EUR 34.2 billion. Total sales of goods translated into Euro increased by 7.1% and adjusted for currency impact, sales increased by 7.9%. Sales in comparable stores grew by 4.8% compared to 2015.
Together with the rental income of 0.9 billion from IKEA Centres, our total revenue amounted to EUR 35.1 billion — an increase of 7.4% compared to 2015. Rental income increased with 18.0% compared to 2015.
The year 2016 was a good year with 783 million visits to our stores, 2.1 billion visits to IKEA.com and 425 million visits to our shopping centres. In all of our meetings with the customers, we want to provide good quality products and inspiration for creating beautiful homes. Last year’s focus on the theme “It starts with the Food”, covering kitchen, cooking, dining, eating, and the food- business, was a strong success and appreciated by the customers.
On a journey to become the world’s leading multichannel home furnishing retailer, we are increasing our focus on integrating physical and digital commerce to enable customers to shop and interact with us in ways that suit their needs. In 2016 we offered e-commerce in 14 out of
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Ingka Holding B.V. Annual report for financial year 2016
28 countries and related sales grew by 29% to EUR 1.4 billion. We plan to roll out e-commerce to all our markets in the coming years.
The gross margin increased with 1.9% points to 46.1% with positive purchase price developments throughout the year and a one-off effect from the Transaction contributing to the higher gross margin.
Operating expenses as a percentage of revenues increased by 1.4% points to 33.2%. The acquisitions of IKEA Centres in the course of 2015 and increased expenses on business development contributed to this higher cost percentage in 2016.
Our financial net result of EUR 0.9 billion includes a gain on the Transaction of EUR 0.7 billion. The net financial result excluding the Transaction of 0.2 billion was below 2015, due to a very positive result on currency instruments in the comparable year. We did not incur any significant credit losses on our securities portfolio, which increased by EUR 6.6 billion to EUR 21.9 billion during 2016.
Corporate taxes incurred in 2016 amounted to EUR 1.2 billion which means an effective tax rate of 21.6% (2015: 18.9%).
This resulted in a net profit of EUR 4.2 billion, an increase of 19.6% compared to 2015. Excluding the Transaction the net profit remains stable at EUR 3.5 billion.
Total assets increased during the year to EUR 54.0 billion from EUR 50.0 billion while we further increased our solvency to 38.9 billion of equity at year-end. Based on available liquidity, significant increase of external financing is not expected in the coming years.
Our markets In 2016, our sales grew in 27 out of 28 markets with China remaining one of the fastest growing countries for IKEA Group together with Canada, Poland and Australia. The five largest retail markets based on sales value were Germany, USA, France, the UK and Sweden.
We opened 12 new stores, and 19 pick up and order points during 2016 and further developed the multichannel distribution network to increase accessibility for our customers. In addition, we continued working on opening our first stores in India and Serbia.
Our investments During 2016, the IKEA Group made capital expenditures of EUR 3.2 billion in stores, distribution, shopping centres, factories and renewable energy.
Sale of product development, supply chain and production companies In May 2015, IKEA Group signed a letter of intent to sell its product development, supply chain and production companies, being IKEA of Sweden AB, IKEA Supply AG and IKEA Industry Holding B.V. and other connected companies to Inter IKEA Group. As part of the Transaction, IKEA Group improved its franchisee position in its markets including e-commerce. This Transaction was completed on 31 August 2016 and the transfer of ownership was made through sale of shares.
IKEA Group and Inter IKEA Group are two independent groups of companies with separate management and owners operating under a franchise system established in the 1980s. IKEA
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Ingka Holding B.V. Annual report for financial year 2016
Group is the largest franchisee with around 90 percent of the total IKEA franchisee sales. IKEA Group operates and owns 340 stores in 28 countries. Inter IKEA Group is franchisor and owner of the IKEA brand and concept.
Historically, the product development and supply chain companies were owned and operated by IKEA Group under a non-exclusive assignment from Inter IKEA Group.
Early 2015, Inter IKEA Group informed IKEA Group of its intention to operate the product development and supply chain activities within the Inter IKEA Group. This led to discussions between the parties to sell the relevant IKEA Group companies.
In May 2016, IKEA Group signed a Share Purchase Agreement to sell the companies executing the assignments for product development and supply chain and in addition its production companies. IKEA Group’s production companies were included in the Transaction as production is closely linked to the supply chain and product development.
As a result of the Transaction, some 26,000 co-workers became part of the Inter IKEA Group. The co-workers will continue to be employed by their current companies. The estimated consideration in cash for the Transaction is EUR 5.2 billion. The gain on the Transaction of EUR 0.7 billion is reported as financial income in the consolidated income statement 2016.
Following the Transaction, the IKEA Franchise system provides a stronger platform for long-term growth where IKEA Group will take an even stronger focus on the customer and on development of multichannel retailing and distribution.
People and planet positive Corporate social responsibility is strongly anchored within the strategy of IKEA Group and forms an integrated part of our business. Sustainability is one of the strategic cornerstones in the IKEA Group direction – Growing IKEA Together 2020+. Our sustainability strategy, People & Planet Positive, sets out how we are working to make a positive difference for people and the environment.
The strategy focuses on three areas where we can have the most positive impact: • Inspire and enable millions of customers to live a more sustainable life at home. • Strive for resource and energy independence. • Take a lead in creating a better life for the people and communities impacted by our business.
We report on how we progress towards our goals annually in the IKEA Group Sustainability Report, publicly available on IKEA.com.
Reflecting the many people The IKEA Group works actively with diversity at all levels of our business including when identifying and selecting members to boards of managing and supervisory directors. We want our values and strategy to be reflected in the composition of the boards – from our inclusion and diversity approach to the combined experience and expertise of its members. In 2016, three out of nine board members were female and we comply with the requirements as stated in Article 276
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Ingka Holding B.V. Annual report for financial year 2016 of Book 2 of the Netherlands Civil Code. In total, almost half of all our managers are women and around 40% of our top 200 managers are women.
Research and development During the financial year IKEA Group performed certain research and development activities and investments in material and production technology, product development, distribution, sales and digital development. Following the Transaction, research and development activities within IKEA Group will be focused on multichannel retailing including development of the meeting with the customer, distribution and digital technology.
Risk management
A solid approach to risk management At IKEA Group, a structured and consistent approach to managing risks is key to achieving our objectives. The goal of risk management and compliance within IKEA Group is to protect our people, assets and the IKEA brand today and in the future. To do so, we enable risk-aware, opportunity-focused and compliance-conscious decision-making. We have developed a comprehensive risk management framework, which includes a risk management process currently being introduced to the IKEA Group units.
Our company risk management approach provides senior management with insight into our key business risks and risk management practices in the organisation. The IKEA Group risks are periodically reviewed and consolidated into a Group risk register that is validated by the Risk Management Committee (a committee of Group Management), discussed with the Audit Committee of the Supervisory Board, and presented to the Supervisory Board. Representatives of the business sitting in this Risk Management Committee decide every year on areas to focus on (Goods Handling and Information Security in 2016). Business leaders are responsible for the design and the implementation of the risk treatment plans.
Besides the risk management approach being designed to anticipate risks, reduce their likelihood and mitigate their impact should they materialize, we use additional means of risk reduction, like an internal control & compliance framework, crisis management and insurance. IKEA Group relies on strong values and a culture that promotes the responsibility of everyone to do the right thing. This is summarised in our Code of Conduct. In addition, special efforts have been put in 2016 on compliance by defining and rolling out internal control principles and designing an internal control process. Efficient internal control activities in domains such as food safety, sustainability, property and accounting are key success factors to risk mitigation. These efforts will continue in 2017. We rely on a robust and well-deployed crisis management approach, also called Emergency Response Handling. This ensures that risk impacts are minimised at unit, country and Group level in all instances of crisis. IKEA Group has several global insurance programs aiming to reduce the financial impact of claims, damages or third-party compensation. The insurance covers are constantly reviewed in line with IKEA Group’s need for risk transfers.
Improvements to the risk management approach Recognising the increased needs to support a growing business and the higher expectations of external stakeholders, a roadmap for risk management/compliance/internal audit (RCA) has been
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Ingka Holding B.V. Annual report for financial year 2016 developed in 2016. The purpose is to secure the implementation of risk management and compliance initiatives before 2020 to reach the wished maturity level of RCA capabilities. The initiatives listed in this roadmap have been agreed with and are supported by business stakeholders. They will progressively strengthen our existing risk management and compliance practices.
In line with our strategic objectives and in respect of our values, IKEA Group pursues opportunities which inherently include some risks. We commit to take those risks in a responsible and compliant way. We have launched a key initiative in 2016 to further develop our risk appetite approach i.e. our acceptance of risks. The purpose is to improve clarity and alignment in terms of acceptance/tolerance to risks in all organisational units.
Some risk appetite statements are expressed in our Code of Conduct (for example, it stipulates zero tolerance for corruption). Policies, standards, rules as well as manuals and standard operating procedures further support the mitigation of risks.
In 2017, the relaunch of an Internal Audit function at Group level (under the joint responsibility of the Audit Committee and the Chief Risk Officer) will also contribute to better risk management, as the internal audit plan will be aligned with the IKEA Group risks.
Main risks potentially impacting IKEA Group A large number of strategic, operational, legal and financial risks may, to some extent, negatively impact the achievement of the long-term objectives of IKEA Group. However, most of them will not have any material impact on those goals given the size and resilience of our company. The main risks that we face are described below. Measures are taken to reduce their likelihood and their impact to an acceptable level in line with our risk appetite.
Information security Breach of confidentiality could harm customers or co-workers or give unfair advantages to our competitors. IKEA Group continuously invests into implementing relevant industry standards and to comply with regulations and legislations to lower the risk of damages to our stakeholders. In case the risk materialises, we expect costs of internal damages, potential costs of compensation and possible fines. We have a low appetite for this risk, therefore we support both Information Management and Information Security initiatives aiming at implementing an updated governance and securing sensitive information. It covers the aspects of confidentiality, integrity, and availability, as well as relevance of information.
Legal and regulatory environment A changing legislative and regulatory environment in the different countries where we operate can increase the cost of doing business and the complexity of our operations. Changes may also create risks of non-compliance. IKEA Group co-workers with relevant specialist competence permanently monitor the legal and regulatory environment in order to ensure compliance, to identify business opportunities offered by these changes and to optimise their impact on our ways of doing business. In addition, IKEA Group strives towards continuous improvement through frameworks and governance. We have a very low risk appetite and continuously strive for full compliance to applicable laws and regulations, while fully recognising that we operate in a changing environment.
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Ingka Holding B.V. Annual report for financial year 2016
Supply chain volatility Disruption in the supply chain due to geopolitical events, terrorist acts or natural catastrophes could harm product availability in the stores for our customers given our reliance on relatively few suppliers. This is an operational risk that IKEA Group has handled for many years and for which we had a medium risk appetite Supply routines deal with safety stocks, back-up suppliers and other ways to mitigate the issues caused by supply chain volatility. Following the Transaction, we work closely with Inter IKEA Group to manage this risk.
Product and food safety All our products should be always safe to prevent any injury or illness caused to customers or users of our products. In 2016, IKEA Group had clear processes and procedures in place to guarantee product quality and compliance with product requirements in all our markets, as we have a very low risk appetite for such events. We permanently strive for compliance with laws and regulations applicable to the products in our range. Despite these procedures and although we have risk mitigation actions in place, IKEA Group may face product safety issues, which may have financial costs due to liability claims and to potential disruptions to the supply chain. It could lead to reputational damage and negative customer and media reactions, locally or on global level. This may have a material adverse effect on the reputation of the IKEA brand, on IKEA Group operations and financial position. Following the Transaction, we work closely with Inter IKEA Group to manage this risk.
Safety & Security In a similar pattern as for product safety, failing to guarantee a safe environment and a secure shopping experience for our customers could harm the IKEA brand, for example in case of accident related to the handling of our goods in the stores. IKEA Group invests in and maintains a high- level of co-worker training, safety and security measures and insurance to prevent or mitigate such a risk as we have a very low risk appetite for this.
Brand reputation More generally, any unfavourable media coverage, accurate or not, may have a negative impact on brand reputation, at a local, national or international level. This may be allegations of different nature, from diverse sources and through a variety of media including social media. We work and operate in this environment of high media attention and volatile public opinion. We have a low risk appetite for anything that can have a negative impact on the IKEA brand in the long term. Therefore, we take all the necessary steps to ensure full compliance with laws and regulations, to be positively perceived and positioned in the hearts and minds of our customers and key stakeholders through a proactive public relations policy. Crisis management routines handle the necessary reactive activities in case of negative media reports.
Geopolitical risks IKEA Group is present as a retailer, in 28 countries and is sourcing products, from a large number of other countries. Therefore unexpected geopolitical events or changes in the economic outlook of such countries could have an impact on the turnover or the profitability of the company. Regulatory changes could as wel affect our ability to do business in some countries. We aim to anticipate all such changes to mitigate those risks and keep their impact to a minimum.
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Ingka Holding B.V. Annual report for financial year 2016
Financial risks Currency volatility, credit risks and tax risks exists at IKEA Group. We have a low risk appetite in this area, and we believe these risks are well monitored and handled. Refer to note 21 of the financial statements for more information on financial risk management.
Organisational changes Due to the Transaction with Inter IKEA Group on August 31, 2016, there is a short term risk of disruption in ways of working as a significant change in the organisation will enable us to achieve the opportunities of this new set-up. This risk is kept to a minimum by monitoring of all relevant risks by each stakeholder in the Transaction, under the coordination of a Project Management Office. IKEA Group has a shared responsibility with the Inter IKEA Group to contribute to optimisation of the overall value chain in certain areas. IKEA Group has a low risk appetite for inefficiencies in the value chain and works closely in certain areas with Inter IKEA Group in order to keep fulfilling our mission to create a better everyday life for the many people.
Outlook for financial year 2017 We project continued growth through existing stores, e-commerce, shopping centres and expansion in 2017. With the customer and co-worker in focus, we will accelerate our journey to become the world’s leading multichannel home furnishing retailer through investments in our co- workers, digital technology and in our stores, distribution network and shopping centres.
For 2017, we plan for capital expenditures for an amount of EUR 4.1 billion. This includes investments in stores, distribution and shopping centres as well as wind farms, solar power sources and forestry. The principles to secure long-term sustainable growth; earning our money before we spend it, being innovative, cost-conscious and customer focused will remain unchanged.
BOARD OF MANAGING DIRECTORS
Leiden, November 29, 2016
P. Agnefjäll (Chairman)
A. Davidson
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Ingka Holding B.V. Annual report for financial year 2016
CONSOLIDATED BALANCE SHEET before profit appropriation August 31
ASSETS
(in millions of EUR) 2016 2015
Fixed assets Tangible fixed assets (4) 23,033 22,840 Intangible fixed assets (5) 1,144 1,215 Financial fixed assets (6) 811 1,300 Total fixed assets 24,988 25,355
Current assets Inventories (7) 1,713 5,498 Receivables (8) 4,115 2,500 Securities (9) 21,878 15,278 Cash and short-term deposits (10) 1,273 1,381 Total current assets 28,979 24,657
TOTAL ASSETS 53,967 50,012
(See accompanying notes)
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Ingka Holding B.V. Annual report for financial year 2016
CONSOLIDATED BALANCE SHEET before profit appropriation August 31
GROUP EQUITY AND LIABILITIES
(in millions of EUR) 2016 2015
Group equity Capital Stock 1 1 Additional paid-in capital 51 51 Revaluation reserves 364 464 Other legal reserves 424 386 Other reserves 33,821 30,435 Result for the year 4,200 3,512 Total shareholder’s equity (11) 38,861 34,849 Minority interest 46 47 Total Group equity 38,907 34,896
Provisions (12) 1,908 1,971
Non-current liabilities (14) 1,385 2,061
Current liabilities (15) 11,767 11,084
GROUP EQUITY AND LIABILITIES 53,967 50,012
(See accompanying notes)
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Ingka Holding B.V. Annual report for financial year 2016
CONSOLIDATED INCOME STATEMENT Year ended August 31
(in millions of EUR) 2016 2015
Sale of goods 34,191 31,910 Rental income 883 748 Revenue (16) 35,074 32,658
Cost of sales (17) (18,918) (18,221) Gross profit 16,156 14,437
Other income 370 411 Selling expenses (7,347) (6,699) General and administrative expenses (4,617) (3,998) Other expenses (63) (102) Total operating expenses (17) (11,657) (10,388)
Operating income 4,499 4,049
Total financial income and expense (18) 869 299
Income before income taxes and 5,368 4,348 minority interests
Income taxes (19) (1,158) (822)
Income before minority interests 4,210 3,526
Minority interests (10) (14)
Net income 4,200 3,512
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Year ended August 31
2016 2015
Net income 4,200 3,512 Translation differences foreign activities (15) 8 Addition to hedging reserve (15) 38 Remeasurements IAS 19 (83) 52 Realisation through income statement (75) (41) Total recognised income and expense 4,012 3,569
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Ingka Holding B.V. Annual report for financial year 2016
CONSOLIDATED STATEMENT OF CASH FLOWS Year ended August 31
(in millions of EUR) 2016 2015 Cash flow from operating activities Operating income 4,499 4,049 Adjustments for: Depreciation and amortisation 1,536 1,332 Impairments of fixed assets (43) 16 Movements in provisions 140 (320) Revaluations of financial instruments (118) (158) Gains and losses on disposal of fixed assets 12 16 Movements in minority interest (11) (8) Adjustments in working capital: Decrease/(Increase) in inventories (166) (565) Decrease/(Increase) in debtors 157 (33) Decrease/(Increase) in other receivables 8 (169) (Decrease)/ Increase in current liabilities 230 491 Net cash provided by operations 6,244 4,651 Interest received 285 339 Interest paid (355) (355) Other financial items received/(paid) 12 (39) Taxation paid (1,193) (499) Net cash provided by operating activities 4,993 4,097 Cash flow from investing activities Additions tangible fixed assets (2,767) (1,987) Disposals tangible fixed assets 110 156 Additions intangible fixed assets (48) (109) Disposals intangible fixed assets 6 - Additions financial fixed assets (16) (12) Disposals financial fixed assets 92 147 Proceeds from repayment of loans receivable 288 - Issue of loans receivable (325) (446) Acquisition of subsidiary (51) (947) Divestment of subsidiaries (note 23) 4,335 - Net cash provided by (used in) 1,624 (3,198) investing activities Cash flow from financing activities Proceeds from short and long term loans payable 308 565 Repayment of short and long term loans payable (671) (1,546) Dividends paid - (666) Net cash used in financing activities (363) (1,647) Exchange gain/(loss) 238 521
Increase/(decrease) cash and cash equivalents 6,492 (227)
Cash and cash equivalents at beginning 16,659 16,886 Cash and cash equivalents at end 23,151 16,659 Net movement in cash and cash equivalents 6,492 (227)
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Ingka Holding B.V. Annual report for financial year 2016
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all amounts in EUR million)
1. CORPORATE INFORMATION Ingka Holding B.V. (‘the Company’), Bargelaan 20, 2333 CT Leiden, is the ultimate parent company of the IKEA Group of companies (‘IKEA Group’). The Company was incorporated on July 14, 1982 and is a wholly-owned subsidiary of Stichting Ingka Foundation, registered in Amsterdam, the Netherlands. IKEA Group’s financial year covering the 12 month period ending August 31 2016 is referred to as ‘2016’ and the comparable year is referred to as ‘2015’.
The vision of IKEA Group is to provide a better everyday life for the many people. As per financial year-end 2016, the operation of the IKEA Group is based on three areas: Retail, Customer Fulfilment and IKEA Centres. Customer Fulfilment supports the retail business with distribution services, retail logistics and other services such as home delivery and installation services. IKEA Centres develops and operates shopping centres in connection with IKEA Retail stores.
Ingka Holding B.V. has, through its subsidiaries, franchise agreements with Inter IKEA Systems B.V., the company owning the IKEA brand and concept. Inter IKEA Systems B.V. is part of the Inter IKEA Group of companies with its ultimate parent Inter IKEA Holding B.V. (‘Inter IKEA Group’).
At August 31, 2016 IKEA Group sold its product development, supply chain and production companies (‘the Transaction’) to Inter IKEA Group.
2. BASIS OF PREPARATION Both the company financial statements and the consolidated financial statements have been prepared in accordance with Part 9 of Book 2 of the Netherlands Civil Code. The financial statements were prepared on November 30, 2016.
The consolidated financial statements of the Company are presented in euro (EUR) and are prepared on a historical cost basis, except for the valuation of certain financial instruments that, subsequent to initial recognition at cost, are remeasured to fair value, in accordance with Dutch generally accepted accounting principles (Dutch GAAP).
The management of the Group makes various judgements and estimates, when applying the accounting policies and rules for preparing the financial statements. The principal judgements and estimates, including underlying assumptions relate to the useful life of fixed assets, provisions, impairments and recoverability of deferred tax assets.
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation The consolidated financial statements include the financial data of the Company and its group companies at August 31 of the year under review. Group companies are legal entities and companies over which the Company exercises control. In connection with this, financial instruments containing potential voting rights that can be exercised immediately are also taken into account.
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Ingka Holding B.V. Annual report for financial year 2016
The consolidated financial statements include the accounts of the Company and its participating interests over which management control is exercised. Group companies are fully consolidated as from the date on which control is obtained and until the date that control no longer exists. The items in the consolidated financial statements are determined in accordance with consistent accounting policies. All significant intercompany balances, transactions and profits are eliminated.
Minority interests represent the portion of profit or loss and net assets not held by the Group and are stated separately in the consolidated financial statements.
Joint ventures Joint ventures are activities in which the Group has a joint controlling influence over the operational and financial management through collaborative agreement with one or more parties. In the consolidated accounts, joint ventures are accounted for on a net asset value basis.
Mergers, acquisitions and divestments Acquisitions are accounted for using the purchase method. This means that any assets and liabilities acquired are carried at fair value as at the acquisition date. The difference between cost and the Company’s share of the fair value of the identifiable assets and liabilities acquired at the time of the transaction of a participating interest is recognised as goodwill. In the event of a common control transaction it is accounted for using the pooling of interest method. In the event of a sale, the difference between the consideration and the carrying amount is recorded in financial income and expense. The value of the consideration is subject to judgemental factors, including potential provisions and indemnifications included in the sale and purchase agreement.
Translation of foreign currencies The consolidated financial statements are prepared in euro, the functional and presentation currency of the Company. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.
Transactions denominated in foreign currencies are initially carried at the functional exchange rates ruling at the date of transaction. Monetary balance sheet items denominated in foreign currencies are translated at the functional exchange rates ruling at the balance sheet date. Non- monetary balance sheet items that are measured at historical cost in a foreign currency are translated at the functional exchange rates ruling at the date of transaction. Non-monetary balance sheet items that are measured at current value are translated at the functional exchange rates ruling at the date of valuation.
Exchange differences arising on the settlement or translation of monetary items denominated in foreign currencies are taken to the income statement, with the exception of exchange differences resulting from net investments in foreign activities, or from loans taken out to finance or effectively hedge net investments in foreign activities. These exchange differences are taken directly to the foreign currency translation reserve.
Exchange differences arising on the translation of non-monetary balance sheet items denominated in foreign currencies that are carried at current value are taken directly to the revaluation reserve, provided the changes in value of the non-monetary items are likewise taken directly to reserves. Goodwill and fair value adjustments to the carrying amounts of assets and
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Ingka Holding B.V. Annual report for financial year 2016 liabilities arising on the acquisition of a foreign activity are treated as assets and liabilities of the foreign activity and translated at the rate of exchange ruling at the balance sheet date.
The assets and liabilities of foreign activities are translated into the Group’s presentation currency at the rate of exchange ruling at the balance sheet date and the income and expenses of these foreign activities are translated at the average rate of exchange for the year. Resulting exchange differences are taken directly to the foreign currency translation reserve. On the disposal of a foreign activity, the cumulative exchange differences, taken directly to the reserves, are taken to the income statement as part of the gain or loss on the sale. In case of a partial disposal of a foreign activity with no change in control, the proportionate cumulative exchange difference will not be reclassified to the income statement.
Offsetting Assets and liabilities are only offset in the financial statements, if and to the extent that: an enforceable legal right exists to offset the assets and liabilities and settle them simultaneously; and the positive intention is to settle the assets and liabilities on a net basis or simultaneously.
Tangible fixed assets Tangible fixed assets (both assets in use by the Company and investment properties) are carried at the cost of acquisition or production (less any investment grants) net of accumulated depreciation and accumulated impairment losses. Costs of major maintenance are recognised under cost when incurred and if the recognition criteria are met. The carrying amount of the components to be replaced will be regarded as a disposal and taken directly to the income statement. All other repair and maintenance costs are taken directly to the income statement.
Depreciation is calculated on a straight-line basis over their expected useful economic lives, taking into account their residual value. Changes in the expected depreciation method, useful life and/or residual value over time are treated as changes in accounting estimates.
The costs of dismantling, removing and restoring after the use of an asset are recognised as part of the carrying amount of the asset, with a provision being formed for an equal amount at the same time.
Retired tangible fixed assets are carried at the lower of cost and their fair value less costs. If the expected fair value less costs is significantly higher than the carrying amount, with the assets being held for sale, an incidental revaluation is carried out and taken to the revaluation reserve. The revaluation is recognised as a separate item in the income statement account when the increase in value is realised.
A tangible fixed asset is derecognised upon sale or when no further economic benefits are expected from its continued use or sale.
Intangible fixed assets An intangible fixed asset is recognised in the balance sheet if: it is probable that the future economic benefits that are attributable to the asset will accrue to the company; and
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the cost of the asset can be reliably measured.
Costs relating to intangible fixed assets not meeting the criteria for capitalisation (for example, cost of research, internally developed brands, logos, trademark rights and client databases) are taken directly to the income statement account.
Intangible fixed assets are carried at the lower of cost of acquisition or production net of accumulated amortisation and their recoverable amount (being the higher of value in use and fair value less costs to sell). Intangible fixed assets, except for land lease rights, are amortised on a straight-line basis over their expected useful economic lives, subject to a maximum of 20 years. The land lease rights are amortised over the contractually agreed period. If the estimated useful life exceeds 20 years, an impairment test is performed at each financial year-end.
Development costs Development costs are capitalised if they satisfy the technical, commercial and financial feasibility criteria set for them. Currently development costs do not meet the criteria specified. Research and development expenditures primarily relate to product development costs and are presented as general and administrative expenses in the income statement.
Goodwill Goodwill represents the difference between the cost of a business combination and the fair value at the transaction date of the acquired equity value of the company. Goodwill is capitalised and amortised over its expected useful life.
Land lease rights Land lease rights recognised as an intangible fixed asset relates to an ownership of a temporary right to lease land, which has been paid in advance.
Impairment of fixed assets The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, the Group estimates the asset’s recoverable amount.
An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. The impairment loss is recognised in the income statement under other expenses.
In assessing the value in use, the estimated future cash flows are discounted to their present value using a market based pre-tax discount rate. In determining fair value less cost to sell, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used.
An assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor the
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Ingka Holding B.V. Annual report for financial year 2016 carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognised in prior years. Such reversal is recognised in the income statement.
Financial fixed assets All financial assets are recognised initially at fair value plus transaction costs, except in the case of financial assets recorded at fair value through the income statement.
The Company has the following subcategories for financial fixed assets:
1. Investment in participating interests Participating interests over which financial and operating policies the Company exercises significant influence are valued using the equity method. Under this method, participating interests are carried at the Company’s share of their net asset value plus its share in the results of the participating interests from the acquisition date, determined in accordance with the accounting policies disclosed in these financial statements. The Company’s share in the results of the participating interests is recognised in the income statement. If and to the extent the distribution of profits is subject to restrictions, these are included in a legal reserve.
2. Other financial fixed assets a) Long-term loan receivable Loans granted and other receivables are financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, these loans and receivables are carried at amortised cost based on the effective interest rate method.
Gains and losses are taken to the income statement, when the receivables are transferred to a third party or impaired. b) Investments in equity instruments Investments in listed equity instruments are carried at fair value. Gains and losses arising from the change in fair value are recorded in the income statement.
Investments in unlisted equity instruments, not forming part of a trading portfolio, are carried at cost. Gains and losses are taken to the income statement, when the investments are transferred to a third party or impaired. Dividends received are taken to the income statement.
Fair value The fair value of the financial instruments is determined using available market information or estimation methods. Under these estimating methods, the fair value is estimated: on the basis of the fair value of its components or a similar instrument if the fair value of its components or similar instruments can be reliably measured; or by using generally accepted valuation models and techniques.
Amortised cost Amortised cost is calculated using the effective interest rate method less any reductions for impairment or uncollectibility. The calculation takes into account any discounts as well as transaction cost at the transaction date.
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Ingka Holding B.V. Annual report for financial year 2016
Impairment of financial fixed assets For all categories of financial assets carried at amortised cost, the Company assesses at each balance sheet date whether that asset or group of financial assets is impaired. Only if there is an objective evidence of impairment the impairment loss will be recorded in the income statement.
Inventories Inventories mainly comprise finished products and are carried at the lower of cost (first-in, first- out basis) or net realisable value, net of a provision for obsolescence. Net realisable value is based on estimated selling price, less further costs expected to be incurred for completion and disposal.
Receivables Receivables are short-term in nature, initially measured at fair value and subsequently at amortised costs (except for derivatives) less allowance for uncollectible amounts. The recognition and measurement of derivatives are discussed in the section ‘Derivatives and hedge accounting’.
Securities Following initial measurement, securities are carried at fair value without deduction of any transaction costs on sale. Gains and losses arising from changes in the fair value are taken to the income statement.
Cash at bank and in hand Cash and cash equivalents are carried at their face value.
Provisions A provision is formed for liabilities if it is probable that they will have to be settled and the amount of the liability can be reliably estimated. The amount of the provision is determined based on a best estimate of the amounts required to settle the liabilities and losses concerned at the balance sheet date. Provisions are carried at non-discounted value, with the exception of: the provision for pensions which is carried at discounted value; and provisions for other employee benefits carried at discounted value if the effect of the time value is material. If expenses required to settle a provision are probable to be reimbursed by a third party, the reimbursement is recognised as a separate asset.
Pensions and other post-employment benefits The Company operates a number of pension plans, which have been established in accordance with the regulations and practices of the individual countries. The plans include both defined contribution plans and defined benefit plans. The Company applies IAS 19 to all post-employment benefits.
Defined contribution plans The contributions related to defined contribution plans are charged to the income statement in the period to which these contributions relate.
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Ingka Holding B.V. Annual report for financial year 2016
Defined benefit plans The net obligations of defined benefit plans are determined as the difference between the benefit obligations and the plan assets. Defined benefit plan pension commitments are calculated in accordance with the projected unit credit method of actuarial cost allocation. Under this method, the present value of pension commitments is determined on the basis of the number of active years of service up to the balance sheet date and the estimated employee salary at the time of the expected retirement date, and is discounted using the market rate of interest on high-quality corporate bonds with lifetimes that corresponds to the Group’s pension obligations. The net obligation comprises the discounted present value of the total earned future salaries less the fair value of any plan assets.
Remeasurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding any changes recorded as net interest and the return on plan assets (excluding net interest), are recognised immediately in the balance sheet and equity (retained earnings). Remeasurements are not reclassified to the income statement in subsequent periods.
Past service costs are recognised in the income statement on the earlier of: The date of the plan amendment or curtailment; and The date that the Group recognises restructuring-related costs.
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognises the following changes in the net defined benefit obligation under ‘general and administrative expenses’ in the consolidated income statement: Service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements. Net interest expense or income.
Income taxes Deferred tax liabilities and deferred tax assets are carried on the basis of the tax consequences of the realisation or settlement of assets, provisions, liabilities or accruals and deferred income as planned by the Company at the balance sheet date. Deferred tax liabilities and deferred tax assets are carried at non-discounted value.
A deferred tax liability is recognised for all taxable temporary differences. A deferred tax asset is recognised for all deductible temporary differences and carry-forward losses, to the extent that it is probable that future taxable profit will be available for set-off.
Deferred and other tax assets and liabilities are netted off if the general conditions for netting off are met.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax legislation) that have been enacted or subsequently enacted at the balance sheet date.
Financial liabilities Financial liabilities are recognised initially at fair value and in the case of loans and borrowings, carried at amortised cost, this includes directly attributable transaction costs.
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Ingka Holding B.V. Annual report for financial year 2016
Financial liabilities are carried at original measured amount less principal payments and amortisation. Gains or losses are recognised in the income statement when the liabilities are derecognised, as well as through the amortisation process.
Leasing Assessing whether an agreement contains a lease is based on the substance at the inception date of the agreement. The agreement is regarded as a lease if the fulfilment of the agreement depends on the use of a specific asset and the lease contains the right of use of a specific asset.
The Group as lessee Under finance leases (with the risks and rewards of ownership of the lease transferred substantially to the lessee), at the inception of the lease, the lease property and related liability are carried at the lower of the fair value of the lease property at the inception of the lease and the present value of the minimum lease payments. The lease is initially recognised including the initial direct costs incurred by the lessee. Lease payments are apportioned between the interest expense and repayment of the remaining balance of the liability, with the remaining balance of the net liability bearing a constant rate of interest.
Capitalised lease property is depreciated over the shorter of the term of the lease and the useful economic life of the property, if there is no reasonable certainty as to whether ownership of the property is transferred to the lessee at the end of the term of the lease.
Under operating leases, the lease payments are charged to the income statement on a straight- line basis over the term of the lease.
The Group as lessor Under operating leases, the lease income is taken on a straight line basis to the income statement over the term of the lease. Initial direct costs are amortised over the term of the lease against the lease income.
Derivatives and hedge accounting Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to their fair value, taking into account the credit risk arising from default of the counterparty (Credit Valuation Adjustment, CVA). Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques (such as discounted cash flow models and option pricing models), as appropriate. All derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging instrument. The commercial flows of the Company are subject to currency risk. As part of its treasury activities, the Company designates certain derivatives as hedges of highly probable future cash flows attributable to a forecast transaction in foreign currencies. Hedge accounting is used for derivatives designated in this way provided certain criteria are met.
The Company documents at the inception of the transaction the relationship between hedging instruments and hedged items as well as its risk management objective and strategy for undertaking hedge transactions together with methods selected to assess hedge effectiveness. IKEA Group also documents its assessment, both at hedge inception and on an ongoing basis, of
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Ingka Holding B.V. Annual report for financial year 2016 whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in future cash flows (the hedged items).
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are recycled to the income statement in the periods in which the hedged item will affect net profit. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.
Embedded derivatives The Company separates an embedded derivative from the host contract if the following conditions are met: • There is no close relationship between the economic characteristics and risks of the embedded derivative and those of the host contract; • A separate instrument having the same characteristics as the embedded derivative would be classified as a derivative; and • The compound instrument is not measured at fair value with changes in fair value recognised through the income statement.
Separable embedded derivatives are recognised at fair value in the balance sheet upon inception of the contract. Changes in fair value are recorded in the income statement.
Income Revenue represents the proceeds from the supply of goods and services, net of discounts, as well as rental income.
The Company generates and recognises net sales to retail customers at the point of sale in its stores and upon delivery to home shopping customers.
Interest Interest income is recognised pro rata in the income statement, provided the income can be measured and the income is probable to be received.
Expenses Expenses, including interest, are determined with due observance of the aforementioned accounting policies and allocated to the year to which they relate. Foreseeable and other obligations as well as potential losses arising before the financial year-end are recognised if known before the financial statements are prepared and provided all other conditions for forming provisions are met.
Income taxes Current income taxes are calculated on the income presented in the financial statements adjusted to taxable income in accordance with local tax legislation.
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Ingka Holding B.V. Annual report for financial year 2016
Cash flow statement Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value.
The above definition has been used for the Statement of Cash Flows, which has been prepared using the indirect method.
Cash flows in foreign currencies are translated at the average rate of exchange for the year. Currency translation differences are presented separately in the statement of cash flows.
Government grants Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. If the grant relates to an asset, it reduces the carrying amount and is recognised as income over the useful life of the asset as reduced depreciation charge.
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Ingka Holding B.V. Annual report for financial year 2016
4. TANGIBLE FIXED ASSETS
2016 2015
Land and buildings 18,430 17,963 Building improvements 1,741 1,713 Machinery and equipment 1,319 1,855 Construction in progress 1,543 1,309 Total 23,033 22,840
Land Building Machinery Construc- and improve- and tion in buildings ments equipment progress Total
Cost Opening balance 23,428 3,476 5,204 1,309 33,417 Translation adjustment 19 20 (36) (4) (1) Additions 544 78 392 1,761 2,775 Acquisitions 405 - - - 405 Disposals (87) (21) (179) (11) (298) Divestments (note 23) (803) (56) (1,739) (177) (2,775) Impairment 26 2 14 - 42 Transfers 921 164 242 (1,327) - Other (31) 29 11 (8) 1 Closing balance 24,422 3,692 3,909 1,543 33,566
Accumulated depreciation Opening balance 5,465 1,763 3,349 - 10,577 Translation adjustment (14) 1 (26) - (39) Additions 799 231 460 - 1,490 Disposals (9) (19) (148) - (176) Divestments (note 23) (257) (27) (1,053) - (1,337) Impairment 7 1 1 - 9 Other 1 1 7 - 9 Closing balance 5,992 1,951 2,590 - 10,533 Net book value 18,430 1,741 1,319 1,543 23,033
Estimated useful life (years) 25 10 3-15
Tangible fixed assets carried at costs do not include capitalised interest charges.
Of the depreciation EUR 915 million (2015: EUR 811 million) is included in the selling expenses; EUR 575 million (2015: EUR 484 million) is included in the general and administrative expenses in the income statement.
The Company received investment grants in different jurisdictions. The investment grants received during 2016 were not material.
During 2016 impairments on tangible fixed assets to recoverable amounts have been recorded for an amount of EUR 3 million (2015: EUR 54 million). Reversals of previous years’ impairments
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Ingka Holding B.V. Annual report for financial year 2016 for an amount of EUR 36 million (2015: EUR 49 million) have been recognised, resulting in a net gain of EUR 33 million (2015: EUR 5 million loss) recognised in other expenses.
The impairment loss recorded relates to 1 Cash Generating Unit (‘CGU’) within the following line of business:
Description CGUs Valuation approach Amount
Investment property 1 Market value 3
The impairments are mainly triggered by anticipated lower future rental income.
The impairment reversals recorded relates to 4 CGUs within the following line of business:
Description CGUs Valuation approach Amount
Retail 4 Market value 36
The impairment reversals are driven by improved business performance in combination with the low interest rate environment in most countries.
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Ingka Holding B.V. Annual report for financial year 2016
Investment properties Included below are investment properties valued at cost or lower market value, which are rented out to third party tenants.
2016 2015
Land and buildings 4,421 4,439 Building improvements 638 614 Machinery and equipment 24 7 Construction in progress 470 335 Total 5,553 5,395
Land Building Machinery Construc- and improve- and tion in buildings ments equipment progress Total Cost Opening balance 4,888 747 14 335 5,984 Translation adjustment 1 (1) - 1 1 Additions 67 27 16 413 523 Disposals (57) (2) (2) (6) (67) Impairments (3) - - - (3) Transfers 203 66 5 (274) - Other (12) 12 11 1 12 Closing balance 5,087 849 44 470 6,450
Accumulated depreciation Opening balance 449 133 7 - 589 Translation adjustment 7 2 - - 9 Additions 207 74 13 - 294 Disposals (1) (1) (1) - (3) Other 4 3 1 - 8 Closing balance 666 211 20 - 897 Net book value 4,421 638 24 470 5,553
Estimated useful life (years) 25 10 3-15
The estimated useful lives of these commercial properties are comparable to the estimated useful lives of the operational tangible fixed assets.
Rental income related to investment property amounted to EUR 883 million (2015: EUR 748 million). The operational cost (excluding depreciation) amounted to EUR 463 million in 2016 (2015: EUR 428 million).
The estimated market value of the investment property amounted to EUR 9.1 billion (2015: EUR 8.4 billion).
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Ingka Holding B.V. Annual report for financial year 2016
Operating leases – Group as lessor
The Group has entered into operating leases relating to investment property. The future minimum lease receipts on these non-cancellable leases can be broken down as follows:
2016 2015
Within one year 710 608 After one year but no more than five years 2,164 1,706 More than five years 2,099 1,480 4,973 3,794
5. INTANGIBLE FIXED ASSETS
2016 2015
Land lease rights 945 995 Goodwill 174 193 Other 25 27 Total 1,144 1,215
Land lease rights Goodwill Other Total Cost Opening balance 1,074 250 84 1,408 Translation adjustment (31) - 1 (30) Additions 39 7 2 48 Acquisitions - 3 - 3 Disposals (6) - - (6) Divestments (note 23) (30) (27) (2) (59) Other 23 - - 23 Closing balance 1,069 233 85 1,387
Accumulated amortisation Opening balance 79 57 57 193 Translation adjustment (2) 0 1 (1) Additions 28 14 4 46 Divestments (note 23) (4) (12) (2) (18) Other 23 - - 23 Closing balance 124 59 60 243 Net book value 945 174 25 1,144
Estimated useful life (years) 30-50 5-20 5-20
The useful life of goodwill ranges from 5-20 years in accordance with the timeline of anticipated future economic benefits arising in the investment. The estimated useful life of land lease rights ranges from 30-50 years in accordance with the contractually agreed period.
Other intangible fixed assets mainly consist of capitalised franchise fees and intangible assets for capitalised renewable energy incentives.
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Ingka Holding B.V. Annual report for financial year 2016
The amortisation of intangible fixed assets is included under other expense in the income statement.
During 2016, no impairments on intangible fixed assets (goodwill) to recoverable amounts have been recorded (2015: EUR 11 million).
6. FINANCIAL FIXED ASSETS
2016 2015
Long term loans receivable 224 323 Deferred tax asset 412 476 Investment in participating interests 101 98 Other investments 74 403 Total 811 1,300
Long term Deferred Investm. Other loans tax in part. invest- receivable asset interests ments Total Cost Opening balance 592 476 98 403 1,569 (incl. due in one year) Translation adjustment 1 (2) - - (1) Additions 1,832 170 - 16 2,018 Disposals (12) (32) (10) (343) (397) Divestments (refer to note 23) (190) (75) - (265) Utilised - (98) - - (98) Released - (27) - - (27) Share in result of Part. Interests - - 13 (3) 10 Repayments (288) - - - (288) Amounts due within one year (1,711) - - - (1,711) Other - - - 1 1 Net book value 224 412 101 74 811
Sale of other investment As per May 2016 some of our other investments were sold. The consideration received in cash amounted to EUR 370 million and we realised a gain on the sale of EUR 23 million.
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Ingka Holding B.V. Annual report for financial year 2016
Annual maturities of receivables scheduled for repayment during the next years are as follows:
Financial Year Amount
2017 1,711 2018 64 2019 1 2020 101 2021 2 Thereafter 56 Total 1,935
The other investments mainly include positions related to other non-core related investments. No impairments have been recognised during the year on these investments to reflect the expected recoverable value.
Refer to note 19 for details on the deferred tax assets.
7. INVENTORIES
2016 2015
Raw materials - 154 Work in progress - 55 Finished goods 1,713 5,289 Total 1,713 5,498
The provision for obsolescence amounts to EUR 59 million at August 31, 2016 (2015: EUR 215 million). The decrease in inventory value mainly relates to the Transaction.
8. RECEIVABLES
2016 2015
Trade debtors, less allowance 558 802 Current portion of long-term loans receivable 1,711 269 Income tax receivable 191 71 Other receivables 1,091 553 Prepaid expenses and accrued income 564 805 Total 4,115 2,500
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Ingka Holding B.V. Annual report for financial year 2016
The other receivables can be broken down as follows:
2016 2015
VAT receivable 201 368 Receivable on suppliers 43 62 Deposits 7 10 Other receivables 114 113 Transaction receivable 726 - Total 1,091 553
Prepaid expenses and accrued income can be broken down as follows:
2016 2015
Interest 2 14 Derivatives 330 496 Insurance premiums 22 22 Other prepaid and accrued income 210 273 Total 564 805
Derivatives include the unrealised gains on derivative financial instruments related to the management of interest rate and currency risk. The prepaid expenses and accrued income balance and the accrued liabilities and deferred income balance at August 31, 2016 include a net amount receivable of EUR 16 million related to the fair value of derivatives, which are part of the macro cash flow hedge program. This program hedges the foreign exchange risk of the expected purchase and sales transactions, i.e. the commercial flows, of the group for the next financial year. For more information on financial risk management refer to note 21.
9. SECURITIES
The Company is actively managing its excess cash liquidity through investments in securities. As at August 31, 2016, the securities amount to EUR 21,878 million (2015: EUR 15,278 million). This item mainly consists of investments in listed interest-earning securities with investment grade.
The maximum exposure per counterparty is limited to a maximum of EUR 200 million (EUR 50 million for BBB+, EUR 25 million for BBB or BBB-). This limitation does not apply to government securities or their 100% owned agencies.
The credit risk profile of the securities portfolio is as follows (in %):
2016 2015
AAA to AA 64 67 AA- to A- 15 20 BBB+ to BBB- 20 13 Non-Investment Grade 1 - 100 100
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Ingka Holding B.V. Annual report for financial year 2016
The securities portfolio is diversified over the following issuer categories (in %):
2016 2015
Sovereign 62 60 Government Sponsored 16 16 Financial Corporation 11 13 Asset backed securities 4 2 Corporate 7 9 100 100
Changes in value of listed securities included in the income statement amount to EUR 38 million loss (2015: EUR 150 million loss). This amount is included in the financial income and expenses under revaluation gain/ (loss). Changes in value of listed securities are not included in the revaluation reserve.
The duration of the interest earning securities at August 31, 2016 was 832 days (2015: 876 days).
Bonds for the amount of EUR 4,159 million at August 31, 2016 (2015: EUR 4,184 million) are used as collateral for short-term borrowings.
10. CASH AND SHORT-TERM DEPOSITS
The total balance, amounting to EUR 1,273 million as at August 31, 2016 (2015: EUR 1,381 million), is available without restrictions to the Company except for EUR 460 million (2015: EUR 393 million) of short-term deposits that have a set maturity date for a maximum duration of 3 months.
11. SHAREHOLDER’S EQUITY
For details on shareholder’s equity, refer to note 3 in the Company financial statements.
12. PROVISIONS
2016 2015
Provision for deferred taxation 774 760 Provision for pension commitments 681 809 Other 453 402 Total 1,908 1,971
For details on the provision for deferred taxation refer to note 19. For details on the provision for pensions commitments refer to note 13.
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Ingka Holding B.V. Annual report for financial year 2016
The movement in the other provisions is as follows:
2016 2015
Opening balance 402 447 Currency translation - (5) Additions 231 92 Utilised (66) (58) Released (64) (74) Acquisitions 7 - Divestment (refer to note 23) (57) - Total 453 402
Other includes tax, warranty, return and other provisions. Of the total balance an amount of EUR 78 million (2015: EUR 93 million) is due within one year.
13. PENSION AND OTHER POST-EMPLOYMENT BENEFITS
The Company has a number of defined benefit pension plans, predominantly in Sweden, the Netherlands, Germany, France and Switzerland.
The nature of the benefits provided by the Company are based on final salary pension plans (62%), contribution based plans with guarantee (33%) and other (5%).
There are minimum funding requirements for the pension plans in Belgium, the Netherlands and Switzerland as set out by local legislation.
Net expense The following table shows the pension and other post-employment benefit expenses recognised in the income statement.
2016 2015
Company service cost 97 74 Net interest cost 27 19 Defined benefit plans 124 93 Defined contribution plans 146 139 Total expense 270 232
Liability for defined benefit obligations 2016 2015
Defined benefit obligation – funded plans 965 852 Defined benefit obligation – unfunded plans 462 642 Less: Fair value of plan assets (746) (709) Deficit 681 785 Restriction due to asset ceiling - 24 Net Defined Benefit Liability 681 809
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Ingka Holding B.V. Annual report for financial year 2016
The movements in the liability for the net defined benefit obligations are as follows:
2016 2015
Opening balance 809 849 Net expense for the year 124 93 Remeasurement (gain)/loss 112 (80) Employer contributions (49) (46) Benefits paid directly by the Company (11) (11) Reimbursement rights - - Currency translation (5) 4 Divestment (refer to note 23) (299) - Closing balance 681 809
The fair value of the reimbursement rights amounts to EUR 5 million at August 31, 2016 (2015: EUR 4 million).
Assets and liabilities The following table shows the changes in benefit obligations and plan assets of the employee benefit plans.
2016 2015
Defined Fair Defined Fair benefit value benefit value obligation plan obligation plan
assets assets
Opening balance 1,494 709 1,442 601 Company service cost 97 - 74 - Net interest 32 14 35 13 Benefits paid (38) (38) (40) (40) Plan participant contributions 13 13 9 9 Employer contributions (1) 59 (4) 53 Return on plan assets - 36 - 47 Changes due to employee transfers (7) (7) - - Changes in demographic assumptions (13) - 18 - Changes in financial assumptions 175 - (67) - Experience adjustments 17 - (3) - Currency translation (7) (4) 30 26 Divestments (refer to note 23) (335) (36) - - Closing balance 1,427 746 1,494 709
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Ingka Holding B.V. Annual report for financial year 2016
The present value of the defined benefit obligation is detailed as below:
2016 2015
Final salary pension plans 888 998 Contribution based plans with a guarantee 466 434 Other 73 62 Closing balance 1,427 1,494
Allocation of plan assets The major categories of plan assets of the fair value of the total plan assets are, as follows
2016 2015
Quoted Unquoted Quoted Unquoted Cash and cash equivalents 35 - 32 - Equity instruments 254 - 235 - Government bonds 82 - 78 - Corporate bonds 239 - 229 - Real estate 35 - 39 - Insurance contracts 33 46 11 64 Other 22 - 21 - Total 700 46 645 64
The plan assets do not include investments in shares, issued debt or property owned by the Company.
Assumptions The principal assumptions used in determining the defined benefit obligations are shown below:
2016 2015
Discount rate 1.3% 2.2% Future salary increases 2.8% 3.0%
The average duration of the defined benefit plan obligation at August 31, 2016 is 20.8 years (2015: 19.8 years).
The Company expects to contribute EUR 49.7 million to its defined benefit pension plans in 2017.
Sensitivity analysis
Discount rate Salary increases 0.50% -0.50% 0.50% -0.50%
Impact on defined benefit obligation (138) 153 12 (63)
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Ingka Holding B.V. Annual report for financial year 2016
14. NON-CURRENT LIABILITIES
The non-current liabilities consist of long-term debt. The majority of the long-term debt includes finance facilities related to the Company’s investments in land and buildings. Property mortgages amount to EUR 3,167 million (2015: EUR 2,864 million).
The interest rates on these local currency facilities range between negative 0.4% (2015: negative 0.4%) and 13.6% (2015: 13.6%) with a weighted average of 3.85% (2015: 3.7%) in 2016. Of the total loan portfolio EUR 664 million (2015: EUR 1,027 million) has a fixed interest rate and EUR 1,229 million (2015: EUR 1,461 million) has a floating interest rate.
The average interest duration of the long-term debt is 1.26 years (2015: 1.95 years).
2016 2015
Opening balance (including short term portion) 2,487 1,879 Translation adjustment (25) 73 Additions 359 534 Acquisitions 46 1,104 Divestments (8) - Repayments (622) (1,103) Amount due within one year (852) (426) Closing balance 1,385 2,061
Annual maturities of debt scheduled for repayment during the next years are as follows:
Financial Year Amount
2017 852 2018 290 2019 259 2020 292 2021 120 Thereafter 424 Total 2,237
Pledged assets amount to EUR 3,276 million (2015: EUR 2,980 million) and mainly consist of property pledged as collateral for external liabilities.
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Ingka Holding B.V. Annual report for financial year 2016
15. CURRENT LIABILITIES
2016 2015
Current portion of long-term debt 852 426 Short-term borrowings 4,274 4,454 Accounts payable 2,922 2,305 Income tax payable 156 274 Other liabilities 1,197 1,162 Accrued liabilities and deferred income 2,366 2,463 Total 11,767 11,084
Short-term borrowings at different finance institutions bear market interest rates according to local conditions for currencies involved.
Other liabilities can be broken down as follows:
2016 2015
VAT payable 376 453 Wage tax payable 40 63 Other taxes payable 173 173 Deposits received 131 125 Other liabilities 477 348 Total 1,197 1,162
Accrued liabilities and deferred income can be broken down as follows:
2016 2015
Accrued wages 351 374 Accrued franchise fee 249 242 Accrued interest expense 12 20 Derivatives 608 560 Other accruals and deferred income 1,146 1,267 Total 2,366 2,463
16. SEGMENT INFORMATION
Revenue 2016 2015
Europe 25,613 23,636 North America 6,103 5,628 Asia and Pacific 3,358 3,394 Total 35,074 32,658
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Ingka Holding B.V. Annual report for financial year 2016
2016 2015
Retail 32,379 30,146 Wholesale 1,736 1,647 Investment property 831 711 Production 128 154 Total 35,074 32,658
Employees
The geographical distribution of the employees (based on average numbers) is as follows:
2016 2015
The Netherlands 5,607 5,189 Europe (excluding the Netherlands) 120,661 114,136 North America 21,036 19,831 Asia and Pacific 19,681 17,077 Total 166,985 156,233
17. COST OF SALES AND OPERATING EXPENSES
Cost of sales, amounting to EUR 18,918 million as at August 31, 2016 (2015: EUR 18,221 million), consists mainly of material cost.
Other income of EUR 370 million (2015: EUR 411 million) includes recharges to tenants (EUR 24 million), gain on sale of fixed assets (EUR 15 million), energy income (EUR 79 million), income related to gift vouchers not expected to be redeemed (EUR 11 million), service fees (EUR 69 million) and others.
Selling expenses of EUR 7,347 million (2015: EUR 6,699 million) represent retail core-business related cost, including marketing cost and the relevant portion of staff cost, operational cost, and depreciation.
General and administrative expenses of EUR 4,617 million (2015: EUR 3,998 million) are related to non-retail activities and include staff cost, operational cost and depreciation.
Other expenses of EUR 63 million (2015: EUR 102 million) include reversal of impairment charges on tangible fixed assets (EUR 36 million) and impairment charges on tangible fixed assets (EUR 3 million), loss on sale of fixed assets (EUR 12 million), amortisation of intangible fixed assets (EUR 47 million) and others.
Personnel expenses 2016 2015
Salaries and wages 4,232 3,796 Social charges 878 780 Pension expense 270 232 Total 5,380 4,808
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Ingka Holding B.V. Annual report for financial year 2016
18. FINANCIAL INCOME AND EXPENSE
The financial income and expense can be broken down as follows:
2016 2015
Interest income 285 339 Interest expense (355) (355) Revaluation gain/(loss) (108) (196) Currency gain/(loss) 302 540 Share in profit associates 10 (35) Result on sale of subsidiaries 731 - Other financial income/(expense) 4 6 Total 869 299
Interest income includes accrued interest for the financial year relating to financial assets. Interest expense relates to accrued interest for financial liabilities and net accruals on derivatives used to hedge internal funding (refer to note 21 – interest rate risk). Revaluation gains and losses represent the fair value development of securities and derivatives. Currency gains and losses show the result of managing the currency rate risk on commercial flows and other currency translation in the Group (refer to note 21 – exchange rate risk). The ineffective portion of the macro cash flow hedge program is included in currency gains and losses. Share in profit of associates represents the share in the result of investments in participating interests (refer to note 6 – financial fixed assets).
Result on sale of subsidiaries includes the result on the Transaction of EUR 714 million (refer to note 23 - discontinued operations).
19. INCOME TAXES
Deferred income tax assets are mainly related to timing differences, primarily in connection with the valuation of pension provisions and depreciation. Deferred tax assets arising from tax loss carry- forwards are only recognised if recovery is reasonably certain. Of this amount, EUR 151 million (2015: EUR 143 million) is expected to be used for set-off within one year.
The Group has unrecognised tax loss carry forwards available related to losses incurred in several countries approximating EUR 698 million (2015: EUR 1,027 million). No deferred tax asset has been recognised for these tax loss carry forwards due to uncertainty with respect to availability of taxable profits in the future within the limitations imposed in enacted tax legislation in order to utilise the tax losses.
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Ingka Holding B.V. Annual report for financial year 2016
The movements in deferred tax assets are set out below:
2016 2015
Opening balance 476 461 Currency translation (2) 3 Acquisitions - 51 Additions 170 136 Utilised (98) (126) Released (27) (49) Disposals (32) - Divestment (75) - Closing balance 412 476
Deferred taxation is provided, using the liability method, for all timing differences between tax and financial reporting, principally regarding depreciation costs. Provisions are substantially long-term in nature.
The movements in deferred tax liabilities are set out below:
2016 2015
Opening balance 760 562 Currency translation 1 2 Acquisitions 4 288 Additions 230 28 Utilised (123) (93) Released (1) (27) Divestment (97) - Closing balance 774 760
Of the movements in deferred tax, EUR 24 million impacted equity directly as per August 31, 2016 (2015: EUR 22 million) relating to actuarial remeasurements relating to the defined benefit pension obligation.
The major components of current income tax expense are as follows:
2016 2015
Current income tax: Current income tax charge 1,055 888 Previous year’s adjustments 19 (11) Deferred tax: Origination and change in temporary differences 84 (55) Total tax expense 1,158 822
Capital gain tax on the Transaction amounting to EUR 57 million is recorded as income tax expense.
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Ingka Holding B.V. Annual report for financial year 2016
The reconciliation between the effective tax rate and the tax rate applicable to the consolidated financial statements is as follows (in %):
2016 2015
Applicable tax rate 25.0 25.0 Different tax rates outside the Netherlands 1.9 0.6 Non-deductible expenses 1.7 1.8 Deduction for risk capital (2.7) (3.9) Tax-exempt income (6.7) (6.4) Utilisation of previously unrecognised tax losses (0.6) (0.2) Unrecoverable losses 1.2 1.5 Other 1.8 0.5 Effective tax rate 21.6 18.9
20. COMMITMENTS AND CONTINGENCIES
As part of the Transaction a contingent consideration has been agreed for the benefit or loss of IKEA Group. The contingent consideration is connected to the result on currency hedging activities for the period September 1 2016, up until August 31,2017. No additional receivable or payable has been accounted for at year-end 2016 as the contingent consideration cannot reliably be estimated.
As part of the Transaction, IKEA Group has provided certain indemnifications and warranties to the buyer in relation to the sold entities, including, but not limited to, corporate information, accounts, guarantees, assets, intellectual property, information technology, contracts and other agreements, employees, legal compliance, environment matters, litigation, insurance, products and taxes. The majority of indemnifications and warranties are capped to an aggregate maximum amount of EUR 1.0 billion. A provision is taken in the balance sheet for these items if the criteria are met as described in the relevant accounting policy around provisions.
In addition to the purchase consideration paid for the acquisition of 51% share in Inter Ikea Centre Group in 2015, there is a contingent consideration in place. The contingent consideration is connected to the rental income in 2018 on certain acquired properties. No additional payable has been accounted for as it is not expected that the contingent consideration will materialise.
As per year-end, the Company and its subsidiaries have agreements to provide services in future years relating to distribution, storage and handling of inventory in distribution centres with third parties. Remuneration is variable and will be determined on a cost-plus basis for most of the agreements.
The commitments can be detailed as follows:
Guarantees
Issued guarantees towards external parties amounted to EUR 60 million at August 31, 2016 (2015: EUR 86 million).
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Ingka Holding B.V. Annual report for financial year 2016
Construction commitments
Commitments for the construction of tangible fixed assets, including investment property, amounted to EUR 736 million at August 31, 2016 (2015: EUR 1,143 million).
Purchase commitments
The Group has entered into purchase agreements without significant commitments, at August 31, 2016 (2015: EUR 8.1 billion). The significant decrease is due to the Transaction.
Legal proceedings
The Company is from time to time involved in legal proceedings in the ordinary course of business. Management believes that no pending litigation to which the Company is a party will have a material adverse effect to the financial position or the results from operations.
Operating leases – Group as lessee
The Company and its subsidiaries have entered into lease and rental agreements for various periods. Future minimum rental payable under non-cancellable operating leases as at August 31 is as follows:
2016 2015
Within one year 70 61 After one year but no more than five years 151 133 More than five years 377 365 Total 598 559
Total lease payments of EUR 75 million (2015: EUR 69 million) are recorded in the income statement.
21. FINANCIAL RISK MANAGEMENT
General The use of financial instruments is closely related to the commercial flows and the cash flows of the business. Treasury operations are centralised and executed according to the Policy, Standard & Rules for Investment and Treasury as set by the Board.
Interest rate risk The Company has the policy to limit interest rate risk exposure on assets held by Treasury companies. These companies manage interest rate risk by limiting interest duration to a maximum of three years on financial assets and liabilities
The assets mainly consist of a securities portfolio, which has a fixed interest rate profile as result of which the Company runs a fair value risk due to changing market rates of interest. Group Treasury is actively monitoring the interest rate risk regarding the securities portfolio and enters into interest rate derivatives with the objective to limit interest duration. No hedge accounting is applied to the securities portfolio and the related interest rate derivatives.
Treasury companies receive fixed interest rates on internal funding provided to Group entities. The fair value risk which is considered in those internal funding positions is swapped with external
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Ingka Holding B.V. Annual report for financial year 2016 banks. No hedge accounting is applied to those derivatives and positions. Fair value movements of those derivatives are reported through the income statement.
Sensitivity analysis Interest rate
2016 +1% (1%)
Impact on Total financial income (204) 210
The sensitivity analysis relates to the securities portfolio and derivatives for which no hedge accounting is applied as described above.
Credit risk The Company manages its credit risks on individual counterparties. Counterparty limits are based on credit ratings and total aggregated exposure to counterparties. This aggregated exposure includes the position held in securities. The Company’s policy determines that bank accounts are held with investment grade rated financial institutions. Credit risk on all derivative positions is covered using collateral margining process according to CSA agreements in place with all external counterparties.
Liquidity and cash flow risk The Company manages its liquidity and cash flow risk by liquidity planning with the objective to maintain readily available liquid assets equal to a percentage of the Group’s revenues.
Equity price risk In addition to interest bearing securities, the Company holds a portfolio of listed equities, for an amount of EUR 201 million at 31 August 2016 (2015: nil). The Company is exposed to equity price risk, which is the risk that the fair value of equities decreases as a result of changes in the levels of equity indices and the value of individual stocks.
Exchange rate risk The Company is exposed to foreign exchange rate risks arising from purchase and sales transactions as well as holding net positions denominated in foreign currency. The exchange rate risk of the Company is actively managed by using derivative contracts.
At August 31, 2016, the total fair value of the derivatives used to manage exchange rate risk is EUR 113 million negative (2015: EUR 90 million positive). The fair value of these derivatives are part of the derivatives position in note 8 and 15. The remainder of the total fair value in the two notes relates to interest rate derivatives.
The EUR 113 million can be broken down in the following portfolios: 2016 2015
Commercial flows 2017 (13) - Commercial flows 2016 - 15 Internal funding (102) 60 Investment portfolio hedge (14) 15 Currency diversification 16 - Total (113) 90
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Ingka Holding B.V. Annual report for financial year 2016
Sensitivity analysis currency risk
2016 +1% (1%)
Impact on Total financial income and expense (derivative) (in EUR million) 55 (56)
The +1% and (1%) indicate the weakening and strengthening of the euro versus other currencies. The sensitivity analysis relates to all currency derivatives for which no hedge accounting is applied.
Commercial Flows Purchase and sales transactions are denominated in many different currencies. Management evaluates the net future forecasted currency exposure and manages the risk by the use of currency derivatives.
At August 31, 2016, IKEA Group had derivatives in place for 2017 with an underlying value of EUR 234 million (2015: EUR 3.1 billion) to reduce currency risk on commercial flows in the next year of on total EUR 234 million (2015: EUR 3.3 billion). The decrease in derivatives as well as the volume of commercial flows are connected to the Transaction.
In 2016, the hedging reserve as per year-end 2015 of EUR 77 million (gain) has been released into the income statement. During 2016, EUR 67 million (gain) has been added to the hedging reserve for hedging of commercial flows in 2017.
A profit of EUR 3 million is included in the income statement under financial income for the ineffective portion of this hedge program, the loss is partly offset by a loss of EUR 9 million on currency options not part of the hedge accounting calculation and therefore considered as fully ineffective
As a result of the Transaction at year-end, the currency risk on the majority of the commercial flows and the relating hedging activities have been transferred to Inter IKEA Group. As a consequence, the relating hedging reserve of EUR 67 million (gain) has been released into the income statement as part of the result on sale of subsidiaries.
As IKEA Group will purchase the majority of goods in local currency following the Transaction, there is no need for hedging these flows going forward. For currency risk on the remaining commercial flows not sourced in local currency in 2017, hedges are in place but no hedge accounting is applied (loss 2016: EUR 17 million).
Internal Funding and Investment portfolio The exchange rate risk associated with internal funding and securities (investment portfolio) in foreign currency is managed by use of currency derivatives. For existing internal funding and securities in foreign currency, currency derivatives are in place with an underlying amount of negative EUR 8.1 billion (2015: negative EUR 7.5 billion).
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Ingka Holding B.V. Annual report for financial year 2016
The derivatives mainly relate to the following currencies and underlying positions (in EUR million):
Currency Derivative Internal Funding Investment Portfolio USD (3,219) 1,539 1,427 PLN (694) 694 - RUB (560) 538 - JPY (660) 660 - CNY (727) 727 - SEK (382) 390 -
Currency Diversification At year-end 2016 the currency diversification portfolio consists in forward FX contracts in several currencies for a total amount of EUR 2,857 million (2015: EUR 0 million).
22. RELATED PARTIES
Any sales to and purchases from related parties are entered into at arm’s length prices.
23. DISCONTINUED OPERATIONS
In May 2015, IKEA Group signed a letter of intent to sell its product development, supply chain and production companies, being IKEA of Sweden AB, IKEA Supply AG and IKEA Industry Holding B.V. and other connected companies to Inter IKEA Group.
Historically, the product development and supply chain companies were owned and operated by IKEA Group under a non-exclusive assignment from Inter IKEA Group.
Early 2015, Inter IKEA Group informed IKEA Group of its intention to operate the product development and supply chain activities within the Inter IKEA Group. This led to discussions between the parties to sell the relevant IKEA Group companies.
On May 23, 2016, IKEA Group signed a Share Purchase Agreement to sell the companies executing the assignments for product development and supply chain and in addition its production companies. IKEA Group’s production companies were included in the Transaction as production is closely linked to the supply chain and product development. The Transaction was completed on 31 August 2016 and the transfer of ownership was made through sale of shares.
The estimated consideration is EUR 5,211 million of which an amount of EUR 4,547 million was received in cash on August 31, 2016. In addition, IKEA Group received significant strategic benefits, improving the franchisee position of IKEA Group in its markets including e-commerce. The sold product development and supply chain companies were historically operating under a non-exclusive assignment from Inter IKEA Group, which impacted the value of these companies in the Transaction.
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Ingka Holding B.V. Annual report for financial year 2016
The companies sold were part of the Wholesale and Production segment. The total revenues of the companies sold amount to EUR 21,593 million of which EUR 19,625 million relates to Wholesale and EUR 1,968 million to Production.
The gain on sale of the companies sold is as follows: 2016
Pre-tax gain 714 Income tax 63 Net gain 651
The gain on sale includes EUR 61 million gain on recycling of hedging reserves and currency translation reserves through the income statement.
In the consolidated income statement the companies sold are included as follows: 2016
Revenues (from sales outside IKEA Group) 1,844 Revenues (from sales to IKEA Group) 19,749 Revenues (total) 21,593 Expenses (20,392) Operating income 1,201 Financial income and expense (6) Profit before tax 1,195 Income tax (202) Net income relating to companies sold 993
In the consolidated cash flow statement the group of companies sold are included as follows:
2016
Operating cash flows 1,025 Investing cash flows (233) Financing cash flows (581) Net movement in cash 211
Carrying amounts of the assets and liabilities of the group of companies sold per 31 August 2016:
2016
Assets 9,026 Liabilities 4,468 Net assets 4,558
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Ingka Holding B.V. Annual report for financial year 2016
BOARD OF MANAGING BOARD OF SUPERVISORY DIRECTORS DIRECTORS
Leiden, November 29, 2016
P. Agnefjäll (Chairman) L-J. Jarnheimer (Chairman)
A. Davidson T. Bertilsson
L. Delgado
L. Fønss Schrøder
S. Bergfors
J. Kamprad
G. Lindahl
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Ingka Holding B.V. Annual report for financial year 2016
COMPANY BALANCE SHEET before profit appropriation August 31
ASSETS
(in millions of EUR) 2016 2015
Fixed assets Investments in consolidated subsidiaries (2) 38,836 34,814 Total fixed assets 38,836 34,814
Current assets Other receivables from consolidated subsidiaries 29 36 Other receivables 22 20
Total current assets 51 56
TOTAL ASSETS 38,887 34,870
SHAREHOLDER’S EQUITY AND LIABILITIES
(in millions of EUR) 2016 2015
Shareholder’s equity (3) Capital stock 1 1 Additional paid-in capital 51 51 Revaluation reserves 364 464 Other legal reserves 424 386 Other reserves 33,821 30,435 Result for the year 4,200 3,512
Total shareholder’s equity 38,861 34,849
Current liabilities Other payables to consolidated subsidiaries 22 18 Other payables and accrued liabilities 4 3 Total current liabilities 26 21
TOTAL SHAREHOLDER’S EQUITY AND LIABILITIES 38,887 34,870
(See accompanying notes)
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Ingka Holding B.V. Annual report for financial year 2016
COMPANY INCOME STATEMENT Year ended August 31
(in millions of EUR) 2016 2015
Share in net income from consolidated subsidiaries 4,209 3,520 Other results, net of income taxes (9) (8)
Net income 4,200 3,512
(See accompanying notes)
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Ingka Holding B.V. Annual report for financial year 2016
NOTES TO COMPANY FINANCIAL STATEMENTS August 31 (all amounts in EUR million)
1. ACCOUNTING POLICIES
The accounting policies are the same as for the consolidated financial statements. In addition, investments in consolidated subsidiaries are accounted for using the equity method.
The Company presents a condensed Company Income Statement, using the facility of Article 402 of Part 9, Book 2, of the Dutch Civil Code.
2. FINANCIAL FIXED ASSETS - Investments in consolidated subsidiaries
Changes in investments in consolidated subsidiaries are as follows:
2016 2015
Opening balance 34,814 31,538 Foreign currency translation adjustment (15) 8 Capital contributions 1,102 3,724 Share in net income for the year 4,209 3,520 Dividends received (1,101) (4,404) Change in unrealised result derivatives (15) 38 Revaluation other investments held by subsidiaries - 374 IAS19 remeasurement (83) 52 Realisation through income statement (75) (34) Other - (2) Total 38,836 34,814
In accordance with Article 403, Book 2 of the Civil Code of the Netherlands, the Company has guaranteed the liabilities of certain Dutch majority-owned subsidiaries. Separate financial statements of these subsidiaries are therefore not filed at the Trade Register of the Chamber of Commerce. At August 31, 2016, 403-statements has been issued for the following companies: - Ingka Holding Europe B.V. - IKEA Services B.V. - Ingka Holding Scandinavia B.V. - Ingka Holding Overseas B.V. - Ingka Pro Holding B.V.
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Ingka Holding B.V. Annual report for financial year 2016
3. SHAREHOLDER’S EQUITY
The issued and outstanding share capital of the Company is comprised of 726,000 ordinary shares, each with a par value of EUR 1.
Changes in shareholder’s equity for the year ended August 31, 2016 are as follows:
Additional Reva- Other Trans- Share paid in luation legal lation Retained Result for Total Total capital capital reserves reserves reserves earnings the year 2016 2015
Opening balance 1 51 464 386 (370) 30,805 3,512 34,849 31,566 Net income ------4,200 4,200 3,512 Foreign translation - - - - (15) - - (15) 8 Dividend paid ------(666) Hedging reserve - - (15) - - - - (15) 38 Pension reserve - - - - - (83) - (83) 52 Acquisitions ------380 Realisation in - - (81) - 6 - - (75) (41) income statement Transfer - - (4) 38 (13) 3,491 (3,512) - -
Closing balance 1 51 364 424 (392) 34,213 4,200 38,861 34,849
The (other) legal reserves at August 31, 2016 are not available for dividend distributions and represents retained earnings set aside by law in certain countries. The foreign currency translation reserve is used to record exchange differences arising from the translation of the reporting of foreign activities.
4. AUDIT FEES
The audit fees invoiced by Ernst & Young Accountants LLP as Dutch auditor to legal entities within the group in financial year 2016 in connection with the audits of the statutory financial statements of these entities amount to EUR 1.4 million (2015: EUR 1.4 million). Audit related fees invoiced by the auditors to these Dutch legal entities in financial year 2016 amount to EUR 0.3 million (2015: EUR 0.7 million). Non-audit fees invoiced by the auditors to these Dutch legal entities in financial year 2016 amount to EUR 0.3 million (2015: EUR 0.2 million) and no tax fees were invoiced by the auditors (2015: nil).
5. INCOME TAXES
Since October 1, 2004, the Company is part of a fiscal unit with respect to Dutch income tax. This implies that the Company is individually liable for Dutch income Tax of the fiscal unit as a whole. Income taxes are accounted for as if each entity in the fiscal unity would been taxable for its own results.
6. COMMITMENTS AND CONTINGENCIES
As part of the Transaction, IKEA Group has provided certain indemnifications and warranties to the buyer in relation to the sold entities, including, but not limited to, corporate information, accounts, guarantees, assets, intellectual property, information technology, contracts and other agreements, employees, legal compliance, environment matters, litigation, insurance, products and taxes. The majority of indemnifications and warranties are capped to an aggregate maximum amount of EUR 1
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Ingka Holding B.V. Annual report for financial year 2016 billion. A provision is taken in the balance sheet for these items if the criteria are met as described in the relevant accounting policy around provisions.
7. EMPLOYEES
The Company has 2 employees as at August 31, 2016 (August 31, 2015: 2).
8. REMUNERATION BOARD OF DIRECTORS
The remuneration of the current and former members of the Company’s board of managing directors includes base salary, long-term incentive plans, employer’s pension commitments and any other periodic contributions as provided by the Company and/or its consolidated subsidiaries. The total compensation to the members of the board of managing directors amounts to EUR 5.4 million for 2016 (2015: EUR 5.2 million). The remuneration of the members of the Company’s board of supervisory directors amounts to EUR 0.9 million for 2016 (2015: EUR 1.1 million). The Company incurred an amount of EUR 0.1 million (2015: EUR 0.2 million) in recurring and non-recurring employer taxes related the remuneration of the board of directors for the 2016.
9. INVESTMENTS
Set forth below are all significant investments of the Company at August 31, 2016. Investments are wholly owned unless otherwise indicated.
Australia IKEA Pty Ltd. Melbourne
Austria IKEA Möbelvertrieb OHG Vienna
Belgium IKEA Belgium N.V. Brussels IKEA Service Centre N.V. Brussels
Canada IKEA Canada Limited Partnership Toronto
China IKEA Beijing Co. Ltd. Beijing IKEA Shanghai Co. Ltd. Shanghai IKEA Shenzhen Co. Ltd. Shenzhen IKEA Chengdu Co. Ltd. Chengdu IKEA Guangzhou Co. Ltd. Guangzhou IKEA IMS Wholesale (Shanghai) Co. Ltd. Shanghai IKEA Centres Beijing Co. Ltd. Beijing
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Ingka Holding B.V. Annual report for financial year 2016
IKEA (China) Investments Co. Ltd. Shanghai
Croatia IKEA Hrvatska d.o.o. Za Trgovinu Zagreb
Czech Republic IKEA Ceská Republika s.r.o. Prague
Denmark IKEA A/S Copenhagen
Finland IKEA Oy Helsinki
France Meubles IKEA France SAS Paris
Germany IKEA Deutschland GmbH & Co KG. Munich IKEA Verwaltungs GmbH Munich
Hungary IKEA Furnishing Kft. Budapest
India IKEA India Pvt Ltd. New Dehli
Ireland IKEA Ireland Ltd Dublin Fami Ltd. Dublin
Italy IKEA Italia Retail S.R.L. Milan
Japan IKEA Japan KK Tokyo
The Netherlands IKEA B.V. Amsterdam IKEA Capital B.V. Leiden IKEA Services B.V. Leiden
Norway IKEA AS Oslo
Poland IKEA Retail Spółka z o.o Warsaw IKEA Centres Polska S.A. Janki
Portugal IKEA Portugal - Móveis e Decoração LDA
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Ingka Holding B.V. Annual report for financial year 2016
Lisbon
Romania IKEA Romania S.R.L. Bucharest
Russia OOO IKEA Torg Moscow OOO IKEA MOS Moscow OOO IKEA DOM Moscow
Slovakia IKEA Bratislava Spol. S.r.o. Bratislava
South Korea IKEA Korea Ltd Seoul
Spain IKEA Ibérica S.A. Madrid IKEA Norte S.L. Barakaldo
Sweden IKEA Svenska Försäljnings AB Helsingborg IKEA Indirect Material & Services AB Älmhult IKEA Services AB Helsingborg IKEA Retail Services AB Helsingborg IKEA IT AB Helsingborg
Switzerland IKEA AG Zürich Ikano Insurance Holding AG (49%) Züg CAPTAR AG Spreitenbach
United Kingdom IKEA Ltd London
US IKEA Property, Inc. Wilmington IKEA New York LLC Wilmington IKEA US West, Inc. Wilmington IKEA US East LLC Wilmington
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Ingka Holding B.V. Annual report for financial year 2016
The following affiliated companies, which are included in the consolidated group financial statements of Ingka Holding B.V. are in accordance with § 264b German Commercial Code (“HGB”) relieved of drawing up, auditing and disclosing their financial statements, notes and management reports in line with the regulations on the second paragraph within the third book of the German Commercial Code: - IKEA Holding Deutschland GmbH & Co. KG - IKEA Deutschland GmbH & Co. KG - IKEA Distribution Services GmbH & Co. KG - IKEA Centres Grundbesitz GmbH & Cie KG
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Ingka Holding B.V. Annual report for financial year 2016
BOARD OF MANAGING BOARD OF SUPERVISORY DIRECTORS DIRECTORS
Leiden, November 29, 2016
P. Agnefjäll (Chairman) L-J. Jarnheimer (Chairman)
A. Davidson T. Bertilsson
L. Delgado
L. Fønss Schrøder
S. Bergfors
J. Kamprad
G. Lindahl
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Ingka Holding B.V. Annual report for financial year 2016
OTHER INFORMATION
NET INCOME APPROPRIATION
According to Article 12 of the Company’s statutes, the annual meeting of shareholders will decide on the appropriation of the net income for the year including a transfer to specific reserves as deemed necessary.
Proposed profit appropriation
(in millions of EUR) 2016 2015
Dividend 840 - Additions to reserves 3,360 3,512 Total 4,200 3,512
SUBSEQUENT EVENTS
Retail Parks On September 9, 2016 a letter of intent was signed to sell certain investment property operations. The sale is expected to be executed as per February 2017.
As per year-end 2016, the net assets of the group companies to be sold amount to EUR 0.4 billion (assets of EUR 0.7 billion and liabilities of EUR 0.3 billion), revenues from companies outside of the IKEA Group amount to EUR 0.08 billion and total income before taxation amounts to EUR 0.01 billion.
The consideration for the sale of the activities is to be concluded upon.
Independent auditor’s report
The financial statements have been audited and the independent auditor's report is included on the next two pages.
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Ingka Holding B.V. Annual report for financial year 2016
INDEPENDENT AUDITOR’S REPORT
To: the board of managing directors and shareholder of Ingka Holding B.V.
Report on the financial statements
We have audited the accompanying financial statements for the year ended 31 August 2016 of Ingka Holding B.V., Amsterdam, which comprise the consolidated and company balance sheet as at 31 August 2016, the consolidated and company income statement for the year then ended and the notes, comprising a summary of the accounting policies and other explanatory information.
Management's responsibility Management is responsible for the preparation and fair presentation of these financial statements and for the preparation of the report from the board of managing directors, both in accordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore management is responsible for such internal control as it determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion with respect to the financial statements In our opinion, the financial statements give a true and fair view of the financial position of Ingka Holding B.V. as at 31 August 2016 and of its result for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code.
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Ingka Holding B.V. Annual report for financial year 2016
Report on other legal and regulatory requirements
Pursuant to the legal requirement under Section 2:393 sub 5 at e and f of the Dutch Civil Code, we have no deficiencies to report as a result of our examination whether the report from the board of managing directors, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of this Code, and whether the information as required under Section 2:392 sub 1 at b-h has been annexed. Further we report that the report from the board of managing directors, to the extent we can assess, is consistent with the financial statements as required by Section 2:391 sub 4 of the Dutch Civil Code.
Amsterdam, 29 November 2016
Ernst & Young Accountants LLP
Signed by O.E.D. Jonker
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