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INGKA HOLDING B.V. Annual Report for Financial Year 2016

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INGKA HOLDING B.V. Annual Report for Financial Year 2016 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 Page 2 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 Page 3 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 Page 4 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
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