Inter IKEA
Holding B.V.
Annual Report
FY17
KUNGSBACKA
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Inter IKEA Holding B.V. Annual Report FY17 Page 2 of 54
Annual Report Table of contents
REPORT FROM THE MANAGEMENT BOARD ............................................................... 3
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET ............................................................................... 11
CONSOLIDATED PROFIT AND LOSS ACCOUNT ............................................................. 12
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME .......................................... 12
CONSOLIDATED CASH FLOW STATEMENT ................................................................... 13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ............................................. 14
COMPANY BALANCE SHEET ....................................................................................... 44
COMPANY PROFIT AND LOSS ACCOUNT ..................................................................... 44
NOTES TO COMPANY FINANCIAL STATEMENTS ............................................................ 45
OTHER INFORMATION
INDEPENDENT AUDITOR’S REPORT ............................................................................ 52
Inter IKEA Holding B.V. Annual Report FY17 Page 3 of 54
REPORT FROM THE MANAGEMENT BOARD
(in millions of EUR, unless otherwise indicated)
The Management Board of Inter IKEA Holding B.V. hereby presents its annual report for the 12-
month period ended 31 August 2017 (FY17).
General
Inter IKEA Holding B.V. (‘the Company’) is the ultimate parent company of the Inter IKEA Group
(‘the Group’). The Company is ultimately owned by Interogo Foundation.
Around the globe, a large number of franchisees operate under the IKEA trademarks. At 31 August
2017, there were 11 franchisees having total retail sales of EUR 38.3 billion, including sales of
services to IKEA customers, and operating 403 stores. Inter IKEA Systems B.V., a subsidiary of
the Company, is the franchisor and owner of the IKEA Concept, including the IKEA trademarks.
Inter IKEA Systems B.V. franchises systems, methods and proven solutions to franchisees
worldwide for the sale of IKEA products under the IKEA trademarks. Inter IKEA Systems B.V. has
the assignment to continuously develop the IKEA Concept and ensure its successful
implementation in existing and new markets. The IKEA Concept rests on a firm foundation of a
low-price offer in home furnishings.
With the franchise business model we can expand the business, keep the concept together and
maintain an entrepreneurial spirit ‒ all with the goal of achieving our vision of creating a better
everyday life for the many people. IKEA franchisees implement the IKEA Concept by marketing
and selling the IKEA product range. With the exception of the IKEA Delft store in the Netherlands,
all IKEA stores operate under franchise agreements with Inter IKEA Systems B.V. Each IKEA
franchisee has the responsibility to run, manage and develop its local business. All IKEA
franchisees are independent from and unrelated to the Group.
The Group is composed of three core businesses: Franchise, Range & Supply and Industry. The
core business Range & Supply is responsible for developing and supplying the global IKEA product
range, based on an assignment from Inter IKEA Systems B.V. From the relationship with the
suppliers, where products get co-designed, to distribution and transport and setting the range for
the IKEA franchisees. Together with other units, Range & Supply is responsible for creating range
and product information.
IKEA Industry is producer of wooden furniture and manufactures wood-based furnishings for
IKEA. IKEA Industry also secures production capacities for growth. The aim of IKEA Industry is to
create outstanding customer value in terms of quality and price.
The Group’s governance is also organised through the three core businesses with the related
control, risk management structures and compliance tailored to their specific business
characteristics. The Group’s governance structure is based on two main considerations: to secure
the growth and development opportunities of the IKEA Brand and the IKEA Concept, and to
guarantee the Group’s independence and ability to maintain a long-term perspective.
The legal structure follows along the lines of governance with separate parent companies for each
of the core businesses. The Company has two main governing bodies: a Management Board and
a Supervisory Board.
Inter IKEA Holding B.V. Annual Report FY17 Page 4 of 54
Financial information
These Financial Statements are the first financial statements covering a full 12-month period.
During 2016, the Company changed the end of its financial year from 31 December to 31 August
with the purpose of aligning to the IKEA business cycle. The comparative figures (referred to as
FY16) therefore cover an 8-month period from 1 January 2016 to 31 August 2016. The profit and
loss account for the current year (referred to as FY17) covers a 12-month period from 1
September 2016 to 31 August 2017. Additionally, the range, supply and production activities were
acquired at 31 August 2016 meaning these activities had no effect on the profit and loss account
in FY16.
Total revenues in FY17 amount to EUR 22.9 billion, mainly generated through sales of finished
goods to IKEA franchisees and through charged franchise fees. The operating expenses are
impacted by the acquisition of the range, supply and production activities as at 31 August 2016.
The recognition of goodwill and intangible assets in the transaction have for the most part been
released to the FY17 profit and loss account, resulting in an additional one-off expense for
Depreciation and amortisation. The Group achieved a net profit of EUR 0.9 billion, being 4% of
the revenues.
The overall movement in the Group’s liquidity was limited as the cash generated by operating
activities after interest and financial charges was mainly used to repay its loans to the non-
controlling shareholder, Interogo Holding AG, and to distribute a dividend to Interogo Holding AG.
The Group monitors its cash position by using a cash flow forecast model to ensure the cash
position is always sufficient to meet the financial obligations towards staff members, creditors,
the tax authorities and other third parties.
The Group’s balance sheet positions as per 31 August 2017 have not changed considerably when
compared to 31 August 2016. The balance sheet has a solvency ratio of 22%.
Risk management and financial instruments
The IKEA vision is to create a better everyday life for the many people. It guides the entire
organisation and the everyday work-life for IKEA co-workers worldwide. Our way of doing
business is based on our culture and values. Risk management plays a crucial role in protecting
the IKEA values and ensuring that the IKEA brand continues to be strong.
As the owner of the IKEA brand, we are strongly committed to being a meaningful and trusted
company whilst recognising our responsibility beyond homes, through the impact of our business
and our role in society, we are accountable towards the people and the planet.
Our risk management approach
A structured and consistent approach to managing risk is key to achieving our objectives. The
goal of risk management of the Group is to continuously protect our brand, people and assets
based on a common methodology. Our risk management approach includes a systematic risk
management process for the organisation to identify and anticipate risks, reduce their likelihood,
Inter IKEA Holding B.V. Annual Report FY17 Page 5 of 54
and mitigate their impact should they materialise, or if possible navigate the risks into
opportunities.
• Our work is based on common sense, honesty, openness, respect and integrity. The IKEA
values promotes the responsibility of everyone to do the right thing. To support and ensure
that the organisation is aligned with these values, the Inter IKEA Group Code of Conduct
helps to guide our co-workers on what is expected of them.
• Our risk management approach provides senior management insights on key business
risks and risk management practices in managing those risks with support from the risk
and compliance function. Key business risks of the core businesses across the Group have
been consolidated into a risk map for the Group. The risks are presented and discussed
with the management of the different core businesses and presented to the Audit
Committee of the Supervisory Board where the risk appetite as well as desired risk-levels
are confirmed.
• The issue & crisis management set up continues to provide the organisation a robust way
of handling issues and crisis. The reporting system alerts management on issues enabling
coordination of efforts to minimise impacts across the organisation. Under the new
constellation of the Group, the issue & crisis management approach has been harmonised
in FY17.
• The Group is covered by a comprehensive insurance program ensuring certain risks are
(partly) transferred to reduce the financial impacts of claims, damages or third party
compensation.
• We take responsibility into ensuring the network of franchisees as well as the operations
in our suppliers are aligned with the group culture and values. We therefore actively review
the operations of our franchisees, as well as our suppliers against IKEA requirements.
Key risks potentially impacting the Group
In the course of achieving our strategic objectives, management pursued opportunities and
undertaken business decisions in a responsible, risk conscious manner. Throughout the financial
year, there has not been any occurrence of risks or uncertainties, which have had a significant
financial impact. Specific measures, in addition to the approach mentioned above, are taken to
reduce the likelihood of a number of key risks occurring and to reduce the impact to an acceptable
level in line with the Group’s risk appetite.
Compliance with the legal and regulatory requirements
Untimely or not responding to changes in the legislative and regulatory environment in the
different countries, could constitute significant risks. The Group constantly monitors changes and
aims for full compliance to applicable laws and regulations, especially on the emerging laws and
legislations around data privacy, as well as legislations on anti-corruption in the countries where
Inter IKEA Group entities and its franchisees are operating. The Group’s risk appetite in this
regard is low, in which we continuously strive for legal and regulatory compliance.
Scarcity and depletion of natural resources
Inter Ikea Group is a resource intensive business with sourcing activities all over the globe.
Depending on the sourcing region and/or commodity, there will always be risks of severe negative
environmental impact due to use of land, or non-sustainable harvesting or production practices.
The Group has high ambitions for a sustainable future in both the resources we deploy as well as
the circumstances of our suppliers in producing IKEA products. The requirements are therefore
Inter IKEA Holding B.V. Annual Report FY17 Page 6 of 54
high, for us and our suppliers. Controls are defined to ensure that all relevant parties adhere to
our strict requirements to meet the Group’s low risk appetite on sustainability matters.
Product quality and safety compliance
Our product design secures sellable products that correspond to the local regulatory requirements
for safety. For Inter IKEA Group and our business partners, product safety and quality are top
priorities. Non-compliance to both quality and safety requirements is therefore a risk which we
take with the highest priority and our risk appetite in this regard is very low. In close cooperation
with our franchisees and suppliers, the Group has clear processes in place to guarantee product
quality and compliance with regulatory requirements in all markets.
Information security and IT for growth
IKEA culture is characterized by openness, honesty and trust. Sharing information is essential for
improving our competitive advantage, securing future growth and ensuring the continuing
business success of IKEA around the world. Information needs to be reliable, protected and
treated with utmost care whilst respecting ethical values. This helps us to create lasting
confidence in the IKEA brand. Considerable programs have been initiated within the Group to
further secure compliance with relevant industry and legal standards whilst improving our IT
infrastructure. The intensity of these programs reflects our low risk appetite in this regard.
Tax
With our worldwide operation, the Group is exposed to the local laws and regulations where we
operate. As a good corporate citizen, in line with the IKEA values, we are committed to be
compliant. In recent years there has been increased attention from both governments and media
on taxation of multinational companies. We have been actively monitoring and addressing these
developments by implementing a Group-wide tax control framework and simplifying the Group
tax structure. The increasing requirements on multinational companies with regard to transfer
pricing and transparency are high on the agenda.
Financial Risks
As of 1 September 2016, the Group supplies IKEA products to the franchisees. The Group has
guaranteed local currency wholesale prices for a large portion of the product range in this financial
year. The resulting foreign currency exchange rate risk is actively managed using derivative
contracts.
Market risk is the risk that changes in market prices, mainly due to interest rates and foreign
exchange rates, will affect the Group’s purchase transactions or the value of its financial
instruments. Market risk exposures are limited since the Group actively uses derivative contracts
and since there are almost no loans taken from external parties.
Credit risk arises principally from the Group’s trade and other receivables. The exposure to credit
risk on sales of IKEA products and on franchise fee receivables are minimal since the majority of
these sales are settled through frequent invoicing and fixed payments schedules.
The Group monitors its cash position by using a cash flow forecast model. This model considers
the maturity of its assets and liabilities and the projected cash flows from the operation with the
aim to maintain a balance between continuity of funding and flexibility through the use of bank
overdrafts and long term loans. This enables management to ensure that the cash position is
sufficient to meet the financial obligations towards creditors and other third parties.
Inter IKEA Holding B.V. Annual Report FY17 Page 7 of 54
The Group interest rate risk is limited given the fact that nearly all interest bearing loans have a
fixed interest rate. The Group risk appetite towards financial risk is low.
Financial and non-financial performance indicators
The development of revenues is directly linked to the sales of all IKEA franchisees worldwide since
these sales lead the Group’s wholesale activities and form the base for the franchise revenues.
Worldwide IKEA sales in FY17 increased by 4% compared to the same period in the previous year.
It should be noted that due to the inclusion of the range, supply and production activities in the
Profit and loss account starting FY17, there is little benefit for comparison to the FY16 profit and
loss account.
Social responsibility
Social responsibility is anchored within the strategy of the Group and forms an integrated part of
our business. We strive to create shared value between ourselves and our primary stakeholders:
franchisees, co-workers, customers, suppliers and society as a whole. Our businesses and way of
doing business are guided by the IKEA values, culture and our roots in Småland, Southern
Sweden. Together they drive us to make the best possible use of the limited resources available.
In addition, our values are built around principles for behaviour, both within the Group and
towards business partners and other stakeholders.
We have a long-term perspective on our business. Profitability and responsibility are not opposing
forces, on the contrary, they are interdependent. We can only ensure long-term profitability by
acting in a way that creates trust among all stakeholders.
The Group’s supplier code of conduct IWAY – the IKEA way on purchasing products, materials
and services – was first introduced in 2000. IWAY specifies the requirements that we place on
suppliers of products and services and details what they can expect in return from IKEA. In
addition to the main document, there are several industry-specific supplements and a special
code of conduct for child labour. IKEA suppliers are responsible for communicating the content of
the IKEA Supplier code of conduct to their employees and sub-suppliers and ensuring that all
required measures are implemented at their own operations.
Co-workers
With the base of IKEA values and leadership, together with compensation and benefits, the IKEA
co-workers are provided with a safe working environment. The Inter IKEA Group code of conduct
applies to all co-workers within the Group and can be found on our website.
A key element in the HR policy is the training of our co-workers. Learning and know-how have
been key focus areas over many years. Today, new learning platforms, online and offline,
accessible to all IKEA franchisees, remain a vital area for development. We are introducing new
training solutions with the objective to meet current and future expectations of our co-workers
and customers.
Inter IKEA Holding B.V. Annual Report FY17 Page 8 of 54
Information on male/female ratio
The Group’s Management Board and Supervisory Board members are 100% male. Diversity and
inclusiveness are actively pursued within the Group, resulting in persons with different
backgrounds, nationalities and gender holding management positions within the Group. We
believe the current male/female ratio throughout the Group is sufficient to achieve a balanced
leadership.
Sustainability
The IKEA Sustainability Direction provides a common framework for all trademark users to
develop and integrate sustainability strategies and tactics into their own business plans, but gives
flexibility for local, market relevant approaches and solutions.
All IKEA franchisees now are able to categorise their sustainability work into the three same
change drivers:
1. Inspire and enable millions of customers to live a more sustainable life at home by
developing and promoting products and solutions that help customers save or generate
energy, reduce or sort waste, use less or recycle water, at the lowest possible price.
2. Strive for resource and energy independence by securing long-term access to sustainable
raw materials, having a positive impact on the communities where we source materials
and using resources within the limits of the planet, and through producing as much
renewable energy as the energy we consume and driving energy efficiency throughout our
value chain.
3. Take a lead in creating a better life for the people and communities impacted by our
business. Further extend our code of conduct throughout our value chain; be a good
neighbour, support human rights and act in the best interest of children.
The Group will now begin to strengthen the sustainability direction across all three change drivers,
and in doing so will evaluate how and where to set future minimum requirements on all IKEA
trademark users. This will support a more uniform approach regardless of operating company and
geographic location.
Environmental issues
No material environmental issues occurred during FY17. Especially within Core Business Industry,
much attention is given to compliance with environmental regulations through regular equipment
verification and condition checks, and through active air emission monitoring and documentation.
Research and development
The IKEA Concept rests on a firm foundation: a low-price offer in home furnishing products. As
the franchisor, Inter IKEA Systems B.V. is continuously developing the IKEA Concept to ensure
its implementation remains successful in new and existing markets, and the company works to
meet consumer needs in life at home as well as new opportunities and challenges that arise from
the world around us. Developments include the review and re-establishment of different areas of
the IKEA Concept to align multichannel retailing and which allow us to remain forward-looking in
Inter IKEA Holding B.V. Annual Report FY17 Page 9 of 54
areas such as Brand Development, Sustainability, People and Environment, Social Media and
Market Potential & Expansion. Planned projects range from repositioning in certain markets to
automating our goods flow and further digitalisation of the IKEA catalogue.
Range has the responsibility to develop, design and produce home furnishing solutions available
to everyday home furnishing needs. The foundation of all product development is the idea that
even with a thin wallet people should still be able to create a beautiful home with functional, safe
and healthy products. The products are designed in accordance with the principles of democratic
design, meeting requirements on form, function, quality, sustainability and low price. Each year
approximately 2,000 new articles are introduced.
The Company expects to continue its research and development activities, as well as investing in
strategic development projects, material and techniques, range and production capacity. To meet
the needs of today’s customers, multichannel retailing is an essential focus area impacting our
total value chain.
Outlook for financial year FY18
We expect retail sales growth by our franchisees in FY18, building on the development of FY17.
The expected growth directly contributes to our franchise fee and wholesale revenue for FY18.
The Company expects to finance its investments primarily from its own funds and not enter into
external funding.
Since the FY17 operating expenses are impacted downward by the amortisation of goodwill and
intangible assets due to the acquisition of the range, supply and production activities as at 31
August 2016, the net profit for FY18 is expected to be higher than in FY17.
During FY18, we will continue to invest in research activities and in the development of our core
businesses Franchise, Range & Supply and Industry. Most importantly, we will continue to invest
in our co-workers who contribute to realising the Group’s goals every day.
Inter IKEA Holding B.V. Annual Report FY17 Page 10 of 54
MANAGEMENT BOARD
Torbjörn Lööf (Chairman)
Anders Gårlin
Martin van Dam
Delft, 5 December 2017
Inter IKEA Holding B.V. Annual Report FY17 Page 11 of 54
CONSOLIDATED BALANCE SHEET
(before profit appropriation, in millions of EUR)
31/08/17 31/08/16
Fixed assets
Intangible fixed assets (5)
8,243 8,932
Tangible fixed assets (6)
1,451 1,336
Financial fixed assets (7)
246
322
Total fixed assets 9,940 10,590
Current assets
Inventories (8)
3,998 4,284
Receivables (9)
4,435 3,783
Cash and cash equivalents (10)
284
302
Total current assets
8,717 8,369
TOTAL ASSETS 18,657 18,959
EQUITY AND LIABILITIES
Group equity (11)
4,194 4,258
Provisions (12)
497
538
Non-current liabilities (14)
7,861 8,601
Current liabilities (15)
6,105 5,562
TOTAL EQUITY AND LIABILITIES 18,657 18,959
(See accompanying notes)
Inter IKEA Holding B.V. Annual Report FY17 Page 12 of 54
CONSOLIDATED PROFIT AND LOSS ACCOUNT
(in millions of EUR)
31/08/17 31/08/16
Revenues
23,188 2,174
Changes in inventories of finished products -339 0
Other revenues
29 2
Total revenues (18) 22,878 2,176
Cost of raw materials and consumables
18,688 1,292
Cost of outsourced work and other external costs 385 33
Salaries and wages 738 54
Social charges 170 9
Pension expenses
91 7
Depreciation and amortisation 860 147
Other operating expenses 650 83
Total operating expenses (19) 21,582 1,625
Operating result 1,296 551
Financial income
289 15
Financial expense 432 237
Financial income and expense (20) -143 -222
Income before taxes 1,153 329
Income tax (21)
241 71
Net result 912 258
(See accompanying notes)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions of EUR)
31/08/17 31/08/16
Net result
912 258
Change in unrealised derivatives
65 0
Remeasurement pension provisions
-2 -4
Translation differences on foreign operations
-10 -1
Other
-29 0
Total comprehensive income 936 253
Inter IKEA Holding B.V. Annual Report FY17 Page 13 of 54
CONSOLIDATED CASH FLOW STATEMENT
(in millions of EUR)
31/08/17 31/08/16
Operating result
1,296 551
Adjusted for:
- Depreciation/amortisation
860 147
- Other value adjustments
9 -1
- Changes in provisions -41 0
- Changes in financial fixed assets -69 0
- Changes in working capital -668 -29
Cash flow from business operations
1,387 668
Interest received 9 16
Interest paid
-413 -254
Income tax paid
-306 -116
Cash flow from operating activities
677 314
Investments in:
- Intangible fixed assets
-16 -19
- Tangible fixed assets -280 -13
- Acquisition of group companies
-25 267
Cash flow from investing activities -321 235
Issuance of debt
-6 0
Repayment of debt
57 0
Repayment of borrowings -864 -32
Take-up of long-term debt 166 0
Take-up of short-term debt
1,269 0
Dividend paid
-1,000 -242
Cash flows from financing activities -378 -274
Net cash flow
-22 275
Exchange rate and translation differences on cash
4 0
Changes in cash and cash equivalents
-18 275
Cash and cash equivalents at beginning
302 27
Cash and cash equivalents at end 284 302
Net movement in cash -18 275
Inter IKEA Holding B.V. Annual Report FY17 Page 14 of 54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. CORPORATE INFORMATION
Inter IKEA Holding B.V. (‘the Company’), was incorporated on 30 September 1992, is registered
in Delft (Chamber of Commerce registration number 802707543) and has its corporate seat at
Olof Palmestraat 1 in Delft. Inter IKEA Holding BV is the ultimate parent of a group of companies
that together form the Inter IKEA Group.
The Company has issued class A and class B shares. The class A shares are held by Interogo
Foundation, giving Interogo Foundation control over the Company. Class B shares are held by
Interogo Holding AG.
The operation of Inter IKEA Group is organised in three core businesses; Franchise, Range &
Supply and Industry. The main activities of the group of which the Company is the parent, consist
of the following:
- IKEA Franchising: Inter IKEA Systems B.V. is the franchisor and the owner of the IKEA
Concept, including the IKEA trademarks. Inter IKEA Systems B.V. franchises systems,
methods and proven solutions to franchisees worldwide for the sale of IKEA products under
the IKEA trademarks.
- IKEA Range & Supply is responsible for developing and supplying the Global IKEA range.
This means IKEA Rang & Supply works with the value chain end to end from supplier to
customer.
- IKEA Industry is the largest producer of wooden furniture in the world and manufactures
wood-based furniture for IKEA customers. IKEA Industry secures production capacities
for growth.
These financial statements cover the financial reporting period for the financial year 2017. During
the year 2016, the Company has changed the end of its financial year from 31 December to 31
August. By changing its financial year, it is now in line with the IKEA business cycle. The financial
statements 2016 cover the 8 months period from 1 January 2016 to 31 August 2016 and therefore
the profit and loss account is non-comparable to the current period. In case of the profit and loss
account, related information “2016” means 1 January 2016 up to and including 31 August 2016
and “2017” means 1 September 2016 up to and including 31 August 2017.
2. BASIS OF PREPARATION
Both the company financial statements and the consolidated financial statements have been
prepared in accordance with Title 9, Book 2 of the Netherlands Civil Code.
The accounting policies applied for measuring assets and liabilities and the determination of result
are based on the historical cost convention, unless otherwise stated in the further principles.
The Company’s financial information is included in the consolidated financial statements. For this
reason, in accordance with Section 402, Book 2 of the Dutch Civil Code, the Company’s separate
profit and loss account exclusively states the share of the result of participating interests after
tax and the company result after tax.
The financial statements have been prepared on the basis of the going concern assumption.
Inter IKEA Holding B.V. Annual Report FY17 Page 15 of 54
The financial statements are presented in euros, which is also the Company’s functional currency.
All financial information in euros has been rounded to the nearest million.
The figures for 2016 have been adjusted in order to make them comparable to current year’s
presentation. These adjustments relate to the provisional accounting for the acquisition of the
range, supply and industry activities and are disclosed in note 4.
3. SIGNIFICANT ACCOUNTING POLICIES
General
Assets and liabilities are measured at nominal value, unless otherwise stated in the further
principles.
An asset is recognised in the balance sheet when it is probable that the expected future economic
benefits, that are attributable to the asset, will flow to the entity and the cost of the asset can be
measured reliably. A liability is recognised in the balance sheet when it is expected to result in an
outflow of resources embodying economic benefits and the amount of the obligation can be
measured reliably.
An asset or liability that is recognised in the balance sheet, remains on the balance sheet if a
transaction (with respect to the asset or liability) does not lead to a major change in the economic
reality with respect to the asset or liability. An asset or liability is no longer recognised in the
balance sheet when a transaction results in all or substantially all rights to economic benefits and
all or substantially all of the risks related to the asset or liability being transferred to a third party.
Income is recognised in the profit and loss account when an increase in future economic potential
related to an increase in an asset or a decrease of a liability has arisen, the size of which can be
measured reliably. Expenses are recognised when a decrease in the economic potential related
to a decrease in an asset or an increase of a liability has arisen, the size of which can be measured
with sufficient reliability.
Revenue and expenses are allocated to the period to which they relate. Revenues are recognised
when the company has transferred the significant risks and rewards of ownership of the goods to
the buyer.
Assumptions and estimates
The preparation of the financial statements requires management to form opinions and to make
estimates and assumptions that have an impact on the application of principles and the reported
values of assets and liabilities and of income and expenditure. Actual results may differ from
these estimates. The estimates and the underlying assumptions are constantly assessed.
Revisions of estimates are recognised in the period in which the estimate is revised and in future
periods for which the revision has consequences.
The following accounting policies are in the opinion of management the most critical for the
purpose of presenting the financial position and require estimates and assumptions.
• The useful life of fixed assets;
• Obsolesence of stock;
• Impairments;
Inter IKEA Holding B.V. Annual Report FY17 Page 16 of 54
• Provisions; and
• Taxation.
Refer to the accounting policies of the respective balance sheet items for details on the
assumptions made.
Basis of consolidation
The consolidated financial statements include the financial data of The Company, its subsidiaries
in the group, other group companies and other companies over which The Company can exercise
control or of which it conducts the central management. Subsidiaries are participating interests
in which The Company (and/or one or more of its subsidiaries) can exercise more than half of the
voting rights in the general meeting, or can appoint or dismiss more than half of the managing
directors or supervisory directors. Group companies are participating interests in which the
company has a majority interest, or in which it can exercise decisive influence (control) by other
means. In assessing whether controlling interest exists, potential voting rights are taken into
account that can be exercised in such a way that they will provide the company with more or less
influence.
The consolidated financial statements are prepared by applying uniform accounting policies for
measurement and determination of result of the group.
For an overview of all subsidiaries included in the Group, reference is made to the listing of
subsidiaries that has been filed by the Company at the Chamber of Commerce.
Newly acquired participating interests are consolidated as from the date that decisive influence
(control) can be exercised. Participating interests disposed of remain included in the consolidation
until the date of loss of this influence.
In the consolidated financial statements, intra-group shareholdings, debts, receivables and
transactions are eliminated. Also, the results on transactions between group companies are
eliminated to the extent that the results are not realised through transactions with third parties
outside the group. For a transaction whereby the company has a less than 100% interest in the
selling group company, the elimination from the group result is allocated pro rata to the minority
interest based on the interest of the minority in the selling group company.
Translation of foreign currencies
Each entity in the Group determines its own functional currency; 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 applying on the date of transaction. Monetary balance sheet items denominated in foreign
currencies are translated at the functional exchange rates applying on the balance sheet date.
Exchange differences resulting from the settlement of monetary items, or resulting from the
translation of monetary items denominated in foreign currency, are recognised in the profit and
loss account in the period in which they arise, except for exchange differences on monetary items
that are part of a net investment in a foreign operation.
Non-monetary assets and liabilities denominated in foreign currency that are measured at
historical cost, are translated into euros at the functional exchange rates applying on the
transaction date.
Inter IKEA Holding B.V. Annual Report FY17 Page 17 of 54
The assets and liabilities that are part of the net investment in a foreign operation are translated
into euros at the exchange rate prevailing on the balance sheet date.
The income and expenses of such a foreign operation are translated into euros at the average
exchange rate for the year. Currency translation differences are recognised in the translation
reserve within equity.
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 intention is to settle the assets and liabilities on a net basis or simultaneously.
Financial instruments
Financial instruments include trade and other receivables, cash, loans and other financing
commitments, trade payables and other amounts payable. These financial statements contain the
following financial instruments: financial instruments held for trading (financial assets and
liabilities), loans granted and other liabilities, other financial liabilities and derivatives.
Financial and non-financial contracts may contain terms and conditions that meet the definition
of derivative financial instruments. Such an agreement is separated from the host contract if its
economic characteristics and risks are not closely related to those of the host contract, a separate
instrument with the same terms and conditions as the embedded derivative would meet the
definition of a derivative, and the combined instrument is not measured at fair value with changes
in fair value recognised in the profit and loss account.
Financial instruments embedded in contracts that are not separated from the host contract are
recognised in accordance with the host contract.
Derivatives separated from the host contract are, in accordance with the measurement policy for
derivatives for which no cost price hedge accounting is applied, measured at cost or lower fair
value.
A financial asset or a financial liability is recognised in the balance sheet when the contractual
rights or obligations in respect of that instrument arise.
A financial instrument is no longer recognised in the balance sheet when there is a transaction
that results in a transfer to a third party of all or substantially all of the rights to economic benefits
and all or substantially all of the risks related to the position.
A purchase or sale according to standard market conventions is, by class of financial assets and
financial liabilities, systematically recognised or derecognised in the balance sheet on the
settlement date (date of transfer).
Financial instruments, including the derivative financial instruments separated from the host
contracts, are recognised initially at fair value, including discounts/premium and any directly
attributable transaction costs. If instruments are not subsequently measured at fair value with
value changes recognised in the profit and loss account, any directly attributable transaction costs
are included to the initial measurement.
Inter IKEA Holding B.V. Annual Report FY17 Page 18 of 54
Fair value
The fair value of a financial instrument is the amount for which an asset can be sold or a liability
settled, involving parties who are well informed regarding the matter, willing to enter into a
transaction and are independent from each other.
• The fair value of listed financial instruments is determined on the basis of the exit price.
• The fair value of non-listed financial instruments is determined by discounting the
expected cash flows to their present value, applying a discount rate that is equal to the
current risk-free market interest rate for the remaining term, plus credit and liquidity
surcharges.
• The fair value of derivatives involving the exchange of collateral is determined without
the credit or liquidity surcharges since this risk is mitigated by the collateral exchange.
Derivatives and hedge accounting
Derivatives are stated at fair value with recognition of all changes in value in the profit and loss
account, except where hedge accounting is used to hedge the variability of future cash flows that
affect the profit and loss account (cash flow hedge accounting).
Derivatives are initially recognised at fair value on the date on which a derivative contract is
entered into and are subsequently re-measured to their fair value.
Fair values are obtained from
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, unless the possibility to offset exists, then the values will be
netted per counterparty. 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 group are subject to currency risk. As part of its treasury activities
certain derivatives are designated 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.
If cash flow hedge accounting is used, the effective portion of the fair value changes of the
derivatives is initially recognised in other comprehensive income. As soon as the expected future
transactions lead to the recognition of gains or losses in the profit and loss account, the respective
amounts are transferred from other comprehensive income to the profit and loss account. The
net result of these gains and losses is recognised as financial income and expenses. If a hedged
position in respect of an expected future transaction leads to the recognition in the balance sheet
of a non-financial asset or a non-financial liability, the company adjust the cost of this asset by
the hedging results. This is done through a transfer from other comprehensive income of the
results that have been deferred in this reserve until such time.
If a derivative no longer meets the conditions for hedge accounting, expires or is sold, or if the
company has decided to no longer apply hedge accounting, the hedging relationship is terminated.
The gains or losses recognised at the time of the termination of the hedging relationship remain
in equity until the expected future transaction takes place. If the transaction is no longer expected
to take place, the deferred gain or loss on the hedge recognised in equity is taken to the profit
and loss account.
The Company uses generic hedge accounting documentation, documenting the specific hedge
relationships in the dedicated treasury management system business solutions and regularly
Inter IKEA Holding B.V. Annual Report FY17 Page 19 of 54
assesses the effectiveness of the hedging relationships by establishing whether the hedge is
effective or that there is no over-hedging.
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.
Inter IKEA Group also documents its assessment, both at hedge inception and on an ongoing
basis, of whether the derivatives that are used in hedging transactions are highly effective in
offsetting changes in future cash flows (the hedged items). The effectiveness test is performed
by comparing the critical attributes of the hedging instrument with the hedged item, namely
currency pair, maturity date and notional amount. If there is an over hedge, the related value
based on the lower of cost or fair value is recognised directly in the profit and loss account.
Impairment
Financial assets, e.g. long-term loans receivable, that are measured at (amortised) cost, are
assessed at each reporting date to determine whether there is objective evidence that they are
impaired.
A financial asset is impaired if there is objective evidence of impairment as a result of one or
more events that occurred after the initial recognition of the asset, with negative impact on the
estimated future cash flows of that asset, which can be estimated reliably.
Objective evidence that financial assets are impaired includes default or delinquency by a debtor,
indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status
of borrowers or issuers, indications that a debtor or issuer is approaching bankruptcy, or the
disappearance of an active market for a security.
The entity considers evidence of impairment for financial assets measured at amortised cost both
individually and on a portfolio basis. All individually significant assets are assessed individually for
impairment. Those individually significant assets found not to be individually impaired and assets
that are not individually significant are then collectively assessed for impairment by grouping
together assets with similar risk characteristics.
In assessing collective impairment, the company uses historical trends of the probability of
default, the timing of collections and the amount of loss incurred, adjusted for management’s
judgement as to whether current economic and credit conditions are such that the actual losses
are likely to be greater or lesser than suggested by historical trends.
A previously recognised impairment loss is reversed if the decrease of the impairment can be
related objectively to an event occurring after the impairment was recognised. The reversal is
limited to at most the amount required to measure the asset at its original amortised cost at the
date of reversal had the impairment not been recognised.
An impairment loss in respect of a financial asset stated at amortised cost is calculated as the
difference between its carrying amount and the present value of the estimated future cash flows
discounted at the asset’s original effective interest rate.
Losses are recognised in the profit and loss account and reflected in an allowance account against
loans and receivables or investment securities held to maturity. Interest on the impaired asset
Inter IKEA Holding B.V. Annual Report FY17 Page 20 of 54
continues to be recognised by using the asset's original effective interest rate.
Trade and other receivables
Receivables are short-term in nature, initially measured at fair value and subsequently at
amortized costs (except for derivatives) less allowance for uncollectible amounts.
Financial liabilities
Financial liabilities are recognised initially at fair value, which includes directly attributable
transactions costs, and subsequently carried at amortised cost.
If there is a transfer of a financial asset that does not qualify for derecognition in the balance
sheet, the transferred asset and the associated liability are not offset.
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 flow
to the Company; and
• the cost of the asset can be measured reliably.
Costs relating to intangible fixed assets not meeting the criteria for capitalisation are immediately
recognised in the profit and loss account.
Intangible fixed assets are carried at the lower of cost of acquisition or production net of
accumulated amortisation and recoverable amount (being the higher of value in use and fair value
less costs to sell). Intangible fixed assets are amortised on a straight-line basis over their
expected useful economic lives.
Proprietary Rights
The Proprietary Rights include the IKEA trademark, protection rights, intellectual property rights
and the rights to the IKEA catalogue.
The IKEA trademark and concept have shown strong income and cash flow performance over the
last decades. We have the intent and ability to support the IKEA brand and concept with
marketplace spending for the foreseeable future. We therefore believe that the Proprietary Rights
have an indefinite life. However, applicable Dutch accounting principles require us to amortise
these Proprietary Rights based on expected economic life. Determining an expected life of the
Proprietary Rights requires management assessment and is based on a number of factors,
including: expected usage of the IKEA brand and concept, development of our market share,
expectations on market development, consumer awareness and anticipated future expansion.
Based on these factors, the economic life is set at 45 years.
At the end of each financial year, the recoverable amount of the Proprietary Rights is assessed
for impairment, even if there is no indication of impairment. The accounting principles for the
recognition of an impairment are included under the section ‘Impairment of fixed assets’.
Goodwill
Goodwill represents the excess of the cost of the acquisition of the participating interest (including
transaction costs directly related to the acquisition) over the company’s interest in the net
realisable value of the assets acquired and the liabilities assumed of the acquired entity, less
Inter IKEA Holding B.V. Annual Report FY17 Page 21 of 54
cumulative amortisation and impairment losses. Internally generated goodwill is not capitalised.
Goodwill paid upon the acquisition of foreign group companies and subsidiaries is translated at
the exchange rates at the date of acquisition.
The expected useful life for Goodwil related to transaction in which the legal entities that hold the
range, supply and production activities transferred to Inter IKEA Holding B.V. is determined at 1
year.
Reacquired rights
Reacquired rights relate to the following:
• the Company has granted IKEA of Sweden AB the right to develop products and establish
the IKEA product range,
• the Company has granted IKEA Supply AG a purchase agreement.
These rights have been reacquired during the transaction in which the entitities performing the
range, supply and prduction activities were acquired by Inter IKEA Holding B.V.
The remaining useful life for the reacquired rights has been determined during the transaction: 5
years for IKEA of Sweden AB and 1 year for IKEA Supply AG.
Software in development
Externally developed software is capitalised on the balance sheet and depreciated over a term of
3 years.
Tangible fixed assets
Land and buildings, machinery and equipment, contruction in progress and other assets are stated
at cost less accumulated depreciation and impairment losses. The cost comprises the price of
acquisition or manufacture, plus other costs that are necessary to bring the assets to their location
and in condition for their intended use. Expenditure is only capitalised when it extends the useful
life of the asset. Costs of major rebuilding, repairs or maintenance are recognised as part of the
cost, when incurred and if the recognition criteria are met, using the component approach. All
other repair and maintenance costs are charged directly to the profit and loss account.
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives
of each item of the tangible fixed assets. Land and prepayments on tangible fixed assets are not
depreciated. Depreciation starts as soon as the asset is available for its intended use, and ends
at decommissioning or divestment.
The following depreciation periods (in years) are applied:
• Land and Buildings: 0-25
• Machinery and equipment: 3-15
Financial fixed assets
Long-term loans 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, less impairment losses.
Deferred tax assets
The valuation of deferred tax assets is explained under the heading ‘Corporate income tax’.
Inter IKEA Holding B.V. Annual Report FY17 Page 22 of 54
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. The
recoverable amount is the higher of value in use and net realisable value. If it is not possible to
assess the recoverable amount for an individual asset, the recoverable amount is assessed of the
cash flow generating unit to which the asset belongs.
When the carrying amount of an asset or cash-generating unit (CGU) exceeds its recoverable
amount, an impairment loss is recognised for the difference between the carrying amount and
the recoverable amount. Any residual loss is allocated to the other assets of the unit pro rata to
their book values.
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. In case of an impairment loss of a cash flow generating unit,
the loss is first allocated to goodwill that has been allocated to the cash flow generating unit. Any
remaining loss is allocated to the other assets of the unit in proportion to their carrying values.
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
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 profit and loss account.
An impairment loss for goodwill is not reversed in a subsequent period.
Contrary to what is stated above, on each balance sheet date the recoverable value is determined,
regardless of whether there are indications of impairment, for intangible fixed assets that are
amortised over a useful life of more than 20 years (counting from the moment of initial use).
Inventories
Inventories mainly comprise of finished goods and are measured at the lower of cost (first-in,
first-out basis) and net realisable value. Cost includes the expenses for acquisition or
manufacture, plus other expenditure to bring the inventories to their present location and
condition. Net realisable value is based on the most reliable estimate of the amount the
inventories will generate at the most, less costs still to make.
Valuation of inventory is calculated
based on the FIFO method which assumes that the goods purchased first, are the first goods to
be sold.
Cost includes the purchase price and expenditures incurred in acquiring the inventories and
bringing them to their existing location and condition. The valuation of inventories includes
possible write-offs that arise on the balance sheet date.
Other receivables
The accounting policies applied for the valuation of other receivables are disclosed under the
Inter IKEA Holding B.V. Annual Report FY17 Page 23 of 54
heading ‘Financial instruments’.
Cash and cash equivalents
Cash and cash equivalents are defined as cash on hand, deposits and short-term, highly liquid
investments readily convertible to predetermined amounts of cash and subject to insignificant
risk of changes in value. Cash and cash equivalents are stated at nominal value. If cash and cash
equivalents are not readily available, this is taken into account in the measurement.
Cash and cash equivalents denominated in foreign currencies are translated at the balance sheet
date in the functional currency at the exchange rate ruling at that date. Reference is made to the
accounting policies for foreign currencies.
Shareholders’ equity
Financial instruments that are designated as equity instruments by virtue of the economic reality
are presented under shareholders’ equity. Payments to holders of these instruments are deducted
from the shareholders’ equity as part of the profit distribution.
Financial instruments that are designated as a financial liability by virtue of the economic reality
are presented under liabilities. Interest, dividends, income and expenditure with respect to these
financial instruments are recognised in the profit and loss as financial income or expense.
Translation reserve
Exchange gains and losses arising from the translation of the functional currency of foreign
operations to the reporting currency of the parent are accounted for in this statutory reserve. In
the case of the sale of a participating interest, the associated accumulated exchange differences
are taken to other reserves.
Provisions
A provision is recognised if the Group:
- has a legal or constructive obligation arising from a past event,
- it is probable that the Company will have to settle the obligation
- and the amount of the liability can be estimated reliably.
If all or part of the payments that are necessary to settle a provision are likely to be fully or
partially compensated by a third party upon settlement of the provision, then the compensation
amount is presented separately as an asset.
Provisions are stated at the nominal value of the best estimate of the expenditures that are
expected to be required to settle the liabilities and losses concerned at 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.
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. Accounting policy RJ 271 “Employee Benefits” offers
the possibility to apply IFRS EU standards relating to the accounting treatment of pensions (IAS
19R “Employee Benefits”) in financial statements that have been prepared in accordance with
Inter IKEA Holding B.V. Annual Report FY17 Page 24 of 54
Part 9, Book 2 of the Dutch Civil Code. This makes the IFRS standard for pension obligations a
factual part of the Dutch guidelines (RJ 271.101). The Company applies IAS 19 to all post-
employment benefits.
Defined contribution plans
The contributions related to defined contribution plans are charged to the Profit and loss account
in the period to which these contributions relate.
Defined benefit plans
The net obligations in respect of defined benefit plans are calculated separately for each plan by
estimating the amount of future benefit that employees have earned in the current and prior
periods, discounting that amount and deducting the fair value of any plan assets. Defined benefit
plan pension commitments are calculated annually by a qualified actuary in accordance with the
projected unit credit method. Under this method, the present value of pension commitments is
determined and is discounted using the market rate of interest on high-quality corporate bonds
with lifetimes that corresponds to the Group’s pension obligations.
Re-measurements, 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 through other comprehensive
income in equity (retained earnings). Re-measurements are not reclassified to profit or loss in
subsequent periods.
Past service costs are recognised in profit or loss 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.
Provision for claims, disputes and lawsuits
The provision represents the best estimate of the amount for which the claim can be settled,
including the costs of litigation.
Provision for deferred tax liabilities
The valuation of deferred tax liabilities is explained under the heading ‘Corporate income tax’.
Non-current liabilities
The valuation of non-current liabilities is explained under the heading ‘Financial instruments’.
Corporate income tax
Corporate income tax comprises the current and deferred corporate income tax payable and
deductible for the reporting period. Corporate income tax is recognised in the profit and loss
account except to the extent that it relates to items recognised directly to equity, in which case
it is recognised in equity, or to a business combination.
Current tax comprises the expected tax payable or receivable on the taxable profit or loss for the
financial year, calculated using tax rates enacted or substantively enacted at the reporting date,
and any adjustment to the tax payable in respect of previous years.
The measurement of deferred tax liabilities and deferred tax assets is based on the tax
Inter IKEA Holding B.V. Annual Report FY17 Page 25 of 54
consequences following from the manner in which the company expects, at the balance sheet
date, to realise or settle its assets, provisions, debts and accrued liabilities.
If the carrying amounts of assets and liabilities for financial reporting differ from their tax bases,
these are temporary differences.
For taxable temporary differences, a provision for deferred tax liabilities is recognised. For
deductible temporary differences, available tax losses and unused tax credits, a deferred tax asset
is recognised, but only to the extent that it is probable that future taxable profits will be available
for set-off or compensation. Deferred tax assets are reviewed at each reporting date and reduced
to the extent that it is no longer probable that the related tax benefit will be realised.
For taxable temporary differences relating to group companies, foreign branches, associates and
joint ventures, a deferred tax liability is recognised, unless the company is able to control the
timing of the reversal of the temporary difference and it is probable that the temporary difference
will not reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at nominal value.
Leasing
Assessing whether an agreement contains a lease, is based on the substance at the inception
date of the agreement. An agreement is regarded as a lease if its fulfilment depends on the use
of a specific asset, or on whether the lease contains the right of use of a specific asset. The Group
may enter into financial and operating leases. A lease contract where the risks and rewards
associated with ownership of the leased property are transferred substantially all to the lessee, is
referred to as a financial lease. All other leases are classified as operating leases. In classifying
leases, the economic reality of the transaction is decisive rather than its legal form.
For FY 17, the Group did not have any financial leases.
If the company acts as lessee in an operating lease, the leased property is not capitalised. Benefits
received as an incentive to enter into an agreement are recognised as a reduction of rental
expense over the lease term. Lease payments and benefits regarding operating leases are
recognised to the profit and loss account on a straight-line basis over the lease term, unless
another systematic basis is more representative of the time pattern of the benefits from the use
of the leased asset.
Revenue
Revenue is recognised for the amounts received by the company on its own account. Amounts
received by the company on behalf of third parties are not recognised as revenue.
When the group acts in a transaction in the capacity of an agent rather than of a principal, the
revenue recognised in the profit and loss account is the net amount of commission received by
the group in respect of the transaction.
Sale of goods
Revenue from the sale of goods is accounted for in net turnover at the fair value of the
consideration received or receivable, net of returns and allowances, trade discounts and volume
rebates. Revenue from the sale of goods is recognised in the profit and loss account when the
significant risks and rewards of ownership have been transferred to the buyer, the amount of the
Inter IKEA Holding B.V. Annual Report FY17 Page 26 of 54
revenue can be determined reliably, recovery of consideration is probable, the associated costs
and possible return of goods can be estimated reliably, and there is no continuing involvement
with the goods.
Franchise fees
Franchise fees are received for the use of the assets of a company, such as trademarks, patents
and software. Revenue is recognised when the amount of the consideration receivable can be
determined reliably and recovery is probable.
Revenue from franchise fees is based upon the franchise fee percentage over the actual sales
income of the franchisees over the reporting period.
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 the recognition
of a provision are met.
Employee benefits
Employee benefits are charged to the profit and loss account in the period in which the employee
services are rendered and, to the extent not already paid, as a liability on the balance sheet. If
the amount already paid exceeds the benefits owed, the excess is recognised as a current asset
to the extent that there will be a reimbursement by the employees or a reduction in future
payments by the company.
For benefits with accumulating rights and bonuses, the projected costs are taken into account
during the employment. At balance sheet date, a liability is recognised for this purpose. The
recognised liability reflects the best estimate of the expenditure necessary to settle the obligation.
The best estimate is based on contractual agreements with employees (collective agreement and
individual employment contract). Additions to and reversals of liabilities are charged or credited
to the profit and loss account.
If a benefit is paid in case of non-accumulating rights (e.g., continued payment in case of sickness
or disability), the projected costs are recognised in the period in which such benefit is payable.
For existing commitments at the balance sheet date to continue the payment of benefits (including
termination benefits) to employees who are expected to be unable to perform work wholly or
partly due to sickness or disability in the future, a provision is recognised.
The recognised liability relates to the best estimate of the expenditure necessary to settle the
obligation at the balance sheet date. The best estimate is based on contractual agreements with
employees (collective agreement and individual employment contract). Additions to and reversals
of liabilities are charged or credited to the profit and loss account.
The liability for benefits during employment is measured at nominal value of the expenditure
expected to be required to settle the obligation.
The Company prepares its financial statements for pensions and 'post retirement benefits' on
IFRS standards instead of RJ 271.3, by using RJ 271.101. For foreign pension plans that are not
comparable in design and functioning to the Dutch pension system, a best estimate is made of
the liability as at balance sheet date.
Inter IKEA Holding B.V. Annual Report FY17 Page 27 of 54
If, on the basis of the contractual conditions, there is an obligation at the balance sheet date and
it is probable that an outflow of resources will be required and the amount thereof can be
estimated reliably, a provision is recognised. Refer to the accounting policies of ‘Provisions’ for
the pension provisions.
Software and other development costs
Software and other development costs are in general not capitalised, but recognised directly into
the profit and loss account. Each project is analysed separately to determine whether the costs
should be capitalised or recognised directly into the profit and loss account.
Financial income
Financial income is recognised in the period to which it belongs, taking into account the effective
interest of the related asset.
Financial expenses
Financial expenses and similar expenses are recognised in the period to which they belong.
Cash flow statement
The Statement of Cash Flows is prepared using the indirect method. Cash flows in foreign currency
are translated into euros using the average rates. Currency translation differences on cash and
cash equivalents (if any) are presented separately in the statement of cash flows.
Cash flows from derivative financial instruments that are accounted for as fair value hedges or
cash flow hedges, are classified in the same category as the cash flows from the hedged balance
sheet items. Cash flows from derivative financial instruments whereby hedge accounting is no
longer applied, are classified in accordance with the nature of the instrument, from the date at
which hedge accounting is ended.
Related parties and related party transactions
Transactions with related parties are assumed when a relationship exists between the company
and an natural person or entity that is affiliated with the company. This includes, amongst others,
the relationship between the company and its subsidiaries, shareholders, directors and key
management personnel. Transactions are transfers of resources, services or obligations,
regardless whether anything has been charged.
Subsequent events
Events that provide further information on the actual situation at the balance sheet date and that
appear before the financial statements are prepared, are recognised in the financial statements.
Events that provide further information on the actual situation at the balance sheet date and that
appear after the financial statements have been prepared but before the adoption of the financial
statements, are recognised in the financial statements only if it is essential for the true and fair
view.
Events that appear after the financial statements have been adopted are not recognised in the
financial statements. If it appears that the financial statements do not provide a true and fair
view as a result of these events, the events are reported without delay to the shareholders and a
notice is deposited at the office of the Chamber of Commerce.
Inter IKEA Holding B.V. Annual Report FY17 Page 28 of 54
Events that provide no further information on the actual situation at the balance sheet date are
not recognised in the financial statements.
4. ACQUISITIONS
A business combination is a transaction whereby the acquirer obtains control over the assets and
liabilities and the activities of the acquired party.
Business combinations are accounted for using the 'purchase accounting' method on the date that
control is transferred to the group (the acquisition date). The transaction price is the cash
consideration or equivalent thereof agreed as part of the acquisition, or the fair value at the
acquisition date of other consideration transferred. Transaction costs that are directly attributable to
the business combination are also included in the transaction price. In case of deferred payment of
the consideration, the transaction price is the discounted value of the consideration.
The group recognises the identifiable assets and liabilities of the acquiree at the acquisition-date.
These assets and liabilities are recognised individually at their fair values, provided that it is probable
that future economic benefits will flow to the group (assets) or settlement will result in an outflow of
resources embodying economic benefits (liabilities), and the cost or fair value of it can be measured
with reliability.
Refer to the accounting policy under the heading Intangible fixed assets for the recognition of positive
or negative goodwill resulting from a business combination.
An agreed possible adjustment to the purchase price that is contingent on future events is included
in the purchase price if the adjustment is probable and the amount can be measured reliably. Such
an adjustment will also result in an adjustment to (positive or negative) goodwill with retrospective
effect.
As per 30 June 2017 the Company acquired 100% of the shares of the Bring SCM AB business,
an entity to which the food supply chain management had been outsourced to. The total
consideration amounted to EUR 25 million, not generating any goodwill. Since no goodwill is
acquired, we have allocated the consideration to the assets and liabilities based on the values at
acquisition date. Management can make adjustments to the above for 12 months after the
transaction date. Adjustments to the acquisition accounting during the ‘measurement period’ reflects
additional information about facts and circumstances that existed at the acquisition date. As per 31
August 2017, none are expected.
A Better IKEA
As a result from the acquisition of the range, supply and production activities from INGKA Holding
B.V. as per 31 August 2016, we have adjusted the accounting during the measurement period of
twelve months as described. Based on these accounting adjustments we have restated the opening
balances for these items. Please refer to the table below.
Inter IKEA Holding B.V. Annual Report FY17 Page 29 of 54
Restatements 2017
Intangible fixed assets 8,880 52 8,932
Tangible fixed assets 1,346 -10 1,336
Financial fixed assets 364 -42 322
Receivables 3,634 149 3,783
Provisions 530 8 538
Current liabilities 5,421 141 5,562
Financial Statements
Adjustments
Financial statements
Closing balance
2016
Adjusted opening balance
5. INTANGIBLE FIXED ASSETS
Movements in intangible fixed assets were as follows:
Proprietary
rights
Reacquired
rights
Goodwill
Software in
dev.
Total
Balance as at 1 September 2016:
Purchase price
9,000 588
183
94 9,865
Accumulated amortisation and impairment
-933 0
0 0 -933
Carrying amount 8,067
588
183
94 8,932
Changes in carrying amount:
Additions
0
0
0
16 16
Amortisation -200 -285 -189 -32 -706
Other 0 -5 6 0 1
Balance 7,867 298 0 78 8,243
Balance as at 31 August 2017:
Purchase price 9,000 583 189 111 9,883
Accumulated amortisation and impairment
-1,133
-285 -189
-33
-1,640
Carrying amount closing
7,867 298 0
78 8,243
Estimated useful life (years)
45 1/5 3
The opening balance for Goodwill has been adjusted, refer to note 4, A Better IKEA.
At the end of each financial year, the recoverable amount of the intangible assets that 'are not
yet into use and are amortised over a useful life of more than twenty years' is assessed for
impairment, even if there is no indication of impairment. The accounting principles for the
recognition of an impairment are included under the section Impairments.
Proprietary Rights
End of 2011 the Proprietary Rights were acquired for a consideration of EUR 9,000 million. These
Rights include the IKEA trademark, protection rights, intellectual property rights and the rights to
the IKEA catalogue. As at 31 August 2017, there was no need for an impairment.
Reacquired rights
These rights have been reacquired during the transaction in which the entitities performing the
range, supply and production activities were acquired by Inter IKEA Holding B.V.
The remaining useful life for the reacquired rights has been determined during the transaction: 5
years for IKEA of Sweden AB and 1 year for IKEA Supply AG.
Inter IKEA Holding B.V. Annual Report FY17 Page 30 of 54
Goodwill
On 31 August 2016, Inter IKEA Holding B.V. and Ingka Holding B.V. closed a transaction in which
the entitities performing the range, supply and production activities were acquired by Inter IKEA
Holding B.V. This transaction generated a goodwill of EUR 183 million. Next to the goodwill
originating from this acquisition, goodwill holds the related acquisition costs and goodwill from a
small acquisition.
Software in development
Software in development costs charged to the profit and loss account amount to EUR 40 million,
including amortisation of capitalised costs of development EUR 32 million.
6. TANGIBLE FIXED ASSETS
Movement in tangible fixed assets were as follows:
Land
and
buildings
Mach.
and
equip.
Constr.
in
progress
Other and
idle
assets
Total
Balance as at 1 September 2016:
Purchase price
639 571 184 28
1,422
Accumulated depreciation and impairment
-59 -11
0 -16 -86
Carrying amount 580 560
184
12 1,336
Changes in carrying amount:
Investments 80 55 137 8 280
Disposals -3 -6 -1 0 -10
Transfers 94 52 -157 17 6
Depreciation -42 -109 0 -11 -162
Reversal of impairments 0 8 0 0 8
Other 16 -29 -1 7 -7
Balance 725 531 162 33 1,451
Balance as at 31 August 2017:
Purchase price 826 643 162 60 1,691
Accumulated depreciation and impairment
-101 -112 0 -27 -240
Carrying amount
725 531 162
33 1,451
Estimated useful life (years) 25 3-15
The opening balance for tangible fixed assets has been adjusted, refer to note 4, A Better IKEA.
Tangible fixed assets carried at cost do not include capitalised interest charges.
Tangible fixed assets include an amount of EUR 16 million (2016: EUR 28 million), which is
pledged for debts to credit institutions.
Inter IKEA Holding B.V. Annual Report FY17 Page 31 of 54
7. FINANCIAL FIXED ASSETS
Movements in financial fixed assets were as follows:
LT loans
receivable
Deferred
tax
asset
Total
Balance as at 1 September 2016:
Cost price 108 214 322
Carrying amount 108 214 322
Changes in carrying amount:
Additions 0 51 51
New loans 6 0 6
Repayments -57 0 -57
Netting 0 -69 -69
Other 3 -10 -7
Balance -48 -28 -76
Balance as at 31 August 2017
Cost price 60 186 246
Carrying amount 60 186 246
The opening balance for LT loans receivable has been adjusted, refer to note 4, A Better IKEA.
The long term loans receivable mainly encompass supplier financing (EUR 56 million), this amount
includes a provision of EUR 38 milllion. The current part of the long term loans receivable has
been accounted for under Receivables.
The deferred tax assets relate to the recognised unused tax loss carry-forwards (EUR 13 million)
and deductible temporary differences (EUR 173 million). It is expected that EUR 3.7 million of the
deferred tax assets will be offset within one year.
The tax loss carry-forward that has not been recognised amounts to EUR 193 million.
8. INVENTORIES
31/08/17 31/08/16
Raw materials 217 143
Work in progress 50 53
Finished goods
3,731 4,088
Total 3,998 4,284
The provision for obsolescence amounts to EUR 142 million (2016: EUR 181 million). The realisable
value of stock is equal or above book value of stock. No other movements than the release of the
provision are applicable during the year.
Inter IKEA Holding B.V. Annual Report FY17 Page 32 of 54
9. RECEIVABLES
31/08/17 31/08/16
Trade receivables 2,872 2,774
Current portion of long-term loans receivable 70 451
Income tax receivable 12 17
Indirect tax receivable 170 167
Receivable on related parties 800 0
Derivative assets 229 149
Prepayments and accrued income 126 166
Other receivables 156 59
Total 4,435 3,783
The opening balance for Other receivables has been adjusted, refer to note 4, A Better IKEA.
The trade receivables are all due within one year.
31/08/17 31/08/16
Trade debtors 2,874 2,776
Provision for bad debt -2 -2
Trade debtors, less allowance 2,872
2,774
Receivables related parties are mainly related to Inter Finance SA (EUR 328 million) and Interogo
Holding AG (EUR 459 million). All transactions have occurred at an arm's length basis.
The Prepaid expenses and accrued income balance and the Accrued liabilities and deferred income
balance at 31 August 2017 include a amount receivable related to the fair value of derivatives (netted
where offsetting is allowed). These derivatives hedge 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 20.
10. CASH AND CASH EQUIVALENTS
The total balance is available without restrictions to the Company except for EUR 92 million
guarantees mainly relating to the Portuguese authorities in case of environmental claims not covered
by the insurance company.
11. GROUP EQUITY
For details on shareholders’ equity, refer to note 5 in the Company financial statements.
Inter IKEA Holding B.V. Annual Report FY17 Page 33 of 54
12. PROVISIONS
Movements in provisions can be specified as follows:
Deferred
tax liability
Pension
Tax
expenses
Other Total
Balance as at 1 September 2016: 162 305 50 21 538
Provisions made during the year 52 49 1 3 105
Provisions reversed during the year -59 0 0 -11 -70
Netting -69 0 0 0 -69
Other -5 1 2 -5 -7
Balance as at 31 August 2017 81 355 53 8 497
The opening balance for Other has been adjusted, refer to note 4, A Better IKEA.
The main components within the provision for deferred tax liabilities are EUR 26 million related
to inventories, and EUR 20 million related to tangible fixed assets.
The largest part of the deferred tax liabilities will mature after one year. The part of the deferred
tax liabilities that will be utilized within one year, amounts to around EUR 26 million.
For details on the provision for pensions commitments refer to note 13.
The provision for tax expenses relates to estimated future tax expenses where for some reason
it is difficult to assess the time of payment or the amount.
Other mainly relates to a provision for claims, disputes and lawsuits and a jubilee provisions. The
provision in respect of claims, disputes and lawsuits relates to disputes involving the company
and/or its group companies. Although the outcome of these disputes cannot be predicted with
certainty, it is expected, partly based on legal advice, that the disputes will probably not have a
material negative effect on the consolidated financial position.
13. PENSION AND OTHER POST-EMPLOYMENT BENEFITS
31/08/17 31/08/16
Defined benefit obligation - funded plans 161 140
Defined benefit obligation - unfunded plans 320 286
Less: Fair value on plan assets -134 -121
Net defined benefit liability 347 305
The Company has a number of defined benefit pension plans, predominantly in Sweden, the
Netherlands and Switzerland.
There are minimum funding requirements applicable for the pension plans in the Netherlands and
Switzerland as set out by local legislation.
Net expense
The following table shows the pension and other post-employment benefits expenses recognised
Inter IKEA Holding B.V. Annual Report FY17 Page 34 of 54
in the profit and loss account.
31/08/17 31/08/16
Company service cost 37 3
Net interest costs 8 0
Total expense 45 3
Liability for defined benefit obligations
The movements in the liability for the net defined benefit obligations are as follows:
31/08/17 31/08/16
Opening balance 305 4
Net expense for the year 45 3
Remeasurement (gain)/loss 11 5
Employer contributions -12 -6
Employer direct benefit payments -2 0
Acquisition 0 299
Closing balance 347 305
Assets and liabilities
The following table shows the changes in benefit obligations and plan assets of the employee
benefit plans.
Projected Fair value
benefit plan
obligation assets
Opening balance
426 121
Company service cost 37 0
Employer contributions
0 12
Changes in financial assumptions -12 0
Changes in experience adjustments
19 0
Other
11 1
Closing balance 481 134
The present value of the defined benefit obligation is detailed as below:
Allocation of plan assets
The major categories of plan assets of the fair value of the total plan assets are, as follows:
31/08/17 31/08/16
Quoted Quoted
Cash and cash equivalents 2 2
Equity instruments 53 42
Debt instruments 70 69
Real estate 8 7
Insurance contracts 1 1
Total 134 121
The plan assets do not include investments in shares, issued debt or property owned by the
Company.
Inter IKEA Holding B.V. Annual Report FY17 Page 35 of 54
Assumptions
The principal weighted-average assumptions used in determining the defined benefit obligations
are shown below:
31/08/17 31/08/16
Discount rate 2.4% 2.2%
Future salary increase rate 3.1% 3.0%
The pre-retirement mortality assumption has been calculated per country, based on generally
accepted mortality tables, such as DUS14 for Sweden and and BVG2015 Generational for
Switzerland.
The average duration of the defined benefit plan obligation at 31 August 2017 is 26 years (2016:
26 years).
The Company expects to contribute EUR 49 million to its defined benefit pension plans in FY18.
Sensitivity analysis
Sensitivity analyses (in- and decrease by 50bp) has been done on both the discount rate and the
salary increase rate, calculating the present value of the defined benefit obligation as at 31 August
2017.
+50 bp -50 bp +50 bp -50 bp
Present value defined benefit obligation 422 548 515 449
Discount rate
Salary increases
14. NON-CURRENT LIABILITIES
Shareholder
Other Total
Principal amount 8,400 201 8,601
Additions
162 4 166
Repayments -500
-204 -704
Exchange rate differences -5 3 -2
From long-term to current portion
-200 0 -200
Closing Balance 7,857
4 7,861
The opening balance for Other has been adjusted, refer to note 4, A Better IKEA.
Of the debts mentioned above, an amount of EUR 6,900 million has a remaining term of more
than 5 years (2016: MEUR 7,600).
The Company is financed, amongst others, by two shareholder loans. On 11 December 2011, the
Proprietary Rights were acquired. The acquisition price was partly financed by a long term loan,
amounting to EUR 5,400 million. This loan will be repaid in 2023. Another loan amounting to EUR
3,000 million relates to the acquisition of the range, supply and production activities. Of the
outstanding amount, EUR 500 million was repaid in 2017 and EUR 200 million will be repaid each
year in September, the balance due will be paid 31 December 2023.
Next to these loans, granted by the non-controlling shareholder Interogo Holding AG, there are
some local currency facilities.
Inter IKEA Holding B.V. Annual Report FY17 Page 36 of 54
The current part of the non-current liabilities has been accounted for under current liabilities.
15. CURRENT LIABILITIES
31/08/17
31/08/16
Current portion of long term debt 200 360
Short-term borrowings
518
626
Accounts payable trade 1,586
1,593
Income taxes payable 88 95
Indirect tax payable 147 130
Payable related parties 2,807 1,487
Payable staff 114 142
Derivatives liabilities 28 50
Bank overdraft 160 0
Accrued liabilities and deferred income 227 225
Other liabilities 230 854
Total 6,105 5,562
Short-term borrowings at different finance institutions bear market interest rates according to local
conditions for currencies involved.
All current liabilities have a residual term within one year.
16. FINANCIAL INSTRUMENTS
General
During the normal course of business, the company uses various financial instruments that expose
it to currency, interest, cash flow, fair value, market, credit and liquidity risks. To control these risks,
the company has instituted a policy including a code of conduct and procedures that are intended to
limit the risks of unpredictable adverse developments in the financial markets and thus for the
financial performance of the company.
The company applies derivatives, including currency options and forward exchange contracts to
control its risks.
Credit risk
Credit risk arises principally from the company loans and receivables presented under financial fixed
assets, trade and other receivables, cash and the positive fair value of derivatives.
The maximum amount of credit risk that the company incurs is EUR 4,681 million, consisting of EUR
246 million financial fixed assets and EUR 4,435 million receivables. The credit risk is is concentrated
to trade receivables for EUR 2.8 billion which mainly consists of 11 franchisees. A long standing
relationship exists with these counterparties, they have always satisfied their obligations to pay.
Furthermore, the Company holds receicavables (EUR 800 million) on related parties.
Credit risk mitigating aspects
For derivatives traded with banking partners, there is a collateral management process where the
net asset or liability value is exchanged in the form of cash collateral with each counterparty. At
year-end 2017, EUR 204 million was received as collateral against the positive value of derivative
contracts, EUR 22 million was delivered as collateral against the negative value of derivative
contracts.
Inter IKEA Holding B.V. Annual Report FY17 Page 37 of 54
Interest rate risk and cash-flow risk
The Company runs an interest rate risk on interest bearing assets and liabilities and on the
refinancing of existing loans. For assets and liabilities with variable interest rate agreements, the
Group runs a risks of future cash flows relating to the interest element. For fixed interest rate loans
the Group runs a fair value risk.
The Group has liabilities and receivables with the following interest rates:
- Receivable on related parties EUR 800 million (floating %);
- Long-term debt to shareholder EUR 5.4 million (6% fixed);
- Long-term debt to shareholder EUR 2.5 million (2,5% fixed); and
- Payable related parties EUR 2.8 million (floating %).
Currency risk
The Company is exposed to currency risk on:
• Franchise fees: the franchise fees are partly earned outside of the Euro zone, where the
Euro is the Company’s reporting currency. As a result from a reporting perspective, the
Company is exposed to the volatility of foreign exchange market. The currency risk run on
the positions is limited, considering the amounts involved and regular settlements
combined.
• Commercial Flows: the Company is exposed to foreign exchange rate risks arising from
purchase and sales of goods, freight and indirect materials and services transactions
(‘commercial flows’). The currencies in which these transactions primarily are denominated
are PLN and USD. The Company’s exchange rate risk is actively managed by using
derivatives contracts.
At year-end 2017, the total net fair value of the derivatives used to manage exchange risk is EUR
201 million positive (2016: EUR 98 million positive).
Hedge accounting is applied with the impact of effective hedging taken to other comprehensive
income (EUR 127 million gain) and the impact of results of derivatives which did not meet the
hedging criteria and are therefor directly reported in the profit and loss account (EUR 19 million
gain).
The strategy to mitigate the currency risk is centralised and managed by the separate Treasury
function within the Group, which is responsible for mitigating the Group’s financial risks. Based
on the forecasted business plan, the Treasury function determines and is responsible for the risk
management strategy. As a consequence, the Company has opted to recognise the realised hedge
results (gains and losses) in financial income and expenses.
In 2017, the currency translation differences recognised in the profit and loss account amounted
to a gain of EUR 279 million (2016: EUR 3 million).
Liquidity Risk
The Company monitors its cash position by using liquidity planning. Management ensures that the
cash position is sufficient to meet the company’s financial obligations towards creditors and to stay
within the limits of its loan covenants.
Inter IKEA Holding B.V. Annual Report FY17 Page 38 of 54
17. COMMITMENTS AND CONTINGENT LIABILITIES
The commitments can be detailed as follows:
Price Adjustment Mechanism Proprietary Rights
On 11 December 2011, Inter IKEA Group has purchased the beneficial interest in the IKEA
Proprietary Rights (PR). The consideration amounted to EUR 9,000 million and was settled in a debt
for EUR 5,400 million and through a share premium contribution of EUR 3,600 million. In the
purchase agreement a price adjustment mechanism has been agreed upon. Until 31 December 2023
this mechanism could lead to an adjustment to the consideration based on the fair value as at that
date. Any adjustment will be settled in debt and equity, consistent with the ratio applied at the time
of the purchase.
In connection to this purchase and the agreed mechanism, Inter IKEA Group has the right to transfer
back the PR against settlement of the loan and equity contribution.
Price Guarantee Period
Inter IKEA Group has guaranteed its wholesale prices to certain franchisees for the period from 1
September 2017 to 31 August 2018 (the "Price Guarantee Period"). Next to that, Inter IKEA Group
will undertake that certain franchisees will be invoiced in a currency of its choice, most often the
official currency of the jurisdiction where the franchisee operates.
Purchase commitments
The Group has entered into purchase agreements with external suppliers for a total value of EUR
6.0 billion at 31 August 2017 (2016: EUR 6.9 billion).
IT Services commitments
Certain companies within the Inter IKEA group have entered into a IT Services Agreement. This
agreement includes both ‘Agreed Services’, such as maintenance, operations and infrastructure and
‘Consultancy Services”. The commitment for the coming years for the Agreed Services amounts to
around EUR 175 million (2016: EUR 236 million).
Distribution Services Commitments
The Group has entered into agreements covering the services for distribution. These agreements
has been entered into for a period of 5 years, in which the Group has committed to using these
services. The commitment for the coming years for the distribution services amounts to around EUR
5.4 billion (2016: EUR 5.8 billion).
Construction commitments
Commitments for the construction of tangible fixed assets amounted to EUR 29 million at 31 August
2017 (2016: EUR 56 million).
Guarantees
Issued guarantees towards external parties amounted to EUR 92 million at 31 August 2017 (2016:
EUR 18 million). These guarantees mainly relate to the Portuguese authorities in case of
environmental claims not covered by the insurance company.
Legal proceedings
The Company is from time to time involved in litigations. Management believes that no pending
litigation to which the Company is a party will have a material adverse effect on the financial position
Inter IKEA Holding B.V. Annual Report FY17 Page 39 of 54
or the results from operations.
Operating leases – Group as lessee
The Company and its subsidiaries have entered into several other lease and rental agreements for
various periods. Future minimum rental payable under non-cancellable operating leases as at 31
August 2017 is as follows:
31/08/17 31/08/16
< 1 year 16
9
1-5 years 26
7
> 5 years 47 9
89
25
Lease payments recognised as an expense in 2017 amount to EUR 38 million.
18. REVENUES
All revenue recognised in 2017 relates to revenue goods, franchise fees and other. The breakdown
of net turnover by revenue categories is as follows:
31/08/17 31/08/16
Sales of Goods
20,778 1,337
Franchise fees
1,156
725
Other 944
114
22,878 2,176
The geographical distribution of revenue is as follows:
31/08/17
Netherlands
4% 4%
Europe
64% 64%
Rest of the world
32% 32%
0% 100%
Comparable 2016 is not shown, since this only related to the Franchise business and is therefore
not comparable.
19. OPERATING EXPENSES
Salaries and wages
During the 2017 financial year, the average number of staff employed with the group, converted
into full-time equivalents, amounted to 27,267 (2016: 1,197). Of this number, 25,922 people (2016:
129 people) were employed outside the Netherlands. This staffing level can be divided into the
following staff categories:
31/08/17 31/08/16
Franchise & Group 1,354 1,197
Industry 18,997 0
Range & Supply 6,916 0
27,267 1,197
Inter IKEA Holding B.V. Annual Report FY17 Page 40 of 54
Depreciation and amortisation
31/08/17 31/08/16
Depreciation:
Land and buildings 42 3
Machines and equipment 101 8
Construction in progress 0 0
Other and idle assets 11 3
154 14
Amortisation:
Proprietary rights 200 133
Reacquired rights 285 0
Goodwill 189 0
Software in construction 32 0
706 133
Total amortisation and depreciation: 860 147
Other operating expenses
The main categories within the other operating expenses are rent, maintenance and utilities (EUR
158 million), other staff expenses (EUR 120 million), product development and communication (EUR
101 million), general administrative expenses (EUR 96 million) and product claims (EUR 60 million).
20. FINANCIAL INCOME AND EXPENSE
The financial income and expense can be broken down as follows:
31/08/17 31/08/16
Interest income 10 1
Results from hedges 279
0
Other financial income 0 14
Total 289 15
Interest expense 433 225
Other financial expense -1 12
Total 432 237
21. INCOME TAXES
The Group has unrecognised tax loss carry forwards available related to losses incurred in several
countries for approximating EUR 193 million (2016: EUR 177 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.
The applicable weighted average tax rate is 21.0% (2016: 21.6%), whereby the weighted average
has been calculated based on the results before taxes in the various tax jurisdictions. The tax
expense recognised in the profit and loss account for 2017 amounts to EUR 241 million, or 21.0%
of the result before tax (2016: 21.6%).
Inter IKEA Holding B.V. Annual Report FY17 Page 41 of 54
The reconciliation between the applicable and the effective tax rate is as follows:
31/08/17 31/08/16
Result before tax 289 82
Income tax using the applicable tax rate in the Netherlands
Tax effect of:
- Other applicable tax rates abroad -119 -11
- Non-deductible expenses 63 0
Adjustment for prior periods 8 0
Tax liability 241 71
In case of an fiscal unity, the companies being part of the fiscal unity are treated for reporting
purposes as if they were independently taxable, including accounting fo deferred taxes.
Corporate income tax is actively addressed by international institutions and local governments
and the taxation of large multinational companies receives continued media attention. The
Company is actively monitoring and addressing these developments and believes that its
corporate income tax position is appropriately reflected in the financial statements.
22. TRANSACTIONS WITH RELATED PARTIES
Related party transactions not on an arm's length basis have not occurred.
Parent company
The company has two loans from its parent company. On 11 December 2011, the Proprietary
Rights were acquired. The acquisition price was partly financed by a long term loan, amounting
to EUR 5,400 million, with an interest rate of 6%. Another loan amounting to EUR 3,000 million
with an interest rate of 2.5% relates to the acquisition of the range, supply and production
activities. Of the outstanding amount, EUR 200 million will be repaid each year in September, the
balance due will be paid 31 December 2023.
The Company paid a dividend of EUR 1 billion to the parent company.
Inter Finance SA
The Company has a liability towards Inter Finance SA. This liability consists of a receivable of EUR
800 million and a liability of EUR 2.8 billion.
Participating interests
As part of its ordinary activities, the companies within the Inter IKEA Group buy and sell goods
and services from and to other Inter IKEA group companies. These transactions are conducted
on a commercial basis under comparable conditions that apply to transactions with third parties.
In 2017, the purchases of goods and services from other Inter IKEA Group companies amounted
to EUR 7.7 billion (2016: EUR 45 million), and the sales of goods and services other Inter IKEA
Group companies amounted to EUR 7.7 billion (2016: EUR 45 million).
Group companies
Since the company excercises influence on the business and financial policy, all companies
belonging to the group are treated as related parties.
Inter IKEA Holding B.V. Annual Report FY17 Page 42 of 54
The remuneration of the managing directors and supervisory directors is included in note 9 of the
Company financial statement.
23. AUDITOR’S FEES
The following fees were charged by KPMG Accountants N.V. to the company, its subsidiaries and
other consolidated companies, as referred to in Section 2:382a(1) and (2) of the Netherlands
Civil Code.
TEUR
KPMG
Accountants
NV
Other
KPMG
Network
Total
KPMG
Audit of financial statements
1,296 1,654 2,950
Other audit engagements 0 180 180
Tax-related advisory services
0 1,390 1,390
Other non-audit services 0 505 505
1,296 3,729 5,025
The fees mentioned in the table for the audit of the financial statements 2017 relate to the total
fees for the audit of the financial statements 2017, irrespective of whether the activities have
been performed during the financial year 2017.
24. SUBSEQUENT EVENTS
There are no subsequent events.
Inter IKEA Holding B.V. Annual Report FY17 Page 43 of 54
MANAGEMENT BOARD SUPERVISORY BOARD
Torbjörn Lööf (Chairman) Anders Dahlvig (Chairman)
Anders Gårlin Søren Hansen
Martin van Dam Mathias Kamprad
Birger Lund
Delft, 5 December 2017
Inter IKEA Holding B.V. Annual Report FY17 Page 44 of 54
COMPANY BALANCE SHEET
31/08/17 31/08/16
Fixed assets
Intangible fixed assets (2)
0 180
Financial fixed assets (3)
7,820 7,899
Total fixed assets 7,820 8,079
Current assets
Receivables (4)
127 1
Total current assets
127 1
TOTAL ASSETS 7,947 8,080
EQUITY AND LIABILITIES
Shareholders' equity
Additional paid in capital
4,764 4,764
Other legal reserves
22 32
Other reserves
-1,504 -796
Result for the year
912 258
Total shareholder's equity (5)
4,194 4,258
Non-current liabilities (6)
2,300 3,042
Current liabilities (7)
1,453 780
TOTAL EQUITY AND LIABILITIES 7,947 8,080
(See accompanying notes)
COMPANY PROFIT AND LOSS ACCOUNT
31/08/17 31/08/16
Share in net income from participating interests
1,105 265
Other results, net of income taxes -193 -7
Net result 912 258
(See accompanying notes)
Inter IKEA Holding B.V. Annual Report FY17 Page 45 of 54
NOTES TO COMPANY FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The principles for the valuation of assets and liabilities and the determination of the result are the
same as those applied to the consolidated financial statements, with the exception of the following
principles:
Financial instruments
In the separate financial statements, financial instruments are presented on the basis of their
legal form.
Participating interests in group companies
Participating interests where significant influence can be exercised over the business and financial
policy are valued according to the equity method on the basis of net asset value. If measurement
at net asset value is not possible because the information required for this cannot be obtained,
the participating interest is measured according to the visible equity.
The net asset value is calculated on the basis of the company’s accounting policies. If the company
transfers an asset or a liability to a participating interest that is measured according to the equity
method, the gain or loss resulting from this transfer is recognised to the extent of the relative
interests of third parties in the participating interest (proportionate determination of result). Any
loss that results from the transfer of current assets or an impairment of fixed assets is fully
recognised. Results on transactions involving transfer of assets and liabilities between the
company and its participating interests and mutually between participating interests are
eliminated to the extent that these cannot be regarded as having been realised.
Participating interests with a negative net asset value are valued at nil. This measurement also
covers any long-term receivables on the participating interests that are, in substance, an
extension of the net investment. In particular, this relates to loans for which settlement is neither
planned nor likely to occur in the foreseeable future. A share in the profits of the participating
interest in subsequent years will only be recognised if and to the extent that the cumulative
unrecognised share of loss has been absorbed. If the company fully or partially guarantees the
debts of the relevant participating interest, or if has the constructive obligation to enable the
participating interest to pay its debts (for its share therein), then a provision is recognised
accordingly to the amount of the estimated payments by the company on behalf of the
participating interest.
Shareholders’ equity
As per year end, the financial instruments that have the legal form of equity, are presented in
the equity of the separate financial statements. Refer to the accounting policies of the group
financial statements for accounting policies applied.
Share of result of participating interests
The share in the result of participating interests concerns the Company’s share in the results of
the participating interests, determined on the basis of the accounting principles of the Group.
If the company transfers an asset or a liability to a participating interest that is measured
Inter IKEA Holding B.V. Annual Report FY17 Page 46 of 54
according to the equity method, the gain or loss resulting from this transfer is recognised to the
extent of the relative interests of third parties in the participating interest (proportionate
determination of result). Any loss that results from the transfer of current assets or an impairment
of fixed assets is fully recognised. Results on transactions involving transfer of assets and
liabilities between the company and its participating interests and mutually between participating
interests are eliminated to the extent that these cannot be regarded as having been realised.
The results of participating interests acquired or sold during the financial year are stated in the
group result from the date of acquisition or until the date of sale respectively.
Corporate Income Tax
All companies within a fiscal unit are treated as independent taxable entities for reporting purposes.
2. INTANGIBLE FIXED ASSETS
The movement in Intangible Fixed Assets is as follows:
Goodwill Total
Balance as at 1 September 2016:
Purchase price
180 180
Carrying amount
180 180
Changes in carrying amount:
Other 6
6
Amortisation -186
-186
Balance 0 0
Balance as at 31 August 2017:
Purchase price 186 186
Accumulated amortization and impairment
-186 -186
Carrying amount closing 0 0
3. FINANCIAL FIXED ASSETS
The movement in Financial Fixed Assets is as follows:
Deferred
tax
asset
Investm.
In part.
Interests
Total
Balance as at 1 September 2016 0
7,899 7,899
Share in result of participating interests 0 1,105 1,105
Dividends received
0 -1,177 -1,177
Other 0 -7 -7
Net book value 0 7,820 7,820
In accordance with article 403, Book 2 of the Dutch Civil Code, the Company has guaranteed the
liabilities of Inter IKEA Systems B.V., Inter IKEA Assets B.V., Inter IKEA Development Holding B.V.
and Inter IKEA Development B.V. Company financial statements of these subsidiaries are therefore
not filed at the Trade Register of the Chamber of Commerce.
Inter IKEA Holding B.V. Annual Report FY17 Page 47 of 54
For an overview of capital interests, reference is made to the listing of subsidiaries that has been
filed by the Company at the Chamber of Commerce.
4. RECEIVABLES
31/08/17 31/08/16
Income tax receivable 2 0
Receivable on participating interests 125 1
Total 127 1
5. SHAREHOLDERS’ EQUITY
Add.
paid-in
capital
Legal
reserves
Transl.
reserves
Retained
earnings
Result of
the year
Total
Balance as at 1 September 2016 4,764
27 5 -796 258 4,258
Changes in financial year 2017:
Appropriation of result 0 0 0 258 -258 0
Net income 0 0 0 0 912 912
Dividend paid 0 0 0 -1,000 0 -1,000
Change in unrealised result derivatives 0 0 0 65 0 65
Remeasurement IAS19 0 0 0 -2 0 -2
Exchange rate differences 0 0 -10 0 0 -10
Other 0 0 0 -29 0 -29
Balance as at 31 August 2017 4,764 27 -5 -1,504 912 4,194
Issued Capital
The Company’s issued and outstanding share capital is comprised of 126 shares, each with a par
value of EUR 1,000. The issued and paid-up share capital consists of 1 share class “A” and 125
shares class “B”.
Additional paid in capital
The Additional paid in capital mainly relates to acquisition of the Proprietary Rights, which has
been partially financed by an Share Premium of EUR 3,600 million, and the additional paid in
capital relating to acquisition of range, supply and production activities.
Translation reserve
The foreign currency translation legal reserve of EUR -5 million relates to investments in
participating interests in various countries.
Retained earnings
The result after tax for 2017 is included in the item Result for the year within equity.
Proposal for profit appropriation
The General Meeting of Shareholders will be asked to approve the following appropriation of the
2017 net income: an amount of EUR 500 million to be paid out as dividend and the remaining
amount of EUR 412 million to be added to the other reserves. The net income for 2017 is included
under unappropriated profit in shareholders’ equity.
Inter IKEA Holding B.V. Annual Report FY17 Page 48 of 54
The Company can only make payments to the shareholders and other parties entitled to the
distributable profit in so far as (1) the Company can continue to pay its outstanding debts after
the distribution (the so-called distribution test), and (2) the shareholders’ equity exceeds the
legal reserves and statutory reserves under the articles of association to be maintained (the so-
called balance sheet test). If not, the Company’s management shall not approve the distribution.
Preliminary tests carried out by management in October 2017 revealed no indications that the
proposed distribution of dividend will not be possible, but these tests have to be finalized (and
management has to approve the distribution) prior to the actual payment of the dividend.
6. NON-CURRENT LIABILITIES
The non-current liabilities consist of the share holder loan related to the acquisition of the range,
supply and production activities. The interest percentage on the loan is 2.5%. Of the original
amount of EUR 3 billion, EUR 500 million has been repaid in 2017. Of the outstanding amount of
EUR 2.5 billion, EUR 200 million will be repaid each year in September, the balance due will be
repaid 31 December 2023.
7. CURRENT LIABILITIES
Current portion of long term debt relates to loans with Inter IKEA Systems B.V. (EUR 500 million,
interest rate: 0.2%), IKEA of Sweden AB (EUR 150 million, interest rate: 0.0%) and the
shareholder loan (EUR 200 million, interest rate 2.5%).
Payable related parties relates to regular cashpool borrowing.
8. OFF BALANCE SHEET ASSETS AND LIABILITIES
Fiscal Unity
The Company forms a fiscal unity for corporate income tax purposes together with Inter IKEA
Systems B.V., Inter IKEA Services B.V., Inter IKEA Developments Holding B.V., Inter IKEA
Development B.V., Inter IKEA Assets B.V., IKEA Industry Holding B.V., IKEA Industry Subholding
I B.V. and IKEA Industry Subholding II B.V. Each of the companies recognises the portion of
corporate income tax that the relevant company would owe as an independent tax payer, taking
into account the tax facilities applicable to the company.
9. REMUNERATION MANAGEMENT AND SUPERVISORY BOARD
The emoluments, including pension costs as referred to in Section 2:383(1) of the Netherlands
Civil Code, charged in the financial year to the company, its subsidiaries and consolidated other
companies amounted to EUR 3.9 million (2016: EUR 2.4 million) for managing directors and
31/08/17 31/08/16
Current portion of long term debt 850 71
Payable related parties 501 382
Other liabilities 102 327
Total 1,453 780
Inter IKEA Holding B.V. Annual Report FY17 Page 49 of 54
former managing directors, and EUR 0.4 million (2016: EUR 0.1 million) for supervisory directors
and former supervisory directors.
Inter IKEA Holding B.V. Annual Report FY17 Page 50 of 54
MANAGEMENT BOARD SUPERVISORY BOARD
Torbjörn Lööf (Chairman) Anders Dahlvig (Chairman)
Anders Gårlin Søren Hansen
Martin van Dam Mathias Kamprad
Birger Lund
Delft, 5 December 2017
Inter IKEA Holding B.V. Annual Report FY17 Page 51 of 54
OTHER INFORMATION
The Company has 125 non-voting shares. These shares do not entitle the holder to voting rights
in the General Meeting, but only entitle the holder to a share in the distributable profits and
reserves.
Moreover, the company has 1 ordinary share that does not give right to a share in the distributable
profits and reserves. However, these shares do entitle the holder to voting rights in the General
Meeting.
Articles of association relating to the allocation of the result
In accordance with its Articles of Association, the Company keeps a Dividend Reserve A and a
Dividend Reserve B. Holders of class A are entitled to Dividend Reserve A and holders of class B
are entitled to Dividend Reserve B. In accordance with Article 4.1.2 of the Articles of Association,
5% of net proft is added to the Dividend Reserves A and the remainder is added to dividend
reserve B. No proposal for dividend distribution has been included in these Financial Statements.
Inter IKEA Holding B.V. Annual Report FY17 Page 52 of 54
INDEPENDENT AUDITOR’S REPORT
To: the General Meeting of Inter IKEA Holding B.V.
Report on the accompanying financial statements
Our opinion
We have audited the financial statements for the year ended on 31 August 2017 of Inter IKEA
Holding B.V., based in Delft.
In our opinion the accompanying financial statements give a true and fair view of the financial
position of Inter IKEA Holding B.V. as at 31 August 2017 and of its result for the year ended on
31 August 2017 in accordance with Part 9 of Book 2 of the Dutch Civil Code.
The financial statements comprise:
1 the consolidated and company balance sheet as at 31 August 2017;
2 the consolidated and company profit and loss account for the year ended on 31 August 2017;
3 the consolidated statement of comprehensive income as at 31 August 2017;
4 the consolidated cash flow statement for the year ended on 31 August 2017; and
5 the notes comprising a summary of the accounting policies and other explanatory information.
Basis for our opinion
We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing.
Our responsibilities under those standards are further described in the ‘Our responsibilities for the
audit of the financial statements’ section of our report.
We are independent of Inter IKEA Holding B.V. in accordance with the ‘Verordening inzake de
onafhankelijkheid van accountants bij assurance-opdrachten’ (ViO, Code of Ethics for Professional
Accountants, a regulation with respect to independence) and other relevant independence
regulations in the Netherlands. Furthermore, we have complied with the ‘Verordening gedrags-
en beroepsregels accountants’ (VGBA, Dutch Code of Ethics).
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Report on the other information included in the annual report
In addition to the financial statements and our auditor’s report thereon, the annual report contains
other information that consists of:
- report from the management board; and
- other information pursuant to Part 9 of Book 2 of the Dutch Civil Code;
Based on the following procedures performed, we conclude that the other information:
- is consistent with the financial statements and does not contain material misstatements;
- contains the information as required by Part 9 of Book 2 of the Dutch Civil Code.
Inter IKEA Holding B.V. Annual Report FY17 Page 53 of 54
We have read the other information. Based on our knowledge and understanding obtained
through our audit of the financial statements or otherwise, we have considered whether the other
information contains material misstatements.
By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the
Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is less than
the scope of those performed in our audit of the financial statements.
The Management Board is responsible for the preparation of the other information, including the
report from the management board, in accordance with Part 9 of Book 2 of the Dutch Civil Code,
and other information pursuant to Part 9 of Book 2 of the Dutch Civil Code.
Description of the responsibilities for the financial statements
Responsibilities of the Management Board and the Supervisory Board for the financial
statements
The Management Board is responsible for the preparation and fair presentation of the financial
statements in accordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore, the
Management Board is responsible for such internal control as the Management Board determines
is necessary to enable the preparation of the financial statements that are free from material
misstatement, whether due to errors or fraud.
As part of the preparation of the financial statements, the Management Board is responsible for
assessing the company’s ability to continue as a going concern. Based on the financial reporting
frameworks mentioned, the Management Board should prepare the financial statements using the
going concern basis of accounting unless the Management Board either intends to liquidate the
Company or to cease operations, or has no realistic alternative but to do so. The Management
Board should disclose events and circumstances that may cast significant doubt on the company’s
ability to continue as a going concern in the financial statements.
The Supervisory Board is responsible for overseeing the company’s financial reporting process.
Our responsibilities for the audit of the financial statements
Our objective is to plan and perform the audit assignment in a manner that allows us to obtain
sufficient and appropriate audit evidence for our opinion.
Our audit has been performed with a high, but not absolute, level of assurance, which means we
may not have detected all material errors and fraud during our audit.
Misstatements can arise from fraud or errors and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of the financial statements. The materiality affects the nature, timing and extent of
our audit procedures and the evaluation of the effect of identified misstatements on our opinion.
We have exercised professional judgement and have maintained professional scepticism
throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and
independence requirements. Our audit included e.g.:
- identifying and assessing the risks of material misstatement of the financial statements,
whether due to errors or fraud, designing and performing audit procedures responsive to those
risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement resulting from fraud is higher than
Inter IKEA Holding B.V. Annual Report FY17 Page 54 of 54
for one resulting from errors, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control;
- obtaining an understanding of internal control relevant to the audit 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 Company’s internal control;
- evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the Management Board;
- concluding on the appropriateness of management’s use of the going concern basis of
accounting and based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Company’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are required
to draw attention in our auditor’s report to the related disclosures in the financial statements
or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on
the audit evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the company ceasing to continue as a going concern;
- evaluating the overall presentation, structure and content of the financial statements,
including the disclosures; and
- evaluating whether the financial statements represents the underlying transactions and events
in a manner that achieves fair presentation.
Because we are ultimately responsible for the opinion, we are also responsible for directing,
supervising and performing the group audit. In this respect we have determined the nature and
extent of the audit procedures to be carried out for group entities. Decisive were the size and/or
the risk profile of the group entities or operations. On this basis, we selected group entities for
which an audit or review had to be carried out on the complete set of financial information or
specific items.
We communicate with the Supervisory Board regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant findings in internal
control that we identify during our audit.
Rotterdam, 5 December 2017
KPMG Accountants N.V.
F.J. van het Kaar RA
