Inter IKEA Group Financial Summary FY20 - TheNewsMarket

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Inter IKEA GroupFinancial SummaryFY20

IntroductionThis document summarises Inter IKEA Group’s financial performancefor financial year 2020 (FY20). FY20 is the period from 1 September2019 to 31 August 2020.FY20 has been a challenging year for the IKEA franchise system. Retailsales were strong until February. Then the pandemic hit. During thelockdowns, 75% of IKEA stores closed for seven weeks on average.Despite the closures, many stores continued to fulfil online orders andintroduce new services. By 31 August IKEA websites had welcomed 4billion visits, and online sales grew 45%. FY20 e-commerce accountedfor more than 16% of total retail sales compared to 10% in FY19.IKEA stores re-opened throughout the spring and summer, and manyvisitors returned. In total, IKEA locations welcomed 825 million visits inFY20 compared to 1 billion in FY19. Online sales remained strong evenas stores re-opened.Inter IKEA Group includes the business operations of the IKEAFranchisor, Range, Supply and certain Industry activities.IKEA franchisees purchase products from Inter IKEA Groupcompanies and pay a franchisee fee based on retail sales.Inter IKEA Group itself reached total revenues of EUR 23.6 billion(including wholesale sales to retailers, franchise fees and the retailsales of the IKEA Delft store) and a net profit of EUR 1.7 billion in FY20. 39.6billion retail salesFY20 IKEA retail salesIn-store customer behaviour changed after the lockdowns. In the pastmany visitors came to browse. Today people visit IKEA for targetedpurchases. Conversion rates and average spend have gone up, andimpulse sales have gone down. As a result, IKEA stores sold relativelymore furniture and fewer accessories.This resulted in total IKEA retail sales of EUR 39.6 billion in FY20(including sales of IKEA products, food and services by IKEAfranchisees) compared to EUR 41.3 billion in FY19.1% 3%New stores FY2016%ServicesExisting stores80%4billion websitevisitsOnline825 million store visitsand 12 new stores worldwideFY20 IKEA retail sales per type2 Inter IKEA Group Financial Summary FY20FY20 IKEA retail sales development

The IKEAfranchise systemIKEA is a franchise business. That meansmany people and companies with differentowners work under one IKEA Brand,dedicated to create a better everyday lifefor the many people.The diagram on the next page shows asimplified overview of the franchise system.Inter IKEA Systems B.V., IKEA of Sweden AB,IKEA Supply AG and IKEA Communications ABare part of Inter IKEA Group.Franchising is a system that encourageseveryone to contribute and collaborate. Thefranchisor has responsibility to continuouslydevelop the IKEA Concept and ensure itsimplementation in new and existing markets.Franchisees provide valuable input based onconsumer and market insights.The franchise system enables continuousgrowth, which thereby enables greatereconomies of scale. This makes it possibleto keep prices low.3 Inter IKEA Group Financial Summary FY20Expansion and retaildevelopmentLow prices are more relevant now than everbefore. As a result of the pandemic, peoplehave less disposable income while spendingmore time at home. The IKEA franchisesystem offers functional home furnishingsolutions at affordable prices.This year Inter IKEA Group supported thefranchise system and value chain to recoverquickly after the lockdowns. For example,IKEA suppliers were provided short-termcredits and payments, loan extensions, andother finance solutions. And franchisees weregiven the option to delay payments for IKEAproducts until sales recovered.Together, the companies in the franchisesystem also took measures to support peopleand communities. For example, Inter IKEAGroup commissioned suppliers to producepersonal protective equipment for healthcareworkers. Inter IKEA Group and several IKEAfranchisees also donated money and IKEAproducts to aid recovery efforts.Despite the pandemic, 33 new IKEA locationsopened in FY20. 12 are IKEA stores, whichinclude a Showroom and offer homefurnishings for every area of the home.The remaining 21 are test formats with a limitedproduct range, expanded services or othervariations. As per 31 August, there were 445IKEA stores and more than 60 test formats.Together they welcomed 825 million visitors on60 markets.The test locations provide an opportunity tolearn about how new formats can complementexisting customer meeting points. Based onthese pilots Inter IKEA Systems will evaluate ifand how new platforms can fit into the IKEAchannel mix.Companies in the IKEA franchise system arepiloting and implementing new digital formatsas well, and online sales accounted for morethan 16% of total IKEA retail sales this year. IKEAe-commerce expanded to three new markets inFY20: Ukraine, Morrocco and China – animportant milestone.During FY21, IKEA will expand to new marketslike Mexico and the Philippines. Several newlocations will also open in existing markets.

Overview of the IKEA franchise systemIKEA franchisorIKEA franchiseesFranchise agreementsInter IKEASystems B.V.Ingka Group1 storeDairy Farm32 marketsAssignments4 marketsIKANO Group3 marketsIKEA assignmentsIKEA ofSweden ABIKEACommunicationsABIKEASupply AGMAPAAl-SulaimanSartonAl-FuttaimNorthern BirchAl-HomaiziMiklatorgFalabella3 marketsSupply agreementsMedia agreementsHouse Market3 markets3 markets1 market4 markets4 markets2 markets1 marketThe IKEA Retail business is operated on 60 markets through a franchise system, and this infographicshows a simplified overview thereof. Market information accurate as per 31 August 2020. Fordetailed information please visit inter.ikea.com or about.ikea.com4 Inter IKEA Group Financial Summary FY20

Inter IKEA GroupInter IKEA Holding B.V. is the holdingcompany of the Inter IKEA Group.In September 2020 Inter IKEA Group adjustedits governance structures to better supportthe franchise system. As a result there arethree distinct core businesses: Franchise,Range and Supply.The three core businesses work togetherwith franchisees and suppliers to co-createan even better IKEA offer and franchisesystem. Inter IKEA Group aims to provide thebest possible conditions for implementingand operating the IKEA Concept, and tocreate a strong platform for growth.Inter IKEAHolding B.V.FranchiseInter IKEASystems B.V.RangeIKEA ofSweden AB5 Inter IKEA Group Financial Summary FY20SupplyIKEASupply AGIKEAIndustry ABCore Business FranchiseCore Business Franchise consists of InterIKEA Systems B.V. and its subsidiaries. InterIKEA Systems B.V. is the worldwide IKEAfranchisor and owner of the IKEA Concept.Core Business Franchise continuouslydevelops the IKEA Concept and ensuresits successful implementation in new andexisting markets. This enables IKEA to remainforward-looking in areas such as branddevelopment, sustainability, people andenvironment, market potentialand expansion.Core Business RangeCore Business Range includes IKEA ofSweden AB, IKEA Communications ABand related businesses.

Manufacturingand distributionIn August, Inter IKEA Group completed a100,000 square metre distribution centre inKuala Lampur, Malaysia. It is the third largestIKEA distribution centre in the world and servesIKEA retail operations in Malaysia, Singapore,Thailand, Indonesia and India. It will also servicethe planned store in Manilla, the Philippines,when it opens later this year.This year Inter IKEA Group also leveragedadvancements in digital technologies tofuture-proof manufacturing operations,increase efficiency, reduce costs and supportsustainability. The Manufacturing System ofthe Future program, integrating advancementssuch as automation, connectivity and artificialintelligence, went live in August 2020 inLubawa, Poland.The Inter IKEA Group factory in Hultsfred,Sweden, invested EUR 12 million this year tosupport a circular business model by usingrecycled wood to produce wood-based boardsfor IKEA furniture.During the coming years the Inter IKEA Groupfactory in Zbaszynek, Poland, is planning toinstall 52,000 solar panels. Together they willbring an estimated yearly savings of 15,200tonnes of CO₂. It will be one of the largest solarinstallations in Europe.6 Inter IKEA Group Financial Summary FY20Core Business Range is responsible fordeveloping and designing the overallIKEA product range – including homefurnishings and food. Inter IKEA SystemsB.V. assigns IKEA of Sweden AB to developproducts, product communication andpackaging solutions.IKEA Communications AB is thecommunication agency that createsand produces IKEA communication forOwnershipInter IKEA Group (Inter IKEA Holding B.V. andall its subsidiaries) is ultimately owned byInterogo Foundation, based in Liechtensteinand established in 1989. Interogo HoldingAG is a co-shareholder, contributingcapital and loans to Inter IKEA Group.Interogo Foundation is the sole controllingshareholder in Inter IKEA Holding B.V.IKEA organisations.232Core Business SupplyCore Business Supply includes IKEA SupplyAG, IKEA Industry AB and related businesses.Inter IKEA Systems B.V. assigns IKEA SupplyAG to source and distribute IKEA productsto IKEA franchisees. IKEA Industry AB isa strategic IKEA manufacturer owned byInter IKEA Group.Other functionsTo support the core businesses, Inter IKEAGroup includes group functions for People &Culture, Communication, Digital, Finance andother activities. IKEA Älmhult AB, which ownsand operates the IKEA Hotell and Museum, isalso part of Inter IKEA er functionsFY20 full-time equivalent co-workersper core businessIndustry

Inter IKEA GroupFY20 financial resultsConsolidated income statementin millions of EURFY20FY19Sales of goods22,38723,916Despite the pandemic, Inter IKEA Group achieved a solidfinancial result in FY20.Franchise fees1,1621,195Other income6473When the lockdowns began, Inter IKEA Group revised salesprojections and took several measures to mitigate the negativeconsequences of the pandemic and reduce operational costs.Following the fast and strong recovery of retail sales, Inter IKEAGroup delivered better operating income than projected.Total revenues23,61325,184Cost of goods sold18,86020,633Gross profit4,7534,551Operational cost2,5292,695Total operating ,485After taxes and financial expenses, net income was EUR 1,731 million.The Inter IKEA Group consolidated income statement shows asimplified overview of this year’s financial performance.Sales of goodsSales of goods refers to wholesale sales of IKEA products to IKEAfranchisees. Inter IKEA Group also owns and operates one IKEA storein Delft, the Netherlands. IKEA Delft’s retail sales are also included inthis line item.At the height of the pandemic, more than 350 IKEA stores wereclosed. As a result, sales of goods dropped significantly for severalweeks. Orders were cancelled, and production at both Inter IKEAGroup and IKEA suppliers’ factories stopped.7 Inter IKEA Group Financial Summary FY20Financial income and expenseTotal income before taxesIncome taxesResults from the sale of entitiesNet income

After the lockdowns, sales were significantlyhigher than initial projections. To meet thenew demand, suppliers quickly rampedup production. But the lockdowns werelifted unevenly across the supply chain,hampering logistics. This affected productavailability on various markets.Franchise feesIn a franchise setup, one company paysanother franchise fees for the right to useCost of goods soldCost of goods sold describes the totalaccumulated costs to purchase,manufacture, store and distribute products.IKEA Industry, part of Inter IKEA Group,manufactures about 11% of the IKEA range.Inter IKEA Group sources the remaining 89%from nearly 1,000 external suppliers. Thisincludes both home furnishing and foodproducts.Total costs this year were less than intheir brand, products and intellectualproperty. IKEA franchisees pay Inter IKEAGroup an annual fee of 3% over their netsales. In return, they are authorised tomarket and sell the IKEA product rangeand operate IKEA stores and othersales channels.FY19, mainly as a result of lower purchasevolumes due to the pandemic and lowerprices from IKEA suppliers. However,e-commerce sales continued to createincreased costs for packaging and logisticsin FY20.As retail sales decreased in FY20, franchisefee income decreased accordingly.Decreased raw material prices offset partof the lost sales volume, which resulted in ahigher gross margin percentage.Other incomeOther income mainly consists of incomefrom selling the IKEA catalogue andother marketing materials created forIKEA retailers.8 Inter IKEA Group Financial Summary FY20Range developmentInter IKEA group introduced more than 2000products this year. Some highlights aredescribed below:The urban population is growing, living spacesare shrinking and for many the concept ofhome is no longer a geographical constant.RÅVAROR is a new collection designed forthese realities and consists of items that quicklyturn small spaces into smart spaces with theconvenience and comfort of home. And when itis time to move, it’s simple to pack up, stack theitems together and relocate to your next home.For the first time since the launch in 1985,the much-loved IKEA meatball faces seriouscompetition. HUVUDROLL is made with peaprotein, oats, potatoes, apples and onion, buthas the look, taste and juicy bite of a meatball.And not only that; the climate footprint is amere 4% of its meaty counterpart.BOTANISK is a collection made in collaborationwith 6 social businesses around the world, likeJordan River Foundation, which creates jobsfor Syrian refugees and Jordanian women.Whether you’re a plant swapper, urbangardener, or simply dream of growing a greenthumb, BOTANISK has what it takes to sortyou out. From tool kits and clay pots to largebaskets, this handmade collection doesn’t onlyadd to the fun of indoor potting – it creates jobsin regions where they are most needed.

Operational costs also include expenses to develop new productsand solutions. The costs related to development and innovationportfolios amounted to EUR 267 million in FY20. Charitable donationsare also included in operational costs.9%21%41%In addition, Inter IKEA Group worked closely with retailers to developnew and different ways to shop the IKEA product range – online, inremote locations and in city centres. This included a wider range of29%flexible and affordable services to make shopping more convenientfor IKEA customers.Staff andtravel costBought servicesDepreciation/amortisationOther operatingexpensesFY20 operational cost per categoryOperational costOperational cost includes staff costs, utilities, rent and other costsrelated to day-to-day operations.Staff costs mainly consist of salaries, benefits, training and socialcosts. During FY20, Inter IKEA Group employed 24,771 full-timeequivalent co-workers, compared to 26,227 in FY19. To manage staffcosts during the pandemic, several Inter IKEA Group companiesintroduced recruitment stops.Inter IKEA Group also re-financed pension obligations for co-workersat IKEA of Sweden AB, a subsidiary. This contributed a one-off gain ofEUR 113 million to this year’s total income before taxes. Co-workers’pension terms and conditions were unaffected.9 Inter IKEA Group Financial Summary FY20Financial income and expenseFinancial income and expense is revenue and costs regardingloans, investments and positions in foreign currencies. Last yearcurrency developments led to financial income, while this yearthey led to expenses.Income taxesThis year the Inter IKEA Group tax charge was EUR 295 million.This equals 15% of pre-tax income, compared to 17% in FY19.This decrease is mainly due to a nominal tax rate change in TheNetherlands. Inter IKEA Group operates in several countries, withits main activities in the Netherlands, Sweden and Switzerland. As aresult most income tax is paid in these countries.Inter IKEA Group has a strong financial position and therefore did notmake use of pandemic-related government support.

Inter IKEA Groupbalance sheetThe Inter IKEA Group financial position improved during FY20.Inventories and debts went down, and the equity ratio increasedfrom 39% to 45%. The consolidated balance sheet shows an overviewof Inter IKEA Group’s assets, equity, and what is due to suppliers,partners and other organisations.Intangible fixed assetsIn general terms, fixed assets are business property intended forlong-term use. Intangible fixed assets are assets that lack physicalform, like patents, concepts and intellectual property. Intangible fixedassets form much of Inter IKEA Group overall assets.Most Inter IKEA Group intangible fixed assets are so-calledproprietary rights for the IKEA trademarks and intellectual property.These rights were acquired for EUR 11.8 billion. As these rights areexpected to provide a positive return over a long period of time,these costs are spread over a period of 45 years.Tangible fixed assetsTangible fixed assets include real estate and equipment that you canphysically touch and feel. Inter IKEA Group tangible fixed assets aremainly factories and distribution centres.10 Inter IKEA Group Financial Summary FY20Consolidated balance sheetin millions of EUR31 Aug 202031 Aug 201910,00410,355Tangible fixed assets1,6911,663Financial fixed ,298322705Non-current liabilities5,9796,487Current liabilities5,2655,980Total liabilities11,56613,172Equity and liabilities21,10721,470Intangible fixed assetsTotal fixed assetsCash and cash equivalentsTotal current assetsTotal assetsGroup equityProvisions

Inter IKEA Group owns several offices and distribution centres,the IKEA Delft store, the IKEA Hotell and Museum, and around 42factories. Most of the factories are located in Europe. The majorityproduce IKEA furniture, and two produce components like screwsand wooden dowels used to assemble IKEA furniture.This year new owners took over the Inter IKEA Group manufacturingfacilities in Danville, USA and Konstantynow, Poland. TheKonstantynow facility continues to supply IKEA customers with chairsmade of solid wood.Inventories and receivablesInventories mostly consist of IKEA products in warehouses.Inventories reduced dramatically when stores re-opened after thelockdown. While the supply chain mobilised quickly, it took severalweeks to restart production and address logistics challenges.Receivables is money owed to the Inter IKEA Group by businesspartners. Most receivables are for franchise fees and products soldand invoiced to IKEA franchisees.This year Inter IKEA Group supported franchisees by delayingpayment obligations for goods sold. The company also extendedloans to several IKEA suppliers to ensure they could re-startproduction after the lockdowns. Money owed under theseagreements are reflected in this year’s receivables.Group equity, provisions and liabilitiesEquity is the capital invested by shareholders of the Inter IKEA Groupplus accumulated profits over time. Equity increased with EUR 1.2billion during FY20.Of the EUR 1,731 million profit achieved during FY20, EUR 850 millionwill be distributed as a dividend to Interogo Holding AG, a holdingcompany that is fully owned by the Interogo Foundation. Theremaining EUR 881 million will be added to Inter IKEA Group equity.Provisions are money set aside for pension commitments, deferredtaxes and claims. Provisions decreased this year as a result of thechanged funding for the IKEA of Sweden AB pension scheme.Liabilities are money owed to others. Most Inter IKEA Group noncurrent liabilities, which are due over a long period of time, consistof loans from Interogo Holding AG (a non-controlling shareholder).As in FY19, Inter IKEA Group will continue to repay EUR 500 millioneach year. Current liabilities are short-term loans, money dueto suppliers and the current portion of long-term loans fromInterogo Holding AG. 3.7billion in inventoriesin FY20 4.3billion in inventoriesin FY19Note to reader: the included abbreviated financial statements are an abridged version of the consolidated financial statements of Inter IKEA Holding B.V. as included in the Annual Report for thefinancial year 2020. An unqualified auditor’s report dated 29 October 2020 was issued on these financial statements. Inter IKEA Holding B.V.’s consolidated financial statements, from which theseabbreviated financial statements have been derived, have been prepared in accordance with Part 9 of Book 2 of the Dutch Civil Code.11 Inter IKEA Group Financial Summary FY20

Inter IKEA Systems B.V. 2020FY20 was a challenging year for IKEA. Despite the global pandemic, retail salesremained relatively stable, supporting a positive result for Inter IKEA Group.Inside, learn more about IKEA and Inter IKEA Group financial performance forthe year that has passed.For further information visit Inter.IKEA.comReleased 6 October 2020Released 3 November 2020Coming early 2021 In ter IK E A Sy s tems B. V. 2 0 1 8People& PlanetPositiveIKEA SUSTAINABILITY STRATEGYIKEA Facts & Figures FY20Inter IKEA Group FinancialSummary FY20Inter IKEAGroup AnnualReport FY20Inter IKEA GroupList of subsidiariesFY20The IKEA logo and the IKEA wordmark are registered trademarks of Inter IKEA Systems B.V. All copyrights in the pictures used in this document are owned by Inter IKEASystems B.V. and may in no way be copied or reproduced without the consent of Inter IKEA Systems B.V.12 Inter IKEA Group Financial Summary FY20PUBL ISHE D: JUNE 2018IKEA Sustainability Report

and operates the IKEA Hotell and Museum, is also part of Inter IKEA Group. Manufacturing . and distribution In August, Inter IKEA Group completed a . 100,000 square metre distribution centre in Kuala Lampur, Malaysia. It is the third largest IKEA distribution centre in the world and serves

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