The complex ownership structure behind IKEA, the world’s largest furniture retailer created by billionaire Ingvar Kamprad, became more transparent last week after IKEA’s franchiser published its financial performance publicly for the first time.
The new details allow for a more complete valuation of the secretive IKEA empire, increasing the Bloomberg Billionaires Index estimate of Kamprad’s fortune by more than $1.4 billion, to almost $39 billion.
The financial details were contained in the 2011 annual report issued by Inter IKEA Group, IKEA’s franchisor. It disclosed a January transaction to acquire IKEA’s closely held intellectual property, including the IKEA trademarks, by Inter IKEA Systems BV, a wholly-owned subsidiary of Inter IKEA, for euro 9 billion ($11 billion). It also published financial information for Inter IKEA including revenue and earnings before interest, taxes, depreciation, and amortization.
“Our ownership structure has been very complicated in the past and we saw an advantage in simplifying all of that and consolidating control under IKEA’s franchisor,” said Anders Bylund, a spokesman for Inter IKEA. “Our goal was to provide greater transparency for our employees and our business partners.”
Swedish-born Kamprad, 86, was Europe’s richest man until June of this year, when surging shares of Inditex, the world’s largest clothing retailer, pushed Amancio Ortega, 76, into the top spot. The Spaniard’s fortune has risen $9.9 billion in 2012, giving him a net worth of $45.1 billion.
Ultimate control
Kamprad has said that the IKEA fortune is no longer his since he separated the company he founded in 1943 into two parts more than 30 years ago. Bloomberg attributes the full value of IKEA to him on the basis of his ultimate control over the structure. The split, Kamprad said at the time, was designed to protect the long-term survival of the business.
In the 1980s, Kamprad placed all of the shares of the INGKA Group, which owns most of IKEA’s retail stores, into the Netherlands-based Stichting INGKA Foundation. At year-end 2011, INGKA owned 290 of IKEA’s 325 retail stores.
At the time, Kamprad also separated out IKEA’s intellectual property rights, which, until the January transaction, were held by Interogo Foundation, a Liechtenstein-based holding company that owns all of Inter IKEA Group. Kamprad controls Interogo, which financed the January rights transfer with a euro 3.4-billion capital injection and a euro 5.6-billion loan.
The $11-billion valuation “is a fair one and recognises the value we provide our franchisees in developing and improving the IKEA concept, as well as what we expect of the business looking forward 10 or 15 years,” said Hans Gydell, CEO of Inter IKEA.
The disclosure marks the second time in the past three years the company opened its books. In 2011, the IKEA retail operation reported net income of almost euro 3 billion on revenue of euro 25 billion, while the franchisor delivered profit of euro 87 million on revenue of euro 2.4 billion.
Lingering scrutiny
All IKEA franchisees pay a fee of three per cent of gross sales to Inter IKEA, amounting to euro 789 million in 2011. Inter IKEA then paid Interogo euro 550 million for the rights to use the IKEA trademarks in its franchise concept. The cost was about 18 times that 2011 licence fee, which reflects the current and future value of the brand, Gydell said.
IKEA stores worldwide generated euro 26 billion in sales in 2011, up from euro 22.5 billion in 2008 and almost euro 24 billion in 2010, according to the company website. Gydell said that there are 14,000 applications to join the franchise system.
As the sole owner of the rights going forward, Inter IKEA will no longer pay Interogo and will instead make payments on the funds it borrowed to acquire them.
The IKEA ownership structure has been the subject of press scrutiny during the past decade, including an hour-long documentary by Assignment Investigate, a news programme that aired on Sweden’s SVT television network last year, as well as a 2006 analysis in The Economist.
Kamprad moved out of his homeland in the 1970s in an effort to keep the company closely held, something he said he couldn’t do with the tax regime in Sweden at the time, according to Per Heggenes, a spokesman for the IKEA foundation.
Family operations
Because the value reported by IKEA is forward-looking and already captured in part within the valuation of the INGKA Group stores, the increase in Kamprad’s net worth estimate is lower than the book value of the IKEA brand that was reported by Inter IKEA last week.
Both operations were valued on the basis of fiscal year 2011 operating results. A 15 per cent liquidity discount was applied to account for IKEA’s complex ownership structure.
INGKA Group is valued using the average enterprise value-to-sales and price-to-earnings multiples of nine publicly traded retailers that reflect IKEA’s size and scope, as well as its business mix, including Pier 1 Imports, Inc, Walmart Stores, Inc, and Bed Bath & Beyond Inc.
Inter IKEA is valued using the average price-to-earnings and enterprise value-to-Ebitda multiples of four publicly traded franchise companies, DineEquity, Inc, Wyndham Worldwide Corp, Tim Hortons, Inc and Harvey Norman Holdings, Ltd.
The Kamprad fortune also includes Luxembourg-based Ikano Group, the family’s investment vehicle, which has operations in consumer credit, asset management, real estate management and insurance.
Kamprad also controls stakes in publicly traded Finnish beverage company, Olvi Oyj, and Swedish commercial real estate company, Peab AB.
