Sales of goods
Sales of goods refers to bulk sales of IKEA products to IKEA franchisees. Inter IKEA Group also owns and operates one IKEA store in Delft, the Netherlands. IKEA Delft’s retail sales are also included in this line item.
IKEA franchisees purchased more than 39.2 million cubic metres of IKEA products from Inter IKEA Group in FY19, compared to 38.4 million cubic metres in FY18. Together with increased sales prices, this contributed to increased sales of goods.
In a franchise setup, one company pays another franchise fees for the right to use their intellectual property. The IKEA franchise offer includes the IKEA trademark and concept.
IKEA franchisees are granted the right to use the IKEA trademarks and the IKEA Retail System to operate a retail business in a defined territory. In return, they pay Inter IKEA Systems B.V. a franchise fee over 3% of their net sales.
Although retail sales went up in FY19, franchise fee income remained roughly the same due to fluctuating currencies.
Other income mainly consists of income from selling the IKEA catalogue and other marketing materials created for IKEA retailers including the IKEA Delft store.
Cost of goods sold
Cost of goods sold describes the total costs to manufacture and distribute products.
The cost of goods sold relates to both wholesale and Delft store sales. Inter IKEA Group manufactures about 12% of the IKEA range and sources the remaining 88% from nearly 1,000 external suppliers. This includes both home furnishing and food products.
E-commerce sales created increased costs for packaging and logistics in FY19. Increased raw material prices, tariffs and import duties also affected costs, although raw material prices decreased during the second half of the year.
Operational cost includes staff costs, utilities, rent and other costs related to day-to-day operations.
Staff costs mainly consist of salaries, benefits, training and social costs. As per 31 August 2019, Inter IKEA Group employed 26,227 full-time equivalent co-workers, compared to 26,504 in FY18. Changes are mainly due to restructuring and the sales of factories.
Operational costs also include expenses to develop new products and solutions. The costs related to our development and innovation portfolios amounted to EUR 175 million in FY19. Part of this investment went to develop products that help people live more sustainable lives and reduce the IKEA climate footprint.
More than half of the IKEA climate footprint comes from the material in the products and the production process. To transform into a low carbon business, IKEA is moving towards recycled and renewable materials and is pushing for more lightweight construction. In FY19 this required significant investments to transform the supply chain, sourcing and product development.
Inter IKEA Group also worked closely with retailers to develop new and different ways to shop the IKEA product range – online, in remote locations and in city centres (e.g. IKEA La Madeleine in Paris). This includes new locations closer to where people live, work and socialise. It also includes a wider range of flexible and affordable services to make shopping more convenient for IKEA customers.
Financial income and expense
Financial income and expense is revenue and costs regarding loans, investments and positions in foreign currencies. Inter IKEA Group paid less interest following repayment of long-term loans in FY19. Favourable currency developments partly offset the interest.
This year the Inter IKEA Group tax charge was EUR 301 million, around EUR 45 million more than last year. This equals 17% of pre-tax income, compared to 15% in FY18. Inter IKEA Group operates in several countries, with its main activities in the Netherlands, Sweden and Switzerland. As a result most income tax is paid in these countries.
Losses from sales of entities
Losses from sales of entities mainly consists of a loss connected to the sale of the Inter IKEA Group production facility in Lure, France.