FY23 financial results

FY23 started adversely with rising transportation and logistics costs and raw material and commodity prices, still at very high levels. After the first half year of FY23, we noted a stabilisation in purchase prices with a downward trend towards the end of the financial year.

In addition, there was a reduction in global supply disruptions which led to the return of more stable conditions that enabled more efficient operations. This reduced lead times and considerably improved the availability of products for our customers.  In turn, this resulted in a gradual reduction of inventory levels as well as lower costs related to transportation and logistics. Despite the improvements towards the end of FY23, there were still additional costs for the IKEA value chain during the year. These higher costs were compensated for by higher revenues, whereas in FY22 a large part of the cost increase was absorbed through lowering our gross margin.

Operational cost was impacted by inflation. This affected both co-worker costs and other operating expenses, which were offset by the first effects of an internal restructuring programme through which we are adapting our cost base to the lower turnover and creating more efficiencies. After financial income and expense, and income taxes, the net income of EUR 1.6 billion is back to normal levels after the extraordinary decrease in FY22. The Inter IKEA Group consolidated income statement shows a simplified overview of this year’s financial performance.

Consolidated income statement 

Sales of goods

Sales of goods refers to wholesale sales of IKEA products to IKEA franchisees. Retail sales from IKEA Delft, which is the only store owned by Inter IKEA Group, are also included in this line item. Sales of goods are up following the necessary price increases on the goods sold to the franchisees.

Franchise fee

In a franchise setup, one company pays another franchise fees for the right to use its intellectual property. The IKEA franchise offer includes the IKEA trademarks and IKEA Concept. IKEA franchisees pay Inter IKEA Group an annual fee of 3% over their net sales. In return, they are authorised to operate IKEA stores and other sales channels for marketing and selling the IKEA product range. As retail sales increased in FY23, franchise fee income rose accordingly.

Other income 

Other income mainly consists of income from marketing materials and communication created for, and sold to, IKEA franchisees.

Cost of goods sold

Cost of goods sold describes the total accumulated costs source, manufacture and distribute products. The cost of goods sold relates both to wholesale and IKEA Delft store sales.

Inter IKEA Group manufactures about 10% of the IKEA product range and sources the remaining 90% from over 800 external suppliers. This includes home furnishing and food products.

Fast-rising purchase prices combined with disruptions and inefficiencies in our supply chain resulted in a high increase in purchasing and transportation costs throughout FY22. Last year, Inter IKEA Group absorbed a large amount of these costs to limit price increases to IKEA franchisees as much as possible. This resulted in a large decrease in gross margin and thus profitability.

During FY23, the costs to source IKEA products stabilised and a downward trend was visible towards the end of the financial year. This resulted in a moderate increase in cost of goods sold.

Following the increased revenue and the moderate increase of the costs to source and supply IKEA products, the gross profit percentage returned to normal levels in FY23. To embrace this trend, Inter IKEA Group has started lowering prices to IKEA franchisees.

Operational cost

Operational cost includes co-worker costs, utilities, rent and other costs related to day-to-day operations.

Operational cost is affected by inflation. Recruitment stops and organisational restructurings have supported in stabilising salary costs and other operating costs, preventing more cost increases. During FY23, the Group’s co-worker base (measured in average FTE) reduced from 27,331 in FY22 to 24,944 in FY23. The reduction is mostly visible in IKEA Industry, following the divestment of its Russian activities.

In June 2022, Inter IKEA Group decided to close down all business and operations in Russia and Belarus. This resulted in stopping all import and export to and from Russia and Belarus and the permanent closure of two purchasing and logistics offices in Moscow and Minsk. In FY23, IKEA Industry divested its four Russian production units. This process was concluded at the end of March 2023. The consequence of this decision has resulted in an accumulated net loss.

Financial income and expense

Financial income and expense are revenue and costs regarding loans, investments and positions in foreign currencies. In FY23, we experienced both unfavourable currency developments plus an increase in interest expenses due to rising interest rates. This has led to a higher increase in financial expenses compared to FY22.

Taxation

In FY23, the Inter IKEA Group tax charge was EUR 307 million – equal to 15.8% of pre-tax income – compared to EUR 221 million in FY22. The effective tax rate was higher in FY22 as IKEA Supply AG in Switzerland reported very low profits due to the absorption of the increased cost in that year of goods and the consequently low gross margin. Restoring profitability in FY23 has led to a decrease in the effective tax rate and it is now back in line with the effective tax rate in FY21 (16.0%).

Inter IKEA Group’s total tax contribution amounted to EUR 2,032 million and mainly consisted of payments of corporate income tax, custom duties, VAT and payroll taxes. Read more in the Inter IKEA Group Tax Report FY23.