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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 franchisor 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 9 billion euros ($11 billion). It also published financial information for Inter IKEA including revenue and earnings before interest, taxes, depreciation, and amortization.
“Our ownership structure of the IP rights has been complicated and we saw an advantage in simplifying all of that and consolidating control under the franchisor Inter IKEA Systems,” said Anders Bylund, a spokesman for Inter IKEA. “Our goal with the annual report 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 (ITX), 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.
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 Leiden, Holland-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 Vaduz, Liechtenstein-based holding company that owns all of Inter IKEA Group. Kamprad controls Interogo, which financed the January rights transfer with a 3.4 billion euros capital injection and a 5.6 billion euros loan.
The $11 billion valuation “is a fair one and recognizes the value of the IKEA trademarks, 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 companies opened their books. In 2011, the IKEA retail operation reported net income of almost 3 billion euros on revenue of 25 billion euros, while the franchisor delivered profit of 87 million euros on revenue of 2.4 billion euros.
All IKEA franchisees pay a fee of 3 percent of gross sales to Inter IKEA, amounting to 789 million euros in 2011. Inter IKEA then paid Interogo 550 million euros for the rights to use the IKEA trademarks in its franchise concept. The cost was about 18 times that 2011 license fee, which reflects the current and future value of the brand, Gydell said.
The trademark valuation was conducted by two outside financial groups and vetted by local tax authorities, including regulators in the Netherlands.
IKEA stores worldwide generated 26 billion euros in sales in 2011, up from 22.5 billion euros in 2008 and almost 24 billion euros 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 program 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.
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 percent 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. (PIR), Wal-Mart 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. (DIN), Wyndham Worldwide Corp. (WYN), Tim Hortons, Inc. and Harvey Norman Holdings, Ltd. (HVN)
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