annual report for financial year 2017 - virk

ANNUAL REPORT FOR FINANCIAL YEAR 2017

INGKA HOLDING B.V.

This report was adopted by the Shareholder on 31 January 2018

Ingka Holding B.V. Annual report for financial year 2017

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TABLE OF CONTENTS

REPORT FROM THE BOARD OF MANAGING DIRECTORS ........................................... 2

Financial Statements

CONSOLIDATED BALANCE SHEET before profit appropriation .................................... 9

CONSOLIDATED INCOME STATEMENT ................................................................. 11

CONSOLIDATED STATEMENT OF CASH FLOWS ...................................................... 12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ............................................. 13

COMPANY BALANCE SHEET before profit appropriation .......................................... 44

COMPANY INCOME STATEMENT ......................................................................... 45

NOTES TO COMPANY FINANCIAL STATEMENTS ..................................................... 46

Other information

NET INCOME APPROPRIATION ........................................................................... 53

INDEPENDENT AUDITOR’S REPORT ..................................................................... 53


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REPORT FROM THE BOARD OF MANAGING DIRECTORS (in millions of EUR, unless otherwise indicated)

Corporate informationIngka Holding B.V. (‘the Company’), Bargelaan 20, 2333 CT Leiden, is the ultimate parent company of the IKEA Group of companies (‘IKEA Group’). IKEA Group’s financial year covering the 12 month period ending August 31, 2017 is referred to as ‘2017’ and the comparable year is referred to as ‘2016’.

As per financial year-end 2017, the operation of the IKEA Group is based on three main areas: IKEA Retail, Centres and Financial Asset Management. IKEA Retail owns and operates 355 IKEA stores in 29 countries where we have the franchise rights to the IKEA brand, e-commerce is offered in 27 countries. In addition, we own and operate distribution centres and deliver customer distribution and installation services. Centres owns, develops and operates shopping centres in connection with the IKEA stores. Financial Asset Management supports the group’s longer term growth and financial strength through purposeful investments.

On August 31, 2016 IKEA Group sold its product development, supply chain and production companies (‘the Transaction’) to the Inter IKEA Group. The Transaction impacts the 2017 financial results and comparability with 2016 performance.

Key figures: 2017 2016

Revenue (EUR million) 36,295 35,691Number of employees 153,905 166,985Number of stores 355 340Countries with IKEA stores owned by the Company 29 28

Review of the year

IKEA Group Financial Performance In 2017, IKEA Group’s total revenue grew by 1.7% and amounted to EUR 36.3 billion. Retail sales was EUR 34.1 billion and Centres rental income amounted to EUR 1.0 billion. As a result of the Transaction, the IKEA 2017 revenue does not include wholesale sale of goods (EUR 1.9 billion in 2016) but includes other services (EUR 1.2 billion in 2017).

Following the Transaction, IKEA Group results do not include the gross margin and operating expenses from the sold production and supply chain companies. In 2017, gross profit decreased with 8.6% points to 34.6% of total revenue and operating expenses decreased with 4.4% points to 26.3% of total revenue.

Operating result was EUR 3.0 billion (EUR 4.5 billion in 2016). The decrease in operating result was mainly driven by the loss of profit in sold entities in the Transaction, but also impacted by the increased costs in IKEA Retail to support multichannel growth and expansion.


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Our financial net result was EUR 0.3 billion. Corporate taxes incurred in 2017 amounted to EUR 0.8 billion which equals an effective tax rate of 24.9% (2016: 21.6%). Other taxes and duties, such as property taxes and customs duties amounted to EUR 0.4 billion. The net profit for the year 2017 was EUR 2.5 billion.

During 2017, the IKEA Group made capital expenditures of EUR 3.1 billion in stores, distribution and customer fulfilment network, shopping centres, renewable energy and forestry. During the year subsidiaries were acquired for EUR 0.3 billion. In 2017 IKEA Group divested retail parks in Europe with a net book value of EUR 0.5 billion.

Total assets amount to EUR 52.9 billion and we further increased our solvency to EUR 39.9 billion of equity at year-end. Based on available liquidity, significant increase of external financing is not expected in the coming years.

IKEA Retail IKEA Retail grew sales by 3.5% in euro (and 3.8% adjusted for currency impact) in a fast changing retail market. Sales grew in 26 out of 29 markets, with China remaining one of the fastest growing countries together with Portugal and Poland. The five largest markets based on sales value, were Germany, USA, France, United Kingdom and China. Kitchen and Cooking were strong growth areas supported by the commercial theme “It starts with the Food”, together with strong performance in Mattresses and Storage. In 2017, we opened 13 new stores and acquired 2 stores in Australia. We continued to roll out e-commerce and grew our multichannel distribution network through new customer distribution centres, pick up and order points and parcel units, to increase accessibility for our customers. We welcomed 817 million visits to our stores, 2.1 billion visits to IKEA.com and 461 million visits to our shopping centres. In addition, we opened our first store in Serbia and continued working on opening our first store in India.

Centres Rental income grew by 10.8% compared to prior year, with Centres China showing the strongest growth supported by increasing visitation and tenant sales.

Financial Asset Management Financial Asset Management invests, develops and manages financial assets to support the growth of IKEA business and to safeguard future financial strength. Financial Asset Management consists of 5 main investment portfolios: Renewable Energy, Resource Independence investments in forest and recycling, Venture & Growth Capital, Business Development investments and Treasury Asset Management.

People and planet positiveCorporate social responsibility is strongly anchored within the strategy of IKEA Group and forms an integrated part of our business. Sustainability is one of the strategic cornerstones in the IKEA Group direction – Growing IKEA Together 2020+. Our sustainability strategy, People & Planet Positive, sets out how we are working to make a positive difference for people and the environment.


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The strategy focuses on three areas where we can have the most positive impact: • Inspire and enable millions of customers to live a more sustainable life at home. • Strive for resource and energy independence. • Take a lead in creating a better life for the people and communities impacted

by our business. We report on how we progress towards our goals annually in the IKEA Group Sustainability Report, publicly available on IKEA.com. Reflecting the many peopleThe IKEA Group works actively with diversity at all levels of our business including when identifying and selecting members to boards of managing and supervisory directors. We want our values and strategy to be reflected in the composition of the boards – from our inclusion and diversity approach to the combined experience and expertise of its members. In 2017, three out of eleven board members were female. In total, almost half of all our managers are women and around 43% of our top 200 managers are women. Research and developmentFollowing the Transaction, research and development activities within IKEA Group were in 2017 focused on multichannel retailing including development of the meeting with the customer, distribution and digital technology.

Risk management A solid approach to risk management At IKEA Group, a structured and consistent approach to managing risks is key to achieving our objectives. The goal of risk management and compliance within IKEA Group is to protect our people, assets and the IKEA brand today and in the future. To do so, we enable risk-aware, opportunity-focused and compliance-conscious decision-making. We have developed a comprehensive risk management framework, which includes a Risk Management Process introduced to the IKEA Group Retail service offices and being introduced to the Centres and Customer Fulfilment organisations. Our company risk management approach provides senior management with insight into our key business risks and risk management practices across the organisation. The IKEA Group risks are periodically reviewed and consolidated into a Group Risk Register that is validated by the Governance, Risk & Compliance Committee (a committee of Group Management), discussed with the Audit Committee of the Supervisory Board, and presented to the Supervisory Board. Representatives of the business sitting in this EGRC Committee decide every year on areas to focus on (Multichannel, Information Security and Data Privacy in 2017). Business leaders are responsible for the design and the implementation of the risk treatment plans. They will be supported by an IT platform dedicated to Risk Management, Compliance and Internal Audit, currently at a pilot stage. Besides the risk management approach being designed to identify potential risks, reduce their likelihood and mitigate their impact should they materialize, we use additional means of risk reduction, like an internal control & compliance framework, crisis management and insurance.


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IKEA Group relies on strong values and a culture that promotes the responsibility of everyone to do the right thing. This is summarised in our IKEA key values, updated and communicated to all co-workers in 2017, and in our Code of Conduct, which is now also under review for a relaunch in FY18.

In addition, special efforts have been continued throughout 2017 on compliance by defining and rolling out internal control principles and designing an internal control framework. Efficient internal control activities in domains such as food safety, sustainability, property, accounting, purchasing and payroll are key success factors to risk mitigation. These efforts will continue in FY18 aiming to a risk-based approach to compliance.

We rely on a robust and well-deployed crisis management approach and an improved Incident Reporting System. This ensures that risk impacts are minimised at unit, country and Group level in all instances of crisis.

IKEA Group has several global insurance programs aiming to reduce the financial impact of claims, damages or third-party compensation. The insurance covers are constantly reviewed in line with IKEA Group’s need for risk transfers.

Improvements to the risk management approach Recognising the increased needs to support a growing business and the higher expectations of external stakeholders, a roadmap for risk management / compliance / internal audit (RCA) had been developed in 2016. The purpose is to secure the implementation of risk management and compliance initiatives before 2020 to reach the wished maturity level of RCA capabilities. The initiatives listed in this roadmap have been agreed with and are supported by business stakeholders. Implementation of key initiatives has started, and risk management and compliance practices are progressively being strengthened. In line with our strategic objectives and in respect of our values, IKEA Group pursues opportunities which inherently include some risks. We commit to take those risks in a responsible and compliant way. We are progressing on a key initiative in 2017 to further develop our risk appetite approach i.e. clarify our level of acceptance of risks. The purpose is to improve clarity and alignment in terms of acceptance/tolerance to risks in all organisational units. Some risk appetite statements are expressed in our Code of Conduct (for example, on corrupt practices). Risk appetite statements have recently been developed for the evolving Financial Asset Management area in order to guide decision-making. Policies, standards, rules as well as manuals and standard operating procedures further support the mitigation of risks. In 2017, the relaunch of an Internal Audit function at Group level (under the joint responsibility of the Audit Committee and the Management Board) has also contributed to better risk management, as the internal audit plan is aligned with the IKEA Group risks, and Internal Audit assignments have taken place and delivered useful recommendations to mitigate risks.


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Main risks potentially impacting IKEA Group A number of strategic, operational, legal and financial risks may, to some extent, negatively impact the achievement of the long-term objectives of IKEA Group. However, most of them will not have any material impact on those goals given the size and resilience of our company. The main risks that we face are described below. Specific measures are taken to reduce their likelihood and their impact to an acceptable level in line with our risk appetite, in addition to the ones described above. Information security Breach of confidentiality could harm customers or co-workers or give unfair advantages to our competitors. The rapid development of our on-line sales increases the relevance of this risk. IKEA Group continuously invests into implementing relevant industry standards and to comply with regulations and legislations to lower the risk of damages to our stakeholders. In case the risk materialises, we expect to suffer costs of internal damages, potential costs of compensation and possible fines, in addition to a potential impact on the brand reputation. We have a low appetite for this risk, therefore we support both Information Management and Information Security initiatives aiming at implementing an updated governance and securing sensitive information. They cover the aspects of confidentiality, integrity, and availability, as well as relevance of information. Legal and regulatory environment A changing legislative and regulatory environment in the different countries where we operate can increase the cost of doing business and the complexity of our operations. Changes may also create risks of non-compliance. IKEA Group co-workers with relevant specialist competence permanently monitor the legal and regulatory environment in order to ensure compliance, to identify business opportunities offered by these changes and to optimise their impact on our ways of doing business. For example, new laws related to cyber security in China necessitate significant review of our IT solutions supporting our business in this country. In addition, IKEA Group strives towards continuous improvement through frameworks and governance. IKEA Group has global operations and is therefore subject to compliance with a wide range of domestic and international laws and regulations, including competition law, economic sanctions and anti-corruption legislation. The Company has a low risk appetite and its compliance policies and procedures are designed to ensure compliance with applicable laws and regulations. From time to time, the Company, with the assistance of external legal and other advisors where appropriate, may conduct investigations to ascertain compliance with applicable laws and regulations. Despite taking measures to prevent compliance breaches, such breaches may still occur and potentially result in civil or criminal legal proceedings and the imposition of penalties or fines. Commercial relevance Relevance of our product range, but also our concept and ways of interacting with the customers are crucial to the success of IKEA Group. In our changing business and commercial environment, the digitalisation of interactions with potential customers and the rapid development of on-line retailers and digital marketplaces create a risk of decreasing commercial relevance, potentially leading in selected markets to reduced market share, loss of sales or increased costs. This is a strategic risk that always exist for a retailer in an open and competitive environment, for which we have a low risk appetite. Since our franchisor is the owner of the IKEA Concept, we work closely with Inter IKEA Group to manage this risk.


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Supply chain volatility Disruption in the supply chain due to geopolitical events, violence or natural catastrophes could harm product availability in the stores and on-line for our customers given our reliance on relatively few suppliers. This volatility is an operational risk that IKEA Group as a retailer has handled for many years and for which it has a medium risk appetite. Supply routines deal with safety stocks and other ways to mitigate the issues caused by supply chain volatility. Since the Transaction, we work closely with Inter IKEA Group to manage this risk. Product and food safety All our products should be always safe to prevent any injury or illness caused to customers or users of our products. In 2017, IKEA Group had clear processes and procedures in place to guarantee product quality and compliance with product requirements in all our markets, as we have a very low risk appetite for such events. We permanently strive for compliance with laws and regulations applicable to the products in our range. Despite these procedures and although we have risk mitigation actions in place, IKEA Group may face product safety issues, which may have financial costs due to liability claims and to potential disruptions to the supply chain. It could lead to reputational damage and negative customer and media reactions, locally or on global level. This may have a material adverse effect on the reputation of the IKEA brand, on IKEA Group sales, operations and financial position. Following the Transaction, we work closely with Inter IKEA Group to manage this risk. Safety & SecurityIn a similar pattern as for product safety, failing to guarantee a safe environment and a secure shopping experience for our customers could harm the IKEA brand, for example in case of an accident related to the handling of our goods in the stores. IKEA Group invests in and maintains a high-level of co-worker training, safety and security measures and insurance to prevent or mitigate such a risk as we have a very low risk appetite for this. Brand reputation More generally, any unfavourable media coverage, accurate or not, may have a negative impact on brand reputation, at a local, national or international level. This may be allegations of different nature, from diverse sources and through a variety of media including social media. We work and operate in this environment of high media attention and volatile public opinion. We have a low risk appetite for anything that can have a negative impact on the IKEA brand in the long term. Therefore, we take all the necessary steps to ensure full compliance with laws and regulations, to be positively perceived and positioned in the hearts and minds of our customers and key stakeholders through a proactive public relations policy. Crisis management routines handle the necessary reactive activities in case of negative media reports. Geopolitical risksIKEA Group is present as a retailer in 29 countries, and is sourcing products from a large number of other countries. Therefore, unexpected geopolitical events or changes in the economic outlook of such countries could have an impact on the turnover or the profitability of the company. Regulatory changes could as well affect our ability to do business in some countries. We aim to anticipate all such changes to mitigate those risks and keep their impact to a minimum. This is a strategic risk that IKEA Group as a retailer has handled for many years, and for which we have a medium risk appetite.


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Financial risks Currency volatility, credit risks and tax risks exist at IKEA Group. We have a low risk appetite in this area, and we believe these risks are well monitored and handled. Refer to note 21 of the financial statements for more information on financial risk management. Organisational changes Following the Transaction with Inter IKEA Group on August 31st 2016, there is a residual risk of inefficiencies in ways of working given the significant changes that have impacted our organisation, even if those were necessary to achieve the opportunities of the new set-up. This risk is kept to a minimum by monitoring relevant causes with stakeholders impacted by the Transaction. In the longer run, beyond the opportunities offered to the “new” IKEA Group, a strategic risk of losing the ability to optimise decision-making for the overall value chain exists and may result in higher costs and less efficient business processes. However, as we have a low appetite for this risk, IKEA Group is continuously working with Inter IKEA Group to reduce it, in order to keep fulfilling our mission to create a better everyday life for the many people. Outlook for financial year 2018 With the customer and co-worker in focus, we are accelerating the transformation to become the world’s leading multichannel home furnishing retailer through investments in our co-workers, digital technology and in our stores, service business, distribution network and shopping centres. In 2018, we project continued growth in all sales channels and through expansion, we plan capital expenditures for an amount of EUR 3.9 billion. The principles to secure long-term sustainable growth; earning our money before we spend it, being innovative, cost-conscious and customer focused remain unchanged.

BOARD OF MANAGING DIRECTORS Leiden, January 31, 2018

J. Brodin (Chairman)

A. Davidson


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CONSOLIDATED BALANCE SHEET before profit appropriation August 31

ASSETS

(in millions of EUR) 2017 2016

Fixed assets Tangible fixed assets (4) 23,172 23,033 Intangible fixed assets (5) 1,717 1,144 Financial fixed assets (6) 771 811 Total fixed assets 25,660 24,988

Current assets Inventories (7) 1,924 1,713 Receivables (8) 2,327 4,115 Securities (9) 21,460 21,878 Cash and short-term deposits (10) 1,569 1,273 Total current assets 27,280 28,979

TOTAL ASSETS 52,940 53,967

(See accompanying notes)


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CONSOLIDATED BALANCE SHEET before profit appropriation August 31

GROUP EQUITY AND LIABILITIES


Group equity Capital Stock 1 1 Additional paid-in capital 51 51 Revaluation reserves 303 364 Other legal reserves 345 424 Other reserves 36,726 33,821 Result for the year 2,473 4,200 Total shareholder’s equity (11) 39,899 38,861 Minority interest 44 46 Total Group equity 39,943 38,907

Provisions (12) 1,767 1,908

Non-current liabilities (14) 1,010 1,385

Current liabilities (15) 10,220 11,767

GROUP EQUITY AND LIABILITIES 52,940 53,967



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CONSOLIDATED INCOME STATEMENT Year ended August 31


Retail - sale of goods 34,096 32,949 Wholesale - sale of goods - 1,859 Service income 1,221 - Rental income 978 883 Revenue (16) 36,295 35,691

Cost of sales and services (17) (23,730) (20,260) Gross profit 12,565 15,431

Other income 307 309 Selling expenses (7,638) (7,285) General and administrative expenses (2,203) (3,956) Total operating expenses (17) (9,534) (10,932)

Operating income 3,031 4,499

Total financial income and expense (18) 283 869

Income before income taxes and minority interests

3,314 5,368

Income taxes (19) (825) (1,158)

Income before minority interests

2,489

4,210

Minority interests (16) (10)

Net income 2,473 4,200

CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Year ended August 31

2017 2016

Net income 2,473 4,200 Translation differences foreign activities (596) (15) Addition to hedging reserve - (15) Remeasurements IAS 19 75 (83) Realisation through income statement (74) (75) Total recognised income and expense 1,878 4,012


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CONSOLIDATED STATEMENT OF CASH FLOWS Year ended August 31


Cash flow from operating activities Operating income 3,031 4,499

Adjustments for: Depreciation, amortisation and impairments of fixed 1,497 1,493 Movements in provisions 73 140 Revaluations of financial instruments (207) (118) Gains and losses on disposal of fixed assets (37) 12 Changes in working capital (621) 229 Other 30 (11) Net cash provided by operations 3,766 6,244 Interest received 374 285 Interest paid (269) (355) Other financial items received/(paid) 108 12 Corporate income tax paid (946) (1,193) Net cash from operating activities 3,033 4,993

Cash flow from investing activities Additions fixed assets (3,154) (2,831) Disposals fixed assets 384 208 Proceeds from repayment of loans receivable 373 288 Issue of loans receivable (520) (325) Investments in equities (615) (201) Acquisition of subsidiaries (266) (51) Divestment of subsidiaries 2,096 4,335 Net cash from investing activities

(1,702) 1,423

Cash flow from financing activities Proceeds from short and long term loans payable - 308 Repayment of short and long term loans payable (1,202) (671) Dividends paid (840) - Net cash from financing activities (2,042) (363)

Exchange gain/(loss) (74) 238

Increase/(decrease) cash and cash equivalents (785) 6,291

Cash and cash equivalents at beginning 22,950 16,659 Cash and cash equivalents at end 22,165 22,950

Net movement in cash and cash equivalents (785) 6,291

The cash and cash equivalents included in the cash flow statements consist of:


Cash and short-term deposit 1,569 1,273 Securities, excl. equity investments 20,596 21,677 Total 22,165 22,950


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all amounts in EUR million, unless otherwise indicated)

CORPORATE INFORMATION Ingka Holding B.V. (‘the Company’), Bargelaan 20, 2333 CT Leiden, is the ultimate parent company of the IKEA Group of companies (‘IKEA Group’). The Company was incorporated on July 14, 1982 and is a wholly-owned subsidiary of Stichting Ingka Foundation, registered in Amsterdam, the Netherlands. The Company is registered in the Trade Register under number 33173748. IKEA Group’s financial year covering the 12 month period ending August 31, 2017 is referred to as ‘2017’ and the comparable year is referred to as ‘2016’.

The vision of IKEA Group is to provide a better everyday life for the many people. As per financial year-end 2017, the operation of the IKEA Group is based on three main areas: IKEA Retail, Centres and Financial Asset Management. IKEA Retail owns and operates 355 IKEA stores in 29 countries where we have the franchise rights to the IKEA brand, e-commerce is offered in 27 countries. In addition, we own and operate distribution centres and deliver customer distribution and installation services. Centres owns, develops and operates shopping centres in connection with the IKEA stores. Financial Asset Management supports the group’s longer term growth and financial strength through purposeful investments. Ingka Holding B.V. has, through its subsidiaries, franchise agreements with Inter IKEA Systems B.V., the company owning the IKEA brand and concept. Inter IKEA Systems B.V. is part of the Inter IKEA Group of companies with its ultimate parent Inter IKEA Holding B.V. (‘Inter IKEA Group’). On August 31, 2016 IKEA Group sold its product development, supply chain and production companies (‘the Transaction’) to the Inter IKEA Group. The Transaction impacts the FY17 financial results and comparability with FY16 performance.

1. BASIS OF PREPARATION Both the company financial statements and the consolidated financial statements have been prepared in accordance with Part 9 of Book 2 of the Netherlands Civil Code. The financial statements were prepared on January 31, 2018.

The consolidated financial statements of the Company are presented in euro (EUR) and are prepared on a historical cost basis, except for the valuation of certain financial instruments that, subsequent to initial recognition at cost, are remeasured to fair value, in accordance with Dutch generally accepted accounting principles (Dutch GAAP). Certain reclassifications to the comparative financial information have been made to conform to the current year’s presentation.

The management of the Group makes various judgements and estimates, when applying the accounting policies and rules for preparing the financial statements. The principal judgements and estimates, including underlying assumptions relate to the useful life of fixed assets, provisions, impairments and recoverability of deferred tax assets.


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2. SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation The consolidated financial statements include the financial data of the Company and its group companies at August 31 of the year under review. Group companies are legal entities and companies over which the Company exercises control. In connection with this, financial instruments containing potential voting rights that can be exercised immediately are also taken into account.

The consolidated financial statements include the accounts of the Company and its participating interests over which management control is exercised. Group companies are fully consolidated as from the date on which control is obtained and until the date that control no longer exists. The items in the consolidated financial statements are determined in accordance with consistent accounting policies. All significant intercompany balances, transactions and profits are eliminated.

Minority interests represent the portion of profit or loss and net assets not held by the Group and are stated separately in the consolidated financial statements.

Joint ventures Joint ventures are activities in which the Group has a joint controlling influence over the operational and financial management through collaborative agreement with one or more parties. In the consolidated accounts, joint ventures are accounted for on a net asset value basis.

Mergers, acquisitions and divestments Acquisitions are accounted for using the purchase accounting method. This means that any assets and liabilities acquired are carried at fair value as at the acquisition date. The difference between cost and the Company’s share of the fair value of the identifiable assets and liabilities acquired at the time of the transaction of a participating interest is recognised as goodwill. In the event of a common control transaction it is accounted for using the pooling of interest method. In the event of a sale, the difference between the consideration and the carrying amount is recorded in financial income and expense. The value of the consideration is subject to judgemental factors, including potential provisions and indemnifications included in the sale and purchase agreement.

Translation of foreign currencies The consolidated financial statements are prepared in euro, the functional and presentation currency of the Company. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

Transactions denominated in foreign currencies are initially carried at the functional exchange rates ruling at the date of transaction. Monetary balance sheet items denominated in foreign currencies are translated at the functional exchange rates ruling at the balance sheet date. Non- monetary balance sheet items that are measured at historical cost in a foreign currency are translated at the functional exchange rates ruling at the date of transaction. Non-monetary balance sheet items that are measured at current value are translated at the functional exchange rates ruling at the date of valuation.

Exchange differences arising on the settlement or translation of monetary items denominated in foreign currencies are taken to the income statement, with the exception of exchange differences resulting from net investments in foreign activities, or from loans taken out to finance or effectively hedge net investments in foreign activities. These exchange differences are taken directly to the foreign currency translation reserve.


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Exchange differences arising on the translation of non-monetary balance sheet items denominated in foreign currencies that are carried at current value are taken directly to the revaluation reserve, provided the changes in value of the non-monetary items are likewise taken directly to reserves. Goodwill and fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of a foreign activity are treated as assets and liabilities of the foreign activity and translated at the rate of exchange ruling at the balance sheet date.

The assets and liabilities of foreign activities are translated into the functional currency at the rate of exchange ruling at the balance sheet date and the income and expenses of these foreign activities are translated at the average rate of exchange for the year. Resulting exchange differences are taken directly to the foreign currency translation reserve. On the disposal of a foreign activity, the cumulative exchange differences, taken directly to the reserves, are taken to the income statement as part of the gain or loss on the sale.

Offsetting Assets and liabilities are only offset in the financial statements, if and to the extent that:

an enforceable legal right exists to offset the assets and liabilities and settle them simultaneously; and

the positive intention is to settle the assets and liabilities on a net basis or simultaneously.

Tangible fixed assets Tangible fixed assets (both assets in use by the Company and investment properties) are carried at the cost of acquisition or production (less any investment grants) net of accumulated depreciation and accumulated impairment losses. Costs of major maintenance are recognised under cost when incurred and if the recognition criteria are met. The carrying amount of the components to be replaced will be regarded as a disposal and taken directly to the income statement. All other repair and maintenance costs are taken directly to the income statement.

Depreciation is calculated on a straight-line basis over their expected useful economic lives, taking into account their residual value. Changes in the expected depreciation method, useful life and/or residual value over time are treated as changes in accounting estimates.

The costs of dismantling, removing and restoring after the use of an asset are recognised as part of the carrying amount of the asset, with a provision being formed for an equal amount at the same time.

Retired tangible fixed assets are carried at the lower of cost and their fair value less costs.

A tangible fixed asset is derecognised upon sale or when no further economic benefits are expected from its continued use or sale.

Intangible fixed assets An intangible fixed asset is recognised in the balance sheet if:

it is probable that the future economic benefits that are attributable to the asset will accrue to the company; and

the cost of the asset can be reliably measured.

Costs relating to intangible fixed assets not meeting the criteria for capitalisation (for example, cost of research, internally developed brands, logos, trademark rights and client databases) are taken directly to the income statement account.


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Intangible fixed assets are carried at the lower of cost of acquisition or production net of accumulated amortisation and their recoverable amount (being the higher of value in use and fair value less costs to sell). Intangible fixed assets, except for land lease rights, are amortised on a straight-line basis over their expected useful economic lives, subject to a maximum of 20 years. The land lease rights are amortised over the contractually agreed period. If the estimated useful life exceeds 20 years, an impairment test is performed at each financial year-end. Development costs Development costs are capitalised if they satisfy the technical, commercial and financial feasibility criteria set for them.

Goodwill Goodwill represents the difference between the cost of a business combination and the fair value at the transaction date of the acquired equity value of the company. Goodwill is capitalised and amortised over its expected useful life.

Land lease rights Land lease rights recognised as an intangible fixed asset relates to an ownership of a temporary right to lease land, which has been paid in advance.

Impairment of fixed assets The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, the Group estimates the asset’s recoverable amount.

An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. The impairment loss is recognised in the income statement under other general and administrative expenses.

In assessing the value in use, the estimated future cash flows are discounted to their present value using a market based pre-tax discount rate. In determining fair value less cost to sell, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. For Centres investment properties an external valuation is performed on a yearly basis to determine the fair value.

An assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognised in prior years. Such reversal is recognised in the income statement.

Financial fixed assets All financial assets are recognised initially at fair value plus transaction costs, except in the case of financial assets recorded at fair value through the income statement.


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The Company has the following subcategories for financial fixed assets:

1. Investment in participating interests Participating interests over which financial and operating policies the Company exercises significant influence are valued using the net asset value method. Under this method, participating interests are carried at the Company’s share of their net asset value plus its share in the results of the participating interests from the acquisition date, determined in accordance with the accounting policies disclosed in these financial statements. The Company’s share in the results of the participating interests is recognised in the income statement. If and to the extent the distribution of profits is subject to restrictions, these are included in a legal reserve.

2. Other financial fixed assets

a) Long-term loans receivable Loans granted and other receivables are financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, these loans and receivables are carried at amortised cost based on the effective interest rate method.

Gains and losses are taken to the income statement, when the receivables are transferred to a third party or impaired.

b) Investments in equity instruments Investments in listed equity instruments are carried at fair value. Gains and losses arising from the change in fair value are recorded in the income statement.

Investments in unlisted equity instruments, not forming part of a trading portfolio, are carried at cost. Gains and losses are taken to the income statement, when the investments are transferred to a third party or impaired. Dividends received are taken to the income statement.

Fair value The fair value of the financial instruments is determined using available market information or estimation methods. Under these estimating methods, the fair value is estimated:

on the basis of the fair value of its components or a similar instrument if the fair value of its components or similar instruments can be reliably measured; or

by using generally accepted valuation models and techniques.

Amortised cost Amortised cost is calculated using the effective interest rate method less any reductions for impairment or uncollectibility. The calculation takes into account any discounts as well as transaction cost at the transaction date.

Impairment of financial fixed assets For all categories of financial assets carried at amortised cost, the Company assesses at each balance sheet date whether that asset or group of financial assets is impaired. Only if there is an objective evidence of impairment the impairment loss will be recorded in the income statement.

Inventories Inventories mainly comprise finished products and are carried at the lower of cost (first-in, first- out basis) or net realisable value, net of a provision for obsolescence. Net realisable value is based on estimated selling price, less further costs expected to be incurred for completion and disposal.


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Receivables Receivables are short-term in nature, initially measured at fair value and subsequently at amortised costs (except for derivatives) less allowance for uncollectible amounts. The recognition and measurement of derivatives are discussed in the section ‘Derivatives and hedge accounting’.

Securities Following initial measurement, securities are carried at fair value without deduction of any transaction costs on sale. Gains and losses arising from changes in the fair value are taken to the income statement.

Cash at bank and in hand Cash and cash equivalents are carried at their face value.

Provisions A provision is formed for liabilities if it is probable that they will have to be settled and the amount of the liability can be reliably estimated. The amount of the provision is determined based on a best estimate of the amounts required to settle the liabilities and losses concerned at the balance sheet date. Provisions are carried at non-discounted value, with the exception of:

the provision for pensions which is carried at discounted value; and provisions for other employee benefits carried at discounted value if the effect of the time

value is material. If expenses required to settle a provision are probable to be reimbursed by a third party, the reimbursement is recognised as a separate asset. In certain cases the criteria for recognising a provision or liability in the balance sheet of the Company may not be met. Under contingencies and commitments, the Company discloses contingent liabilities, where there is a potential material impact on the financial statements dependent on the occurrence of uncertain future events.

Pensions and other post-employment benefits The Company operates a number of pension plans, which have been established in accordance with the regulations and practices of the individual countries. The plans include both defined contribution plans and defined benefit plans. The Company applies IAS 19 to all post-employment benefits.

Defined contribution plans The contributions related to defined contribution plans are charged to the income statement in the period to which these contributions relate.

Defined benefit plans The net obligations of defined benefit plans are determined as the difference between the benefit obligations and the plan assets. Defined benefit plan pension commitments are calculated in accordance with the projected unit credit method of actuarial cost allocation. Under this method, the present value of pension commitments is determined on the basis of the number of active years of service up to the balance sheet date and the estimated employee salary at the time of the expected retirement date, and is discounted using the market rate of interest on high-quality corporate bonds with lifetimes that corresponds to the Group’s pension obligations. The net obligation comprises the discounted present value of the total earned future salaries less the fair value of any plan assets.

Remeasurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding any changes recorded as net interest and the return on plan assets (excluding net


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interest), are recognised immediately in the balance sheet and equity (retained earnings). Remeasurements are not reclassified to the income statement in subsequent periods.

Past service costs are recognised in the income statement on the earlier of:

The date of the plan amendment or curtailment; and The date that the Group recognises restructuring-related costs.

Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognises the following changes in the net defined benefit obligation under ‘general and administrative expenses’ in the consolidated income statement:

Service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements.

Net interest expense or income.

Income taxes Deferred tax liabilities and deferred tax assets are carried on the basis of the tax consequences of the realisation or settlement of assets, provisions, liabilities or accruals and deferred income as planned by the Company at the balance sheet date. Deferred tax liabilities and deferred tax assets are carried at non-discounted value.

A deferred tax liability is recognised for all taxable temporary differences. A deferred tax asset is recognised for all deductible temporary differences and carry-forward losses, to the extent that it is probable that future taxable profit will be available for set-off.

Deferred and other tax assets and liabilities are netted off if the general conditions for netting off are met.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax legislation) that have been enacted or subsequently enacted at the balance sheet date.

Financial liabilities Financial liabilities are recognised initially at fair value and in the case of loans and borrowings, carried at amortised cost, this includes directly attributable transaction costs.

Financial liabilities are carried at original measured amount less principal payments and amortisation. Gains or losses are recognised in the income statement when the liabilities are derecognised, as well as through the amortisation process.

Leasing Assessing whether an agreement contains a lease is based on the substance at the inception date of the agreement. The agreement is regarded as a lease if the fulfilment of the agreement depends on the use of a specific asset and the lease contains the right of use of a specific asset.

The Group as lessee Under finance leases (with the risks and rewards of ownership of the lease transferred substantially to the lessee), at the inception of the lease, the lease property and related liability are carried at the lower of the fair value of the lease property at the inception of the lease and the present value of the minimum lease payments. The lease is initially recognised including the initial direct costs incurred by the lessee. Lease payments are apportioned between the interest expense and repayment of the remaining balance of the liability, with the remaining balance of the net liability bearing a constant rate of interest.


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Capitalised lease property is depreciated over the shorter of the term of the lease and the useful economic life of the property, if there is no reasonable certainty as to whether ownership of the property is transferred to the lessee at the end of the term of the lease. Under operating leases, the lease payments are charged to the income statement on a straight- line basis over the term of the lease.

The Group as lessor Under operating leases, the lease income is taken on a straight line basis to the income statement over the term of the lease. Initial direct costs are amortised over the term of the lease against the lease income.

Derivatives and hedge accounting Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to their fair value, taking into account the credit risk arising from default of the counterparty (Credit Valuation Adjustment, CVA). Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques (such as discounted cash flow models and option pricing models), as appropriate. All derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging instrument. The commercial flows of the Company are subject to currency risk. As part of its treasury activities, the Company designates certain derivatives as hedges of highly probable future cash flows attributable to a forecast transaction in foreign currencies. Hedge accounting was used in previous years for derivatives designated in this way provided certain criteria are met. As from FY17 no hedge accounting is applied.

The Company documents at the inception of the transaction the relationship between hedging instruments and hedged items as well as its risk management objective and strategy for undertaking hedge transactions together with methods selected to assess hedge effectiveness. IKEA Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in future cash flows (the hedged items).

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are recycled to the income statement in the periods in which the hedged item will affect net profit. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. Embedded derivatives The Company separates an embedded derivative from the host contract if the following conditions are met: • There is no close relationship between the economic characteristics and risks of the embedded derivative and those of the host contract; • A separate instrument having the same characteristics as the embedded derivative would be classified as a derivative; and • The compound instrument is not measured at fair value with changes in fair value recognised through the income statement.


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Separable embedded derivatives are recognised at fair value in the balance sheet upon inception of the contract. Changes in fair value are recorded in the income statement.

Income Revenue represents the proceeds from the supply of goods and services, net of discounts, as well as rental income and service income.

The Company generates and recognises net sales to retail customers at the point of sale in its stores or pick-up points and upon delivery to home shopping customers.

Interest Interest income is recognised pro rata in the income statement, provided the income can be measured and the income is probable to be received. Expenses Expenses, including interest, are determined with due observance of the aforementioned accounting policies and allocated to the year to which they relate. Foreseeable and other obligations as well as potential losses arising before the financial year-end are recognised if known before the financial statements are prepared and provided all other conditions for forming provisions are met.

Income taxes Current income taxes are calculated on the income presented in the financial statements adjusted to taxable income in accordance with local tax legislation.

Cash flow statement Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value.

The above definition has been used for the cash flow statements, which has been prepared using the indirect method.

Cash flows in foreign currencies are translated at the average rate of exchange for the year. Currency translation differences are presented separately in the statement of cash flows.

Government grants Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. If the grant relates to an asset, it reduces the carrying amount and is recognised as income over the useful life of the asset as reduced depreciation charge.


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4. TANGIBLE FIXED ASSETS 2017 2016

Land and buildings 18,485 18,430 Building improvements 1,753 1,741 Machinery and equipment 1,069 1,319 Construction in progress 1,865 1,543 Total 23,172 23,033

Land and

buildings Building improve-

ments

Machinery and

equipment

Construc-tion in

progress

Total 2017

Total 2016

Cost

Opening balance 24,422 3,692 3,909 1,543 33,566 33,417 Translation adjustment (450) (59) (98) (31) (638) (1) Additions 386 143 301 1,888 2,718 2,775 Acquisitions 291 1 2 - 294 405 Disposals (350) (79) (131) (26) (586) (298) Divestments (376) (43) - (3) (422) (2,775) Impairment (98) (4) (1) - (103) 42 Transfers 1,689 212 (395) (1,506) - - Other (240) 4 (1) - (237) 1 Closing balance 25,274 3,867 3,586 1,865 34,592 33,566

Accumulated depreciation Opening balance 5,992 1,951 2,590 - 10,533 10,577 Translation adjustment (80) (33) (63) - (176) (39) Additions 811 235 320 - 1,366 1,490 Disposals (90) (41) (116) - (247) (176) Divestments (32) (9) - - (41) (1,337) Impairment - - - - - 9 Transfers 204 10 (214) - - - Other (16) 1 - - (15) 9 Closing balance 6,789 2,114 2,517 - 11,420 10,533 Net book value 18,485 1,753 1,069 1,865 23,172 23,033

Estimated useful life (years) 25 10 3-15 Land and construction in progress are not depreciated. Tangible fixed assets carried at costs do not include capitalised interest charges. The other movements mainly relate to a reclassification from tangible fixed assets to intangible fixed assets amounting to EUR 182 million.

Of the depreciation EUR 925 million (2016: EUR 915 million) is included in the selling expenses and the residual amount of EUR 441 million (2016: EUR 575 million) is mainly allocated to cost of sales and services.


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The Company received investment grants in different jurisdictions. The investment grants received during 2017 were not material. During 2017 impairments on tangible fixed assets to recoverable amounts have been recorded for an amount of EUR 103 million (2016: EUR 3 million). Reversals of previous years’ impairments for an amount of EUR nil million (2016: EUR 36 million) have been recognised, resulting in a net loss of EUR 103 million (2016: EUR 33 million gain) recognised in the income statement.

The impairment loss recorded relates to 14 Cash Generating Units (‘CGU’) within the following lines of business: Description CGUs Valuation approach Amount

Renewable energy 7 Value in use 79 Retail 3 Market value 18 Investment property 4 Market value 6 The renewable energy impairments are mainly driven by lower renewable energy prices forecasted. The retail and investment property impairments are driven by lower business performance in combination with increasing market interest rates.

Investment properties Included below are investment properties valued at cost or lower market value, which are rented out to third party tenants.

2017 2016

Land and buildings 4,005 4,421 Building improvements 638 638 Machinery and equipment 23 24 Construction in progress 394 470 Total 5,060 5,553


Page 24

Land and Building Machinery Construc- Total Total

buildings improve-ments

and equipment

tion in progress

2017 2016

Cost Opening balance 5,087 849 44 470 6,450 5,984 Translation adjustment 19 2 - 2 23 1 Additions 62 57 8 394 521 523 Disposals (173) (35) (11) (11) (230) (67) Divestments (376) (43) - (3) (422) - Impairments (6) - - - (6) (3) Transfers 370 86 2 (458) - - Other (167) - (1) - (168) 12 Closing balance 4,816 916 42 394 6,168 6,450

Accumulated depreciation Opening balance 666 211 20 - 897 589 Translation adjustment 12 4 1 - 17 9 Additions 204 80 6 - 290 294 Disposals (16) (4) (8) - (28) (3) Divestments (32) (9) - - (41) - Transfers 3 (3) - - - - Other (26) (1) - - (27) 8 Closing balance 811 278 19 - 1,108 897 Net book value 4,005 638 23 394 5,060 5,553

Estimated useful life (years) 25 10 3-15 Land and construction in progress are not depreciated.

The estimated useful lives of these commercial properties are comparable to the estimated useful lives of the operational tangible fixed assets. Rental income related to investment property amounted to EUR 978 million (2016: EUR 883 million). On March 7, 2017 share and property purchase agreements were signed to sell certain retail parks. The sale was executed on April 4, 2017. The net assets sold amount to EUR 0.2 billion (assets of EUR 0.5 billion and liabilities of EUR 0.3 billion). The consideration for the sale of retail parks is EUR 444 million. The estimated market value of the investment property amounted to EUR 9.1 billion (2016: EUR 9.1 billion).

Operating leases – Group as lessor The Group has entered into operating leases relating to investment property. The future minimum lease receipts on these non-cancellable leases can be broken down as follows:

2017 2016

Within one year 677 710 After one year but no more than five years 1,923 2,164 More than five years 2,050 2,099

4,650 4,973


Page 25

5. INTANGIBLE FIXED ASSETS 2017 2016

Land lease rights 1,438 945 Goodwill 247 174 Other 32 25 Total 1,717 1,144

Land lease

rights Goodwill Other Total

Cost Opening balance 1,069 233 85 1,387 Translation adjustment (51) (1) (3) (55) Additions 391 - 13 404 Acquisitions - 108 - 108 Disposals (1) (11) (1) (13) Divestments - - (2) (2) Other 181 (10) - 171 Closing balance 1,589 319 92 2,000

Accumulated amortisation Opening balance 124 59 60 243 Translation adjustment (5) - (2) (7) Additions 32 13 5 50 Disposals - - (1) (1) Divestments - - (2) (2) Other - - - - Closing balance 151 72 60 283 Net book value 1,438 247 32 1,717

Estimated useful life (years) 30-50 5-20 5-20

The useful life of goodwill ranges from 5-20 years in accordance with the timeline of anticipated future economic benefits arising in the investment. The estimated useful life of land lease rights ranges from 30-50 years in accordance with the contractually agreed period.

During 2017 acquisitions of companies for retail activities, windfarms and forestry resulted in an increase of goodwill amounting to EUR 108 million. On March 1, 2017 IKEA Group acquired 100% of the shares and voting rights in Ashpark Pty Ltd, a company operating IKEA retail activities in Australia. The consideration payable for the shares amounted to EUR 125 million. Other intangible fixed assets mainly consist of capitalised franchise fees and intangible assets for capitalised renewable energy incentives.

The other movements mainly relate to a reclassification from tangible fixed assets to intangible fixed assets amounting to EUR 182 million.

The amortisation of intangible fixed assets is included under general and administrative expenses and cost of sales and services in the income statement.

During 2017, EUR 9 million for impairments on intangible fixed assets (goodwill) to recoverable amounts have been recorded (2016: EUR nil million). This is presented as other movement.


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6. FINANCIAL FIXED ASSETS 2017 2016

Long term loans receivable 207 224 Deferred tax asset 351 412 Investment in participating interests 123 101 Other investments 90 74 Total 771 811

Long term Deferred Investm. Other

loans tax in part. invest- receivable asset interests ments Total

Cost Opening balance (incl. due in one year)

1,935 412 101 74 2,522

Translation adjustment (1) (7) - (1) (9) Additions 521 162 - 34 717 Disposals - - - (7) (7) Acquisitions - 1 - - 1 Divestments - (1) - ‐ (1) Utilised - (114) - - (114) Written-off - (102) - - (102) Share in result of part. interests - - 16 - 16 Repayments (1,879) - - - (1,879) Amounts due within one year (369) - - - (369) Other - - 6 (10) (4) Net book value 207 351 123 90 771

Annual maturities of receivables scheduled for repayment during the next years are as follows:

Financial Year Amount

2018 369 2019 25 2020 125 2021 5 2022 0 Thereafter 52 Total 576

The other investments mainly include positions related to other non-core related investments. EUR 3 million of impairments have been recognised during the year on these investments to reflect the expected recoverable value.

Refer to note 19 for details on the deferred tax assets.


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7. INVENTORIES

The inventory consist of finished goods and amounts to EUR 1,924 million (2016: EUR 1,713 million). The provision for obsolescence amounts to EUR 59 million at August 31, 2017 (2016: EUR 59 million).

8. RECEIVABLES

2017 2016

Trade debtors, less allowance

470

558

Current portion of long-term loans receivable 369 1,711 Income tax receivable 266 191 Other receivables 550 1,091 Prepaid expenses and accrued income 672 564 Total 2,327 4,115

The other receivables can be broken down as follows: 2017 2016

VAT receivable 232 201 Receivable on suppliers 80 43 Deposits 9 7 Other receivables 141 114 Transaction receivable 88 726 Total 550 1,091

Prepaid expenses and accrued income can be broken down as follows: 2017 2016

Interest 3 2 Derivatives 398 330 Insurance premiums 24 22 Other prepaid and accrued income 247 210 Total 672 564

Derivatives include the unrealised gains on derivative financial instruments related to the management of interest rate and currency risk. The prepaid expenses and accrued income balance and the accrued liabilities and deferred income balance at August 31, 2017 include a net amount receivable of EUR 24 million related to the fair value of derivatives, which are part of the macro cash flow hedge program. This program hedges the foreign exchange risk of the expected purchase and sales transactions, i.e. the commercial flows, of the group for the next financial year. For more information on financial risk management refer to note 21.


Page 28

9. SECURITIES

The Company is actively managing its excess cash liquidity through investments in securities. As at August 31, 2017, the securities amount to EUR 21,460 million (2016: EUR 21,878 million). This item mainly consists of investments in listed interest-earning securities with investment grade. In addition the Company holds a portfolio of listed equities, for an amount of EUR 864 million at 31 August 2017 (2016: EUR 201 million). The maximum exposure per counterparty is limited to a maximum of EUR 200 million (EUR 50 million for BBB+, EUR 25 million for BBB or BBB-). This limitation does not apply to government securities or their 100% owned agencies.

The credit risk profile of the interest-earning securities portfolio is as follows (in %):

2017 2016

AAA to AA 64 64 AA- to A- 13 15 BBB+ to BBB- 22 20 Non-Investment Grade 1 1

100 100

The interest-earning securities portfolio is diversified over the following issuer categories (in %): 2017 2016

Sovereign

58

62

Government Sponsored 20 16 Financial Corporation 9 11 Asset backed securities 6 4 Corporate 6 7 Collaterelized Loans Obligations 1 -

100 100

Changes in value of listed securities included in the income statement amount to EUR 214 million loss (2016: EUR 38 million loss). This amount is included in the financial income and expenses under revaluation gain/(loss). Changes in value of listed securities are not included in the revaluation reserve.

The duration of the interest-earning securities at August 31, 2017 was 828 days (2016: 832 days).

Bonds for the amount of EUR 3,558 million at August 31, 2017 (2016: EUR 4,159 million) are used as collateral for short-term borrowings.

10. CASH AND SHORT-TERM DEPOSITS

The total balance, amounting to EUR 1,569 million as at August 31, 2017 (2016: EUR 1,273 million), is available without restrictions to the Company except for EUR 528 million (2016: EUR 460 million) of short-term deposits that have a set maturity date for a maximum duration of 3 months.


Page 29

11. SHAREHOLDER’S EQUITY

For details on shareholder’s equity, refer to note 3 in the Company financial statements.

12. PROVISIONS 2017 2016

Provision for deferred taxation

643

774

Provision for pension commitments 619 681 Other 505 453 Total 1,767 1,908

For details on the provision for deferred taxation refer to note 19. For details on the provision for pensions commitments refer to note 13.

The movement in the other provisions is as follows: 2017 2016

Opening balance

453

402

Currency translation (6) - Additions 217 231 Utilised (125) (66) Released (40) (64) Acquisitions 7 7 Divestment (1) (57) Closing balance 505 453

Other provisions include tax, warranty, indemnifications, return and other provisions. Of the total balance an amount of EUR 86 million (2016: EUR 78 million) is due within one year.

13. PENSION AND OTHER POST-EMPLOYMENT BENEFITS

The Company has a number of defined benefit pension plans, predominantly in Sweden, the Netherlands, Germany, France and Switzerland.

The nature of the benefits provided by the Company are based on final salary pension plans (63%), contribution based plans with guarantee (32%) and other (5%).

There are minimum funding requirements for the pension plans in Belgium, the Netherlands and Switzerland as set out by local legislation.


Page 30

Net expense The following table shows the pension and other post-employment benefit expenses recognised in the income statement.

2017 2016

Company service cost

76

97

Net interest cost 8 27 Defined benefit plans 84 124 Defined contribution plans 154 146 Total expense 238 270

Liability for defined benefit obligations The movements in the liability for the net defined benefit obligations are as follows:

2017 2016

Opening balance

681

809

Net expense for the year 84 124 Remeasurement (gain)/loss (85) 112 Employer contributions (44) (49) Benefits paid directly by the Company (13) (11) Reimbursement rights - - Currency translation (4) (5) Divestment - (299) Closing balance 619 681

The fair value of the reimbursement rights amounts to EUR 6 million at August 31, 2017 (2016: EUR 5 million).

2017 2016

Defined benefit obligation – funded plans

946

965

Defined benefit obligation – unfunded plans 472 462 Less: Fair value of plan assets (799) (746) Deficit 619 681 Restriction due to asset ceiling - - Net Defined Benefit Liability 619 681


Page 31

Assets and liabilities The following table shows the changes in benefit obligations and plan assets of the employee benefit plans.

2017 2016

Defined benefit

obligation

Fair value plan

assets

Defined benefit

obligation

Fair value plan

assets Opening balance 1,427 746 1,494 709 Company service cost 76 - 97 - Net interest 19 8 32 14 Benefits paid (42) (42) (38) (38) Plan participant contributions 13 13 13 13 Employer contributions (2) 55 (1) 59 Return on plan assets - 26 - 36 Changes due to employee transfers 7 7 (7) (7) Changes in demographic assumptions 4 - (13) - Changes in financial assumptions (85) - 175 - Experience adjustments 19 - 17 - Currency translation (18) (14) (7) (4) Divestments - - (335) (36) Closing balance 1,418 799 1,427 746

The present value of the defined benefit obligation is detailed as below: 2017 2016

Final salary pension plans 885 888 Contribution based plans with a guarantee 456 466 Other 77 73 Closing balance 1,418 1,427

Allocation of plan assets The major categories of plan assets of the fair value of the total plan assets are, as follows:

2017 2016 Quoted Unquoted Quoted Unquoted Cash and cash equivalents 43 - 35 - Equity instruments 299 - 254 - Government bonds 84 6 82 - Corporate bonds 225 - 239 - Real estate - 36 35 - Insurance contracts 23 58 33 46 Other 25 - 22 - Total 699 100 700 46

The plan assets do not include investments in shares, issued debt or property owned by the Company.


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Assumptions The principal assumptions used in determining the defined benefit obligations are shown below:

2017 2016

Discount rate

1.8%

1.3%

Future salary increases 2.8% 2.8%

The average duration of the defined benefit plan obligation at August 31, 2017 is 20.1 years (2016: 20.8 years).

The Company expects to contribute EUR 44.5 million to its defined benefit pension plans in 2018.

Sensitivity analysis Discount rate Salary increases

0.50% (0.50%) 0.50% (0.50%)

Impact on defined benefit obligation (132) 152 40 (36)

14. NON-CURRENT LIABILITIES

The non-current liabilities consist of long-term debt. The majority of the long-term debt includes finance facilities related to the Company’s investments in land and buildings. Property mortgages amount to EUR 2,599 million (2016: EUR 3,167 million).

The interest rates on these local currency facilities range between negative 0.3% (2016: negative 0.4%) and 13.6% (2016: 13.6%) with a weighted average of 4.56% in 2017 (2016: 3.85%). Of the total loan portfolio EUR 279 million (2016: EUR 664 million) has a fixed interest rate and EUR 731 million (2016: EUR 1,229 million) has a floating interest rate.

The average interest duration of the long-term debt is 0.91 years (2016: 1.26 years).

2017 2016

Opening balance (including short term portion) 2,237 2,487 Translation adjustment (54) (25) Additions 117 359 Acquisitions - 46 Divestments - (8) Repayments (1,108) (622) Amount due within one year (182) (852) Closing balance 1,010 1,385


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Annual maturities of debt scheduled for repayment during the next years are as follows:

Financial Year Amount

2018 182 2019 279 2020 268 2021 89 2022 73 Thereafter 301 Total 1,192

Pledged assets amount to EUR 2,696 million (2016: EUR 3,276 million) and mainly consist of property pledged as collateral for external liabilities.

15. CURRENT LIABILITIES 2017 2016

Current portion of long-term debt 182 852 Short-term borrowings 3,709 4,274 Accounts payable 3,025 2,922 Income tax payable 144 156 Other liabilities 1,202 1,197 Accrued liabilities and deferred income 1,958 2,366 Total 10,220 11,767

Short-term borrowings at different finance institutions bear market interest rates according to local conditions for currencies involved.

Other liabilities can be broken down as follows:

2017 2016

VAT payable 407 376 Wage tax payable 53 40 Other taxes payable 165 173 Deposits received 130 131 Other liabilities 447 477 Total 1,202 1,197


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Accrued liabilities and deferred income can be broken down as follows: 2017 2016

Accrued wages

385

351

Accrued franchise fee 254 249 Accrued interest expense 9 12 Derivatives 377 608 Other accruals and deferred income 933 1,146 Total 1,958 2,366

16. REVENUE

Revenue 2017 2016

Europe

25,741

26,050

North America 6,684 6,245 Asia and Pacific 3,870 3,396 Total 36,295 35,691

Employees

The geographical distribution of the employees (based on average numbers) is as follows:

2017 2016

The Netherlands

6,290

5,607

Europe (excluding the Netherlands) 104,756 120,661 North America 22,722 21,036 Asia and Pacific 20,137 19,681 Total 153,905 166,985

17. COST OF SALES AND SERVICES AND OPERATING EXPENSES

Cost of sales and services, amounting to EUR 23,730 million as at August 31, 2017 (2016: EUR 20,260 million), relates to the retail sales, service income and rental income. The retail cost of sales consist mainly of the purchase price of the products sold and other costs incurred in bringing the inventories to the location and condition ready for sale. The cost of services consists of the costs directly associated with generating service income and rental income. For comparability, EUR 725 million has been reclassified from operating expenses to gross profit in 2016 to align with the presentation in 2017. This amount mainly relates to costs of rental income. Other income of EUR 307 million (2016: EUR 309 million) includes energy income (EUR 96 million), gain on sale of fixed assets (EUR 63 million) and service fees (EUR 10 million) and others.

Selling expenses of EUR 7,638 million (2016: EUR 7,285 million) represent retail core-business related cost, including marketing cost and the relevant portion of staff cost, operational cost, and depreciation.


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General and administrative expenses of EUR 2,203 million (2016: EUR 3,956 million) are related to non-retail activities, which are not (directly) associated with generating service income and rental income.

Personnel expenses 2017 2016

Salaries and wages

3,999 4,232 Social charges

777 878

Pension expense

238 270 Total

5,014 5,380

18. FINANCIAL INCOME AND EXPENSE

The financial income and expense can be broken down as follows: 2017 2016

Interest income 374 285 Interest expense (269) (355) Revaluation gain/(loss) (159) (108) Currency gain/(loss) 111 302 Share in profit associates 16 10 Result on sale of subsidiaries 207 731 Other financial income/(expense) 3 4 Total 283 869

Interest income includes accrued interest for the financial year relating to financial assets. Interest expense relates to accrued interest for financial liabilities and net accruals on derivatives used to hedge internal funding (refer to note 21 – interest rate risk). Revaluation gains and losses represent the fair value development of securities and derivatives. Currency gains and losses show the result of managing the currency rate risk on commercial flows and other currency translation in the Group (refer to note 21 – exchange rate risk). The ineffective portion of the macro cash flow hedge program is included in currency gains and losses. Share in profit of associates represents the share in the result of investments in participating interests (refer to note 6 – financial fixed assets).

Result on sale of subsidiaries 2017 includes the result on the sales of retail park companies (EUR 148 million) and the additional share price of the Transaction (EUR 59 million). Prior years result on sales of subsidiaries includes the sales related to the Transaction amounting to EUR 714 million (refer to note 23 - discontinued operations).

19. INCOME TAXES

Deferred income tax assets are mainly related to timing differences, primarily in connection with the valuation of pension provisions and depreciation. Deferred tax assets arising from tax loss carry- forwards are only recognised if recovery is reasonably certain. Of this amount, EUR 105 million (2016: EUR 151 million) is expected to be used for set-off within one year.


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The Group has unrecognised tax loss carry forwards available related to losses incurred in several countries approximating EUR 757 million (2016: EUR 698 million). No deferred tax asset has been recognised for these tax loss carry forwards due to uncertainty with respect to availability of taxable profits in the future within the limitations imposed in enacted tax legislation in order to utilise the tax losses.

The movements in deferred tax assets are set out below:

2017 2016

Opening balance

412

476

Currency translation (7) (2) Acquisitions 1 - Additions 162 170 Utilised (114) (98) Released (102) (27) Disposals - (32) Divestment (1) (75) Closing balance 351 412

Deferred taxation is provided for, using the liability method, for all timing differences between tax and financial reporting. Provisions are substantially long-term in nature.

The movements in deferred tax liabilities are set out below:

2017 2016

Opening balance

774

760

Currency translation (10) 1 Acquisitions 11 4 Additions 100 230 Utilised (100) (123) Released (107) (1) Divestment (25) (97) Closing balance 643 774

Of the movements in deferred tax, EUR -10 million impacted equity directly as per August 31, 2017 (2016: EUR 24 million) relating to actuarial remeasurements relating to the defined benefit pension obligation.

The major components of current income tax expense are as follows:

2017 2016

Current income tax expense 844 1,055 Deferred tax expense (33) 84 Tax expense based on changes in prior periods 14 19 Total tax expense 825 1,158


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The reconciliation between the effective tax rate and the tax rate applicable to the consolidated financial statements is as follows (in %):

2017 2016

Applicable tax rate

25.0

25.0

Different tax rates outside the Netherlands (0.6) 1.9 Non-deductible expenses 2.7 1.7 Deduction for risk capital (0.1) (2.7) Tax-exempt income (2.2) (6.7) Utilisation of previously unrecognised tax losses (1.1) (0.6) Unrecoverable losses 1.6 1.2 Other (0.4) 1.8 Effective tax rate 24.9 21.6

20. COMMITMENTS AND CONTINGENCIES

As part of the Transaction on 31 August 2016, IKEA Group has provided certain indemnifications and warranties to the buyer in relation to the sold entities, including, but not limited to, corporate information, accounts, guarantees, assets, intellectual property, information technology, contracts and other agreements, employees, legal compliance, environment matters, litigation, insurance, products and taxes. The majority of indemnifications and warranties are capped to an aggregate maximum amount of EUR 1.0 billion. A provision is taken in the balance sheet for these items if the criteria are met as described in the relevant accounting policy around provisions.

In addition to the purchase consideration paid for the acquisition of 51% share in Inter Ikea Centre Group in 2015, there is a contingent consideration in place. The contingent consideration is connected to the rental income in 2018 on certain acquired properties. No additional payable has been accounted for as it is not expected that the contingent consideration will materialise.

The Group is subject to corporate income and other taxes in various jurisdictions and exposed to tax uncertainties. The Group is subject to various tax audits, in relation to direct as well as indirect taxes. With regard to uncertainties a liability is recognized if, as a result of a past event, the Group has an obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. Uncertainties that do not meet these criteria give rise to contingent liabilities that could have a future impact on recorded assets and liabilities, but are not considered probable. The Company is currently investigating certain executory contractual arrangements to determine whether the performance of such contracts presents the risk of non-compliance with applicable law. The Company’s investigation is ongoing and it is therefore too early to determine the likelihood and/or extent of any impact thereof on the consolidated financial statements. As per year-end, the Company and its subsidiaries have agreements to provide services in future years relating to distribution, storage and handling of inventory in distribution centres with third parties. Remuneration is variable and will be determined on a cost-plus basis for most of the agreements.


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The commitments can be detailed as follows:

Guarantees Issued guarantees towards external parties amounted to EUR 52 million at August 31, 2017 (2016: EUR 60 million).

Construction commitments Commitments for the construction of tangible fixed assets, including investment property, amounted to EUR 1,210 million at August 31, 2017 (2016: EUR 736 million).

Purchase commitments The Group has entered into purchase agreements without significant commitments, at August 31, 2017 (2016: EUR nil).

Legal proceedings The Company is from time to time involved in legal proceedings in the ordinary course of business. Management believes that no pending litigation to which the Company is a party will have a material adverse effect to the financial position or the results from operations. Operating leases – Group as lessee The Company and its subsidiaries have entered into lease and rental agreements for various periods. Future minimum rental payable under non-cancellable operating leases as at August 31 is as follows:

2017 2016

Within one year 96

70

After one year but no more than five years 222 151 More than five years 372 377 Total 690 598

Total lease payments of EUR 94 million (2016: EUR 75 million) are recorded in the income statement.

21. FINANCIAL RISK MANAGEMENT

General The use of financial instruments is closely related to the commercial flows and the cash flows of the business. Treasury operations are centralised and executed according to the Policy, Standard & Rules for Investment and Treasury as set by the Board.

Interest rate risk The Company has the policy to limit interest rate risk exposure on assets held by Treasury companies. These companies manage interest rate risk by limiting interest duration to a maximum of three years on financial assets and liabilities.

The assets mainly consist of a securities portfolio, which has a fixed interest rate profile as result of which the Company runs a fair value risk due to changing market rates of interest. Group Treasury is actively monitoring the interest rate risk regarding the securities portfolio and enters into interest rate derivatives with the objective to limit interest duration. No hedge accounting is applied to the securities portfolio and the related interest rate derivatives.


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Treasury companies receive fixed interest rates on internal funding provided to Group entities. The fair value risk which is considered in those internal funding positions is swapped with external banks. No hedge accounting is applied to those derivatives and positions. Fair value movements of those derivatives are reported through the income statement.

Sensitivity analysis Interest rate 2017 2016

+1% (1%) +1% (1%)

Impact on Total financial income (264) 274 (204) 210 The sensitivity analysis relates to the securities portfolio and derivatives for which no hedge accounting is applied as described above.

Credit risk The Company manages its credit risks on individual counterparties. Counterparty limits are based on credit ratings and total aggregated exposure to counterparties. This aggregated exposure includes the position held in securities. The Company’s policy determines that bank accounts are held with investment grade rated financial institutions. Credit risk on all derivative positions is covered using collateral margining process according to CSA agreements in place with all external counterparties.

Liquidity and cash flow risk The Company manages its liquidity and cash flow risk by liquidity planning with the objective to maintain readily available liquid assets equal to a percentage of the Group’s revenues.

Equity price risk In addition to interest bearing securities, the Company holds a portfolio of listed equities, for an amount of EUR 864 million at August 31, 2017 (2016: EUR 201 million). The Company is exposed to equity price risk, which is the risk that the fair value of equities decreases as a result of changes in the levels of equity indices and the value of individual stocks.

Exchange rate risk The Company is exposed to foreign exchange rate risks arising from purchase and sales transactions as well as holding net positions denominated in foreign currency. The exchange rate risk of the Company is actively managed by using derivative contracts.

At August 31, 2017, the total fair value of the derivatives used to manage exchange rate risk is EUR 141 million positive (2016: EUR 113 million negative). The fair value of these derivatives are part of the derivatives position in note 8 and 15. The remainder of the total fair value in the two notes relates to interest rate derivatives.


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The EUR 141 million can be broken down in the following portfolios: 2017 2016

+1% (1%) +1% (1%)

Impact on Total financial income and expense (derivative) (in EUR million)

56 (57) 55 (56)

The +1% and (1%) indicate the weakening and strengthening of the euro or dollar, depending on the entity denominated currency versus other currencies. The sensitivity analysis relates to all currency derivatives for which no hedge accounting is applied.

Commercial Flows Purchase and sales transactions are denominated in many different currencies. Management evaluates the net future forecasted currency exposure and manages the risk by the use of currency derivatives.

At August 31, 2017, IKEA Group had derivatives in place for 2018 with an underlying value of EUR 268 million (2016: EUR 234 million) to reduce currency risk on commercial flows in the next year of on total EUR 283 million (2016: EUR 234 million).

For currency risk on commercial flows not sourced in local currency in 2018, hedges are in place, but no hedge accounting is applied.

Internal Funding and Investment portfolio The exchange rate risk associated with internal funding and securities (investment portfolio) in foreign currency is managed by use of currency derivatives. For existing internal funding and securities in foreign currency, currency derivatives are in place with an underlying amount of negative EUR 6.9 billion (2016: negative EUR 8.1 billion).

2017 2016

Commercial flows 2018

24

-

Commercial flows 2017 - (13) Internal funding 34 (102) Investment portfolio hedge 30 (14) Currency diversification 53 16 Total 141 (113)


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The derivatives mainly relate to the following currencies and underlying positions (in EUR million):

Currency Derivative Internal Funding Investment Portfolio USD -1,533 1,637 550 PLN -554 554 RUB -401 414 JPY -686 686 CNY -657 657 SEK -690 690

Currency Diversification At year-end 2017 the currency diversification portfolio consists in forward FX contracts in several currencies for a total amount of EUR 692 million (2016: EUR 2,857 million).

22. RELATED PARTIES

Any sales to and purchases from related parties are entered into at arm’s length prices.

23. DISCONTINUED OPERATIONS

On May 23, 2016, IKEA Group signed a Share Purchase Agreement to sell the companies executing the assignments for product development and supply chain and in addition its production companies, being IKEA of Sweden AB, IKEA Supply AG and IKEA Industry Holding B.V and other connected companies to Inter IKEA Group. IKEA Group’s production companies were included in the Transaction as production is closely linked to the supply chain and product development. The Transaction was completed on 31 August 2016 and the transfer of ownership was made through sale of shares. In 2017 an amount of EUR 1.8 billion was received in cash relating to the consideration for the shares and repayment of loans.

The gain on sale of the companies sold is as follows:

2017 2016 Pre-tax gain 59 714 Income tax - 63 Net gain 59 651

In the consolidated income statement the companies sold are included as follows:

2016 Revenues (from sales outside IKEA Group) 1,844 Revenues (from sales to IKEA Group) 19,749 Revenues (total) 21,593 Expenses (20,392) Operating income 1,201 Financial income and expense (6) Profit before tax 1,195 Income tax (202) Net income relating to companies sold 993


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In the consolidated cash flow statement the group of companies sold are included as follows:

2016 Operating cash flows 1,025 Investing cash flows (233) Financing cash flows (581) Net movement in cash 211


Page 43

BOARD OF MANAGING BOARD OF SUPERVISORY DIRECTORS DIRECTORS

Leiden, January 31, 2018

J. Brodin (Chairman) L-J. Jarnheimer (Chairman)

A. Davidson S. Bergfors

T. Bertilsson L. Delgado

L. Fønss Schrøder

J. Kamprad

M. Newton-Jones

I. Worling


Page 44

COMPANY BALANCE SHEET before profit appropriation August 31

ASSETS


Fixed assets Investments in consolidated subsidiaries (2) 40,732 38,836 Total fixed assets 40,732 38,836

Current assets Other receivables from consolidated subsidiaries 63 29 Other receivables - 22 Total current assets 63 51

TOTAL ASSETS 40,795 38,887

SHAREHOLDER’S EQUITY AND LIABILITIES

2017 2016

Shareholder’s equity (3) Capital Stock 1 1 Additional paid-in capital 51 51 Revaluation reserves 303 364 Other legal reserves 345 424 Other reserves 36,726 33,821 Result for the year 2,473 4,200 Total shareholder’s equity 39,899 38,861

Current liabilities

Current portion of debt to consolidated subsidiaries 840 - Other payables to consolidated subsidiaries 40 22 Other payables and accrued liabilities 16 4 Total current liabilities 896 26

TOTAL SHAREHOLDER’S EQUITY

AND LIABILITIES 40,795 38,887



Page 45

COMPANY INCOME STATEMENT Year ended August 31


Share in result of consolidated subsidiaries

2,511

4,209

Other result after tax (38) (9) Net income 2,473 4,200



Page 46

NOTES TO COMPANY FINANCIAL STATEMENTS August 31 (all amounts in EUR million)

1. ACCOUNTING POLICIES

The accounting policies are the same as for the consolidated financial statements. In addition, investments in consolidated subsidiaries are accounted for using the equity method.

The Company presents a condensed Company Income Statement, using the facility of Article 402 of Part 9, Book 2, of the Dutch Civil Code.

2. FINANCIAL FIXED ASSETS - Investments in consolidated subsidiaries

Changes in investments in consolidated subsidiaries are as follows:

2017 2016

Opening balance

38,836

34,814

Foreign currency translation adjustment (596) (15) Capital contributions 14,153 1,102 Share in net income for the year 2,511 4,209 Dividends received (14,173) (1,101) Change in unrealised result derivatives - (15) IAS19 remeasurement 75 (83) Realisation through income statement (71) (75) Other (3) - Total 40,732 38,836

In accordance with Article 403, Book 2 of the Civil Code of the Netherlands, the Company has guaranteed the liabilities of certain Dutch majority-owned subsidiaries. Separate financial statements of these subsidiaries are therefore not filed at the Trade Register of the Chamber of Commerce. In relation to the financial year 2017, 403-statements have been issued for the following companies: - ASIA Center Holdings B.V. - Fuprin Holding IV B.V. - IKEA Capital B.V. - IKEA Centres Asia B.V. - IKEA Centres Europe B.V. - IKEA Competence B.V. - IKEA Finnish Real Estate - IKEA Services B.V. - IKEA Vastgoed B.V. - Ingka Holding Europe B.V. - Ingka Holding Europe Subholding II B.V. - Ingka Holding Overseas B.V. - Ingka Holding Scandinavia B.V. - Ingka Pro Holding B.V. - Royston Holding B.V.


Page 47

3. SHAREHOLDER’S EQUITY

The issued and outstanding share capital of the Company is comprised of 726,000 ordinary shares, each with a par value of EUR 1.

Changes in shareholder’s equity for the year ended August 31, 2017 are as follows:

Share capital

Additional paid in capital

Reva- luation reserves

Other legal

reserves

Trans- lation

reserves

Retained earnings

Result for the year

Total 2017

Total 2016

Opening balance 1 51 364 424 (392) 34,213 4,200 38,861 34,849 Net income - - - - - - 2,473 2,473 4,200 Foreign translation - - 4 (4) (535) (61) - (596) (15) Dividend paid - - - - - (840) - (840) - Hedging reserve - - - - - - - - (15) Pension reserve - - - - - 75 - 75 (83) Realisation in income statement - - (71) - - - - (71) (75)

Transfer - - 6 (75) - 4,269 (4,200) - - Other - - - - - (3) - (3) -

Closing balance 1 51 303 345 (927) 37,653 2,473 39,899 38,861

The (other) legal reserves at August 31, 2017 are not available for dividend distributions and represents retained earnings set aside by law in certain countries. The foreign currency translation reserve is used to record exchange differences arising from the translation of the reporting of foreign activities.

4. AUDIT FEES

The audit fees by Ernst & Young Accountants LLP and Dutch member firms as Dutch auditor to legal entities within the group, in connection with the audits of the statutory financial statements 2017 of these entities amount to EUR 1.7 million (2016: EUR 1.4 million). Audit related fees by Ernst & Young Accountants LLP and Dutch member firms to these Dutch legal entities in financial year 2017 amount to EUR nil million (2016: EUR 0.3 million). Non-audit fees by Ernst & Young Accountants LLP and Dutch member firms to these Dutch legal entities in financial year 2017 amount to EUR 0.1 million (2016: EUR 0.3 million) and EUR nil tax fees were invoiced by the auditors (2016: nil).

5. INCOME TAXES

Since October 1, 2004, the Company is part of a fiscal unit with respect to Dutch income tax. This implies that the Company is individually liable for Dutch income Tax of the fiscal unit as a whole. Income taxes are accounted for as if each entity in the fiscal unity would been taxable for its own results.


Page 48

6. COMMITMENTS AND CONTINGENCIES

As part of the Transaction in 2016, IKEA Group has provided certain indemnifications and warranties to the buyer in relation to the sold entities, including, but not limited to, corporate information, accounts, guarantees, assets, intellectual property, information technology, contracts and other agreements, employees, legal compliance, environment matters, litigation, insurance, products and taxes. The majority of indemnifications and warranties are capped to an aggregate maximum amount of EUR 1 billion. A provision is taken in the balance sheet for these items if the criteria are met as described in the relevant accounting policy around provisions.

7. EMPLOYEES

The Company has 3 employees as at August 31, 2017 (August 31, 2016: 2).

8. REMUNERATION BOARD OF DIRECTORS The remuneration of the current and former members of the Company’s board of managing directors includes base salary, incentive plans, employer’s pension commitments and any other periodic contributions as provided by the Company and/or its consolidated subsidiaries. The total compensation to the current and former members of the board of managing directors amounts to EUR 15.4 million for 2017 (2016: EUR 5.4 million). The remuneration of the members of the Company’s board of supervisory directors amounts to EUR 1.1 million for 2017 (2016: EUR 0.9 million). The Company incurred an amount of EUR 6.0 million (2016: EUR 0.1 million) in recurring and non-recurring employer taxes related to the remuneration of the board of directors for 2017.

9. INVESTMENTS

Set forth below are all significant investments of the Company at August 31, 2017. Investments are wholly owned unless otherwise indicated.

Australia IKEA Pty Ltd.

Melbourne

Austria IKEA Möbelvertrieb OHG Vienna

Belgium IKEA Belgium SA

Brussels IKEA Service Centre SA

Brussels

Canada IKEA Canada Limited Partnership Toronto

China IKEA Beijing Co. Ltd.

Beijing IKEA Shanghai Co. Ltd.

Shanghai IKEA Shenzhen Co. Ltd.

Shenzhen IKEA Chengdu Co. Ltd.

Chengdu IKEA Guangzhou Co. Ltd.

Guangzhou


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IKEA IMS Wholesale (Shanghai) Co. Ltd.

Shanghai IKEA Centres Beijing Co. Ltd.

Beijing IKEA (China) Investments Co. Ltd.

Shanghai

Croatia IKEA Hrvatska d.o.o. Za Trgovinu Zagreb

Czech Republic IKEA Ceská Republika s.r.o.

Prague

Denmark IKEA A/S Copenhagen

Finland IKEA Oy

Helsinki

France Meubles IKEA France SAS Paris

Germany IKEA Deutschland GmbH & Co KG.

Munich IKEA Verwaltungs GmbH

Munich

Hungary IKEA Furnishing Kft. Budapest

India IKEA India Pvt Ltd.

New Dehli

Ireland IKEA Ireland Ltd Dublin

Fami Ltd. Dublin

Fami Investments Ltd Dublin Italy IKEA Italia Retail S.R.L.

Milan

Japan IKEA Japan KK Tokyo

The Netherlands IKEA B.V.

Amsterdam IKEA Capital B.V.

Leiden IKEA Services B.V.

Leiden

Norway IKEA AS Oslo


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Poland IKEA Retail Spółka z o.o

Warsaw IKEA Centres Polska S.A.

Janki

Portugal IKEA Portugal - Móveis e Decoração LDA Lisbon

Romania IKEA Romania S.R.L.

Bucharest

Russia OOO IKEA MOS Moscow

OOO IKEA DOM Moscow

Serbia IKEA Srbija DOO Beograd

Belgrado Slovakia IKEA Bratislava Spol. S.r.o.

Bratislava

South Korea IKEA Korea Ltd Seoul

Spain IKEA Ibérica S.A.

Madrid IKEA Norte S.L.

Barakaldo

Sweden IKEA Svenska Försäljnings AB Helsingborg

IKEA Indirect Material & Services AB Älmhult

IKEA Services AB Helsingborg

IKEA Retail Services AB Helsingborg

IKEA IT AB Helsingborg

Switzerland IKEA AG

Zürich Ikano Insurance Holding AG (49%)

Züg

United Kingdom IKEA Ltd London

US IKEA Property, Inc.

Wilmington IKEA New York LLC

Wilmington IKEA US West, Inc.

Wilmington IKEA US East LLC

Wilmington


Page 51

The following affiliated companies, which are included in the consolidated group financial statements of Ingka Holding B.V. are in accordance with § 264b German Commercial Code (“HGB”) relieved of drawing up, auditing and disclosing their financial statements, notes and management reports in line with the regulations on the second paragraph within the third book of the German Commercial Code:

- IKEA Holding Deutschland GmbH & Co. KG - IKEA Deutschland GmbH & Co. KG - IKEA Distribution Services GmbH & Co. KG

PROPOSED PROFIT APPROPRIATION (in millions of EUR) 2017 2016 Dividend 495 840 Additions to reserves 1,978 3,360 Total 2,473 4,200

SUBSEQUENT EVENTS

No subsequent events occurred after balance sheet date that should be disclosed.


Page 52

BOARD OF MANAGING BOARD OF SUPERVISORY DIRECTORS DIRECTORS

Leiden, January 31, 2018

J. Brodin (Chairman) L-J. Jarnheimer (Chairman)

A. Davidson S. Bergfors

T. Bertilsson L. Delgado

L. Fønss Schrøder

J. Kamprad

M. Newton-Jones

I. Worling


Page 53

OTHER INFORMATION

NET INCOME APPROPRIATION

According to Article 12 of the Company’s statutes, the annual meeting of shareholders will decide on the appropriation of the net income for the year including a transfer to specific reserves as deemed necessary.

Independent auditor’s report

The financial statements have been audited and the independent auditor's report is included on the next three pages.

FYBuilding a betterworking world

Independent auditor’s reportTo: the shareholder and supervisory board of lngka Holding B.V.

Report on the audit of the financial statements 2017included in the annual reportOur opinionWe have audited the financial statements 2017of lngka Holding B.V., based in Amsterdam.

In our opinion the accompanying financial statements give a true and fair view of the financial positionof lngka Holding B.V. as at August 31, 2017, and of its result for the year then ended in accordance withPart 9 of Book 2 of the Dutch Civil Code.

The financial statements comprise:The consolidated and company balance sheet as at August 31, 2017The consolidated and company income statement for the year then endedThe notes comprising a summary of the accounting policies and other explanatory information

Basis for our opinionWe conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing.Our responsibilities under those standards are further described in the “Our responsibilities forthe audit of the financial statements” section of our report.

We are independent of lngka Holding B.V. in accordance with the Verordening inzake deonafhankelijkheid van accountants bij assurance-opdrachten (ViO, Code of Ethics for ProfessionalAccountants, a regulation with respect to independence) and other relevant independence regulations inthe Netherlands. Furthermore we have complied with the Verordening gedrags- en beroepsregelsaccountants (VGBA, Dutch Code of Ethics).

We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for ouropinion.

Report on other information included in the annual reportIn addition to the financial statements and our auditor’s report thereon, the annual report containsother information that consists of:

The board of managing directors reportOther information pursuant to Part 9 of Book 2 of the Dutch Civil Code

Based on the following procedures performed, we conclude that the other information:Is consistent with the financial statements and does not contain material misstatementsContains the information as required by Part 9 of Book 2 of the Dutch Civil Code

Building a betterworking world

We have read the other information. Based on our knowledge and understanding obtained through ouraudit of the financial statements or otherwise, we have considered whether the other informationcontains material misstatements. By performing these procedures, we comply with the requirements ofPart 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of the proceduresperformed is less than the scope of those performed in our audit of the financial statements.

Management is responsible for the preparation of the other information, including the managementboard’s report in accordance with Part 9 of Book 2 of the Dutch Civil Code and other informationpursuant to Part 9 of Book 2 of the Dutch Civil Code.

Description of responsibilities for the financial statementsResponsibilities of management for the financial statementsManagement is responsible for the preparation and fair presentation of the financial statements inaccordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore, management is responsible forsuch internal control as management determines is necessary to enable the preparation of thefinancial statements that are free from material misstatement, whether due to fraud or error.

As part of the preparation of the financial statements, management is responsible for assessing thecompany’s ability to continue as a going concern. Based on the financial reporting frameworkmentioned, management should prepare the financial statements using the going concern basis ofaccounting unless management either intends to liquidate the company or to cease operations, or hasno realistic alternative but to do so. Management should disclose events and circumstances that maycast significant doubt on the company’s ability to continue as a going concern in the financialstatements.

Our responsibilities for the audit of the financial statementsOur objective is to plan and perform the audit assignment in a manner that allows us to obtain sufficientand appropriate audit evidence for our opinion.

Our audit has been performed with a high, but not absolute, level of assurance, which means we may nothave detected all material errors and fraud.

Misstatements can arise from fraud or error and are considered material if, individually or in theaggregate, they could reasonably be expected to influence the economic decisions of users taken on thebasis of these financial statements. The materiality affects the nature, timing and extent of ouraudit procedures and the evaluation of the effect of identified misstatements on our opinion.

We have exercised professional judgment and have maintained professional skepticism throughout theaudit, in accordance with Dutch Standards on Auditing, ethical requirements and independencerequirements. Our audit included e.g.:

Identifying and assessing the risks of material misstatement of the financial statements whether dueto fraud or error, designing and performing audit procedures responsive to those risks, and obtainingaudit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of notdetecting a material misstatement resulting from fraud is higher than for one resulting from error,as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override ofinternal controlObtaining an understanding of internal control relevant to the audit in order to design auditprocedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the company’s internal control

Building a betterworking world

Evaluating the appropriateness of accounting policies used and the reasonableness of accountingestimates and related disclosures made by managementConcluding on the appropriateness of management’s use of the going concern basis of accounting,and based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the company’s ability to continue as a going concern.If we conclude that a material uncertainty exists, we are required to draw attention in ourauditor’s report to the related disclosures in the financial statements or, if such disclosures areinadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up tothe date of our auditor’s report. However, future events or conditions may cause a company to ceaseto continue as a going concernEvaluating the overall presentation, structure and content of the financial statements, including thedisclosuresEvaluating whether the financial statements represent the underlying transactions and eventsin a manner that achieves fair presentation

Because we are ultimately responsible for the opinion, we are also responsible for directing, supervisingand performing the group audit. In this respect we have determined the nature and extent of theaudit procedures to be carried out for group entities. Decisive were the size and/or the risk profile of thegroup entities or operations. On this basis, we selected group entities for which an audit or review had tobe carried out on the complete set of financial information or specific items.

We communicate with management regarding, among other matters, the planned scope and timing ofthe audit and significant audit findings, including any significant findings in internal control that weidentify during our audit.

Amsterdam, January 31, 2018

Ernst & Young Accountants LLP

signed by A.E. Wijnsma

annual report for financial year 2017 - virk

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