Ikea's Growth Is Proving To Be A Difficult Package
The Age
Tuesday January 29, 2008
THE Australian arm of Swedish cut-price homewares giant Ikea is throwing off cash like never before, but the "big-box" operator's bottom line is suffering from the high price of financing its move into big new stores.
Record numbers of customers seeking Ikea's flat-pack furniture and accessories have boosted its revenue by 20% in what is its fastest-growing market in the world in terms of annual sales. But net profit fell 84% in 2006-07. Famed for its simple design and cavernous stores, Ikea reported profit after tax of $1.9 million in the year ended August 31, from operating revenue of $375 million. That compared with the previous year's net profit of $11.9 million from operating revenue of $299 million. Despite this, the consolidated entity has a deficiency in net current assets and current liabilities of $31.8 million, but continued as a going concern as it intended to renew a financing facility. The figures are contained in accounts lodged by Ikea with the Australian Securities and Investments Commission on December 20. The notoriously private furniture and accessories company declined to return calls requesting comment.The cost of borrowing to build and stock Ikea's super stores is taking its toll, with financing costs almost wiping out the company's profit in the past year. Without the borrowings, the company would have posted a profit of $42.3 million. With the high cost of borrowing, the company paid just one tenth the amount of tax it paid the previous year - $584,000 compared with $5.1 million. A $150 million store in Springvale is set to open by the end of this year. Ikea is owned by Ingvar Kamprad, a Swede who Forbes magazine says is worth $33 billion.
© 2008 The Age
