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Like many western multinationals, the global home furnishings giant Ikea was investing heavily in Russia when the country’s invasion of Ukraine triggered the severing of business relations and sent inflation shockwaves throughout the world.
Ikea’s retail arm, Ingka Group, not only owned and operated stores in Russia, but also invested in the wider commercial property and renewable energy sectors in the country. And, as revealed by The Currency last year, Ingka Group’s Dublin-based financial team manages €30 billion in treasury reserves through a network of Irish companies.
New financial information from these companies gives an indication of the shock they suffered after the war broke out.
The most directly impacted was Fami Ltd, Ingka Group’s internal global bank. The Dublin company collects profits returned by the group’s best-performing stores around the world and lends it to those that need to get off the ground or upgrade.
“The Company’s financial performance was adversely affected by geopolitical tensions,” the directors of Fami reported in their annual filing. “Russia issued a presidential decree, which outlawed the repayment by Russian subsidiaries owed to Fami Ltd totalling €842 million as at 31 August 2022. Since their payment is prohibited large credit losses from these loans have been recognised.”
The company allocated a 90 per cent risk of loss on those loans, and on much smaller ones to Ukrainian stores forced to close. In total, it wrote off €764 million in debt owed by sister companies in the two countries.
Fami’s overall business grew, however, because the Irish company and its Belgian branch took over Ingka Group’s internal lending in Chinese yuan and Indian rupees during the year.
Interest rates hammer bond values
Separately, Ingka Investments Financial Assets Ireland and its subsidiary Ingka Investments Financial Assets Dublin are tasked with investing the bulk of the group’s vast cash reserves in safe, accessible financial products for use in the future. Until the fits and starts of recovery from the pandemic, compounded by Russia’s invasion of Ukraine, caused global inflation to spike, government bonds were the prime target of such conservative investment strategies.
These two companies report performance as changes in “fair value through profit and loss,” which means that their balance sheet does not detail how much they have invested in or out of securities and what interest or dividend they got out of them. Instead, the overall gain or loss achieved through those investments over the year appears in each company’s profit and loss account.
The largest, Ingka Investments Financial Assets Ireland, invests in euro. It owned €16.5 billion worth of bonds, €1.1 billion worth of shares and €413 million placed in investment funds on August 31, 2022. Over the following year, as rising interest rates weighed on the value of existing bonds and stock markets faced turmoil, the company posted a €972 million loss in the value of its bonds and another €148 million in that of its equity securities. On the positive side, interest from bonds and dividends from shares returned nearly €200 million, and investment funds €39 million.
The net €882 million loss was equivalent to 6.4 per cent of its portfolio, though it would crystallise only if Ingka Group decided to sell those bonds or shares to spend cash.
Meanwhile, Ingka Investments Financial Assets Dublin, which holds the group’s dollar-denominated investments, started the year with $3.6 billion worth of bonds and $185 million in investment funds on its balance sheet. By August 31, 2022, it reported a net loss of $227 million across its portfolio after interest and dividends were collected.
Despite this, it ended the year with an expanded portfolio of $5.2 billion in bonds and $419 million in investment funds, suggesting that it continued to invest aggressively during the period.
Between them, the two Ingka Investments Financial Assets companies had recorded a net loss of over €1 billion on their investments, though the dollar-denominated subsidiary again clarified that this was “unrealised”.
As of August 31 last year, they held a combined portfolio valued at €25.7 billion across bonds, shares, investment funds and cash.
The silver lining came from Ingka FX, another Irish group company focused on acquiring derivatives to hedge the foreign exchange risk associated with the group’s business across multiple currencies.
“The derivate gains during the year were led by appreciations in the Russian rouble and US dollar, with the euro weakening against almost all currencies except the Japanese yen, Hungarian forint, Polish zloty and Swedish krona,” Ingka FX reported. This resulted in a €716 million net gain boosting its profit in Ireland, though this will likely compensate foreign exchange losses elsewhere in the Ingka Group.
