For 30 years, the Ikea group and its multi-hundred-store global retail network, since separated out under the name Ingka Group, have located a growing finance office in Dublin, tasked with managing billions of euro in accumulating profits.

In part 1 of this investigation yesterday, The Currency pieced together the expansion of the corporate structures based in Ireland over the period and the Ingka Group’s new strategy since 2019 to consolidate treasury and liquidity management in Dublin instead of several financial hubs around the world previously.

This has led to the present-day situation where four Irish subsidiaries with 28 Dublin-based employees handle a €30 billion pool of cash and short-term securities, structured into an internal group bank and a parallel asset management office. This is how they do it.

Financial assets “to manage the risk and to deliver a return”

Ingka Investments Financial Assets Ireland is the largest of the four companies. In the two years following its establishment in 2019, it received €18.9 billion in capital contributions from the group’s Dutch head office, and another €2.25 billion deposit from its sister Irish company Fami reported as a loan. Of these funds, it has invested €3.3 billion in its own subsidiary Ingka Investments Financial Assets Dublin. 

The mission of Ingka Investments Financial Assets Ireland when handling the resulting €17.8 billion in liquidities is “to manage the risk and to deliver a return based on internal performance targets”. It has been doing so by investing the cash into a relatively conservative portfolio reporting in euro.

The vast majority of its assets are openly traded sovereign and corporate bonds worth €16.1 billion last year. It held another €353 million of other bond instruments, such as CLOs. Its equity investments, worth €1.1 billion last August, were all in stock market-traded shares. It also held €413 million in investment funds managed by third-party firms, which include “infrastructure funds”.

In the year to August 2021, Ingka Investments Financial Assets Ireland collected €172 million in interest from its bonds; €27.2 million in dividends from its stocks; and €7.2 million from its investments in funds. During the year, its bonds also lost €88.3 million of their market value, but this was more than made up by increases of €157.9 million in the value of its stocks and €31.4 million in that of its investment funds.

All in all, after adjustments for exchange rate fluctuations and minor interest on the Fami deposit, the company had net finance income of €296.8 million. That was a 1.9 per cent gross return on the assets it managed last year, in line with the safe approach adopted by its managers in a low-interest rate environment.

US government bonds and zero interest rates

Its subsidiary Ingka Investments Financial Assets Dublin, which does the same job but in US dollars, was even more conservative. Funded over previous years with $3.5 billion in capital contributions from the Ingka Group, the company had grown it to $3.8 billion last year. 

It held nearly all of this in publicly traded sovereign and corporate bonds ($3.4 billion) and $256 million in less openly priced bonds. Just $184.9 million was in investment funds, again with “infrastructure funds” mentioned.

Its bonds generated zero interest, and only a slight uplift in the value of its assets allowed it to report net finance income of $41.1 million last year. This is equivalent to a gross return of just over 1 per cent.

Between the two Irish companies, Ingka Investments held here the totality of the €21.2 billion in financial assets reported worldwide by the Ingka Group. This places it among the richest multinationals running similar liquidity management activities through Ireland, such as US technology and pharmaceutical firms.

Consolidated accounts filed by Ingka’s ultimate parent in the Netherlands include additional information on the Dublin office’s investment strategy, confirming that it is playing a very safe hand. The majority of the bonds owned by the two Ingka Investment companies here are issued by sovereign states and rated AAA to AA. Ingka Investments applies exposure limits ranging from no limits for sovereign bonds rated BBB or above, down to a maximum of €50 million invested with any corporate bond issuer rated BBB-.

At last year’s exchange rate, Ingka Investments’s two Irish subsidiaries reported combined pre-tax profits of €322.7 million and Irish corporation tax charges of €40.4 million last year.

Fami first: How Dublin swallowed Ingka’s financial centres around the world

While Ingka Investments is the group’s internal investment fund, Fami acts as its intercompany bank. It reports its principal activity as “consisting primarily of financing and payment services on behalf of operating subsidiaries around the world of the Ingka Holding BV group of companies”. 

As detailed above, Fami is descended from Ikea’s long-established treasury management presence in Dublin’s IFSC. In the past two years, its role was overhauled  – and expanded. First, the company disposed of the liquidity investment activity through dividends totalling €18.4 billion in financial years 2020 and 2021 to the Dutch head office, which then reinvested it into the two Irish Ingka Investment subsidiaries. Then Fami took on new work.

“On September 1, 2020, the company acquired from Ikea Asia Treasury Centre Ltd the loans to the Ingka Group’s Japanese, Korean and Australian subsidiaries for a total consolidation of $1.7111 billion,” it reported. The move completed Fami’s 2020 “transformation into Ingka Group’s inhouse bank and the acquisition of Ikea Service Centre SA’s treasury business.” Instead of being spread across Hong Kong, Belgium and Ireland previously, the assets in those central finance functions are now entirely booked in Dublin.

Fami is mostly funded with €9.1 billion in equity contributions placed into it by the group in the past. It also has a growing pile of funds, reported as loans, which “represent deposits of excess cash placed by Ingka Group retail and other operating companies”. These are for durations of up to two months and amounted to €3.2 billion last year, on which it paid interest rates of between -0.562 per cent to 6.65 per cent to intercompany depositors.

Of these resources, Fami had €222.4 million available in cash last August and just under €12 billion loaned to other Ingka Group companies. These intercompany loans were unsecured and were evenly split between fixed and floating rates. Their currency distribution gives clues as to the regions where the Dublin office is lending.

The list of Fami’s debtors is not detailed, but two related companies can be identified. One is Ingka Investments Financial Assets Ireland, where Fami deposited €2.25 billion of its own excess cash for investment, as detailed above. That’s not really a loan, so the amount borrowed by operational group companies to invest in their own businesses is closer to €10 billion. 

The other named borrower is Veja Mate Offshore Project GmbH, Germany’s third-largest wind farm, in which the Ingka Group last month increased its stake to 33 per cent. While this equity investment is not held in Ireland, the €154 million loan outstanding to the wind farm indicates that Fami issues debt out of Dublin to fund the group’s wider range of activities beyond Ikea retail stores.

Fami collected just over €200 million in interest on its loans to related companies last year, indicative of an average interest rate of around 1.7 per cent. It reported another €57.6 million in foreign exchange gains on its loans after a heavy corresponding loss in 2020, with swings in the Russian ruble exchange rate mentioned as a significant factor.

The company holds derivatives to hedge against these forex fluctuations and they have offset some of the effect on its bottom line. Fami ended last year with a pre-tax profit of €131 million and declared a €16 million tax charge in Ireland.

Fami and the two Ingka Investments subsidiaries also use a fourth sister company registered at the same address, Ingka FX, to manage foreign exchange risks through the purchase of derivatives. It generated a €118.9 million pre-tax profit last year and booked €14.9 million in Irish tax, but this fluctuates from year to year depending on foreign exchange rates (its loss in the previous year was €60.5 million).

The location of these activities in Ireland helps the Ingka Group reduce its overall tax liabilities.

Across the four companies combined, the group’s financial centre in Ballsbdrige generated €71.3 million in corporation tax revenue for Ireland last year, out of combined profits of €572.6 million.

The location of these activities in Ireland helps the Ingka Group reduce its overall tax liabilities. The group’s consolidated pre-tax profit last year was €2.2 billion and its tax bill €655 million, resulted in a reported effective tax rate of 29.3 per cent. Its Dublin finance office, meanwhile, accounted for one quarter of profits, but only one tenth of corporation tax charges. The four companies involve apply Ireland’s 12.5 per cent corporate rate without making use of any specific deductions other than withholding taxes already paid on investments located overseas. 

A simple subtraction shows that the Ingka Group’s pre-tax profit outside Ballsbridge was €1.7 billion last year, with corresponding tax charges of €583.1 million, which would be equivalent to an effective tax rate of over 35 per cent. The location of its treasury and liquidity investment business in Dublin is therefore linked to an estimated reduction of nearly six percentage points in the group’s tax rate, worth around €130 million last year alone. 

Over 60 staff – half in Ireland – and a director from Arthur Cox

To run these financial operations, the Ingka Group’s finance subsidiaries have over 60 staff employed by its Dublin-based companies. Fami is the largest employer, with a 44-strong workforce last year. Ingka FX had another four employees. Ingka Investments Financial Assets Ireland reported six employees and two employed directors last year, while Ingka Investments Financial Assets Dublin had four employees and two employed directors. The average gross salary at each of the four companies was in excess of €100,00, not counting pension benefits.

Not all these employees are working out of the Ballsbridge office, however. Fami maintains a branch in Zaventem, Belgium, where the Irish company continued to employ 27 people last year. Asked by The Currency about the current size of its Irish-based finance team, a spokesperson for Ingka Group said: "There are a total of 28 co-workers in the Dublin office. We are looking to expand the team, and at the moment we are recruiting for four vacancies."

The only Irish director across the four companies is solicitor John Matson, head of international at Arthur Cox. The law firm also acts as company secretary to the four entities through its dedicated unit Bradwell Ltd.

Two more directors report a residential address in Ireland. One is Henrik Fries, originally from Denmark, who sits on the board of the four companies. He has been working on the Ingka Group’s liquidity management for over 25 years and is now group treasurer, and managing director of Fami. 

The other is British national Samuel Rundle, head of financial markets Investments at Ingka Investments. He is another veteran investment manager for the Ingka Group, having joined around the time its first Irish store opened in Ballymun. He is a director of both Ingka Investments Financial Assets Ireland and Dublin, and oversees the €20 billion stockpile of securities held by the two companies.

Other directors of the Dublin-based finance companies are Ingka Group executives based outside Ireland. In the past few weeks, the group’s departing CEO Krister Mattsson resigned from all four boards. His successor Peter van der Poel replaced him as director of the two Ingka Investments companies, while Ingka’s deputy CFO Lucy Slinger became director of both Fami and Ingka FX.

The Currency contacted the Ingka Group to request an interview with one of its Irish-based finance executives, but none was available. In answer to The Currency's questions about the size, organisation, investment strategy and location of its Dublin finance office, the group spokesperson said: "Dublin is a financial hub in Europe, where over the years we have centralised Ingka Group Treasury, and more recently, our Financial Market Investment portfolio which is part of Ingka Investments. Our strategy within Ingka Investments is to invest with impact looking beyond financial risk and rewards, and Ingka Group’s four pillars of creating a Better Planet, Better Lives, Better Homes, as well as a Better Company."

Further reading

Part 1: How Ikea turned Ireland into a €30bn cosy home for retail profits