Almost 17 months to the day after its initial scheduled release date, Steinhoff International is expected on Tuesday to finally publish its 2017 annual results.
This is the set of financials that led to the resignation of longtime CEO Markus Jooste and pushed the company's share price over a cliff when their release — originally set for December 2017 — was postponed due to "accounting irregularities".
And the books will be much leaner on the asset side of the balance sheet. The retail group this week said it had to adjust the value of its assets downward by about R29bn.
"Pursuant to further review by Steinhoff, it has today been determined that the group's goodwill and intangible assets as at 30 September 2017 are to be further impaired by approximately €1.8bn," the company said this week.
The latest adjustment is mostly due to its first, gutsy foray into the US market when it bought Mattress Firm for $3.8bn (R50bn) three years ago. At the time, Steinhoff paid 115% more than the market valued it at — corporate finance specialists call it a "substantial premium" and critics said the company was overpaying.
As part of its metamorphosis from a furniture manufacturer to a global retail group, Steinhoff pushed through a dizzying spree of acquisitions over most of the past decade, often paying much more than the prevailing share prices for the companies it bought.
These acquisitions had the effect of swelling the goodwill and intangible assets on Steinhoff's books. An intangible asset is exactly what the name suggests — it cannot be touched. Goodwill is an example of such an asset. It encompasses the brand name, a loyal customer base, solid labour relations and the value of intellectual property, among other things.
By September 2016, the goodwill and intangible assets on Steinhoff's balance sheet had ballooned to €16.5bn out of total assets of €32bn. At more than 50%, it was high by any standard.
After Jooste's departure, the company appointed auditing and consulting group PwC to conduct an investigation and started combing through the numbers. Within months Steinhoff announced that its goodwill and intangible assets stood at only around €9bn — more than €7bn lower than previously stated. Now, the company believes these assets to be worth only €7.2bn.
"This conclusion . primarily follows a reassessment of the value of the goodwill and intangible assets of Mattress Firm as at 30 September 2017," Steinhoff said.
Mattress Firm has since applied for chapter 11 bankruptcy, a restructuring process in the US similar to SA's business rescue proceedings. Steinhoff's stake in the bed retailer has dropped to 51% from 100% as a result.
But the latest impairment is from long before the bankruptcy proceedings. Steinhoff said the reassessment was based on Mattress Firm's trading performance in 2017. The financials will likely shed more light on Mattress Firm's woes.
The share price collapse and creditors' concerns about the "accounting irregularities" meant Steinhoff had to sell assets far and wide to stay afloat. The company is also trying to finalise an agreement with creditors that would give it enough breathing space to restructure in an orderly fashion and possibly trade itself out of trouble.
Steinhoff is now in possession of the report PwC compiled on the investigation into its books and has already disclosed that it is pursuing action against Jooste and other executives for overstating profits to the tune of R100bn over nearly a decade.
The release of its 2018 financial results is expected on June 18...