Shares in Solutions 30, a French IT and digital services company, nose-dived 70% on Monday after its auditor EY declined to sign off on its annual report in an escalating crisis at the company.
Solutions 30 provides a sweeping array of digital services to clients across Europe and the UK, including IT maintenance and infrastructure support. It also provides broadband installation services for telcos, smart meter installation for utilities, and payment systems and POS installation for retail companies.
EY said it was unable to gain "sufficient and appropriate" evidence supporting certain transactions. The "possible effects of... undetected misstatements may be both material and pervasive" it claimed.
Solutions 30 made its first foray into the UK in December 2020 with a deal to acquire 100% of Comvergent, a wireless network specialist. The €1.1 billion by revenue French-listed, Luxembourg-based outsourcer had decided to freeze its stock two weeks ago. Solutions 30 has faced staunch criticism from US activist short seller Muddy Waters -- which claimed in a May 23 report: "S30 is likely involved in money laundering and is a fraud. It should be obvious that what lies behind the doors EY could not open is highly problematic for the company."
Solutions 30 has pointed to two previous independent reports by Deloitte and Didier Kling Expertise & Conseil as signs of the credibility of its accounts. It claims its "business model is simple: all of the group’s call-outs are managed centrally, with traceability throughout the entire chain, from the work order to the invoicing of 'key account' customers. The group has a surplus cash position amounting to €159 million in its bank accounts, which it carries as an asset on its balance sheet at December 31, 2020," it added in its response.
(As Muddy Waters notes [pdf], neither of those two reports were audits with both carrying clear disclaimers emphasising this: e.g. Deloitte's report notes that "the objective of our engagement was not to audit the accounts of the Client, nor to express any audit opinion on them at any time...")
The incident comes days after a classified report into EY's audit of Wirecard's 2018 results by a German parliamentary committee claimed that EY auditors failed to properly scrutinise Wirecard's operations in Asia. Investors and creditors lost billions when German stock market darling Wirecard collapsed last summer in a colossal accounting fraud scandal. The experience is unlikely one EY wants to repeat.
Solutions 30 said in a curious statement on May 21 that it may delist, claiming it "has initiated a selection process for investment bankers in order to start searching for reference shareholders. The project, which the company does not intend to comment on beyond its legal obligations to do so, could go as far as a delisting."
As with the Wirecard incident, the FT's reporting on this saga has been exemplary: a timeline on S30s recent woes here deserves revisiting.