As explained before, the Group’s customers tend to encourage market consolidation in order to reduce the number of their partners. When acquiring a company, the Group may take a minority stake prior to taking full control of the company. This is a common way of controlling the risk linked to any acquisition.
In Italy, the Group’s main activity is related to IT, still today, while the Telecom segment should start growing in 2021. Solutions 30 operates a pan-European maintenance contract with HP. This contract covers France, Benelux, Spain and Italy.
Mixnet in Italy and Rexion in Spain were both acquired by Solutions 30 with the aim of consolidating the market and becoming a reference partner of Hewlett Packard in Europe. The press releases issued at the acquisition of Mixnet in Italy and Rexion in Spain give more background on these acquisitions. The activity of both companies is field IT and digital support services, core business of Solutions 30:
Mixnet : https://www.lerevenu.com/breves/solutions-30-renforce-sa-presence-en-italie-en-acquerant-la-societe-mixnet-partenaire
Rexion : http://www.globenewswire.com/news-release/2015/11/18/1608917/0/en/SOLUTIONS-30-gains-Hewlett-Packard-s-IT-and-digital-support-in-Spain-and-Portugal.html
Right after commenting on Mixnet and Rexion, the Report mentions Autronic, Connectica and CPCP. These acquisitions are totally unrelated to HP. The Report questions the change in the consolidation methods for these subsidiaries.
The report argues that the goodwill is wrongly maintained in the books of Solutions 30 SE in 2017:
The Report alleges that « Also in Spain a few months after buy Rexion, they also bought 50% of Autronic, which they initially was proportionally consolidated in the first year but then equity accounted in the second year but Solutions 30 SE still kept the goodwill on balance sheet, why and how is what we ask. »
The above statement is not correct:
- The change in consolidation method resulting from the decrease of the Group’s shareholding in Autronic (May 2017) does not lead to the derecognition of the goodwill initially recognized, neither in Lux GAAP and nor in IFRS.
- In 2017, although not required in Lux Gaap, the Group was already performing yearly impairment tests with the assistance of an independent expert (Big4 Company) at country level, Spain representing one cash generating unit, integrating both Autronic and the other Spanish legal entities. In FY17, as stated in the independent report, the forecasts used for the impairment tests included a decrease in revenue related to the deconsolidation of Autronic and a lower growth rate than the other countries. Moreover, even though Autronic lost the Vodafone contract, Solutions 30 managed to keep a working relationship with Vodafone Spain and to develop good relationships with other clients. Since the recoverable amount (economic value) calculated by the independent expert for Spain exceeded the carrying value (value of assets in the balance sheet), there were no needs to impair.
In 2019, Autronic was merged into Solutions 30 Iberia with the aim to reduce the number of legal entities in Spain.
- Connectica: Solutions 30 Netherlands BV holds a 48% stake in Connectica Groep. This information is presented in the financial statements of Solutions 30 Netherlands BV and therefore included in the Group financial statements.
In the Lux GAAP financial statements, the company was not consolidated because it was not significant; the value of the shares is presented as a financial asset.
In the IFRS financial statements, the company is consolidated using the equity method; the value of the shares is presented on the line “Investment in associates”. There is little chance that Solutions 30 increases its stake in this company that does not meet initial expectations.
As stated in Solutions 30 2019 annual report, “48% ownership stake in CPCP was held between January 1 and August 1, 2018, which was consolidated using the equity method [in compliance with Luxembourg GAAP]. Solutions 30 had an option to increase its stake in CPCP, which it has not exercised pending the results of the restructuring operations to be carried out within this loss-making company. Contrary to Luxembourg GAAP, under IFRS, this call option requires that CPCP be fully consolidated - even before taking over operational control - starting on the date that the transition to IFRS was made, i.e. January 1, 2018. This accounting adjustment had the effect of adding €15.8 million to the Group’s 2018 revenue. CPCP has been fully consolidated since August 1, 2018”, thus as per the above mentioned IFRS requirement The full consolidation of this company into the IFRS Group’s financial statements as well as the associated audit diligence did not reveal any fraud, contrary to insidious suggestions made by the Report.
Then, the Report focuses on the partnership signed with DXC in 2018. The Report states that “the agreement was not a joint statement with DXC and was materially misleading. Rather than a nation-wide agreement it was in reality a small carve out of employees predominately in Bari Italy”. Solutions 30 hereby confirms that each time any company is mentioned in one of its press releases, the mentioned company, whether it is a client or a partner, has read and approved the press release prior to its distribution. This was the case of this press release, which states in the first paragraph: “SOLUTIONS 30 Italia, leader in Solutions for New Technologies and Smart Devices, achieves today a strategic agreement with DXC Technology Italia, a service-sector company born from the merger of CSC and the Enterprise Services business of Hewlett-Packard, to provide local services for digital solutions.” The agreement involved taking over employees in Bari and Milan and covered both field services and remote solutions, for the whole country.
Here is a summary of the DXC deal and the contribution of Mr. Serafini in this transaction:
- 2017 - Beginning of discussion with DXC regarding the potential outsourcing of field services and remote assistance activities.
- January 2018 – As the negotiations were on track, creation of two companies (Business Solutions Italy (‘’BSI’’) and Business Remote Solutions Italy (‘’BRSI”)) to prepare the transfer of the employees and the signature of the contract. Shareholders: Solutions 30 (90%) and F2LINVEST (10%).
DXC is the result of the merger of Hewlett Packard Enterprises and CSC. Mr. Francesco Serafini is a former well-respected executive of HP. DXC was very positive on the idea to have Mr. Francesco Serafini as a shareholder of BSI and BRSI, which he became by holding a 10% stake in these two companies through F2LINVEST. That clearly helped us close the deal.
- March 2018 - Signature of the outsourcing contract with DXC. Solutions 30 signed a service agreement with DXC Technology Italia to provide local field services in the IT market. This agreement included the transfer of some DXC employees to Solutions 30.
The activities that were outsourced to Solutions 30 consisted of:
- IT field services activities.
- IT remote assistance.
As stated in the press release announcing this agreement, two companies were created by Solutions 30 to operate this contract:
- BSI to host IT field services activities.
- BRSI Italia to host IT remote assistance.
- October 2019 - Decision to sell BSI and BRSI.
Solutions 30 decided to terminate the outsourcing contract it signed with DXC Technology in March 2018, deciding to focus its resources on markets with greater strategic potential and stronger operational leverage. Prior to selling both BSI and BRSI, it was necessary to acquire 100% of their shares and therefore to buy the stake held by F2LINVEST. For the sale of its shares, F2LINVEST received a total amount of €0.43 m, as stated in the note 17 of the 2019 consolidated financial statements.
- December 2019 - Sale of BSI and BRSI to Steel Telecom. The total proceeds of this sale were € 2.2m. At consolidated level, the capital gain stands at € 2.1. In the statutory accounts of Solutions 30 Italia Srl, the capital gain stands at €1.5m, as it excludes the equity that was injected into this company by Solutions 30 Italia Srl.
The sale of DXC is detailed in the 2019 annual report in two different sections:
- In the Corporate Governance section “Assessment of the independence of members of the Supervisory Board”, it says “The situation of Mr. Francesco Serafini was carefully analyzed due to his position in F2LINVEST which held a minority stake of 10% in the capital of Business Solutions Italia Srl & Business Remote Solutions Italia Srl, two subsidiaries of SOLUTIONS 30. The Supervisory Board considered that the independence of Mr. Serafini could be confirmed, taking into account the following items: - Non-significant nature of this activity at Group level (0.9% of 2019 sales), - Limited operational role of Mr. Serafini. It is recalled that these subsidiaries were definitively sold on December 20, 2019 and that Mr. Serafini sold his stake in October 2019 (see Note 17 to the consolidated financial statements).”
- In the note 17 of the Consolidated financial statement, it says: “In 2019, the group acquired the shares in its Italian subsidiaries (10% stake) previously held by F2LINVEST, with Francesco Serafini as the agent, for a total of €0.43 million. The Italian companies Business Solutions and Business Remote Solutions were sold to Steel Telecom, whose agent is the spouse of a shareholder of GNS, in which Solutions 30 holds a 19% minority stake.”
The sole administrator of Steel Telecom is Mrs Deborah Gambacorta who is married to Mr. Federico Salmoiraghi. Solutions 30 has been working for several years with this family of entrepreneurs and their company Salmo Services, to whom it outsources some of the Group’s back-office activities, in Italy and in Eastern Europe. This family is involved with Solutions 30 in GNS, which oversees a low-margin gas meter deployment activity in Italy. Solutions 30 wanted to have a foothold in this market in case it would have evolved favourably but it never have and the Group never increased its stake due to lack of interest.
BSI and BRSI presented an opportunity for Steel Telecom to add an inshore backoffice center to its existing nearshore centers and the operation seemed the best option for all stakeholders.