Vestas faces AGM rebellion over losses

DENMARK: A company specialising in shareholder rights that has won fights against companies such as Ford Motors and Deutsche Bank is targeting Vestas ahead of its annual general meeting on 21 March.

All change: New accounting rules mean revenue only account once a project has been handed over
All change: New accounting rules mean revenue only account once a project has been handed over

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Deminor Recovery Services says it is "seeking a recovery of losses stemming from the revelation of the wrongful application of new accounting rules by the company". It claims to be working on behalf of some 100 institutional investors from around the world. In order to recover the losses, Deminor wants shareholders to vote on the appointment of a scrutiniser to examine the Vestas board’s recent business decisions.

In April 2010, Vestas shares traded at DKK 360 (€48) and have steadily fallen since then. By mid-January this had fallen to DKK 38. A recent purchaser was Deminor, which bought one Vestas share on 7 January.

Under Danish corporate law any shareholder is allowed to submit a proposal at a company’s AGM to appoint an independent scrutiniser. But this has to be accepted by a majority to proceed and, unsurprisingly, Vestas’ board of directors is recommending that shareholders vote the other way. The turbine manufacturer argues that such an inquiry could "obstruct the work of the board and impose needless costs on the company".

Edouard Fremault, manager of Deminor, said his company aims to get full transparency on some of the issues shareholders have been facing for the past three years. "The stock price has been a major problem, but it’s not just about that," he said. "It’s about corporate governance. There’s a lack of confidence in the board."

Financial reporting

In a letter to Vestas, Deminor outlined the proposed areas for investigation. These are related to the implementation of an international financial reporting standard that was introduced by Vestas in 2010, known as IFRIC 15. Under this policy, revenue from contracts is not recognised until the projects have been handed over to the customer. Previously this happened on completion of the wind farm.

Concerns include whether profit warnings issued by the company since 1 January 2010 are related to the implementation of IFRIC 15 and why the reference of it was withdrawn from a company announcement later that year. Deminor also questioned the reasons for the cancellation of KPMG’s auditing contract that year.

Another area of concern is whether Vestas had correctly disclosed revenue and earnings before interest and taxes (EBIT) downgrades from "low deliveries" in 2012, and had correctly calculated EBIT from its servicing division from 2010 to the first half of 2012.

The departure of former chief financial officer Henrik Norremark is also addressed by Deminor. Norremark left at the beginning of last year but was in the news towards the end of 2012 when Vestas revealed it was suing him over a number of deals made in India. Deminor wants an investigation into the delayed disclosure of this on 3 October when Vestas’ own announcement showed that it "was
aware of the illegal nature of the transactions on 6 September".

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