Vestas Opposes Investor Call for Probe Into Accounting Change

Vestas Wind Systems A/S, the unprofitable Danish wind turbine maker, is fighting an attempt by investors to probe a change in its accounting policy that they say damaged the company’s share price.

Vestas urged shareholders to vote against the proposal by Deminor International SCRL/CVBA, which represents about 100 investors, when they meet today at the manufacturer’s annual general meeting in Aarhus. Deminor wants an independent probe into the accounting-rule change in 2010 and whether it led it to revise earnings forecasts lower.

“We feel the company has misled investors about its revenues, its order book and its expectation for future revenue,” Erik Bomans, managing partner at Deminor in Brussels, said in a phone interview. “Our clients have purchased shares at inflated prices during a period which investors were not informed about the true financial situation of this company.”

Vestas has lost money the past two years, and its shares have tumbled 79 percent since the company said it was changing its accounting method on Nov. 22, 2010. The shares declined for six straight days after that announcement, and also fell after profit warnings in 2011 and 2012.

A Vestas spokesman referred to a company statement on Jan. 14 recommending shareholders vote against the Deminor proposal.

The proposal concerns “issues which have already been fully reviewed or otherwise are being investigated by the board,” Vestas said. “In the opinion of the board, additional investigations will be unnecessary and only obstruct the work of the board and impose needless costs on the company.”

Executive Pay

Deminor owns one share in the company, according to Vestas. Bomans declined to name the investors he represents, saying only that during the period to which the proposed probe applies, they owned “several percent” of the shares.

At the annual meeting, Vestas has also advised shareholders to vote against a proposal by one investor, Uni Chemical Partners ApS, to cut the pay of board members by 15 percent and that of Chief Executive Officer Ditlev Engel by 50 percent.

The change in accounting rules was announced more than 10 months after their introduction on Jan. 1, 2010. As a result, instead of booking revenues for unfinished projects in proportion with their degree of completion, Vestas now waits until they are built and handed over to clients.

Vestas issued profit warnings in October 2011 and January 2012 before publishing final results for 2011 in February 2012 that undershot the guidance given a month earlier.

The Deminor motion calls for a probe into “whether the company has been over-optimistic about its revenue guidance and whether it has sufficiently taken into account a fluctuation margin to reflect possible later deliveries and transfer of risks after adoption” of the new rules.

No Sense

Deminor is also seeking an investigation into the resignation of former Chief Financial Officer Henrik Norremark in February last year, and the circumstances surrounding an Oct. 2 announcement that Vestas ended his severance agreement because they uncovered two agreements he reached in India that “ neither the Board nor the CEO knew about.”

“They’ve not given the full picture, and that makes investors suspicious,” Bomans said. “That explains why there is a big discount on the shares.”

Deminor’s call for a probe needs the approval of a simple majority of votes at the meeting to succeed, according to Vestas. Failing that, if holders of 25 percent of the share capital vote for the proposal, any shareholder may within four weeks request an investigator to be appointed by a court.

Daniel Patterson, an analyst at SEB AB, said he doesn’t think the proposal will succeed.

“You’re asking current shareholders to vote for something that runs the risk of costing current shareholders a lot of money,” Patterson said. “If this was 2 years ago when the old board was there, the old management team was there and the old strategy, maybe it would make sense. But now, when all those things have been changed and they are well on their way on the turnaround path, it doesn’t make sense.”

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