Vestas Wind Systems - Deminor confirms filing of law suit


On August 16, 2013 attorneys of the Copenhagen based Elmann law firm filed a law suit on behalf of 87 institutional investors claiming compensation for losses suffered as a result of the dissemination of false and misleading information regarding Vestas Wind Systems A/S (hereafter “Vestas”) expected and realized 2009 and 2010 order book, revenues, earnings, provision for warranty expense, shareholder equity and application of a new accounting rule. 

The law suit was filed against Mr. Henrik Norremark (former CFO), Mr. Carl Erik Bentsen (former Chairman) and Mr. Ditlev Engel (CEO) before the courts of Aarhus, Denmark.

The claims have arisen out of Vestas’ dissemination of false and misleading information regarding the Company’s expected and realized 2009 and 2010 order book, revenues, earnings, provision for warranty expense, shareholder equity and application of a new accounting rule.

Deminor’s in-depth research and analysis has led to the conclusion that Vestas grossly misrepresented investors about its revenues on pending contracts in 2009 and 2010. Vestas continuously prided itself on the continuous rise of its order book due to rising incoming “firm and unconditional” orders.  The Company kept the market closely informed about these orders and tied its own guidance for future revenues and earnings to the evolution of the backlog.  However, the evolution of the order book as announced by the company cannot be matched with actual deliveries.  Orders that were announced as “firm and unconditional” seem to have left the order book without having given rise to deliveries (for an amount of approximately EUR 1.4 bn).

Furthermore, the analysis shows that Vestas could not possibly expect to realize EUR 7 billion of revenues when it released its 2010 guidance on October 27, 2009, even if the company was able to realize its own ambitious target of new incoming orders in 2010 and if deliveries were taking place according to plan.   This conclusion is based on Deminor’s analysis of Vestas’ order book at the start of 2010, its expected new orders, and the time needed to complete pending contracts and new orders.  As new incoming orders in the first quarter were substantially below the Company’s own expectations, the Company’s own guidance was becoming more unrealistic day by day.  Despite this negative evolution, the company waited until August 18, 2010 to issue a profit warning.

On August 18, 2010 the company finally admitted that deliveries would take place later than expected (a conclusion that the company could have easily reached already in October 2009) and that 2010 revenues were expected to reach EUR 6 bn vs. EUR 7 bn.  The stock price dropped 23% in one single trading day.  However, according to the analysis, the management of the company knew or should have known that the company could realistically hope to reach EUR 5.1 bn by year end, given its order backlog, new orders received up to August 18, the contract mix and time to completion of pending contracts.

On October 26, 2010 the company surprised investors again by announcing that it would possibly be under an obligation to change its revenue recognition policy pursuant to a new accounting rule “IFRIC 15”.  The stock price lost another 10% on the day of the announcement.  It took the company then another month (until November 22, 2010) to confirm that it would indeed change its revenue recognition policy and, consequently, that it would have to restate its earnings for 2006-2009 and for the first nine months of 2010.  The share price sank another 5% on the day of the announcement.

However, the new accounting rule had been adopted in July, 2009 and had entered into force on January 1, 2010.   Until to date the Company has not given a credible explanation why it took it more than 10 months to apply IFRIC 15 correctly and understand the consequences of IFRIC 15 on its revenue recognition policy.

The effects of the restatement were threefold.  First of all, revenues for 2009 (the year that was most affected by the restatement) were reduced from EUR 6.6 bn to EUR 5.5 bn and shareholder equity was reduced by 24%.  Secondly, it seems that the Company has made use of the accounting restatement to retroactively increase its warranty provision, which was not required at all by the accounting change.  Third, the restatement less than 2 months before the end of the financial year led to a complete lack of visibility on 2010 actual revenues and earnings. Despite questions by analysts, the company refused to state what its 2010 revenues and earnings would have been, if it had not changed the accounting rules.

A reconstruction of the Company’s 2010 revenues under the old accounting rules leads to the conclusion that the Company would have ended up with around EUR 5 bn of revenues and a loss rather than a profit.

The Company and its management continued issuing far too optimistic statements about its 2011 revenues and earnings.  In the end, all this led to three consecutive profit warnings at the end of 2011 – early 2012, to the dismissal of the former CFO (February, 2007) and the adoption of a more conservative guidance policy.  In March, the former Chairman and certain other directors resigned.  In October, 2012 Vestas announced that the former CFO had made unauthorized payments for an amount of EUR 18 million that the Company has been unable to recover.  The Company filed a law suit to recover the loss from the former CFO Mr. Henrik Norremark.

Contact Persons:
Erik Bomans, Partner, +32 2 674 71 10,
Edouard Fremault, Manager, +32 2 674 71 10,


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