Vestas Wind Systems A/S (OTCPK:VWSYF) shares have plunged in the year to date and it will be deleted from the MSCI Denmark Index at this Thursday's close. The Danish wind turbine maker has already battled a host of challenges, including allegations in 2011 that it misled investors about its finances, but the air smelled of trouble for longer.
Vestas, which delivered its first wind turbines in 1979, has been losing money in recent quarters in the face of tougher competition. In October 2010, it announced plans to let go of around 3,000 employees and shut five business units in Europe, according to news reports.
The company said its inventory amounted to 2.74 billion euros in the year ended December 31, 2010, up from 1.66 billion euros in the prior year. This reflects that Vestas expected its supplies to be worth significantly more than in the past - once they sold. During the same time frames, the cost of making those supplies merely edged up to 5.75 billion euros in 2010 from 5.20 billion euros in 2009, according to regulatory filings.
Due to this red flag as well as others, Vestas' financial statements showed an AGR score of 28 as of June 2010, indicating higher accounting and governance risk than 72% of comparable companies.
In August 2010 Vestas said that it had been expecting to recognize the revenue from hundreds of millions of euros of wind system contracts in that year, but it would need to defer the money from those sales until later. As a result Vestas lowered its revenue forecast for 2010 by one billion euros to 6.0 billion euros. Then in October 2010, the company said it had failed to adopt new international accounting rules effective in January that year, so its statements would likely require correction. Investors filed a class action lawsuit in the Colorado District Court in March 2011, alleging the company improperly accounted for its revenue by failing to do so in a timely manner, according to the complaint.
The company said at the time that the complaint is without merit, and it planned to defend itself "vigorously."
The stock has fallen since June 1, 2010 by nearly 87% to around $38.22 per share intra-day on Thursday. Meanwhile Vestas' AGR score has sunk to a 2 as of March this year.
The trouble has flared into a turmoil in recent months. After the board received "a thorough briefing on the conditions which during the last months have led to profit warnings," its CFO Henrik Nørremark resigned, Vestas said February 7. The next day it announced that its chairman Bent Erik Carlsen and deputy chairman Torsten Erik Rasmussen would not stand for re-election when the board met the next month. In April Vestas said it appointed Dag Gunnar Andresen its new CFO, soon after announcing that Bert Nordberg is its new board chairman and Lars Olof Josefsson its new deputy chairman.
On May 15 MSCI said it would delete Vestas from its index tracking major stocks in Denmark as of this Thursday's close. That will affect investors who had tied their choices to the benchmark.
Meanwhile, Vestas' new managers have plenty of work ahead of them.