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Exaggerated earnings and greenwashing by activists’ short spruce points – News

The figure in this photo shows oat milk from oats on May 20, 2021 in Chicago, Illinois.

Scott Olson | Getty Images

Activist shortseller, Spruce Point Capital Management accused Autory Misleading consumer and investor practices about dubious accounting practices and their sustainability practices.

The company, which has a short position on oat milk makers, called on the oat board to hire an independent court accountant to begin investigating its allegations.

Shares on Wednesday reached a record low of $ 19.84 per share. As of 11:30 am on the ET, stock prices have fallen by more than 5% at around $ 20.

Oatly was founded in Sweden in the 1990s, but did not reach the United States until five years ago. Since then, it has contributed to the surge in demand for oat-based milk replacers, primarily among coffee drinkers, and made its public market debut in the United States about two months ago. Shares are up 4.5% from the initial public offering and have a market value of $ 12.5 billion as of Tuesday’s closing price.

However, Spruce Point report claims By omitting or manipulating key facts in the prospectus and the June investor presentation, Oatly misleads investors and claims that the company can never achieve profitability.

“I don’t think there’s any explanation for this at this time,” Spruce Point founder and chief investment officer Ben Axler said in an interview. “This is a strong sell and we believe the stock can be overvalued by 70%.”

Axler previously took a short position with other consumer goods companies. Church & Dwight And the boulder brand. Short sellers borrow and sell stocks and bet that stocks will go down. As of Tuesday, about 1% of Oatly’s floats, or the number of shares available on the market, are in short supply, according to S3 Partners.

When CNBC contacted, Autory’s spokesperson did not immediately respond to Spruce Point’s allegations.

Accounting complaint

Spruce Point claims that Autory exaggerates its earnings and margins to investors.

The short-selling report shows the company’s recent investor presentation, with an estimated US revenue of $ 12 million in 2018. According to the company, the Swedish publication Nielsen and Umgas Magazine reports that Oatly’s 2018 US net sales were only $ 6 million.

Spruce Point also quoted the company’s filings with Companies House, a UK agency that stores information about the limited company.

“At Oatly, there are times when there is a lot of variability in revenue and accounts receivable growth,” the report said. “This is a classic sign of a potential accounting scandal and is often cited as the best danger signal for predicting accounting scandals.”

In addition, Spruce Point claims that Autory exaggerates gross profit. The company does not include outbound shipping and handling in its calculations and does not disclose that gross profit claims are incomparable to those of other food companies. The report claims that Oatly’s gross profit is actually 6.4% lower, taking into account logistics and transportation.

The company also claimed to have discovered an anomaly in Autory’s capital investment between the cash flow statement and its addition to the balance sheet.

Spruce Point argued that the company was not transparent to investors about the key figures involved in accounting and auditing. For example, Oatly is said to have passed three auditors in six years, but this fact is not disclosed in the filings for publication.

“From our experience, this is very unusual,” the report said. “Auditor rotation can be seen positively, but given the accounting anomalies identified in relation to sales, gross profit, inventory and capital investment, there is an excess of three auditors in six years. I think there is. “

According to a recent submission to the Securities and Exchange Commission, Ernst & Young is the current auditor of Autory.

The report does not mention the career of Chief Financial Officer Christian Hanke on the company’s investor public relations website as a manager of Stratus Technologies’ financial reporting from 1999 to 2005. It states. First quarter of 2004 and 2005.Hanke His LinkedIn page..

In addition, Autory has appointed Francis Rasque as chairman of the Audit Committee. During her time as Chief Financial Officer, Accounting and Chief Financial Officer of Green Mountain Coffee Roasters, the SEC investigated the company’s accounting practices and forced the company to restate its financial results. Rathke’s biography on Oatly’s website does not include her previous role as Chief Treasurer of the Coffee Company.her LinkedIn page I will elaborate on her time at the company.

Greenwashing claims

Oatly has also established its brand as a more sustainable option for both consumers and investors than milk and other non-dairy alternatives. However, Spruce Point claims that the company has a misleading impression of green credentials known as greenwashing and prioritizes global expansion over its mission.

One of the examples it cites is the company’s June 2021 presentation to investors. It uses data from a 2013 survey that was updated three years later. The data does not include the impact of the company’s expansion into Asia or the United States.

Spruce Point also claims that Cherry chose the data, omitting that Autory consumes more water than milk. The company’s 2019 Sustainability Report also shows that its New Jersey plant uses 55% more water per liter of oat base than its Swedish and Dutch facilities.

New Jersey facilities for several quarters Not compliant with the Environmental Protection Agency, The report said. The EPA website does not identify what the breach is.

In addition, the hedge fund received a document in 2019 indicating a problem with factory wastewater through a request to the Information Disclosure Act in Millville, NJ, but the company has not yet opened a wastewater treatment facility.

“They had very high levels of wastewater as a by-product, but they knew since 2019, and they are still in the process of processing it,” Axler said.

The report also points to the transport of autories as a major source of environmental impact. According to Spruce Point, the company procures oats from western Canada and ships them to facilities in New Jersey. Oatly procures oats from Sweden to expand into Asia.

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