Oatly accused of exaggerating income and greenwashing by activist short film Spruce Point

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In this photo illustration, Oatly Oat Milk is shown on May 20, 2021 in Chicago, Illinois.

Scott Olson | Getty Images

Short-sighted activist Spruce Point Capital Management accused Oatly of shady accounting practices and misleading consumers and investors about his sustainability practices.

The company, which has taken a short stance against the oat milk maker, has asked Oatly’s board of directors to hire an independent forensic accountant to open an investigation into its allegations.

The stock, which was down nearly 3% in pre-market before the news broke, fell 6%.

Oatly was founded in Sweden in the 1990s, but didn’t reach the United States until five years ago. Since then, it has contributed to the growing demand for oat-based milk substitutes, primarily among coffee drinkers, and debuted in the U.S. public market about two months ago. The stock is up 4.5% since its IPO, giving it a market value of $ 12.5 billion, as of Tuesday’s close.

However, the Spruce Point report claims Oatly misled investors by omitting or manipulating key facts in its prospectus and a June investor presentation and argues the company will never achieve profitability. The report is expected to be released Wednesday morning.

“We don’t think it’s all in the narrative right now,” Ben Axler, founder and chief investment officer of Spruce Point, said in an interview. “We believe this is a strong sell-off and the share price may be 70% overvalued.”

Axler previously took short positions against other consumer packaged goods companies, such as Church & Dwight and Boulder Brands. Short sellers borrow stocks and then sell them, betting that the stock will fall. According to S3 Partners, about 1% of Oatly’s free float, or the number of shares available in the market, is being short sold on Tuesday.

When contacted by CNBC, a spokesperson for Oatly did not have an immediate response to the Spruce Point allegations.

Accounting claims

Spruce Point alleges that Oatly overestimated both its revenues and its margins for investors.

The short seller’s report refers to the company’s recent investor presentation, which showed estimated U.S. revenue of $ 12 million in 2018. The company said Nielsen and Umgas Magazine, a Swedish publication, have reported that Oatly’s net sales in the United States were only $ 6 million in 2018.

Spruce Point also cited documents filed by the company with Companies House, the UK agency that stores information on limited liability companies.

“We are seeing periods of great divergence in the growth rates of revenue and accounts receivable at Oatly,” the report said. “This is a classic sign of potential accounting shenanigans and is often cited as a red flag to predict accounting scandals.”

In addition, Spruce Point alleges that Oatly overestimates its gross margin. The company does not include outbound shipping and handling charges in its calculations and fails to disclose that its gross margin presentation is not comparable to that of other food companies. The report alleges that Oatly’s gross margin is actually 6.4% lower when logistics and shipping are taken into account.

The firm also said it found anomalies on Oatly’s capital spending between its cash flow statement and balance sheet additions.

Spruce Point argued that the company had not been transparent with investors about the key figures involved in its accounting and auditing. For example, Oatly is said to have reviewed three auditors in six years, a fact that was not disclosed in his documents to go public.

“In our experience, this is very unusual,” the report said. “… While auditor rotations can be viewed positively, we believe that three auditors in six years is excessive given the accounting anomalies we have identified regarding sales, gross margins, inventories and expenses. ‘investment.”

Oatly’s current auditor is Ernst & Young, according to a recent filing with the Securities and Exchange Commission.

The report noted that CFO Christian Hanke’s biography on the company’s investor relations website does not mention his role as a financial reporting officer for Stratus Technologies from 1999 to 2005. During this time, the company had to restate its financial results for fiscal 2004 and the first quarter of fiscal 2005. Hanke discloses work on his LinkedIn page.

In addition, Oatly has appointed Frances Rathke as chair of its audit committee. During her time as CFO, Treasurer and Chief Accounting Officer of Green Mountain Coffee Roasters, the SEC investigated the company’s accounting practices, forcing the company to restate its financial results. Rathke’s biography on Oatly’s website does not include his former role as the accounting director of the coffee company. Her LinkedIn page details his time with the company.

Greenwashing claims

Oatly has also marketed itself as a more sustainable option than cow’s milk or other non-dairy alternatives to consumers and investors. But Spruce Point alleges the company gave a misleading impression of its green credentials, known as greenwashing, and put its global expansion ahead of its mission.

Among the examples he cites is the company’s presentation to investors in June 2021, which uses data based on a 2013 study that was updated three years later. Data does not include the impact of the company’s expansion in Asia or the United States.

Spruce Point also alleges that Oatly selected the data by omitting that its water consumption is greater than that of making cow’s milk. The company’s 2019 sustainability report also showed that its plant in New Jersey uses 55% more water for each liter of oat base than its facilities in Sweden and the Netherlands.

For several quarters, the New Jersey installation has did not comply with the Environmental Protection Agency, according to the report. The EPA website does not identify the violation (s).

Additionally, the hedge fund obtained documents via a Freedom of Information Act request in Millville, New Jersey that showed problems with the plant’s sewage in 2019, but the company did not not yet opened a wastewater treatment plant.

“They have very high levels of wastewater as a by-product, but they’ve known it since 2019 and they’re still dealing with it,” Axler said.

The report also indicates that Oatly’s transportation is a major source of its environmental impact. According to Spruce Point, the company sources the oats from Western Canada and then ships it to its plant in New Jersey. For its expansion in Asia, Oatly sources its oats from Sweden.


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