DGB Group N.V. (“DGB” or “the Group”) (Euronext: DGB: NL0009169515), a leading carbon project developer and ecosystem restoration company, addresses questions on its stock market listing and Euronext's delisting considerations.
DGB generates revenue through large-scale projects and carbon credits in the voluntary carbon market. As a publicly-traded entity, our ethos, ‘By the public, for the public’, reflects our commitment to benefitting diverse sectors and stakeholders, from governments to local communities. Our transparent communication and promotion of economic growth exemplify why many, including carbon market leaders such as Base Carbon and Carbon Streaming, opt for public listing.
What steps are Euronext considering due to companies' inability to secure Public Interest Entity (PIE) audit firms?
Euronext Amsterdam introduced a stringent rule in April 2021, suggesting companies without a PIE audit firm risk delisting. Alarmingly, if unresolved by 6 November 2023, Euronext may delist multiple small-cap funds, including DGB, due to their inability to secure specific PIE auditors.
What's the issue with Dutch PIE auditors?
The Netherlands is facing a structural shortage of PIE auditors. The number of PIE-auditing firms has decreased over the years, with only six remaining: the Big Four (Deloitte, EY, KPMG, and PwC) and two mid-sized firms, BDO and Mazars.
Over the years, stricter regulations and standards have been imposed on accounting firms, especially those auditing publicly traded companies. These regulations have increased the operational costs and liabilities for these firms, making it challenging for smaller players to sustain their services.
Newer regulations mandate more companies to undergo audits by PIE auditors, expanding the pool of businesses seeking these specialised services and causing a surge in demand for specialised PIE auditors. This has put pressure on the existing firms to cater to a larger clientele, often leading to capacity constraints.
The structural shortage of PIE auditors in the Netherlands stems from a significant reduction in the number of these firms over the past decade, rather than company-specific performance issues. We would like to emphasise that the issue of audit firm shortage is not exclusive to DGB. In fact, six Euronext-listed companies face potential delisting in six months due to the lack of an approved PIE auditor. Furthermore, additional companies are expected to face similar challenges in the coming months.
The Dutch Ministry of Finance even acknowledges the PIE-auditor shortage, prompting the Minister of Finance to propose a mandatory appointment law. This legislation was expected to be presented before the summer break.
Do other Euronext countries face similar auditor shortages?
As a pan-European stock exchange operating in multiple countries, Euronext maintains generally consistent requirements for listed companies across its jurisdictions. While the Netherlands uniquely faces a PIE-auditor shortage, other Euronext-operating countries don't. DGB has questioned Euronext's seemingly inconsistent approach. Here's an overview of the Euronext-operating countries that don't experience this issue:
While the Netherlands uniquely grapples with a PIE-auditor shortage, all other countries Euronext operates in do not experience this problem. Given this disparity, DGB has inquired why Euronext has not adopted a consistent approach to addressing this issue.
What are the potential consequences if Euronext decides on this course of action?
Given the prevailing conditions and the forthcoming legislation, DGB has urged Euronext Amsterdam to reassess initiating the delisting process of companies without a PIE auditor. Failure to do so could lead to small and medium-sized Dutch companies migrating to alternative exchanges, adversely affecting the Dutch economy and tarnishing its business-friendly reputation. It could lead to shareholder losses and have broader implications for the financial market, affecting investor confidence and the overall business ecosystem.
There's no evidence to suggest that the current problems stem from the performance of these companies. Similar issues did not arise between 1980 and 2016, a period when there were both small and large listed companies with varying performance levels.
What are the potential consequences of DGB’s delisting on 6 November?
Delisting refers to the removal of a company's stock from a stock exchange, which means the public can no longer buy or sell the stock through that exchange.
We have not been informed by Euronext of the exact steps that will take place. But, if unresolved by 6 November 2023, Euronext plans to initiate DGB’s delisting process, which means all DGB shares will become non-listed shares.
Delisted stocks can still be traded, but it becomes more challenging as they move to over-the-counter (OTC) markets. This can reduce the liquidity of the stock, making it harder for shareholders to sell their shares quickly. The announcement of a delisting can also lead to a decline in stock price due to reduced investor confidence.
What is the consequence of delisting for the fundamental business of DGB?
It's essential to note that delisting doesn't necessarily reflect the company's operational health. As mentioned, the company's operations are separate from its listing status. DGB’s business is performing well, as indicated in the market update and outlook published on 6 July 2023. This suggests that while the stock's trading dynamics might change post-delisting, DGB's operational and financial health remains robust
Why isn't the previous appointment of KPMG as an auditor sufficient for the Amsterdam listing?
On 27 March 2023, the board of directors announced the engagement of KPMG to audit DGB Green Earth Limited, the Dublin-based entity overseeing all projects and activities for DGB. While KPMG agreed to audit DGB's operations, they don't audit the Dutch holding entity, DGB Group NV. This is why DGB currently doesn't meet Euronext's requirements.
Has DGB formulated a contingency plan in light of these challenges?
Despite engaging with all major PIE audit firms, a solution is yet to be reached in the Netherlands. Consequently, DGB has formulated a contingency plan, including a potential restructuring and migration to Euronext Growth in Dublin. As a part of this strategy, DGB has already engaged KPMG as the independent audit firm for DGB’s wholly-owned subsidiary, DGB Green Earth Limited. This step signifies DGB's dedication to overcoming the challenges faced by listed entities in the Netherlands while preserving a listing on a prestigious exchange and adhering to applicable regulations.
Please refer to the press release on 14 April 2023 accompanied by an overview of our migration plan titled ‘DGB Group plans to migrate listing to Euronext Growth market’. We wish to emphasise that we view this plan as a contingency measure, as we expect Euronext to address the larger issue at hand.
Despite disagreeing with Euronext Amsterdam's new measure, we're optimistic about a potential migration to Euronext Growth Dublin, especially since the Amsterdam listing hasn't added significant value for our company. DGB believes an alternative exchange can enhance shareholder value.
How can shareholders obtain further information and stay updated on any changes or updates?
We will communicate significant changes and updates through our press releases. However, if shareholders require more information, please feel free to reach out to us via email at firstname.lastname@example.org. We are here to assist and keep you informed; we're committed to transparent communication and collaboration to navigate these challenges. We remain hopeful that Euronext will address the overarching issue timeously.
DGB GROUP NV
This press release does not contain an (invitation to make an) offer to buy or sell or otherwise acquire or subscribe to shares in DGB and is not an advice or recommendation to take or refrain from taking any action. This press release contains statements that could be construed as forward-looking statements, including about the financial position of DGB, the results it achieved and the business(es) it runs. Forward-looking statements are all statements that do not relate to historical facts. These statements are based on information currently available and forecasts and estimates made by DGB’s management. Although DGB believes that these statements are based on reasonable assumptions, it cannot guarantee that the ultimate results will not differ materially from those statements that could be construed as forward-looking statements. Factors that may lead to or contribute to differences in current expectations include, but are not limited to: developments in legislation, technology, tax, regulation, stock market price fluctuations, legal proceedings, regulatory investigations, competitive relationships and general economic conditions. These and other factors, risks and uncertainties that may affect any forward-looking statement or the actual results of DGB are discussed in the annual report. The forward-looking statements in this document speak only as of the date of this document. Subject to any legal obligation, DGB assumes no obligation or responsibility to update the forward-looking statements contained in this document, whether related to new information, future events or otherwise.
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