TheChek News Flow

Move follows water cannon blasts on Philippine ships, islet tensions with Japan

TOKYO -- China's newest aircraft carrier, the Fujian, set out for its first sea trials on Wednesday, the latest milestone in Beijing's military buildup as tensions simmer in both the East and South China seas.

The vessel, which is equipped with advanced electromagnetic catapults for launching fighter jets, left Shanghai's Jiangnan Shipyard at about 8 a.m., Chinese state news agency Xinhua reported. The goal, it said, is to test the carrier's propulsion and electrical systems.

Excluding exceptional items, the company’s adjusted loss before interest and taxes widened to £57.1 million from a loss of £47.8 million.

Aston Martin AML -7.69%decrease; red down pointing triangle Lagonda Global Holdings reported a widened loss for the first quarter on lower revenue, but said it expects the launch of four new models this year will drive growth in the second half.

The British maker of luxury sports cars on Wednesday joined European peers in reporting weaker sales and earnings for the first three months of the year compared with a year ago, but stuck to its 2024 outlook. This echoed trends shown in first-quarter updates from carmakers Volkswagen, Stellantis and Mercedes-Benz Group MBG -5.15%decrease; red down pointing triangle on Tuesday.

At Aston Martin, revenue for the first three months of the year dropped to 267.7 million pounds ($334.4 million) from GBP295.9 million in the year-earlier period.

Pretax loss for the quarter widened to GBP138.8 million from GBP74.2 million. Excluding exceptional items, the company’s adjusted loss before interest and taxes widened to GBP57.1 million from a loss of GBP47.8 million.

Total wholesale volumes fell 26% in the quarter, but the average selling price climbed 19%, Aston Martin said.

The company said it is on track to deliver its 2024 targets, with a second-quarter performance expected to be broadly similar to the first, and an inflection point to positive cash flows expected in the second half of the year.

The EV maker delivered 25,787 vehicles in April, up 0.4% on the year, its slowest monthly growth since August 2022

Li Auto LI -2.49%decrease; red down pointing triangle posted its slowest deliveries growth in nearly two years amid an intensifying EV price war, lower-than-expected sales of its first fully electric model, and rising competition from Huawei-backed Seres.

The Chinese electric-vehicle maker said Wednesday that it delivered 25,787 vehicles in April, up 0.4% on the year. That marked its slowest monthly growth since August 2022, and a drop of 11% from March’s deliveries.

That adds to the challenges the hybrid-vehicle specialist has faced so far this year as it wages a price war in China against heavyweights like BYD and Tesla.

The Beijing-based company’s venture into the fully electric-vehicle space has yet to show clear signs of success. Sales of Li Auto’s debut model the Mega missed analysts’ forecasts in the first quarter after it hit the market with a slightly higher-than-expected price tag.

The company is also facing intensifying competition from Seres, another hybrid-car specialist backed by Chinese telecoms giant Huawei Technologies. Seres outdelivered Li Auto in the first quarter, tallying 85,842 units versus Li Auto’s 80,400.

Li Auto last week cut prices on all of its models except the new plug-in hybrid L6 by up to around $4,000. The company also said Wednesday that it will begin large-scale deliveries this month of the L6, its first model priced under 300,000 yuan, the equivalent of about $41,400.

Whether the latest price cuts and delivery ramp-up pay off for Li Auto remains to be seen, with other carmakers like Tesla also continuing to reduce prices in the increasingly cut-throat competition for China’s EV consumers.

Other Chinese EV makers including XPeng, NIO and BYD are expected to release monthly sales later today and on Thursday.

Nearly 71% of the votes cast at ProSiebenSat.1’s AGM were in favor of the proposal, falling short of the 75% required for the resolution to be approved

ProSiebenSat.1 PSM -3.12%decrease; red down pointing triangle Media shareholders rejected a proposal by top investor MFE-MediaForEurope MFEB -3.03%decrease; red down pointing triangle to begin preparations for splitting the German company into two businesses as it didn’t get the required majority.

Nearly 71% of the votes cast at ProSiebenSat.1’s annual general meeting on Tuesday were in favor of the proposal, falling short of the 75% required for the resolution to be approved, while around 29% were against it, according to voting results published by the company.

MFE—the biggest shareholder in ProSiebenSat.1 with a 26.58% stake—in March called on ProSiebenSat.1 to begin preparations for a separation of its core entertainment operations from its noncore commerce-and-ventures and dating-and-video segments. ProSiebenSat.1 initially urged shareholders to reject MFE’s plan, but in April said it had started a sale process for its Verivox and Flaconi e-commerce businesses to reduce debt.

ProSiebenSat.1 said Tuesday that its free-float shareholders supported all of the management team’s proposals and confirmed its strategy to focus on its entertainment business.

MFE said it welcomed the decisions adopted at ProSiebenSat.1’s AGM. The fact that discussions about a breakup took place created value for ProSiebenSat.1’s shareholders, with shares rising more than 22% since it made its proposal public, MFE said.

ProSiebenSat.1 said MFE also rejected a proposal from ProSiebenSat.1’s supervisory board for a reorganization regarding its Joyn streaming platform. Under the proposal, Joyn would have become directly subordinate to the group and would have become the parent company of Seven. One Entertainment, allowing it to use losses carried forward for tax purposes, ProSiebenSat.1 said.

Purchase of 10.5GW of electricity highlights rising energy needs of AI and cloud computing

Microsoft has agreed to back an estimated $10bn in renewable electricity projects to be developed by Brookfield Asset Management, in a deal that underscores the race to meet clean energy commitments while satisfying the voracious energy demand of cloud computing and artificial intelligence.

The “global framework agreement” signed by the Seattle-based tech giant is a commitment to bring 10.5 gigawatts of generating capacity online, or enough to power the equivalent of about 1.8mn homes. The power will be added to the grids from which data centres draw electricity.

Brookfield said the capacity was about eight times larger than the previous single biggest corporate renewable electricity purchase agreement, a deal between the mining company Rio Tinto and an Australian solar farm.

Microsoft expects its partnership with Brookfield to help finance the creation of large new wind and solar farms to be built between 2026 and 2030, beginning in the US and Europe. Adding 10.5GW of new capacity would cost more than $10bn, based on recent industry trends.

It comes as the frenzied interest in generative artificial intelligence has sparked concerns about their intense energy demand and associated carbon emissions.

By 2026, the International Energy Agency expects data centres could globally consume more than 1,000 terawatt-hours of electricity, more than double 2022 levels, roughly equal to Japan’s total electricity usage.

The US, which is home to a third of the world’s data centres, is experiencing rapidly growing electricity demand for the first time in two decades, spurred in part by the power-thirsty centres. Five-year forecasts for the growth in electricity demand in the US have nearly doubled in the past year from 2.6 per cent to 4.7 per cent, according to a report from Grid Strategies.

The anticipated demand has raised alarm from energy watchdogs over whether antiquated power grids can meet the surge in consumption without slowing the move to renewables or posing a threat to reliability.

The initial agreement is almost three times larger than the 3GW of power used by data centres in Virginia — the world’s largest hub for such facilities — that source energy from Dominion Energy, the area’s largest electric utility company.

It would also account for a significant piece of overall renewable energy generating capacity in the US and Europe. The US added 33.8GW of utility-scale renewable energy projects last year, the highest amount on record, bringing the total renewable capacity on the grid to 262GW, according to American Clean Power, an industry group.

While tech companies including Amazon and Google have signed new renewable energy deals, multiple fossil fuel and power executives have told the Financial Times that the electricity needed to meet the demand for AI will require higher natural gas consumption given the intermittent nature of renewable generation and the nascent battery storage buildout.

Wind and solar made up about 14 per cent of US electricity generation last year, while natural gas, the largest source of the country’s power, made up 43 per cent, according to the Energy Information Administration.

Brookfield is one of the world’s largest developers of renewable power; its US-listed company Brookfield Renewable has about 33GW of operating renewables assets, including wind, solar and batteries, around the world, and a further 155GW in development.

It has expanded over the past few years with deals to buy much smaller rivals including the renewable energy business of the UK’s Banks Group — which it has since renamed OnPath Energy — last year, and US-based renewable energy developer Urban Grid in 2022.

Renewables developers are increasingly striking long-term power deals with large corporations, helping both sides get some certainty over long-term power prices. In addition to Microsoft, Brookfield has announced power purchase agreements with Amazon.

Corporate deals covering a record 46GW of solar and wind capacity were announced in 2023, with Amazon the top purchaser, according to figures published in February by Bloomberg New Energy Finance.

Microsoft has committed to ensuring 100 per cent of its electricity consumption is “matched” 100 per cent of the time by “zero carbon energy purchases” by 2030, using mechanisms including power purchase agreements and renewable energy certificates.

“Microsoft wants to use our influence and purchasing power to create lasting positive impact for all electricity consumers,” said Adrian Anderson, the company’s general manager for renewables.

Ted Weschler and Todd Combs stand to take over a $354bn portfolio from the world’s best-known investor

Warren Buffett’s deputies are trailing both the legendary investor and the S&P 500 index, according to a Financial Times analysis that examined the performance of the two men set to take over Berkshire Hathaway’s $354bn stock portfolio.

Berkshire will hold its annual meeting on Saturday without vice-chair Charlie Munger, whose death in November aged 99 has intensified questions over the future of the business when Buffett, 93, is no longer at the helm.

When he eventually steps down, management of Berkshire’s huge equity portfolio is expected to be transferred to Ted Weschler, who was hired after twice paying millions of dollars at charity auctions for lunch with Buffett in 2010 and 2011, and Todd Combs, who was recruited in 2010 after writing to Munger, asking to meet him.

The FT set out to address the biggest questions confronting Berkshire shareholders as they imagine a future without Buffett: how do Weschler and Combs approach investing, are they any good, and can they build on his astonishing record?

This is the first in a series exploring the company and the management team that will one day lead Berkshire into a new era.

Berkshire is the last great American conglomerate, with hundreds of subsidiaries fused with the backbone of the US economy. Its freight trains run over more than 32,000 miles of track. Its utilities provide power to 13mn customers and in Geico it owns one of the largest insurers in the country.

But one of the biggest contributors to Berkshire’s performance comes from stakes in a stable of blue-chip companies, including Apple, Coca-Cola and American Express.

Both Combs and Weschler were plucked from relative obscurity to help run this portfolio.

Combs’ background is insurance; the 53-year-old got his start at Progressive. An internship with Blue Ridge Capital, one of the “Tiger cub” hedge funds, led to a job at Copper Arch Capital before he we went on to found his own fund, Castle Point Capital, in 2005.

Weschler, 61, started out as a junior financial analyst at WR Grace before helping to start private equity group Quad-C Management, then launching his own hedge fund in 2000.

Like Buffett, they have described themselves as voracious readers, picking through newspapers, trade publications and company annual reports. In 2017 Combs said he got into the office at 7am or 8am and left 12 hours later, spending the day primarily reading.

In his previous job he often spent late nights poring over securitisation documents. “So it’s the puzzle,” he said last year. “It’s figuring out the puzzle. That’s where I get giddy.”

Weschler has described himself as a reader of “weird stuff” — such as trade publications Furniture Today and Uranium Weekly — in an attempt to gain an edge.

“One of the great mistakes of investing is people do end up reading the same thing,” Weschler said in 2022. “The only way you’ll have success in the stock market is if you have a variant perception, something different from the masses.”

The two investment lieutenants also share a similar investing ethos with the man they are due to replace one day: finding good businesses with strong management teams that are trading at attractive prices.

In a new section for Security Analysis, the seminal work by Ben Graham and David Dodd that was republished last year, Combs described how he looks for a moat, a competitive advantage that would be hard for rivals to overcome. “Add on characteristics like low capital intensity, pricing power, recurring revenues, staying power, and the likelihood of long-term growth, and you have a great business,” he added.

For years after joining Berkshire, the pair would have lunch every Monday with Buffett, often joined by Tracy Britt Cool, another Berkshire alum. They would exchange notes on investments and talk shop. After the pandemic, that shifted. Buffett and Weschler still meet regularly in Omaha, but Combs began commuting to Berkshire’s insurance subsidiary Geico when he was appointed to run it in 2019.

Buffett has called the hiring of Combs and Weschler “one of the best decisions” he had made, describing them as both sound and brilliant.

They have the freedom to own their successes and failures, operating independently of Buffett, who still runs the vast majority of Berkshire’s portfolio.

“They don’t have to check with me before they buy or sell anything,” he said in 2017. “Sometimes they will have talked to me about something they are doing. Other times I will just look at the monthly recap I get and then see what they’ve bought or sold.”

How Combs and Weschler are performing, and how they invest, is top of mind for shareholders such as Christopher Rossbach, who invests on behalf of the investment management firm J Stern & Co. Rossbach believes it is critical to understand how the pair will “contribute to and take” Buffett’s investing legacy forward.

“Buffett has built an extraordinary track record of investing and he has laid down through his communications clear principles and guidelines that have guided generations of investors,” he said. “It is a huge responsibility of how that will be taken forward and it is very important for investors to understand.”

If the pair cannot match what Buffett did, it raises a question about both the company’s value and its reason to exist in a world where passive index funds are touted as safer, cheaper and more reliable than active fund managers.

In their early years at Berkshire, Combs and Weschler racked up some spectacular gains that allowed Buffett to praise them for leaving him “in the dust”.

Investments including Mastercard, Visa and healthcare company DaVita helped the two managers beat the S&P 500 in 2012 and 2013.

In the years since, however, their portfolios have more often lagged behind the S&P 500 and the performance of Buffett himself, who still runs about 90 per cent of Berkshire’s investments. It is something the billionaire acknowledged in 2019 when he said Combs and Weschler were a “tiny bit behind” the index.

“It has been a tough time to beat the S&P,” said Buffett, “but that’s the deal we’ve got with them”.

Buffett has long cared about beating the index. In his 1957 annual letter he set himself the ambitious goal of beating the Dow Jones Industrial Average by 10 percentage points a year. Before winding down his investment partnership, he had smashed that target: outperforming the market by 22 percentage points a year. During his career at Berkshire, he has outperformed the S&P 500 by more than 4.3mn percentage points.

Since the pandemic, his protégés’ record has deteriorated. In both 2021 and 2022 they missed the S&P 500 by double digits, according to the FT’s analysis; last year they also trailed the index.

Overall, according to the analysis, the pair have generated an average total annual return of about 7.8 per cent over the past decade. That falls short of the 12 per cent return of the S&P 500 and Buffett’s own 10.2 per cent gain. They have trailed the index in seven out of 10 years.

Their portfolios, worth about $27bn out of a total $354bn, excluding billions of dollars of pension investments for Berkshire’s employees, are up about 113 per cent over the past 10 years.

That trails a 165 per cent gain by Buffett over the same period and a 211 per cent total return by the S&P.

Berkshire declined to put Combs and Weschler up for interview or confirm which trades they made.

“I’ve never felt that it’s in the interest of Berkshire shareholders to talk about anything that we do that is successful and that we want to continue to do,” Buffett told the FT.

He added: “Both Todd and Ted have been invaluable to Berkshire, and our shareholders have profited significantly from their activities.”

The analysis found that Combs and Weschler also hold stocks for a shorter period than Buffett, who has said that he buys a stock typically believing that the “holding period is forever”. Buffett acknowledged that early in the pair’s tenure, telling a reporter “one of the two is more prone to move around in securities than I would be”.

Since 2010, Buffett sold his entire holdings in 63 positions with an average hold time of four years and three months. Combs and Weschler exited 48 stocks, holding for just two years and 10 months.

It also showed that Buffett ran a more concentrated portfolio, mainly due to Apple’s large showing. Combs and Weschler’s selection is still focused on about 24 securities at a time, though they range across more sectors of the economy than Buffett.

Buffett shunned technology stocks for most of his career, stating he is ill-equipped to assess their prospects and uncomfortable with their unpredictable cash flows and often brief lifespans so dependent on innovation.

In 2011, he made an exception for IBM, placing a $10.9bn bet on the IT group, which proved to be a failure. Berkshire had sold the stock within seven years, with the IT group’s share price lower and seemingly trapped in a cycle of declining revenues.

But in 2016, Combs or Weschler made an investment in a technology company that counts as Berkshire’s greatest stock trade of the past decade: Apple.

In the years that followed, Buffett waded into the same trade, convinced by the enduring consumer demand for the iPhone. Between them, Berkshire has spent about $40bn buying shares of Apple. At the end of last year those shares were worth roughly $175bn — more than a fifth of Berkshire’s total valuation — a mammoth sum even after the company has cashed out more than $16bn worth of the stock over the years.

Buffett has said “one of the fellows in the office” — referring to Combs or Weschler — initiated the investment in Apple. Calculating their exact returns is tricky, given Berkshire has traded in and out of the stock over the years, but the FT estimated they had in effect tripled their money on the investment by the end of last year. That includes an investment of about $1.6bn, and then realised gains of $2.5bn as they sold Apple stock in 2017, 2018 and 2019.

Apple shares have returned more than 600 per cent since they invested, including annual dividends. Berkshire reported it sold 10mn Apple shares at the end of 2023, although it is unclear whether it was Buffett or one of his deputies who cut their position.

Berkshire’s struggle to match the S&P 500 in recent years owes a lot to the tech-dominated rally. Without Apple the portfolio would have undershot the index by much more.

The pair have also profited from investments in DaVita, the $12bn kidney dialysis company where Berkshire owns a 41 per cent stake, a trade executed by Weschler, although over the span of the investment period it too has underperformed the S&P 500.

Combs’ picks in the financial services sector have been prescient, with Berkshire generating large gains on credit card processors Visa and Mastercard. Those mirrored an early Buffett success from the 1960s where he bought into American Express after its shares had halved following a fraud scandal; he tripled his money in just two years.

But their big bet on the cable industry, including in Charter Communications and Liberty Media, has weighed on their performance more recently as higher interest rates have hammered these highly indebted companies.

They also may have been behind the disastrous investment in Paramount Global, the entertainment company that owns MTV and CBS. Buffett has not specified who made the $2.6bn wager in 2022, and when asked about the trade at last year’s annual meeting, he did not take ownership of the bad bet, something he often does.

The stock has dropped more than 60 per cent since it invested and Berkshire recently started dumping its position at a loss. Combs was rumoured to be behind an investment in Viacom, Paramount’s predecessor, back in 2012, and even though the size of the investment would be quite large for one of the two managers, it is not out of the question given they also hold multibillion-dollar stakes in other businesses.

They were also weighed down by trades that they ultimately sold at a small profit, like their 2019 bet on luxury home goods retailer RH. The position in the middle of 2021 showed a mammoth paper profit — up roughly 235 per cent — as investors bid up shares of home decor companies in the midst of the pandemic. But as RH shares deflated, the decision by Combs or Weschler to add to the position and continue to hold on to the stock knocked their returns. They ultimately sold out last year.

In a world without Buffett, Combs and Weschler will still benefit from the company’s long-honed advantages, including something that hedge funds and private equity groups have been chasing in recent years: permanent capital.

The pair will not have to find willing investors to commit to a Berkshire fund, the type of effort that keeps giants such as Blackstone and Apollo on a fundraising hamster wheel.

Nor will they be pushed to make distributions to shareholders — Berkshire last paid a dividend in 1967 — or bow to a noisy activist investor if there is a long period of underperformance or a sudden shock.

That, historically, has allowed Buffett to make wagers and hold on to them even when the market turns decidedly against his positions, as it did after the oil embargo of 1973 and in 2008, when the financial crisis roiled markets.

They will also retain access to unfathomably cheap credit thanks to Berkshire’s insurance business, the firepower that makes the company so successful and one of the main reasons investors cite for keeping the conglomerate together.

Insurance customers pay premiums in a predictable stream of cash, which has to be deployed in liquid securities. Typical investors have to tap an investment bank for a credit line, paying fees to make investments with borrowed money. But so long as Berkshire’s insurance subsidiaries are profitable, the cost to tap those premiums for investments can be negligible.

Berkshire investors note that even if Combs and Weschler fall short of Buffett’s record, they are still likely to usurp the returns on corporate and government bonds, the investment of choice for rival insurers. That, shareholders highlight, is a point that is unlikely to be replicated and will give the company a reason for existing long past Buffett’s exit.

But the pair also face a structural disadvantage that Buffett did not have in his early years. Combs and Weschler will become some of the largest money managers on the planet when Buffett departs, with a vast stock portfolio bigger than any of Berkshire’s individual operating divisions.

Alongside Buffett’s chosen successor as chief executive, Greg Abel, they will also decide how a record $168bn cash pile is allocated, a sum so vast that the sprawling investment conglomerate could buy up all but a handful of companies.

It is a level of firepower that is unheard of on Wall Street and Buffett has lamented the dearth of long-term investment opportunities suitable for such large sums of money.

FT series

This is the first in a series digging into Berkshire, its rich success under Buffett and the management team that will one day lead the company into a new era.

The biggest fillip could come from a downturn. The era of low interest rates and booming US stocks has been bad news for Berkshire. Some of Buffett’s landmark trades have come during crises — such as investments in Goldman Sachs in 2008 — when rivals were unable or unwilling to jump in.

The company did not get the chance to profit from the coronavirus pandemic, as government intervention prompted a broad market rally and helped reopen capital markets. Investors say a more traditional slowdown may play in Berkshire’s favour.

A single decade may not be enough to judge Combs and Weschler’s performance at a company with a history of patient investing. Investors, though, are eager to hear from them.

“They are probably going to have to do that sit-down with [CNBC anchor] Becky Quick once a year and talk about their investment philosophy just so people get comfortable,” Jeff Muscatello, an analyst at Berkshire shareholder Douglass Winthrop, said. “Buffett has always been generous with his time . . . and they’ll need to pick up where he [leaves] off.”

But so far, all that Berkshire shareholders have to go on is a partial track record built over the past 13 years. On Saturday, as with every annual meeting since they joined Berkshire, Weschler and Combs are not expected to field questions in Omaha. Instead, they will be watching from one of the front rows as Buffett takes the stage.