TheChek News Flow

The group attributed the change primarily to a steeper than expected sales drop at Gucci, particularly in the Asia Pacific region.

PARIS — Signaling a tougher-than-expected turnaround for its star brand Gucci, Kering issued a profit warning Tuesday ahead of the release of its first-quarter results.

Despite having earlier flagged another year of financial pain as it pursues its brand elevation strategy against a background of slowing luxury spending, the French luxury group said it now expects consolidated revenue for the period to decline by around 10 percent on a comparable basis against last year’s figures.

“This performance primarily reflects a steeper sales drop at Gucci, notably in the Asia Pacific region. Gucci comparable revenues in the first quarter are expected to be down by nearly 20 percent year-on-year,” Kering said in a statement issued after the market close.

“This is relatively bad news for the sector,” commented Citi analyst Thomas Chauvet.

Organic sales at Gucci, which is undergoing a revamp under chief executive officer Jean-François Palus and creative director Sabato De Sarno, fell 4 percent in the fourth quarter, on the lower end of market forecasts. The performance did not reflect sales of De Sarno’s debut collection, which started arriving in stores in mid-February.

“The new collection, whose availability will gradually be ramped up over the coming months, is meeting with highly favorable reception,” Kering said. Gucci recently released a short documentary about the designer titled “Who Is Sabato De Sarno? A Gucci Story.”

The expected decline is “materially worse” than the consensus estimate for a 3 percent decrease in group revenues in the first quarter, RBC Capital Markets analyst Piral Dadhania said in a research note. Analysts had forecast a 4 percent decline for Gucci, with RBC coming in at the low end of estimates with its prediction for an 8 percent drop.

“However, with Gucci in the early stages of its turnaround, and with new product scaling up over the coming months, we believe more time is needed to assess customer reaction,” it added, noting that De Sarno’s designs should account for 30 percent of products in Gucci stores by the middle of the year.

“The jury is out on whether the Chinese will like the Sabato De Sarno quiet luxury,” said Bernstein analyst Luca Solca. “We are sitting on the fence waiting for more tangible signs that the new Gucci works.”

The warning was expected to weigh on luxury stocks on Wednesday, even though Kering’s woes are seen as company-specific.

The group continues to lag competitors as it implements the Gucci turnaround and seeks to rev up the ailing Balenciaga and Alexander McQueen labels. Kering reported last month that recurring operating profit fell 15 percent to 4.75 billion euros in 2023, and it expects another decline this year, particularly in the first half.

“In a market environment that remains uncertain in early 2024, our continuing investments in our houses will put pressure on our results in the short term,” Kering chairman and CEO François-Henri Pinault said at the time.

“Our number-one imperative is to further cultivate our brand exclusivity,” he elaborated on a call with analysts and reporters, adding that Kering planned to ramp up spending on advertising and events to support its strategy.

The group is due to release its first-quarter revenue on April 23.

The figure will include the positive contribution of the consolidation of niche fragrance brand Creed on a full quarter basis, as well as a negative foreign exchange impact. These two factors combined are expected to have a negative impact of 1 percent to 2 percent, Kering said.

Insurers and owners are in a battle over who pays for planes stranded at start of Ukraine war

Russia’s seizure of billions of dollars worth of foreign-owned planes has set off the biggest-ever brawl in the normally staid business of aircraft insurance.

Some of the world’s biggest insurers are fighting back against claims by the aircraft’s owners. The insurers say the owners should have done more to grab planes before they were seized. And they are arguing in court filings that the U.S.’s support for Ukraine means that it is, in effect, at war with Russia. That would void some claims.

At stake: billions of dollars, more than 400 planes, hundreds of millions in legal costs. The legal fight, sprawling over two continents and dozens of companies, will likely affect coverage for future conflicts, analysts and lawyers said.

The planes, mostly Airbus and Boeing commercial jets leased to both Russian and foreign airlines, were worth more than $10 billion when they were stranded in Russia following its invasion of Ukraine just over two years ago.

The planes are owned by a small number of big but mostly no-name aircraft-leasing companies. They are covered by insurers from both Russia and the West, including giants such as American International Group, Chubb and Swiss Re.

Lawyers are still haggling over the most basic questions about who should pay. Is there any chance the jets could be returned to their owners? Were the planes stolen by the Russian airlines or seized by the state? Have the jets been so poorly maintained or so badly damaged that they are worthless?

The dispute dates back to the chaotic early days of the war in Ukraine. The U.S. and Europe put sanctions on Russia, which forced leasing companies to end agreements with Russia’s airlines. Hundreds of aircraft were left in limbo.

Leasing companies hired repo teams to grab the aircraft when they landed at friendly airports. They had few successes. The repossession effort has tapered off. Leasing companies acknowledge that it is unlikely the planes would be able to fly again in the West due to the makeshift way in which Russia has been maintaining the jets.

The Kremlin ordered airlines not to return those jets, effectively absconding with billions in assets. Many of the planes have been registered in Russia and are flying domestic routes or going overseas to friendly countries.

The leasing companies, which own around half of the world’s commercial jets, typically require airlines to insure their planes with a local company, which then sells off some of the risk to international reinsurers. The leasing companies also have their own insurance, covering war and other risks.

The insurers have offered many reasons why they shouldn’t pay the claims. One is that they withdrew coverage for Russia after the war started but before the planes they insured got stranded there.

If they win on that argument, it “could undermine the future of the insurance product itself if buyers doubt that cover is reliable for any new conflict,” according to Rob Smart, chief technical officer at Mactavish, a U.K. firm that advises policyholders.

Insurers are also arguing that exclusions for war can be triggered even when countries aren’t actually fighting with each other. The insurers said the financial and other support given to Ukraine by the West is proof of involvement in the conflict. “‘War’ is no longer merely ‘boots on the ground,’” Swiss Re said in a court filing.

Another defense is that the aircraft-leasing companies could have done more to retrieve their planes. Chubb said in a court filing that the companies “had opportunities prior to and after February 24, 2022, to remove their assets from Russia.” To the extent they failed to do this, they “voluntarily abandoned their assets” and so aren’t covered by the insurance. The leasing companies say it was impossible to retrieve the jets in all but a handful of cases.

Steven C. Marks of law firm Podhurst Orseck, representing leasing company Carlyle Aviation Partners, called the “ridiculous bunch of defenses” a stalling tactic and questioned whether all the insurers had adequate funds to pay the claims. The insurers’ management of Russia-related claims “could lead to larger-scale problems, including a domino effect of insolvencies and missed payments,” he wrote last month to the Federal Insurance Office, a U.S. government body that monitors the insurance industry.

While foreign insurers are fighting, Russian insurers have paid settlements worth more than $2 billion for more than 100 aircraft, according to securities filings and company statements. Irish leasing company AerCap Holdings, which in 2022 took a $2.7 billion write-down on its planes stuck in Russia, has agreed to deals for 67 of its 113 planes in the country, getting in total $1.3 billion of cash.

These deals appear to value the aircraft at less than they were worth before the war began. AerCap got around 70% of the insured value of the aircraft, the company said last month. Critics say Russia is trying to get ownership of the planes on the cheap.

But the legal fight is far from over. AerCap is still pursuing its Western insurers for $2.2 billion for its 113 written-off planes, including amounts not recovered under its settlements. “So it’s not as though that money is necessarily lost,” Peter Juhas, the company’s chief financial officer, told investors last month.

Others are rejecting the discounted offers from Russian insurers. Carlyle Aviation Partners, owned by the private-equity giant, is pursuing a 23-plane claim for more than $700 million in Florida state court. It rejected an offer from Russian insurers to settle for a discount to the jets’ book value.

“The same template was offered to us and we’re not agreeing to it,” Carlyle lawyer Marks said. He accused the Western insurers of dragging their feet to try to persuade aircraft-leasing companies to agree to discounted offers.

New tech and a patchwork of policies and procedures mean complications for travelers on TSA lines

Airport security may be seamless and painless one day. But the process of reaching that goal is creating another headache for travelers.

Right now, you never know what you’re going to get. Will the TSA officer ask for your ID or ID and boarding pass, and maybe snap a photo for verification? Do you plop your bags on the conveyor belt or should everything go into a bin? Liquids and laptops OK in the carry-on bag even without TSA PreCheck?

It isn’t uncommon to have one set of rules on one leg of a trip and another on the return flight, or to even have different experiences at different checkpoints in the same airport. And that doesn’t even include new digital ID options for vetted Delta and United fliers and self-service screening being tested in Las Vegas.

I can’t count how many times I thought I had it down only to find a new security setup.

But you should know two things: It isn’t going to change anytime soon, and there are steps you can take to make it better, like always having your boarding pass and ID ready. (More on that later.)

Matthew Gilligan, who travels weekly, wishes for more consistency across the country.

“I feel like I’m ready for what I need to do, and then when you throw me a curveball at 3:30 in the morning, it’s an annoyance,” he says.

Fits and starts

TSA officials say a standardized approach nationwide isn’t feasible and likely never will be. Blame the uneven rollout of new technology. The agency is always looking to improve threat detection. With that comes new equipment and procedures, says Christina Peach, a TSA deputy assistant administrator.

But it doesn’t have the budget to outfit 431 airports simultaneously, so new equipment arrives in phases. Some airports don’t have the space for the latest screening machines.

“I think that it’s always going to be a rotation,” Peach says.

Take those new machines where the officer pops your license in to verify identity and travel plans, no boarding pass necessary. The agency has called the credential authentication technology (CAT) systems a security game-changer.

Today there are about 2,000 installed in 228 airports, or barely half of airports where TSA oversees security. And fewer than 900 of them are the latest version, with computer tablets that take your photo to match with the ID your present.

That new tech is in every lane of Denver’s newest security checkpoint. It also has automated screening lanes, where you place everything, including carry-on bags, in a bigger-than-usual bin. The 17-lane checkpoint also comes with the latest CT bag scanners, which provide 3-D images and allow travelers without TSA PreCheck to keep liquids and laptops in their bags.

Travelers at other Denver checkpoints face a different experience. That leaves a lot of room for the kind of confusion playing out across the country.

Mixed messages

Chicago consultant Mike Voticky says he encountered a little bit of everything during his trips through security on a recent three-day trip from Chicago to Fort Lauderdale, Fla. He watched plenty of passengers fumble through pockets and purses for their boarding passes and IDs, clogging the line.

He says he wishes the TSA would put a sign at the beginning of each lane outlining the procedures in place: “Please have your ID and boarding pass or just your ID or just your mother’s picture, or whatever the hell they want.”

With 2,411 security lanes at 684 checkpoints, the TSA can’t possibly “address every scenario” and keep it updated, spokeswoman Lorie Dankers says. And signs sometimes make things even more confusing.

“A lot of times what ends up happening,” Peach says, is that “people from a different lane read that sign and they’re doing the wrong thing.”

Allison Tucci, a Home Depot manager from New Jersey who has TSA PreCheck, says she’s gotten grief at checkpoints for not doing the right thing at the right time. She finds the hodgepodge of practices confusing and hates jostling for bins with other passengers.

None of that was an issue at Terminal 3 of Harry Reid International Airport in Las Vegas on Friday. A TSA employee asked if she wanted to try the self-service checkpoint the agency is testing and escorted her to the Innovation Checkpoint.

There was no line. A TSA agent checked her ID and she was on her own from there. She put her stuff in a special bin, stepped into a glass enclosure for a body scan and “Have a good flight!” flashed on the screen when she was done. She picked up her stuff and was on her way.

“It was such a piece of cake,” she says. “I felt like a rock star.”

One of world’s biggest embezzlement cases is part of crackdown that could upset foreign investment

In 2021, Nguyen Thi Thanh Thuy jumped at an offer by Vietnam’s Saigon Joint Stock Commercial Bank (SCB) to invest in a new savings product offering high interest rates. The former factory worker did not hesitate to move her entire savings of 800mn dong ($32,000) to the new scheme, believing that her money would be safe with the state-licensed bank.

But unbeknown to Thuy, her money was invested in bonds that Vietnamese authorities said were illegally channelling money to property tycoon Truong My Lan in what they said was the biggest fraud the country had ever seen.

“I believed totally in the assurances of the bank staff . . . now I have lost all faith in the domestic banking system,” said 61-year-old Thuy, adding that all her family’s savings had been lost. She has been participating in protests against SCB — rare in tightly controlled communist-run Vietnam — because “we have no other choice”.

Thuy is one of thousands of Vietnamese people who have lost money they put in SCB. Lan is accused of embezzling 304tn dong from SCB through family and proxies, using “ghost” companies to take out loans and bribing central bank officials with millions of dollars stuffed in styrofoam boxes.

Lan’s trial — on charges of embezzlement, bribery and abuse of power — began this month and is part of a years-long corruption purge by Vietnam’s Communist party that has exposed widespread graft, slowed economic activity and threatens to upset record amounts of foreign investment. Prosecutors on Tuesday called for a death sentence for Lan.

Vietnam has been plagued by corruption for decades, but the “scale of the case is shocking”, said Linh Nguyen, associate director at consultancy Control Risks. “It has damaged the sentiment of not only foreign investors, but also local investors in the stock market and the business community in general.” The alleged fraud amount is almost three times that involving Malaysia’s sovereign wealth fund 1MDB, which US officials have described as the world’s largest incident of kleptocracy.

Lan’s trial comes at a time when Vietnam has emerged as a preferred destination for manufacturers looking to diversify beyond China amid rising tensions between Washington and Beijing. Foreign direct investment in Vietnam rose by nearly a third to a record high of $36.6bn last year. 

Some potential investors are worried the corruption crackdown — known as “blazing furnace” — could pick up pace, especially closer to 2026, when the Communist party leader Nguyen Phu Trong, who has spearheaded the campaign, is widely expected to step down. “Some of our clients are eager to make investments in Vietnam, but for now they are holding back as they want to see what’s going to happen at the next party congress and whether this anti-corruption drive will continue,” Linh said.

In another sign of diminishing investor confidence, the ratio of realised to registered foreign direct investment declined in 2023 from a year ago, according to Linh and analysts at ANZ Research.

The alleged multibillion-dollar fraud at SCB, which has been under “special control” of the central bank since Lan’s arrest in 2022, triggered a downturn in Vietnam’s property and corporate bond markets. As a result of the broader crackdown on graft, Vietnam’s president and two deputy prime ministers resigned in 2023 and hundreds of high-ranking officials have been arrested over the years.

Lan, 67, comes from one of Vietnam’s wealthiest families, which made their money mostly in real estate. She is the chair of developer Van Thinh Phat, which owns some of the most prized hotels, luxury residences and office buildings in Ho Chi Minh City, Vietnam’s economic and commercial hub. 

According to charges detailed by Vietnamese state media, Lan controlled more than 90 per cent of SCB illegally through proxies, appointed family members to senior positions to help funnel money to her and bribed state auditors who had discovered the alleged fraud.

Authorities said SCB also gave loans worth more than $44bn to Van Thinh Phat and other companies controlled by Lan between 2012 and 2022, accounting for 93 per cent of the total loans disbursed by the bank.

At her trial, Lan denied owning a controlling stake as well as all the other charges against her. The tycoon said she was asked by the central bank to oversee a merger of three banks that resulted in the establishment of SCB and that she had persuaded her friends to buy shares to save the bank from bankruptcy, state media reported.

Lan’s lawyers declined to comment. Vietnam’s Prime Minister Pham Minh Chinh has blamed the country’s finance ministry, securities regulator and central bank for their lack of oversight, according to state media. The foreign ministry, which handles questions to the government from foreign media, and Lan’s property company Van Thinh Phat did not respond to requests for comment.

In light of the crackdown, government officials are reluctant to approve some projects for fear of future investigations. As a result, Nguyen Khac Giang, a visiting fellow at Singapore’s Iseas-Yusof Ishak Institute, said Vietnam was in “bureaucratic paralysis”.

Critics said Trong, the leader of Vietnam’s Communist party, had used the campaign to go after political rivals, heightening the sense of unpredictability. “The campaign that the government has undertaken is not simply to eradicate corruption,” said Darren Tay, head of Asia country risk at BMI, a unit of Fitch Solutions. “There is also a political element. Trong has taken the opportunity to highlight the wrongdoings of his political rivals.”

But Tay said Vietnam remained attractive for foreign companies. “Vietnam has ensured that it remains welcoming to foreign investors. The economy is set up to favour exporters and manufacturers,” he said, pointing to low interest rates and wages and government incentives to set up factories.

For SCB depositors such as Thuy, neither foreign investment nor the court verdict matters. She wants the government to use the property tycoon’s assets to compensate victims. “I will take to the streets to protest until we recover our money,” she said.

The activity was predictable given the low valuations of UK stocks

This is shaping up to be the year of the UK takeover. Direct Line, Spirent, Mattioli Woods, Wincanton and others have either been sold or are “in play” in 2024, with big jumps in their share prices.

Who would have thought that transport group Wincanton would achieve a 100 per cent premium on pre-bid levels? Of course, all this activity was predictable given the low valuations of UK stocks. All that predators were waiting for was a degree of economic stability and a positive view on falling interest rates. 

Over the years I have been on the receiving end of 60 takeovers or take privates — approximately one a year for my investing life. Many of these names are long gone: Delcam, Fenner, Pifco, Refuge Assurance, Trafford Park Estates, Wintrust — and Air Partner being the most recent a couple of years ago. All delivered appreciated premiums and cash for reinvestment, but I would rather have seen many remain independent, continuing to grow. 

The government’s response to low valuations of UK stocks has been somewhat unconvincing — telling pension funds to be more transparent as to where they are invested and introducing a £5,000 additional allowance British Isa. This damp squib has been slated by many commentators, looks administratively complex, will only benefit the really well-off, and unsurprisingly has hardly delivered a flicker of reaction in markets. Indeed, it now seems as if it will not be operational until next year if at all. 

What we surely need is real cultural change — greater financial education in schools, a rowing back of financial regulation which in my view excessively protects the consumer, inhibiting, say, television broadcasters from covering the stock market or investment opportunities. 

The failure of television in this whole area has been a tragedy — a huge missed opportunity to project great UK companies into the home. My efforts to alert ministers have been to no avail: the consensus is that the regulations are not over-restrictive and that it is up to TV programmers to decide content. But we should all be worried and ashamed that more young people speculate in cryptocurrencies than invest in a stocks and shares Isa.

Trying to identify takeover candidates and the timing of a possible bid is as pointless as guessing when a salmon might take my fly during my annual week on the Tweed. 

When I look at my own portfolio, and the depressed level of so many stocks, virtually all appear vulnerable to a bid. The only exceptions are probably Legal & General, which I have never seen mentioned in takeover gossip, and Goodwin, a fine family growth business where the next generation is committed and entrenched. Looking at my larger holdings, speculation surfaces from time to time in both Aviva and M&G. Amanda Blanc, who is doing a great job at Aviva, made a recent comment that takeover speculation was “mainly market chatter”. I would be sorry to lose both, as they are marvellous tax-free income generators within my Isa. 

Turning to my many small-cap holdings — held both inside and outside an Isa wrapper — they are best put into different groups in the takeover stakes. First, we have the standout undervalued opportunities. Here I include both family-controlled Christie Group and PZ Cussons — the former, where I have a declarable interest, trails at a ludicrous 70p — half the price at its flotation in 1987 when the business was a fraction of the current size. 

Christie Group is the leading broker and valuer for hotel and restaurant businesses, pharmacies, care homes and children’s nurseries, with more than 30 offices in the UK and Europe. Bottom-line profits have been continuously dragged down by losses in its retail stocktaking division. Hopefully we should soon begin to see overall profitability improve with its shares recovering towards their real value. By my estimation, this should be at least £3 per share or four times the current price. 

Consumer products maker PZ Cussons, where I was a non-exec years ago, has sadly been an abysmal performer in recent years, compounded by currency devaluations in Nigeria. Capitalisation has fallen from a peak of £1.8bn to a derisory £400mn today. 

A “sum of parts” valuation of its brands and markets surely produces materially higher worth — Carex itself must be worth close to the present overall valuation, to say nothing of Imperial Leather, St Tropez, Morning Fresh, Cussons, Sanctuary and so on. Its major manufacturing position in populous Nigeria, with multiple market leading brands, has to be of considerable value, particularly to a Nigerian owner. There are additional operations in Australia and Indonesia. Indeed, one has to ask whether there is indeed an independent future for this middle-ranking consumer PLC in a market place so dominated by huge global players?

Next, we have a grouping of three companies primarily built up by an individual with a large personal shareholding: Louis Hall in business services to the telecoms sector with Cerillion, my star performer; Andrew Jacobs at self-storage business Lok’nStore; and James Dickson at Vianet, an IT provider and monitor of vending machines. Their destinies will clearly be decided by the aforementioned key players.

Finally, any one of my host of attractive, valuable small-cap holdings could attract a predator — Anpario in natural stimulants for animal growth; soft-drink maker Nichols; flavours and fragrances maker Treatt; STV, the leading Scottish independent TV company; Hollywood Bowl; VP in plant hire; banker Secure Trust; and business property owner Workspace. 

My hunch is that 2024 will be an interesting, eventful year — we shall see.

Rheinmetall’s Armin Papperger makes case for air defence systems as EU contends with increased Russian threat

The chief executive of Europe’s largest munitions maker Rheinmetall has said EU leaders should consider installing short-range air defence systems similar to Israel’s Iron Dome.

Armin Papperger’s comments come as EU capitals are boosting military spending amid increased fears of Russia’s threat to the continent, and seeking to address long-standing limitations in existing defence systems.

Papperger said short-range air defence was “something they want to create in Europe”, pointing to one aspect of the Berlin-backed European Sky Shield initiative.

“I also think that it is a good idea to have a European solution similar to Iron Dome and beyond,” he told the Financial Times.

Iron Dome has a range of up to 70km and has been used by Israel since 2011 to intercept short-range rockets. Shielding large swaths of continental Europe with a similar system has been dismissed as far-fetched by analysts but EU countries have invested in an array of air defence technology.

Another European defence executive said Europe already had “all the capabilities in order to create the full layers of air defence. So it is there, it’s just a matter of deciding whether to use it or not”.

In late 2022, German chancellor Olaf Scholz announced the European Sky Shield initiative, which he cast as a way to create a European air and missile defence system by jointly procuring equipment.

Some 21 countries have signed up to the initiative. It enraged France, whose officials see it as strategically muddled and ill-conceived since it omits European-made air defence systems including the Franco-Italian made SAMP/T from MBDA.

Rheinmetall said in February it had sold its Skyranger 30 short-range air defence system, which it said could be used against drones among other things, to the German armed forces for €600mn.

Developing better-integrated European air and missile defence systems is a priority for Brussels, which is pushing capitals to share technologies to patch up gaps in the continent’s capabilities.

The EU’s defence strategy calls for, by 2035, “capabilities related to integrated European air and missile defence”, and a new industry proposal tabled by the European Commission this month involves budget support by the bloc to “European defence projects of common interest”.

Integrated air and missile defence systems were named as one of 22 EU defence capability priorities, with Brussels pushing for member states to develop “next-generation fully interoperable capabilities” in air defence that work with existing Nato systems.

The EU is also working on a new defence strategy that aims to boost joint procurement and sets goals for the first time about buying from manufacturers in the bloc as opposed to the US.

Defence industry executives have also called for greater co-operation and partnerships among companies to reduce duplication and bolster Europe’s industrial base in the long term.

Roberto Cingolani, chief executive of Leonardo, the Rome-based aerospace and defence group, told the FT that “everybody is talking to everybody”.

“We are trying to discuss among companies to see which are the possible pathways and more convenient solutions” to help protect the future of European citizens.

Chief executive of Atkins Realis says more planning needed ahead of first global nuclear energy summit

Western countries mishandle nuclear energy projects by failing to plan and trying to complete them too fast, the head of Atkins Realis, the biggest maker of reactors that run on natural uranium, has warned ahead of the first global nuclear summit this week.

“Clients, governments and ourselves as the industry players . . . we all become too optimistic. We have this optimism bias towards being able to deliver faster,” Ian Edwards, chief executive of the Canadian engineering company, told the Financial Times.

“Really we should probably slow things down a little bit, spend more time on the planning phase and get the execution phase [done].”

Nuclear is increasingly viewed as critical to the transition to clean energy, but construction of reactors has historically been plagued by cost overruns and delays, along with fears about safety and concerns over radioactive waste.

Edwards said that nuclear power could “compete well with renewables” given the longevity of nuclear plants. But that would depend on budgets being met and the development of modular reactors — part of the reason for China’s far greater success in fostering nuclear power than western countries.

“Repeatability is really important,” he said. Components for each reactor type should be built to one design, for example, so that they could be rolled out to any site, he added.

Atkins Realis produces the only type of reactor that does not require enriched uranium, of which Russia is the biggest exporter. Its CANDU reactors are in demand as western countries seek to reduce their reliance on Russia for energy following the country’s full-scale invasion of Ukraine.

Nuclear engineering accounts for about 15 per cent of Atkins Realis’s business but Edwards said it is the fastest-growing part of the company and takes up half his time. “Demand is probably going to outstrip our ability to provide capacity.”

Among the nuclear projects hit by delays is the UK’s Hinkley Point C, a twin reactor project built by French company EDF that has been delayed until 2029 at the earliest, four years later than planned. Costs have ballooned from £18bn to a projected £46bn.

Another EDF project in France likewise set to use enriched uranium is running 12 years over schedule and at more than four times the original budget. In the US, two reactors in Georgia are set to cost more than double the starting budget of $14bn and will be completed at least five years late.

The west’s sluggish progress on nuclear — which slowed dramatically after the Fukushima nuclear accident in Japan in 2011 — contrasts with a rapid rollout of atomic power in China.

Since 1990, China has built 55 nuclear plants. It has 22 under construction and more than 70 in the planning phase, and is building up exports of nuclear technology.

Edwards said that Atkins Realis’s CANDU Monark reactor, launched in November, is designed to be made in modules that can be tweaked according to location.

CANDU is the only nuclear reactor type that does not require enriched uranium. This is because it uses heavy water, which contains the deuterium isotope of hydrogen, to control and cool the reactions. Heavy water absorbs fewer neutrons than regular water, leaving more of them free to collide with uranium atoms to trigger the fission reaction that releases atomic energy.

“It’s definitely a sales differentiator . . . in the short term, the energy security issue because of Russian enriched uranium is an issue,” Edwards said.

EU imports of Russian enriched uranium have more than doubled since the invasion of Ukraine, according to analysis by the environmental NGO Bellona. But EU officials have said this is largely down to countries with Soviet-era reactors stockpiling supplies for fear that Russia could cut them off.

Edwards said fears of climate change were fuelling the renewed interest in nuclear power after Fukushima.

US uranium miners resurrected by nuclear revival and Ukraine war

Belgium, which will host the first International Atomic Energy Agency summit in Brussels on Thursday, originally planned to close its two newest reactors in 2025 but signed a deal in December with the operator Engie to extend their life by 10 years.

French President Emmanuel Macron, US climate envoy John Podesta and European Commission president Ursula von der Leyen will attend the summit. Participants will sign a declaration committing them to greater investment in existing and new nuclear technologies, officials said.

At the UN COP28 climate conference in Dubai in December, 22 countries including Canada, US and the UK signed a pledge to triple nuclear power by 2030.

Private equity-backed car rental group is struggling as US drivers shun electric vehicles

It did not take long after Stephen Scherr stepped down as Goldman Sachs’ chief financial officer in late 2021 for him to start spending more time in Florida. But he was not retiring to play golf.

Rather, in February 2022 he was named chief executive of Hertz, the Fort Myers-based mainstay of the rental car business which had just emerged from bankruptcy and looked poised to take advantage of a post-pandemic “revenge travel” boom.

Hertz’s majority owners, two little-known private equity firms called Knighthead Capital and Certares, had made two bold bets after their $2bn equity investment won the auction to bring Hertz out of bankruptcy earlier that year.

First, they decided that the century-old company would reposition itself as a forward-looking “mobility” group that would stand out in a crowded field with a fleet heavy on Tesla’s electric vehicles. Second, they determined that a Wall Street investment banker was the person to lead that transformation.

The PE firms offered Scherr 2 per cent of Hertz’s equity if he could help it reach lofty stock market targets. Hitting the final incentive — a little more than doubling Hertz’s share price over five years — would have unlocked stock worth at least $498mn.

But on Friday, after just 25 months in the job, Hertz abruptly announced that Scherr would be leaving at the end of the month. Gil West, a former chief operating officer of Delta Air Lines and General Motors’ Cruise self-driving car unit, will be replacing him.

Instead of enjoying a boom, Hertz is in trouble again. Its shares have fallen 60 per cent from the day Scherr joined, pulled down by the failure of its pivot to EVs.

The situation came to a head in January when it shocked investors with the news that it had decided to sell a third of its EVs, taking a hit of $245mn.

Scherr and the board had discussions then about what management skills were needed for the next phase at the company. Around the same time, people familiar with the matter say, he confessed to friends that it might be time for him to leave, given the need for a tighter focus on operations.

Hertz’s struggles have underscored that US consumers are proving more wary of EVs than expected and that even small strategic errors at companies with complex supply chains and capital structures can quickly snowball.

“Given the stock price and the moves made operationally, things weren’t going well,” said one person involved. Hertz needed someone to “stabilise the business” before focusing on new initiatives, they added. A person familiar with the thinking of Knighthead and Certares said that the pair agreed that it was the right time for a new CEO.

Others deeply involved in the Hertz investment have also moved on. Jeff Nedelman, a Certares managing director who had worked closely with Scherr at Goldman and recruited him to Hertz, resigned from the rental company’s board in January after taking a job at Carlyle.

It is a very different picture from the one Hertz’s owners were looking at before they hired Scherr. Within months of buying Hertz out of bankruptcy, Knighthead and Certares had relisted the company on Nasdaq in November 2021 and were already sitting on $3bn of paper and cash gains from their $2bn outlay.

The two firms had developed a thesis that travel would bounce back sharply after the global lockdowns with beaten-down travel and hospitality companies benefiting the most. Moreover, financial and operating factors that had pushed Hertz into bankruptcy reversed in the 2021 rally: its balance sheet had been cleaned up and the prices of used cars surged, letting it boost profits while modernising its fleet. 

In October 2021, before Scherr’s arrival, Hertz had trumpeted “an initial order” of 100,000 Teslas, saying that consumer interest in EVs was “skyrocket[ing]” and hiring the former New England Patriots quarterback Tom Brady to pitch how it was “changing the game”.

Its private equity owners preached that Hertz’s investment in EVs and their related charging infrastructure would be revolutionary, even entailing autonomous vehicles down the road.

“This should be one of the best ESG investments in the market today,” said Greg O’Hara of Certares at the time, hailing the environmental benefits of EVs.

Executives from Certares and Knighthead had known Scherr for years. “We’ve got your next gig,” they told him when they approached him about the Hertz job in late 2021 shortly after he announced he was leaving Goldman.

At first, Scherr was sceptical. But the closer he looked, the more he shared their enthusiasm. He even drew parallels between managing hundreds of thousands of rental cars and the risk management skills he had honed during almost three decades at Goldman. 

At an investor event in June 2022, Scherr told the audience that corporate customers would rent EVs to achieve their “net zero” emissions-cutting objectives and ride share drivers would prefer EVs to avoid high petrol prices. His contacts proved useful too as Hertz struck high-profile partnerships with various Big Tech powerhouses.

But through 2022 and early 2023, travel and leisure stocks stagnated as the revenue gains from resurgent travel were already priced in.

To make matters worse, in October 2023, Hertz shocked Wall Street by disclosing that the EVs it had rented to Uber drivers were being damaged at an unexpectedly high rate. Not only were they proving costly to repair relative to traditional internal combustion engine cars, but their salvage values had suffered during a Tesla-induced price war.

Many renters, meanwhile, still preferred traditional cars and hybrids, leaving Hertz car lots full with Teslas even after it offered drivers heavy discounts.

By January, Scherr had to tell the market that Hertz would cut a third of its EV fleet. Its earnings before interest, taxes, depreciation and amortisation for 2023 fell to $561mn — down 75 per cent year-over-year, even as revenues remained resilient.

“Steve is a super smart guy with a great pedigree. But he was a numbers guy not an EV or turnaround expert,” said Ian Zaffino, an equity research analyst at Oppenheimer. “It’s hard to be a long tenured CEO with all these curveballs thrown at you.”

“If you look at the top line of the company on a revenue basis, [Hertz] is performing well but on a cost basis it is underperforming,” said one person close to the group. They added that Hertz would have to cut costs aggressively. “[They] are not abandoning the EV strategy, just downsizing it until the business is profitable,” they said.

The EV fiasco has left Hertz in a precarious position. It carries more than $3bn in corporate debt, compared to adjusted ebitda of less than $600mn last year. Since emerging from bankruptcy, it has used cash flow and debt issuance to buy back $3bn in common stock as well as redeem almost $2bn of preferred stock held by Apollo Global Management at a 25 per cent premium to Apollo’s purchase price.

In a 2021 follow-on equity offering, Knighthead and Certares sold $500mn of shares. But the value of their remaining majority stake is today worth $1.4bn, leaving them underwater on their initial $2bn investment.

On Tuesday, in a memo seen by the Financial Times, Scherr told colleagues he remained optimistic about Hertz’s prospects, even as he said 2024 would be a “transitional” year. It had partnerships with Google on artificial intelligence, Apple and Stripe on digital payments and Palantir on “fleet control”, he noted, predicting that its investments in technology would create “long-term value” for the business.

According to FT calculations based on Hertz securities filings, Scherr will create less value for himself than once seemed possible. He will collect only 2.8mn of the 12.5mn shares he stood to earn when he joined had he hit the targets set for him — worth just over $20mn, rather than the near-$500mn he could once have aimed for. He will have separately taken home less than $10mn in cash pay for his 25-months at the wheel.

Scherr will, however, keep one fringe benefit. The company’s last proxy filing states that he remains eligible for free Hertz car rentals for the rest of his life.

Startups with an AI angle would do well to pay attention

While the technology world breathlessly awaits Reddit’s public debut, another company you might never have heard of is about to go public: Astera Labs. And it may be a more important test of investors’ returning appetite for tech IPOs.

Astera this week announced in a public filing that it’s public debut would be bigger than it initially planned in every way: It will sell more shares — 19.8 million vs. the previous plan of 17.8 million — and at a higher price, expecting to sell at $32 to $34 per share, vs. the previous $27 to $30 range. Astera expects to raise $517.6 million at the middle of its raised range, it said, up from $392.4 million. IPO watchers expect it to debut this week.

While Reddit’s IPO could do well from investors looking to buy a well-known social media company that has an interesting, burgeoning AI data business, Astera Labs is an AI hardware story. And no, it’s not taking on Nvidia, the American chip giant that created the world’s most in-demand AI chip.

Astera Labs makes connectivity hardware for cloud computing data centers. Because AI requires massive amounts of data moving into, out of and around data centers, Astera has seen recent its revenues bloom. After generating $79.9 million in 2022, revenue swelled 45% in 2023 to $115.8 million.

With 271 mentions of “AI” in its most recent SEC filing, the company is working hard to convince investors that it’s part of the larger artificial intelligence boom.

Just how much AI-juice Astera really has for long-term success is up for debate. Nick Einhorn, vice president of research at Renaissance Capital, a company that tracks the IPO market and offers public-offering focused ETFs, is a touch skeptical. Astera is “not an AI company” Einghorn told TechCrunch. The company, is, however, “benefiting from the trend,” in his view, particularly data center spending driven by AI. So much so, that in 2022, Amazon signed a warrant agreement that allows it to buy just shy of 1.5 million shares, which isn’t proof that Amazon Web Services is a customer, but does hint at it.

Then again, while the company does have an AI story to tell, its rapid recent growth and demonstrated early profitability could be the key drivers to its public-market investor interest.

In startup-land, growth and losses often walk hand-in-hand. Startups raise capital from private-market investors, investing the funds into their operations to expand headcount so that they can build, and sell more quickly. Often by the time that a startup reaches the required scale to file for a public offering, it is still unprofitable and not likely to start generating adjusted profits, let alone profit according to more stringent accounting standards, in the near future

Up until the fourth quarter of 2023, Astera Labs appeared to be just that sort of company. It’s business grew rapidly last year, with sticky losses to match.

On its 2022 $79.9 million in revenue, it posted a net loss of $58.3 million; on its 2023 $115.8 million in revenue, net loss tallied $26.3 million. So, on an annual basis, this is far from the kind of profitable company IPO experts say this harsh market requires. Even when the company removed the non-cash costs of paying its workers partially in shares, the company’s adjusted profits were still negative in 2023.

But when we dig in, its financial success becomes more nuanced. In the third quarter of 2023, Astera Labs’ revenue began growing dramatically: from $10.7 million in Q2 2023 to $36.9 million in Q3, and $50.5 million in Q4.

And while that spike in growth is impressive on its own, the company’s profitability picture has also radically improved as 2023 came to a close. After posting a net loss of $20.0 million in Q2 2023, net loss evaporated to a mere $3.1 million in Q3 2023.

And for Q4, Astera Labs swung to a profit: $14.3 million worth of net income.

Einhorn warned that the company’s Q4 2023 results may not augur the company’s new normal. “One of the challenges for companies like this,” he explained, “is that you tend to have a lot of customer concentration and customer buying patterns can be very lumpy.” Good recent quarters do not always imply similar future quarters. Another weakness: in 2023, its biggest three customers represented about 70% of its revenue, Astera disclosed.

Putting it all together: Astera Labs has caught a wave thanks to AI data center spending. Its resulting financial glow-up is impressive, and helps explain why its IPO is is set to occur at a valuation of around $5.2 billion, a healthy lift from of its final private-market price of $3.15 billion.

If the company is able to attract a strong following after its first day of trading, it could wedge the IPO door open for other businesses seeing newfound growth as a by-product of AI. And perhaps that will be enough for more technology offerings to sneak out this year.