TheChek News Flow

Executive accused of using shell network to ship equipment to Russian manufacturer, in contravention of EU embargo

A German businessman has been charged by prosecutors with smuggling millions of euros of sensitive engineering equipment to Russia to manufacture sniper rifles.

Referred to in the prosecution as Ulli S, the executive is accused of having used a network of shell companies in Switzerland and Lithuania to hide the sales of equipment to an unnamed Russian arms company. In charges filed in Stuttgart on Monday, German prosecutors said six specialist German machines worth about €2mn had been shipped to Russia via the network in 2015-16. 

Germany has enforced a ban on the sales of arms and dual-use equipment used to make weapons to Russia since 2014, in compliance with an EU embargo following Moscow’s illegal annexation of Crimea from Ukraine that year. 

Faced with critical shortages of precision engineering equipment and high-tech electronics, Russia has since ramped up its efforts to illegally source components and machinery — often using its security services to help foreign entities violate sanctions. 

After President Vladimir Putin launched his full-scale invasion of Ukraine in February last year, the importance of such illicit networks has only grown. Concern in western capitals has mounted in recent months about Russia’s ability to evade export bans intended to hamper its war effort.

Germany, with its network of small and medium-sized specialist engineering companies, has been a particular target. 

In a separate case Waldemar W, a Russian-born German citizen, was arrested by police in August under suspicion of setting up a network to supply sensitive electronic equipment to Russia, including for use in Orlan-10 drones.

In their charges against Ulli S, German prosecutors alleged that he was fully aware of the purpose for which the machines he sold would be used. 

They claimed he established a corporate chain that would help provide plausible deniability about the machines’ ultimate recipient, and said he sent employees to Russia to install and calibrate the machines at the arms manufacturer’s facilities. His company also pledged it would help to train Russian factory workers to operate the machines to make guns, they added.

The indictment against him also claimed that he shipped four sniper rifles in 2015 from the Russian manufacturer — also a breach of sanctions rules — to western Germany, to ensure the machines would function at maximum efficiency for his Russian client. Ulli S forged the dates on the rifle order’s contracts so that it predated the EU’s embargo, the indictment also claimed. 

Ulli S has not yet appeared in court to respond to the charges. The German national was arrested in France in August and transferred back to his home country for questioning. It is standard practice in German criminal investigations for the full names of suspects not to be disclosed.

In March, the US said it was doubling down on efforts to police sanctions, amid fears that Moscow was securing access to the sensitive materials it needed by routing shipments through third-party countries such as the Gulf states and Turkey. 

Switzerland has also become an increasing point of focus. Prosecutors claimed Ulli S executed two of the three banned contracts he made with Russian entities via the Alpine country.

Private equity firm agrees deal that values Danish sandwich chain at about $600mn

US private equity firm General Atlantic has agreed to take a controlling stake in Joe & the Juice, increasing its investment seven years after initially putting money into the Danish sandwich chain.

General Atlantic is increasing its interest in the company from about 30 per cent to as much as 90 per cent in a deal valuing Joe & the Juice at about $600mn, according to a person familiar with the matter.

The transaction will see existing shareholders, including Swedish investment firm Valedo Partners, cash out. The investment will be used to reduce Joe & the Juice’s debt load and help the company expand into markets such as the US, the person added.

The deal highlights private equity’s continuing interest in high-street food chains despite a mixed record in the space. Private equity-backed chains such as Prezzo and Côte Restaurants have had to undergo restructurings to stay afloat. Burger chain Byron Burgers has also suffered financial difficulties.

Founded in Copenhagen in 2002, Joe & the Juice sells juices, coffee and sandwiches made of natural ingredients. The chain has expanded rapidly in recent years with the help of private equity money, more than quadrupling its revenue since 2016 as a growing number of consumers choose businesses that emphasise organic and sustainably sourced ingredients.

Since General Atlantic first invested in 2016, the company has doubled the number of stores it owns to more than 360 globally. Some of this growth has been driven by its expansion in the US where it now has about 70 stores, up from less than five when General Atlantic first invested.

The company wants to expand its presence in other international markets, including the UK, Europe and the Middle East, where it owns 23 franchised stores.

Joe & the Juice has also built out its digital business, which now accounts for 30 per cent of its sales.

General Atlantic, which manages more than $77bn, is best known for backing fast-growing technology and consumer companies, including TikTok’s parent company ByteDance.

The group has expanded its business recently after acquiring private credit firm Iron Park as well as a stake in a company that buys second-hand stakes in private equity funds.

As the official engineering partner of the Mercedes-AMG Petronas Formula One tran, the launch comes ahead of the new Las Vegas Grand Prix.

Sports cars and sports watches have perennially made for a perfect pairing thanks to their mutual reliance on engineering and performance.

With the inaugural running of the Las Vegas Grand Prix just one week away, luxury watch brand IWC Schaffhausen is introducing two performance chronographs dedicated to its motorsport partners Mercedes-AMG and the Mercedes-AMG Petronas Formula One team. IWC is the team’s official engineering partner.

The two companies have partnered on limited editions since 2004.

The Pilot’s Watch Performance Chronograph 41 AMG utilizes a grade 5 titanium alloy to craft its case, crown and pushers and is used in automotive engineering to manufacture components for high-performance engines, making it 45 percent lighter than steel and remarkably rigid.

IWC has pioneered this hard-to-machine metal in the watch industry since 1980 when they released their first wristwatch with a titanium case and bracelet.

Offered in two versions, one with a waterproof black rubber strap, and with a titanium bracelet with H-links and an integrated folding clasp.

Last year, IWC introduced the Pilot’s Watch Chronograph 41 Edition “Mercedes-AMG Petronas Formula OneTM Team,” and the official team watch, and now it is also launching a performance chronograph dedicated to its partner, the Pilot’s Watch Performance Chronograph 41 Mercedes-AMG Petronas Formula One team. This version’s case is crafted from Ceratanium, which has the structural integrity of titanium with the hardness and scratch-resistance of ceramic, and is finished with a black rubber strap with a Ceratanium pin buckle, as well as a version featuring a Ceratanium bracelet with an integrated folding clasp.

Both watch styles are powered by the IWC-manufactured 69385 calibre movement. A standout feature in both versions is the ceramic bezel with a tachymeter scale, which allows the wearer to measure the average speed in relation to the distance traveled, all by pushing the chronograph’s start button.

Pricing will range from $9,800 to $11,700 for the Chronograph 41 AMG, and $13,700 to $19,900 for the Chronograph 41 Mercedes-AMG Petronas Formula One Team, which are available for purchase now via IWC’s website.

Power demand is climbing across the nation as industrial users connect to the grid, populations grow and weather gets more extreme

Everything is bigger in Texas, including its electricity use, which is increasing at historic rates in a sign of what is to come for much of the U.S.

The country’s largest electricity producer and user saw sales grow at five times the national rate for the past decade, roughly like adding Louisiana. A crushing heat wave this summer broke 10 peak demand records for the main Texas grid operator, which narrowly avoided blackouts one hot evening.

Texas is an extreme example with a big population that needs a lot of air conditioning, but it is also at the center of trends pushing electricity use higher in pockets of the country: the reshoring of manufacturing, the growth of power-hungry data centers and a push to electrification.

Some analysts say they are concerned the U.S. grid isn’t ready for accelerated growth in industries that want to plug in or the concentrated nature of the new demand in certain states. While there is room for more customers on the grid, planning is complex, and it is hard for the system to absorb if everyone tries to connect at the same place and time.

Texas is among a handful of states seeing dramatic upswings in demand.

Growth in semiconductor manufacturing has helped push electricity use higher in Oregon. States like Virginia and Iowa are seeing the addition of more large-scale data centers. Oil fields in North Dakota and New Mexico are hooking up to the grid and driving some of the nation’s biggest upswings in electricity use.

Electricity demand typically inches higher slowly with economic and population growth, canceled out by efficiency gains. Nationally, sales grew just 5% in the past decade. Texas electricity demand grew by 25% during that period, according to government data.

New customers that have connected to the Texas grid in recent years include the Tesla gigafactory outside of Austin, a liquefied natural gas export facility on the Gulf Coast touted as the world’s largest all-electric plant and bitcoin miners.

Texas is experiencing new demand on the electric grid that hasn’t been seen since the 1950s, ’60s and ’70s, said Michael Skelly, chief executive of transmission developer Grid United.

“Are we on the brink of such a moment now with electrification of transportation, with more extreme weather?” Skelly asked, noting that Texas companies are pursuing carbon capture and hydrogen projects that will tap grid power. “And we’re going to do AI,” he added.

Many utilities and grid operators across the U.S. are adjusting demand forecasts higher.

In coming years, computing power for artificial intelligence and wider adoption of electric vehicles will add to the demand. In addition, more manufacturing is relocating to the U.S. because of incentives in last year’s Inflation Reduction Act.

The U.S. is also making a historic transition from conventional power plants fueled by coal and natural gas to cleaner forms of energy such as wind and solar power. Grid operators across the U.S. have been warning that power-generating capacity is struggling to keep up with demand, and that gaps could lead to rolling blackouts during hot or cold weather extremes.

Data centers are one of the biggest new power consumers, and demand from them could double by 2030. Some new data centers requesting grid connections are as large as 500 megawatts, as much as it takes to power hundreds of thousands of homes, said Rob Chapman, senior vice president of energy delivery and customer solutions at the Electric Power Research Institute, a nonprofit researcher and advisory.

In Virginia, the state’s largest utility, Dominion Energy, has connected 75 new data centers since 2019, much of it fueled by streaming and work-from-home trends. Statewide electricity sales are up 7% year-to-date since then, according to government data. The utility expects electric demand to grow by about 85% over the next 15 years, spokesman Aaron Ruby said.

In the Pacific Northwest, electricity demand is expected to increase 20% in the next five years, much of it because of industrial growth, according to the Pacific Northwest Utilities Conference Committee, a trade association. That new demand is like adding four Seattles to the grid.

In New Mexico, electricity sales have jumped largely because of the Permian Basin shale patch in the southeastern corner of the state, said Commissioner Gabriel Aguilera of the New Mexico Public Regulation Commission. Producers there are connecting pumps, compressors and other equipment to the grid as they try to reduce greenhouse gas emissions.

The utility serving a large slice of the oil field, which straddles New Mexico and Texas, has seen its industrial sales increase an average of 15% for the past five years, a rate Aguilera called “astounding.”

Likewise, North Dakota has seen oil-field electrification while also courting both bitcoin miners and data centers, causing electricity sales to jump more than 58% in the past decade, the biggest increase in the country.

In Texas, electricity demand soared this summer as users cranked their air conditioning, but heat alone doesn’t explain it, said Barbara Clemenhagen, vice president of market intelligence at Customized Energy Solutions and a former board member of the Texas grid operator.

“There’s a ton of relatively cheap and available land in Texas, with relatively easy access to energy, and relatively low-cost energy compared to other parts of the country,” Clemenhagen said.

As a result, a range of industries has been expanding and electrifying operations in Texas, from EV makers to oil-and-gas companies to bitcoin miners. While Texas’ pro-business climate has spurred significant economic development, some say it has also made the grid more precarious.

Texas politicians have rolled out the welcome mat for bitcoin miners, though their enormous energy use is controversial. Miners typically operate warehouses of computer servers that unlock new bitcoin by solving mathematical puzzles that become increasingly complex and require more computing power—and more electricity.

Bitcoin miners argue they benefit the grid with their flexibility to turn on and off. Critics say they make electricity more expensive for household users.

Meanwhile, Texas added nearly 9.1 million residents between 2000 and 2022, according to the U.S. Census Bureau, more than any other state. San Antonio municipal utility CPS Energy connects around 30,000 new electric customers each year and “every utility in the state can give you a similar statistic” said Rudy Garza, president and chief executive.

“You’ve got to have every megawatt of power that can be produced whether it is wind or solar or batteries or new thermal generation,” Garza said. “Beggars can’t be choosers in an environment where the conditions in the market are tight.”

Global equity fund managers view India as the primary investment opportunity in Asia Pacific.

James Dowey, manager of the Liontrust Global Dividend fund, said the demographic advantages inherent in India made it both an economy and a market worth investing in.

He said: “The biggest and best source of opportunity in Asia Pacific in the decade ahead is India. The reasons are simple – its huge potential scale due to its exceptionally young population and great growth prospects from a low base unlocked by reforms and innovation over the past decade. India’s median age is 28 compared with China’s at 38 and while China is set for a decline of one or two million of its working age per year over the next decade India will gain about 10mn a year.”

Many emerging market economies get stuck in what economists call the middle income trap - when a country can no longer compete internationally in the market for labour-intensive goods because wages are too high, but it cannot also compete in higher value-added markets because productivity is too low

Attempting to escape this trap usually involves regulatory and supply-side economic reforms, which can be unpopular with voters.

Dowey’s view is that these regulatory reforms have already happened in India, while the economy is also moving up the value chain and not reliant on being the lowest-cost manufacturer.

He said: “This can already be seen in the recent strong growth of the technology and high value manufacturing sectors alongside signs, finally after many years, of a major build out of infrastructure and real estate. These factors should set the scene for structural economic growth north of 5 per cent a year.”

Alex Stanic, manager of the Artemis Global Select fund, which is no longer owned by any of the allocators we cover, said that while there are enormous globally-focused companies throughout the Asia Pacific region, exposure to domestic economies offers greater diversification potential.

His view is that India is taking over from China as the growth engine of the region.

Stanic said: “It’s invested heavily in transport and energy infrastructure in the past decade and that’s continuing. It has more of its rail network electrified than France or the UK these days. India has just overtaken China as the world’s most populous country. The long-term potential there is very strong and it’s quite an internalised market. We have a holding there in HDFC, a well-run bank. And one of our team is heading to India this month for further in-depth research with companies.”

Stanic still sees a role for China in a global portfolio, believing it is now less aligned with the rest of the world’s economy, and consequently is a good diversifier.

Gapping down
In reaction to earnings/guidance:

Other news:

Analyst comments: