Buffett calls on CEOs to step up investment in US


Sun, Mar 03, 2013 - Page 13

US billionaire Warren Buffett said executives who held back investments because of doubts about the economy are missing an opportunity as he plans to accelerate capital spending at his Berkshire Hathaway Inc this year.

“There was a lot of hand-wringing last year among CEOs who cried ‘uncertainty’ when faced with capital allocation decisions despite many of their businesses having enjoyed record levels of both earnings and cash,” Buffett wrote in an annual letter to Berkshire shareholders on Friday.

“We will keep our foot to the floor and will almost certainly set still another record for capital expenditures in 2013. Opportunities abound in America,” he wrote.

Berkshire spent US$9.8 billion last year on plant and equipment as it bolstered railroad and utility units, Buffett said in the letter. That is 19 percent more than the prior year, he wrote. Most of the spending was in the US.

Buffett often touts the prospects of the world’s largest economy, where Berkshire’s biggest units are based and where he amassed a fortune of more than US$50 billion.

“If you are a CEO who has some large, profitable project you are shelving because of short-term worries, call Berkshire,” he wrote. “Let us unburden you.”

Buffett, 82, led the letter by telling shareholders his performance was “subpar” last year. The growth in Omaha, Nebraska-based Berkshire’s per-share book value, a measure of assets minus liabilities, trailed the Standard & Poor’s 500 Index including dividends by 1.6 percentage points last year.

The billionaire has failed to measure up to that yardstick only nine times since he took control of the firm in 1965.

He also said he was disappointed for failing to make a major acquisition even though he had pursued a few large potential takeovers last year. Last month, he ended his drought by joining Jorge Paulo Lemann’s 3G Capital in announcing a US$23 billion deal to take ketchup maker HJ Heinz Co private.

“Our total investment of about US$12 billion soaks up much of what Berkshire earned last year,” wrote Buffett, who is chairman and chief executive officer. “But we still have plenty of cash and are generating more at a good clip.”

Net income rose 49 percent to US$4.55 billion in the three months ended Dec. 31 on derivative gains. Buffett uses the contracts to speculate on the long-term gains of stock-market indices and the creditworthiness of corporate borrowers.

He has encouraged investors to look beyond the quarterly fluctuation in derivative liabilities, in part, because the bets tied to equities do not settle until 2018 and later. Full-year net income climbed 45 percent to US$14.8 billion.

Profit was also helped by Buffett’s biggest acquisition, railroad Burlington Northern Santa Fe. The unit’s earnings rose to US$932 million in the fourth quarter from US$909 million a year earlier. Shipments of construction products, cars and petroleum increased last year as coal declined.

Buffett has fueled Berkshire’s growth over the last four decades by financing takeovers and investments with float, the premiums held at insurance units before claims are paid.

That money was again cost-free, because units including auto insurer Geico and reinsurer General Re turned underwriting profits last year, he wrote.