German utility Uniper slashes its dividend to lowest legal level
Company seeks to preserve cash amid uncertainty over Ukraine and energy prices
Uniper has all but scrapped its dividend as the German utility looks to preserve cash in the face of wild price swings in energy markets and rising geopolitical tensions.
The Düsseldorf-based company said on Monday it would declare a payment of just €0.07 per share for 2021, down from €1.37 in 2020, citing high gas prices and uncertainty over Ukraine.
The proposed dividend amounts to just €26mn, against €501mn the year before, and is the lowest possible amount the company can pay under German law. The move had been backed by its majority shareholder.
“Given the continued high volatility on the energy markets, the geopolitical situation and the increasing momentum of the European energy transition, Uniper is placing a stronger focus on liquidity and investment capacity, which is reflected in the dividend proposal,” it said in a statement.
Uniper, which is majority owned by Finnish power company Fortum, was forced to seek €10bn of additional financing earlier this year to avoid a cash crunch after slowing gas supplies from Russia to Europe caused prices to surge.
The company is dependent on Russian gas to generate electricity and also supply a large customer base with the fossil fuel. Like its competitors, Uniper uses derivatives to hedge future power and gas sales.
As prices have soared over the past year to record levels, the losses on these hedges have increased, requiring Uniper to make margin payments to brokers, exchanges and other counterparties.
Analysts at Barclays said the proposed dividend for 2021 was almost 95 per cent below market expectations of €1.381 per share but that the company had softened the blow by signalling better than expected earnings guidance for 2022.
Uniper expects to report adjusted earnings before interest for 2022 of €1bn to €1.3bn because of a strong performance from its midstream gas business and gains in power generation. Analysts had been expecting earnings of €1bn for the year.
“We see a very favourable investment case for the European utility sector,” the Barclays analysts said. “One of the key arguments of our recent reports is that . . . consensus [forecasts] still do not reflect the power price rally.”
German baseload power prices surged last year, rising from about €50 per megawatt hour in January 2021 to a record €438 in December, before retreating this year to less than €200/MWh
Uniper is among Europe’s largest electricity generators with 34 gigawatts of capacity and is also a big gas supplier. It has about 600 clients in Germany and neighbouring countries, ranging from industrial customers and municipalities to regional distributors.
It was one of five companies to back Nord Stream 2, the $11bn pipeline across the Baltic Sea that will allow Russia’s Gazprom to send up to 55bn cubic metres of gas to Europe a year, bypassing Ukraine.