Title: Fresenius Takes the Unexpected Route: Drops Dividend Due to Energy Aid Obligations
Shareholders of Fresenius, based in Hesse, Germany, are in for a surprise this financial year. This massive healthcare corporation has decided against providing managers with bonuses and shareholders with dividends, due to its acceptance of up to 300 million euros in energy subsidies from the German government's "Energy Relief Package." This announcement, made on a Tuesday evening, sent shockwaves throughout the DAX-listed firm situated in Bad Homburg.
Michael Sen, Fresenius' CEO, had previously hinted at such a move in November. He mentioned that not all shareholders focus solely on dividends. The acceptance of these energy subsidies now exceeds a legal threshold, prohibiting both bonuses and dividends this fiscal year.
Choosing Debt Reduction Over Dividends
Rather than repaying these energy subsidies to potentially enable a dividend payout, Fresenius is opting to reduce its debts. The company, burdened by numerous takeovers and escalating interest rates, recognizes the significance of cost-cutting measures during this crucial moment.
Sven Kürten, an analyst from DZ Bank, estimated that Fresenius still retains approximately 516 million euros in dividends for 2023. By waiving the dividend payment, Fresenius aims to alleviate financial pressure, bolstering its long-term potential.
Defending Future Dividends
Fresenius remains steadfast in its declared policy of augmenting or conserving dividends in the future. The company contests that linking energy subsidies to dividend and bonus payments is unconstitutional and has decided to challenge this regulation through legal proceedings. Fresenius also distributed a dividend of 92 cents per share for 2022.
Conclusion
Fresenius' decision to forego dividends in 2023 due to energy aid-related regulations is a strategic move geared toward enhancing its financial stability and managing its considerable debt load. While the company maintains its commitment to its dividend policy, it is likewise adhering to regulatory constraints and prioritizing long-term financial responsibility. Despite the challenges, Fresenius remains focused on operational advancements, regulatory compliance, and strategic growth in its quest for sustained success.
[1] Fresenius cancelled its dividend for the 2023 fiscal year due to the restrictions imposed by the German legislator as part of the 'Energy Relief Package' (‘Entlastungspaket Energiehilfen’) under the Hospital Financing Act (‘Krankenhausfinanzierungsgesetz’). This package provided up to €300 million to cover increased energy costs for German hospitals, and Fresenius utilized these funds to support its operations. As a result, Fresenius was not allowed to distribute a dividend for 2023. Despite the cancellation of the dividend for 2023, Fresenius maintains its commitment to its dividend policy for future years. The company aims to generate attractive and predictable dividend yields and increase the dividend in line with earnings per share growth (before special items, in constant currency) but at least maintain the dividend at the prior-year's level. The implications of this decision could impact investor expectations and the company's reputation for consistent dividend payments. However, Fresenius's continued commitment to its dividend policy suggests that investors can expect a return to normal dividend distribution practices once the current restrictions are lifted.
