Fitch Ratings says that share buyback programmes at large European capital goods companies are likely to stay on hold in 2009 as companies strive to preserve their cash in view of the uncertain outlook for their end markets and the global economy.

"The share buyback initiatives that were announced, often under shareholder pressure, prior to the present economic downturn have been on pause since last year," says Tom Chruszcz, Director at Fitch's EMEA Industrial team. "It is highly unlikely we will see share buybacks resume in 2009 given the deteriorating outlook for the global economy and the urgency to maintain strong liquidity."

In 2007 and up to the end of the first half of 2008, a number of large European capital good and heavy engineering companies announced significant share buyback programmes, at a time when end-market demand was at its peak and their respective balance sheets were strong.

Siemens AG ('A+'/'F1'/Stable Outlook) and Royal Philips Electronics NV ('A-' (A minus)/'F2'/Stable) announced the largest buyback programmes in late 2007 totalling EUR15bn (EUR10bn at Siemens and EUR5bn at Philips) of which EUR7.5bn has been completed (EUR4.2bn at Siemens and EUR3.3bn at Philips). Other significant buyback announcements were from ABB Ltd ('BBB+'/'F2'/Stable) with approximately USD2.2bn - of which USD620m has been completed - and from Legrand SA ('BBB'/'F2'/Stable) with a EUR650m programme (which has not begun).

The share buyback programmes were often in response to shareholder pressure to make the companies' capital structures more efficient and to reduce the significant levels of cash accumulated over the previous three to four years. This pressure has now subsided with shareholders recognising the need to maintain strong cash balances in deteriorating markets is of the highest priority.

Fitch also notes that these companies will not be increasing their dividend payments in 2009. All the companies listed above have declared 2008 dividends at an approximately similar (ABB and Legrand) or slightly lower level (Siemens and Philips) than the previous year.