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.