When Kerry Group announced its full-year results on Thursday 15 February, it said that it would begin a further share buyback programme once the current €300m operation ended.

This has led to some questions from readers as to what a buyback programme actually is and how it might impact ordinary shareholders.

The first thing to know about a share buyback programme, in general, is that it does exactly what it says on the tin. The company, or its agents, go to the stock exchange and buy shares at the prevailing market price.

Those shares are then removed from trading by the company and either held on the balance sheet as treasury shares or simply extinguished by the company.

Companies have several reasons for engaging in share buybacks. They may wish to boost the share price of the company – eg if a company is worth €1m and has 1m shares issued, each share would be worth €1 each. If the company bought back 200,000 shares, leaving 800,000 issued, then each share would be worth €1,000,000 divided by 800,000 or €1.25 each.

If the company’s divided payout remained fixed from year to year, then the payout per share would also rise.

Using the same numbers as above, if the company distributed €100,000 in profits each year, the payout to each shareholder would rise from 10c per share to 12.5c per share.

There is also an advantage for companies that find themselves with extra cash in doing share buybacks instead of increasing dividends.

Dividends

Shareholders tend to look for dividends to be stable or increasing over time.

If a company finds itself with excess cash, putting it to work on temporary share buyback schemes means it can return money to shareholders without locking in expectations on dividend growth.

Again, using the example above, if the company decided rather than buying back €200,000 of shares it would pay an extra €200,000 in dividends bringing the payment to 30c a share, it might lock in an expectation of that payment being repeated in future years.

Criticisms

There are some criticisms of share buybacks generally. The main one is that a company doing buybacks could be seen as one that does not have other opportunities for the cash.

Shareholders would often rather the company invested the cash in expansion that would increase the overall value of the company and push the share price higher that way.

There are also arguments that the company should just hold on to the cash to provide a buffer in case of difficult trading conditions in future.

The Kerry buyback

Looking at the specifics of the Kerry buyback, there are some things worth noting.

The 2023 annual general meeting (AGM) of shareholders voted in favour of a resolution authorising the company to buy back up to 10% of its shares. That set a limit of 17,707,452 on the total number of shares that could be bought. Shares that are bought are extinguished by Kerry.

It is up to management to decide how many shares to buy, how much to spent and the timing of any programme.

There is no obligation on management to buy back all, or any, of the shares within the limit.

The first buyback programme, totalling €300m, was started on 1 November last year and is still ongoing.

Purchases in February have run at an average of just under €4m per day (note shares can only be purchased on days the stock market is open).

The current programme is due to continue until either the end of April or when the €300m is spent, or when management decide to end it.

Last week’s full-year results announced that the current programme would be followed by another, with details of the next programme to be revealed after the current programme ends.

As of 19 February, Kerry had bought back 2,724,547 shares and spent €209m (Figure 1).

Since the programme began, the share price has increased from €73 per share to approximately €79 per share.