TPSA has announced that it has reached an agreement with its unions to lay off a maximum of 5,700 employees between 2007 and 2009. The new Social Agreement also includes an average increase of some 3% for 2007. TPSA also said that it may look into further job cuts beyond 2007 to maintain efficiency and profitability in the wake on ongoing sector deregulation and increased competition.
Our view: we expect positive trading impact from the news today as the move would ensure margins going forward, despite potential one-off redundancy costs next year. We view the extent of the possible lay-offs positively as we had folded-in a more conservative job cut of less than 4,000 between 2007 and 2009 given the notoriously strong Polish unions. However, we also incorporated lower wage growth of some 2%, versus the newly-negotiated 3% for 2007. On balance, the news should result positively in long-term margins, and near-term positive trading impact. We maintain our Hold recommendation and PLN 25.7 price target.