When you arrive in Cognac by train one of the first sights that greets you is that of three large red and white chimneys jutting into the air. These rise up from the furnaces at the glass packaging factory owned by Verallia, the former subsidiary of French multinational Saint-Gobain, and the producer of two-thirds of wine bottles in France. These chimneys, which peer out over the vineyards in this quiet corner of south-west France, have dominated the local landscape since 1963.
It is the middle of August and this town in the Charente département or county is slumbering in the summer heat. But the workers at the Verallia factory are in a cold fury. Employees and trade union representatives at Verallia – some of whom have cancelled their holidays – are busily dissecting, examining and looking for ways to respond to the bad news that the company has officially announced under the anodyne title of “transformation plan”. The firm, which has been owned by New York-based private equity firm Apollo Global Management since 2015, announced on June 12th that one of the Cognac factory's three furnaces will close. And as part of this plan the company is also to shed a number of jobs, 130 in total with 80 of them in the Charente town.
Enlargement : Illustration 1
The main trade union at the factory, the CGT, claims these figures understate the reality. The union, which has been actively opposing the plan since it was first announced, says that 221 jobs are at risk in all, 126 of them in Cognac. Indeed, the company's plans will require a complete restructuring of jobs and demarcation within the workforce. This is no easy task in a sector which is very specialised, in particular at the 'hot end' as the furnace end of the production line is known.
Loïc, a furnace worker, attacks what he calls the “brutality” of the company's announcement. He is one of around ten employees who have gathered in the stuffy union office at the site to describe their incomprehension at the redundancy news as they watch the lorries come and go through the factory gates. Their dismay is increased by the fact that the workforce and management had already been involved in negotiations on a “transformation agreement” since the beginning of 2020. These were supposed to have come to fruition at the end of July. But management at the company had other ideas and rushed out what is effectively a redundancy plan using the Covid-19 pandemic as a pretext. In fact, the health crisis is being used to justify a situation which has occurred many times before at companies which have been taken over by private equity firms.
Yet at the firm's annual general meeting (AGM) on June 10th 2020 – just two days before the “transformation plan” was announced – the management suggested that virtually all trading and financial indicators were positive. In documents sent to shareholders and directors one passage stands out. It reads: “The demand for glass packaging is growing. The glass packaging industry is very profitable. The activity generates significant cash flow.” In fact, so far this year the group has achieved a pre-tax earnings (adjusted EBITDA in the jargon) margin of 23.4%, a rate almost worthy of the luxury goods market and one that many other industries would envy.
The first quarter results – the only ones available at the time of the AGM – were in fact encouraging. In April the company issued a press release with the words: “Good start of the year with limited impact from the COVID-19 epidemic.” There had been a 1.9% growth in revenue and profit margins held up well. A press release issued after the June 10th AGM made no mention of impending job losses in the policies agreed by shareholders.
Yet the very next day, June 11th, the company held an extraordinary board meeting behind closed doors. Directors sanctioned what is in effect a redundancy plan without having first discussed it with the unions. This is despite the fact that the day before the company had agreed to pay out dividends of 100 million euros. Some 7.5 million of these were given to long-time shareholder BPI France, the state-owned investment bank which is the French state's mechanism for helping out struggling industries. BPI France declined to tell Mediapart whether its official representative on the Verallia board, Sébastien Moynot, had voted for the redundancies, stating that “boardroom discussions and decisions are by their nature confidential”.
BPI France's media office, speaking on behalf of Moynot who is on annual leave and “unavailable”, went on to justify the acceptance of the dividends from Verallia, which were in the form of shares. This was part of an “undertaking” made at the time when Verallia was floated on the stock market in October 2019, BPI France said.
Back in Cognac, the staff whom Mediapart met were angered by the timing and the opaque nature of the company's decision at a period when the most of the economic indicators were looking good. Their sense of frustration is increased by the fact that they cannot get any figures on the profitably of the Cognac site. Renaud, who works at the 'cold end' of the production process, said: “We know the cost per tonne of production but they don't tell us how much it brings in.” The group's management has turned down requests for information on this.
The local CGT union branch has been careful to avoid the impression they are simply trying to block more efficient production, and it has drawn up a 13-page document with counter-proposals. One of these is simple: why not use the French government's prolonged furlough scheme - in which the state effectively pays a firm's staff - to help companies through the virus crisis, in order to maintain both jobs and skills at the glass-making site?
The aim of the 'transformation plan' became clear for the workers in Cognac once the second quarter results were known. They now see the redundancies as a management attempt to redress the 7.9% fall in sale volumes in that period, to ensure profitability – even though the company did still make a profit in the second quarter – and reassure shareholders. “This is a stock market-driven closure of a furnace,” said Michel, who makes moulds in the factory. His colleagues indicate their agreement.
Verallia denies the claims. The company pointed out to Mediapart that there had been an “organic decline of 5.4%” in revenue in the second quarter as “the impact of the COVID‐19 crisis fully materialized” in the first half of the year. Yet the decision to cut staff was taken in June in the middle of the crisis, before its full “impact” was known.
The company's public relations agency also points to new United States customs taxes and the negative effect of Brexit at the end of 2019. Yet according to Verallia's own 2019 accounts these factors did not hugely affect the company's finances and its dividend payout was maintained.
In the face of such distortion of dates and figures, Dominique Spinali, a delegate from the CGT union, signals his distrust of the management, and points out that the company is refusing to negotiate in the usual way over job losses. “They are using an information and consultation procedure with a committee which is due to give its opinion on September 22nd,” he notes. This mechanism, contained in the so-called Pénicaud ordinances named after the then Labour minister Muriel Pénicaud, was brought in during the early months of President Emmanuel Macron's presidency in 2017. They allow an employer to avoid the usual negotiations with staff and trade unions; instead it simply has to consider the views of a workplace committee. The aim of the reform was to “liberate” companies and help them preserve jobs.
An executive who closed a Goodyear tyre factory in northern France
“In thirty-seven years working here I never saw such a radical and violent [approach to] management,” says Nénesse, who retired last year. “This short-term management is dangerous, it creates fear and anxiety,” he says. Nénesse also fears what he terms a “snowball effect” with Verallia closing the furnace at Cognac while at the same time investing in two sites in Spain and Italy. This approach is in total contradiction with the French government's post-Covid doctrine of encouraging more industrial sites on French soil and reducing travel distances for goods.
Verallia has historically had a strong presence among the vineyards of France, close to its clients. Yet now it is looking to step up its production outside the country, with the resulting knock-on effects on the environment; glass is heavy and fragile, so it needs lots of CO2-emitting lorries to carry it.
Enlargement : Illustration 2
Despite this, Verallia told Mediapart of its “desire to contribute to the preservation of the environment” and of its “commitment to local communities”. The CGT union meanwhile estimates that around Cognac there are approximately three jobs linked to every one position at Verallia. So the loss of 80 staff at the glass packaging factory could effect up to 250 local jobs.
The unions have been trying to get support from outside. There was an urgent meeting between workers' representatives and the sub-prefecture – local state representatives – at the end of June but it did not produce any concrete results. And on August 31st there is due to be a meeting between the unions and the head of the inter-ministerial industrial committee the Comité Interministériel de Restructuration Industrielle, which is part of the Ministry of the Economy and whose aim is to help companies in difficulty. The Member of Parliament and national secretary of the French Communist Party (PCF) Fabien Roussel has also raised the issue separately with economy minister Bruno Le Maire. So far he has had no reply.
Like the workforce, the MP attacks the way that industrial policy is being dictated by finance and the need to please shareholders. “If this company pays out dividends then it's got the financial means to invest,” he said.
Inside the Cognac factory the workers meanwhile told Mediapart of the slow but inexorable deterioration in work tools since the arrival of the private equity firm and the current management team. Fabien, who works in maintenance, says: “In the spare parts section in the past there was an alert threshold once only five items were left. Supplies were always restocked. Today you have to take parts from another machine while waiting for a new one. You make do.”
This low-cost policy damages both machines and workers, who have the permanent stress of worrying about whether they can ensure production. Workers who have always cared about doing their job to the best now feel a lack of purpose in the company. “The guy above me in management, he couldn't care less that we make superb cognac bottles,” says Renaud, who works at the 'cold end' of the process. “What motivates him is money.”
“In the days of [former owners] Saint-Gobain we almost fought to work on bank holidays,” recalls Nénesse. Though employer-employee relations were not always perfect then, the older employees say that there was respect and dialogue.
All agree that they are wary of the two bosses now at the helm and the local union representatives admit they do not trust Verallia's general manager Olivier Rousseau. Indeed, the group's number 2 is the former chief executive of Goodyear Dunlop Tires France who carried out the bitterly-opposed closure of the tyre factory at Amiens in northern France in the 2000s.
When giving evidence before a Parliamentary inquiry into that affair, Rousseau accused the CGT union of being responsible ultimately for the closure of the site in Amiens. Yet thirteen years after the initial redundancy plan and six years after production finally stopped, an industrial tribunal ruled on May 27th 2020 that 832 employees were unfairly dismissed, and it rejected the economic arguments underpinning the redundancies. This amounts to a complete repudiation of the policies carried out at the time by Olivier Rousseau.
Rousseau's background does not therefore inspire much confidence with Verallia's employees. And nor does the pay policy of its chairman and chief executive officer Michel Giannuzzi. Even though more than 100 of the company's jobs are at threat, the AGM has just agreed to a generous rise in the CEO's pay from 875,000 euros a year in 2019 to 1.1 million euros in 2020.
However, the company says that during the Covid crisis Giannuzzi has decided to forgo the variable part of his pay package which could have been up to 1.16 million euros in 2020, in order to “contribute to the collective effort”. What the company neglects to mention, though, is that its remuneration committee changed the rules for the variable payment for 2021, as a document sent to shareholders and seen by Mediapart explains. That document states: “The variable part of the CEO's remuneration is 1.1 million euros if the objectives are met 100% and, in the event that the objectives are surpassed, it will be a maximum sum equivalent to 140% of the annual fixed remuneration, in other words 1.54 million euros.”
So, if the economic situation improves and in particular if the cost-cutting measures implemented by the same CEO improve the financial performance of the group, then this new pay policy will allow Michel Giannuzzi to net an extra 380,000 euros next year compared with previous years.
“We're going to fight for a furnace and to improve the redundancy conditions of the older [workers],” says Dominique Spinali. He looks around at his colleagues and speaks of a proud and combative workforce who are prepared to oppose the plan and do what they can to save jobs. Michel, who is three years from retirement, also wants to take action against the redundancy plan, though he admits he is “disheartened” by the situation. The workforce will know whose names are on the list on September 22nd.
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- The French version of this article can be found here.
English version by Michael Streeter