2)
Directors’ remuneration
Renewi is well positioned to navigate through Covid-19 with uninterrupted service to our customers. Less than 5% of our workforce has been placed on economic unemployment, entirely in Belgium during the weeks of lockdown. The Executive Directors and the Board have been keen to set an example in this difficult period and at the beginning of April they elected to take a voluntary 20% cut in remuneration during the period of lockdown and the Executive Committee has taken a voluntary 10% cut. Bonuses for the year just ended will be paid in shares, preserving cash. The bonus scheme for this financial year is suspended until further notice. LTIP awards in 2020 will be adjusted to reflect any reduced share price as a result of Covid-19 at the point of grant.
Consequences for earnings and cash
The impact of Covid-19 on the second half of March was estimated at €4m, including a €1m doubtful debt provision. Looking forward, we have built detailed models by Division and by waste stream to assess a range of potential scenarios. We assumed as a base case that lockdowns will extend into June and that there will be ongoing significant disruption through the whole of this financial year compared to our original expectations. Our severe scenario includes a further full lockdown in the autumn.
Given the expected short-term impact on earnings, the Group has agreed amendments to the Group’s leverage and interest covenants with its lending banks that provide appropriate headroom for the next five quarters, even in a pessimistic scenario with a second full lockdown in the second half. Our net debt to EBITDA covenant has been increased progressively to 6.0x in the second half of FY21, decreasing back to 3.5x in September 2021.
Based on our experience since the second half of March, we expect Covid-19 to result in a potential reduction in EBIT and cash of up to €20m in the first quarter compared with our previous expectations. This outflow is comfortably contained within our €252m of liquidity as at 31 March 2020. The outlook for the remainder of the year will be dependent on the nature and timing of the lifting of lockdown restrictions and the speed of economic recovery.
Long-term business model and growth opportunities unchanged
Covid-19 may slow the progress of some customer initiatives and hence our deployment of capital in the short term, and it is likely to have some medium-term impact on the economy. However, the global climate crisis remains of an altogether larger scale and we are confident that government and society recognise that the need to address climate change and the goal to transition Europe towards a circular economy is urgent, with consistent targets for improved recycling/circularity and the measures to achieve them. Indeed, the Dutch government on 28 April revealed its plans for the introduction of significant and increasing carbon taxes in the Netherlands in the coming years, which will be important incentives for recycling and the use of secondary materials.