Item 2: Final dividend
The proposed increase in dividend raises several concerns: the dividend is neither covered by FCF nor by EPS. The increase in the dividend is not justified by the group's results. We do not consider sustainable the dividend distribution exceeding the earnings for several consecutive years. Given the recent events relating to Covid-19, ECGS is in favour of postponing decisions on the dividend, reductions or suspensions that would allow companies to avoid liquidity risks or not generate risk for their survival. We also see no reason to increase the dividend while at the same time the Board proposes to raise the borrowing limit.
Item 22: Approval of increased borrowing limit
The Board proposes to amend the borrowing limit from £35bn to £45bn. Based on the FY19/20 figures, the proposed limit would increase the net debt by 57% and the gearing up to 230%. The new limit equals 135% of the company's market capitalisation. Debt to EBITDA ratio would reach 10.1. The Company has not provided sufficient justification for the increase. We consider imprudent to increase the debt burden considering the current level of the group's indebtedness and unsustainable dividend policy.
National Grid is a holding company. Through its subsidiaries, Co. owns and operates regulated electricity and gas infrastructure networks in the U.K. and the U.S. Co. operates through five business segments: U.K. Electricity Transmission, U.K. Gas Transmission, U.K. Gas Distribution, U.S. Regulated, and Other Activities, primarily relating to non-regulated businesses and other commercial operations not included within the above segments, including: the Great Britain-France electricity interconnector; U.K. based gas metering activities; U.K. property management; a U.K. LNG import terminal; U.S. LNG operations; and U.S. unregulated transmission pipelines, together with corporate activities.
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