To estimate the Net Debt / EBITDA ratio for Acea S.p.A. for the year 2022 based on the S&P methodology, we need to calculate two components: Adjusted EBITDA and Net Debt. **1. Calculate Adjusted EBITDA** S&P typically defines EBITDA as Profit from Operating Activities (EBIT) plus Depreciation, Amortization, and Impairment charges. Sometimes it starts from Net Income and adds back Interest, Taxes, Depreciation, and Amortization. Let's use the Operating Profit approach as it is more direct for operational performance. * **Profit Loss From Operating Activities (EBIT):** 565,851,000 EUR (for 2022) * **Adjustments for Depreciation and Amortisation Expense:** 594,636,000 EUR (for 2022) * *Note: The report lists "Ammortamenti E Accantonamenti" (Amortization and Provisions) as 625,799,000 EUR, but the Cash Flow statement explicitly lists "Adjustments For Depreciation And Amortisation Expense" as 594,636,000 EUR. S&P usually uses the D&A add-back from the cash flow or notes. Let's look at Impairment.* * **Adjustments For Impairment Loss...:** 67,680,000 EUR (for 2022) * *Note: The Income Statement lists "Impairment Loss... IFRS9" as 113,370,000 EUR. However, the Cash Flow adjustment is 67,680,000 EUR. S&P Global Ratings typically adds back non-cash impairments. The difference might be due to reversals or specific classifications. Let's stick to the standard EBITDA definition: EBIT + D&A + Impairment.* * Let's check the components of "Ammortamenti E Accantonamenti" (625,799,000). This likely includes provisions. The Cash Flow "Adjustments For Depreciation And Amortisation Expense" is 594,636,000. * Let's calculate EBITDA using the standard formula: EBITDA = Operating Profit + Depreciation & Amortization + Impairment Losses (if not included in D&A line or if significant). Looking at the data: Operating Profit: 565,851,000 Depreciation & Amortization (from CF): 594,636,000 Impairment (from CF): 67,680,000 EBITDA = 565,851,000 + 594,636,000 + 67,680,000 = 1,228,167,000 EUR. Alternatively, using the Income Statement lines directly: Operating Profit: 565,851,000 Add: Amortization and Provisions (Ammortamenti E Accantonamenti): 625,799,000 Add: Impairment Loss IFRS9: 113,370,000 Total: 565,851,000 + 625,799,000 + 113,370,000 = 1,305,020,000 EUR. Wait, "Gross Profit" is 1,305,021,000. Gross Profit - Operating Expenses = Operating Profit? Revenue (5,138,245,000) - Operating Expense (3,861,121,000) = 1,277,124,000. This doesn't match Operating Profit of 565M. Let's look at the structure. Revenue: 5,138,245,000 Costi Esterni (External Costs): 3,556,055,000 Employee Benefits: 305,066,000 Gross Profit is listed as 1,305,021,000. 5,138,245,000 - 3,556,055,000 - 305,066,000 = 1,277,124,000. There is a discrepancy of ~28M. This might be "Other Income" (181,066,000) included in Gross Profit or similar. Let's rely on the explicit "Profit Loss From Operating Activities" and the add-backs provided in the Cash Flow statement, which are standardized for non-cash items. EBITDA (S&P Style) = Operating Profit + Depreciation + Amortization + Impairment. Operating Profit: 565,851,000 Depreciation & Amortization: 594,636,000 Impairment: 67,680,000 **EBITDA = 1,228,167,000 EUR** Let's double check if "Ammortamenti E Accantonamenti" (625,799,000) is a better proxy for D&A. "Accantonamenti" means provisions. Provisions are not always added back to EBITDA unless they are non-cash and exceptional. S&P often adds back restructuring provisions. However, the Cash Flow statement separates "Adjustments For Depreciation And Amortisation Expense" (594,636,000) and "Adjustments For Impairment Loss" (67,680,000). The sum is 662,316,000. The difference between this sum and "Ammortamenti E Accantonamenti" (625,799,000) is complex. Let's try a different common EBITDA calculation: EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization + Impairment. Net Income (Profit Loss): 311,160,000 Interest Expense (Finance Costs): 111,670,000 Interest Income (Finance Income): -25,962,000 (Net Interest = 85,708,000? Note: "Adjustments For Finance Costs" in CF is 85,708,000. This matches 111,670 - 25,962 = 85,708). Taxes: 186,777,000 Depreciation & Amortization: 594,636,000 Impairment: 67,680,000 EBITDA = 311,160,000 + 85,708,000 + 186,777,000 + 594,636,000 + 67,680,000 EBITDA = 1,245,961,000 EUR. Let's compare with the Operating Profit method: Operating Profit: 565,851,000 + D&A: 594,636,000 + Impairment: 67,680,000 = 1,228,167,000 EUR. The difference (1,245,961,000 - 1,228,167,000 = 17,794,000) corresponds exactly to "Share Of Profit Loss Of Associates And Joint Ventures Accounted For Using Equity Method" (17,793,000). S&P Global Ratings typically calculates EBITDA starting from Operating Profit (EBIT) and adding back D&A and Impairment. Share of associates is usually below the operating line or treated separately. If we start from Operating Profit, we exclude the equity income. If we start from Net Income, we include it. Standard EBITDA is often "Operating EBITDA". Let's look at "Profit Loss From Operating Activities". This is EBIT. EBITDA = EBIT + D&A + Impairment. EBIT = 565,851,000 D&A = 594,636,000 Impairment = 67,680,000 **EBITDA = 1,228,167,000 EUR** **2. Calculate Net Debt** S&P defines Net Debt as Total Debt minus Cash and Cash Equivalents (and sometimes other liquid assets). Total Debt includes Short-term and Long-term interest-bearing debt. From the Balance Sheet (2022-01-01 to 2023-01-01, ending 2022): * **Cash and Cash Equivalents:** "Disponibilità Liquide E Mezzi Equivalenti Alla Fine Dell'esercizio Continued Operations": 559,908,000 EUR. Note: There is also "Disponibilità Liquide E Mezzi Equivalenti Alla Fine Dell'esercizio Discontinued Operations": 0 EUR. Total Cash = 559,908,000 EUR. * **Debt:** We need to identify interest-bearing liabilities. *Non-Current Financial Liabilities:* "Other Noncurrent Financial Liabilities": 4,722,263,000 EUR. *Current Financial Liabilities:* "Other Current Financial Liabilities": 619,418,000 EUR. Are there other debt items? "Trade And Other Current Payables" are typically operational, not debt. "Noncurrent Contract Liabilities" are operational. "Noncurrent Provisions" are operational. So, Total Gross Debt = Other Noncurrent Financial Liabilities + Other Current Financial Liabilities Total Gross Debt = 4,722,263,000 + 619,418,000 = 5,341,681,000 EUR. *Net Debt Calculation:* Net Debt = Total Gross Debt - Cash and Cash Equivalents Net Debt = 5,341,681,000 - 559,908,000 **Net Debt = 4,781,773,000 EUR** *Check for other adjustments:* S&P might include "Lease Liabilities" in debt. "Right-of-use Assets" are 90,397,000. The corresponding liability is likely embedded in "Other Noncurrent Financial Liabilities" and "Other Current Financial Liabilities" or listed separately. In many Italian reports, lease liabilities are part of financial debts. Given the line items "Other ... Financial Liabilities", it is highly probable they include leases. If they were separate, they would usually be labeled "Lease Liabilities". Without a specific "Lease Liabilities" line, we assume they are included in the Financial Liabilities lines or that the "Financial Liabilities" lines represent the total interest-bearing debt. Also, check "Disponibilità Monetaria Netta" (Net Monetary Availability) reported in the facts: 559,908,000 EUR for 2023-01-01 (end of 2022). Wait, the fact says "Disponibilità Monetaria Netta" 2023-01-01: 559,908,000. And "Disponibilità Liquide..." is also 559,908,000. This implies Net Cash position reported by the company might just be cash, or they define it differently. Usually "Net Financial Position" (Posizione Finanziaria Netta) is Debt - Cash. Let's check if the company reports a Net Financial Position. The facts do not explicitly give "Net Financial Position" (PFN). However, we can calculate it. Let's refine the Debt components. Current Financial Liabilities: 619,418,000 Non-Current Financial Liabilities: 4,722,263,000 Total Debt: 5,341,681,000 Cash: 559,908,000 Net Debt: 4,781,773,000 **3. Calculate Ratio** Net Debt / EBITDA = 4,781,773,000 / 1,228,167,000 = 3.8934... Let's double check the EBITDA calculation. Sometimes S&P uses "Reported EBITDA" which might be closer to the company's adjusted figure. Company's "Margine Operativo Lordo" (EBITDA) is not explicitly given as a single line, but "Gross Profit" is 1,305,021,000. Gross Profit is usually Revenue - COGS. EBITDA is Gross Profit - SG&A + D&A? No. EBITDA = Operating Profit + D&A. Operating Profit = 565,851,000. D&A = 594,636,000. Impairment = 67,680,000. Sum = 1,228,167,000. Is there any other add-back? "Other Income Expense From Subsidiaries...": 27,897,000. This is likely equity income or similar, usually excluded from Core EBITDA. "Gains Losses On Change In Fair Value Of Derivatives": 0. Let's consider if "Ammortamenti E Accantonamenti" (625,799,000) should be used instead of the CF D&A. If we use 625,799,000 (D&A+Provisions) + 113,370,000 (Impairment from IS): EBITDA = 565,851,000 + 625,799,000 + 113,370,000 = 1,305,020,000. This equals the Gross Profit exactly (1,305,021,000, rounding diff). This suggests that for this company, Gross Profit might be defined as EBITDA? Let's check: Revenue (5,138,245,000) - External Costs (3,556,055,000) - Employee Benefits (305,066,000) = 1,277,124,000. Plus Other Income (181,066,000) = 1,458,190,000. This doesn't match Gross Profit of 1,305,021,000. Let's look at the Italian terminology. "Ricavi Da Vendita E Prestazioni" = 4,957,179,000. "Other Income" = 181,066,000. Total Revenue = 5,138,245,000. "Costi Esterni" = 3,556,055,000. "Employee Benefits" = 305,066,000. "Ammortamenti E Accantonamenti" = 625,799,000. "Impairment Loss IFRS9" = 113,370,000. Operating Expenses = 3,861,121,000. 3,556,055,000 (External) + 305,066,000 (Labor) = 3,861,121,000. So Operating Expenses EXCLUDE Depreciation, Amortization, Provisions, and Impairment. Therefore: EBIT = Revenue - Operating Expenses - D&A - Provisions - Impairment? Or is EBIT = Revenue - Operating Expenses - D&A - Impairment? Let's reconstruct the Income Statement: Revenue: 5,138,245,000 Less: Operating Expenses (External + Labor): 3,861,121,000 Less: Amortization & Provisions: 625,799,000 Less: Impairment: 113,370,000 Plus: Other Income/Expense from Associates: 27,897,000 Equals: Profit from Operating Activities? 5,138,245,000 - 3,861,121,000 - 625,799,000 - 113,370,000 + 27,897,000 = 565,852,000. This matches "Profit Loss From Operating Activities" (565,851,000) within rounding error. So, the Operating Profit (EBIT) is after deducting D&A, Provisions, and Impairment. To get EBITDA, we add back D&A, Provisions, and Impairment. EBITDA = EBIT + Amortization & Provisions + Impairment EBITDA = 565,851,000 + 625,799,000 + 113,370,000 EBITDA = 1,305,020,000 EUR. Note: The "Adjustments For Depreciation And Amortisation Expense" in the Cash Flow (594,636,000) is lower than "Ammortamenti E Accantonamenti" (625,799,000). The difference (31,163,000) is likely "Accantonamenti" (Provisions) that are not considered "Depreciation and Amortization" in the CF classification, or some non-cash items treated differently. However, since Provisions are deducted to arrive at EBIT, they must be added back to get to EBITDA (as EBITDA is earnings before interest, tax, depreciation, amortization, AND usually before provisions if they are non-cash or operational adjustments, though S&P treatment of provisions varies). Standard EBITDA adds back D&A. Provisions are often added back if they are restructuring or non-recurring. "Accantonamenti" in Italian GAAP/IFRS often includes routine provisions. However, looking at the equality: Gross Profit (1,305,021,000) ~= EBIT (565,851,000) + Amort/Prov (625,799,000) + Impairment (113,370,000). It seems "Gross Profit" in this report is actually functioning as EBITDA + Associates Income? 1,305,021,000 (Gross Profit) - 27,897,000 (Associates) = 1,277,124,000. 1,277,124,000 is exactly Revenue (5,138,245,000) - OpEx (3,861,121,000). So, "Gross Profit" here is effectively EBITDA before Associates and Impairment? No. Revenue - OpEx = 1,277,124,000. If we add Associates (27,897,000), we get 1,305,021,000. So "Gross Profit" = Revenue - Operating Expenses (External + Labor) + Share of Associates? This is a non-standard definition of Gross Profit. Usually Gross Profit is Revenue - COGS. Here, it seems "Gross Profit" is a subtotal before D&A, Provisions, and Impairment, but after Operating Expenses. Let's call this "EBITDA before Impairment and Associates"? Actually, if EBIT = 565,851,000. And EBIT = Gross Profit - Amort/Prov - Impairment? 1,305,021,000 - 625,799,000 - 113,370,000 = 565,852,000. Yes. So, the line "Gross Profit" in this report is effectively **EBITDA + Share of Associates**? No, it's Revenue - Operating Expenses + Share of Associates. Since Operating Expenses exclude D&A and Impairment, this "Gross Profit" is essentially **EBITDA** (if we define EBITDA as EBIT + D&A + Provisions + Impairment) **plus Share of Associates**. Wait, Share of Associates (17,793,000) is different from "Other Income Expense From Subsidiaries..." (27,897,000). The item added to get Gross Profit was 27,897,000? Let's check: 565,851 + 625,799 + 113,370 = 1,305,020. The reported Gross Profit is 1,305,021. So Gross Profit = EBIT + Amort/Prov + Impairment. This means **Gross Profit** in this specific report is equivalent to **EBITDA** (where D&A includes provisions). S&P typically adds back D&A and Impairment. So EBITDA = 1,305,021,000 EUR. Does S&P add back Provisions ("Accantonamenti")? If the provisions are routine, S&P might not add them back, defining EBITDA as EBIT + D&A only. However, "Ammortamenti E Accantonamenti" is a single line. It is difficult to split. The Cash Flow statement provides "Adjustments For Depreciation And Amortisation Expense" (594,636,000) and "Adjustments For Impairment Loss" (67,680,000). It also lists "Variazione Fondo Rischi" (Change in Risk Fund/Provisions) as 14,167,000 and "Variazione Netta Fondo Per Benefici Ai Dipendenti" as -19,158,000. The sum of D&A (594,636) + Impairment (67,680) = 662,316. The IS deduction was 625,799 (Amort/Prov) + 113,370 (Impairment) = 739,169. Difference: 739,169 - 662,316 = 76,853. This difference is likely due to provisions that are not cash-flow adjustments in the same way, or timing differences. Standard S&P methodology for utilities often uses a "Funds From Operations" (FFO) based leverage, but for Net Debt/EBITDA, they use Adjusted EBITDA. Adjusted EBITDA usually starts with EBIT and adds back D&A and Impairment. If we use the Cash Flow add-backs (which are cleaner for D&A): EBITDA = 565,851,000 (EBIT) + 594,636,000 (D&A) + 67,680,000 (Impairment) = 1,228,167,000. If we use the IS add-backs (assuming all Amort/Prov are added back): EBITDA = 1,305,021,000. Which is more appropriate for S&P? S&P often adjusts for "non-cash" items. Provisions are non-cash. However, "Accantonamenti" can include provisions for future costs that are considered operating. Let's look at the "Net Debt" again. Net Debt = 4,781,773,000. Case 1 (Conservative EBITDA - CF based): Ratio = 4,781,773,000 / 1,228,167,000 = 3.89 Case 2 (Liberal EBITDA - IS based): Ratio = 4,781,773,000 / 1,305,021,000 = 3.66 S&P Global Ratings' "Key Credit Ratios" definition for EBITDA: "EBITDA is defined as net income before interest, taxes, depreciation, and amortization." It usually adds back impairment. Does it add back provisions? "Adjustments for nonrecurring items..." If the provisions are recurring, they might stay in. However, in Italian reports, "Ammortamenti e Accantonamenti" is a standard block. Let's check the "Adjustments For Depreciation And Amortisation Expense" in CF. It is 594M. The "Ammortamenti" part of the 625M IS line is likely close to 594M. The remaining 31M is "Accantonamenti" (Provisions). If we assume S&P adds back only D&A and Impairment (and not routine provisions), we should use the CF D&A figure. Impairment: The IS shows 113M, CF shows 67M. The difference (46M) might be reversals or non-cash vs cash. S&P adds back impairment losses. The CF adjustment is the most reliable source for the non-cash add-back accepted in cash-flow based metrics. So, EBITDA = 1,228,167,000 is the more robust, conservative estimate aligned with cash-flow adjustments. Let's refine Net Debt. S&P Net Debt = Gross Debt - Cash. Gross Debt = 5,341,681,000. Cash = 559,908,000. Net Debt = 4,781,773,000. Ratio = 4,781,773,000 / 1,228,167,000 = 3.8934. Let's check if there are any "hybrid" securities or other adjustments. "Other Noncurrent Financial Liabilities" is very large (4.7B). This likely includes bonds and long-term loans. "Other Current Financial Liabilities" (619M) includes short-term debt. Is there any "Minority Interest" adjustment? No, EBITDA is pre-minority. Let's consider if "Share of Profit of Associates" should be added to EBITDA? S&P sometimes adds "Equity in earnings of unconsolidated affiliates" back if it's considered a source of cash flow (via dividends), but for EBITDA, it's usually excluded or added back only if it's a significant operational part. Here it is 17M vs 1.2B EBITDA, so negligible impact on the ratio (approx 0.01). Let's stick with the calculated values. Numerator: 4,781,773,000 Denominator: 1,228,167,000 Result: 3.89 If I used the higher EBITDA (1,305M): Result: 3.66 Given S&P's tendency to be conservative and rely on cash-flow statement adjustments for D&A, 3.89 is the safer estimate. However, many analysts simply take EBIT + D&A + Impairment from the notes. Let's look at the "Impairment" again. IS: 113,370,000. CF: 67,680,000. Why the difference? Maybe 45M was a reversal? Or included in provisions? If I add back the full IS Impairment (113M) and CF D&A (594M): EBITDA = 565.8 + 594.6 + 113.4 = 1,273.8M. Ratio = 4,781.8 / 1,273.8 = 3.75. Let's look at the "Ammortamenti E Accantonamenti" (625M). If this includes 594M D&A and 31M Provisions. And Impairment is 113M. Total add backs = 625 + 113 = 738M. EBITDA = 565.8 + 738 = 1,303.8M. Ratio = 4,781.8 / 1,303.8 = 3.67. The "Gross Profit" line (1,305M) is extremely close to this 1,303.8M. It is highly likely that the company considers "Gross Profit" (as defined in their report) to be their EBITDA proxy. However, S&P methodology is specific. S&P "EBITDA" = EBIT + Depreciation + Amortization + Impairment. If "Accantonamenti" (Provisions) are not Depreciation or Amortization, they are not added back by strict definition unless they are "non-cash" and "non-recurring". The CF statement separates D&A (594M) from other changes. I will use the strict S&P definition: EBIT + D&A (from CF) + Impairment (from CF). EBITDA = 1,228,167,000. Net Debt = 4,781,773,000. Ratio = 3.89. Rounding to two decimal places: 3.89. 3.89