To estimate the FFO / Net debt ratio for 2022 under S&P methodology, I need to determine: 1. **Funds From Operations (FFO)** for the period 2022-01-01 to 2023-01-01. 2. **Net Debt** at the end of the period (2023-01-01). --- ### 1. Net Debt The value is directly provided: - Net Debt 2023-01-01: **7,440,000,000 EUR** --- ### 2. Funds From Operations (FFO) S&P defines FFO as: **Profit/Loss from Continuing Operations** (attributable to owners of parent is not required here, we use total continuing ops) + **Depreciation and Amortisation Expense** + **Impairment Loss (Reversal) Recognised in P&L** +/- **Other non-cash items that S&P typically adjusts** (e.g., losses/gains on disposals, deferred tax changes, share of associates' dividends vs. equity income) - **Adjusted for gains/losses on sale of assets** From the data: - Profit/Loss from Continuing Operations = **1,131,000,000 EUR** - Depreciation and Amortisation Expense = **2,228,000,000 EUR** - Impairment Loss (Reversal) ... and Provision Expense = **172,000,000 EUR** (Note: this includes provisions, but S&P typically adds back impairment losses; we keep it as stated in "Impairment loss reversal" which matches D&A line logic often grouped in FFO). We must also consider adjustments to reconcile profit to FFO: - S&P excludes gains/losses on disposals of non-current assets. The "Adjustments For Losses Gains On Disposal Of Noncurrent Assets" = **-285,000,000 EUR** (this is a gain, so we subtract it from FFO). - Adjustments for "Undistributed Profits of Investments Accounted for Using Equity Method" are often removed (we subtract the negative adjustment if it reduced profit, but here it's already part of reconciliation; S&P usually adds back equity income and subtracts dividends from associates). However, the line "Adjustments For Undistributed Profits Of Investments Accounted For Using Equity Method" = **-92,000,000 EUR**. To get FFO, we subtract equity method income (which is -30,000,000 EUR) and add dividends received. But lacking dividend details, S&P's simplified method often uses: Profit - Equity Income + Dividends from associates. Given "Undistributed Profits" adjustment, we can use it to adjust: Profit includes share of loss (-30M). The undistributed profits adjustment of -92M in the cash flow statement means dividends received were higher than equity income, which increases cash but not FFO calculation directly. Traditional S&P FFO = Profit from Cont. Ops + D&A + Impairments - Gains on Sales + other non-cash items. Deferred tax and other items are typically not added back unless specified. The "Other Adjustments To Reconcile Profit Loss" = **-194,000,000 EUR**. We should review this. For simplicity and common S&P treatment, FFO is often: FFO = Cash Flow from Operating Activities before working capital changes + Interest paid - Interest expense add-back, etc. But standard formula from income statement works: **FFO Calculation (Standard S&P):** - Start with Profit from Continuing Ops: **1,131,000,000** - Add: Depreciation and Amortisation: **2,228,000,000** - Add: Depreciation on Right-of-use assets (sometimes included in D&A, but here shown separately; Total D&A per P&L already includes it? Yes, "Depreciation And Amortisation Expense" = 2,228,000,000 and "Depreciation Right-of-use Assets" = 446,000,000. The 2,228M likely encompasses the 446M, so no double count.) - Add: Impairment/Provisions expense: **172,000,000** - Subtract: Gains on disposal of non-current assets: **-285,000,000** (i.e., subtract the gain) - Add/Less: Other Adjustments = Often S&P subtracts the "Other Adjustments To Reconcile Profit Loss" if it's a positive non-cash item, but here it's negative (-194M). S&P usually adds back non-cash charges. However, without itemization, I'll use the simpler proxy: FFO ≈ Cash Flow After Cost of Net Debt and Taxes + Cost of Net Debt + Interest on Leases - Working Capital Changes - Taxes Paid + Tax Expense. Let’s use the given indirect cash flow: Cash Flow After Cost of Net Debt, Interest on Leases, and Income Taxes Paid = **3,324,000,000** - Add back: Adjustments For Cost of Net Debt and Interest on Leases = **260,000,000** - Subtract: Working Capital Changes = **606,000,000** => FFO = 3,324,000,000 + 260,000,000 - 606,000,000 = **2,978,000,000** which equals Cash from Operating Activities. That's not FFO. Actually, FFO = Cash from Ops + Working Capital Changes (with sign reversed) - Changes in current provisions? Better: FFO = Profit + D&A + Impairments - Gains on Sales + Deferred Tax + Other Non-cash Items. From P&L: Profit: 1,131 D&A: 2,228 Impairment/Provisions: 172 Less: Gains on disposals: -285 (net effect is to subtract 285) Add: Share of loss of associates (included in profit, but usually we adjust to get cash-like FFO; standard FFO subtracts equity income, adds dividends. Here share of profit is -30M. We add back the loss? No, S&P removes equity income entirely and adds back dividends. Undistributed profits adjustment is -92M in cash flow, implying dividends received = -30 - (-92) = 62M. FFO impact: remove equity income (-30, so add back 30) and add dividends (62). Net effect = +92M.) Let's compute: 1,131 + 2,228 + 172 - 285 + 92 + Other non-cash from "Other Adjustments" (-194M)? Often includes things S&P keeps. We'll exclude it to be conservative unless it's non-cash charge. Also add back deferred tax expense? Income Tax Expense = 424M, Income Taxes Paid = 518M, so deferred tax change = -94M (liability increase). S&P FFO usually adds back deferred tax expense. Deferred tax liabilities increased by 415M (from 344 to 759). That implies deferred tax credited to P&L is large. Income tax expense = current tax + deferred tax. Current tax = 518M paid + change in current tax assets/liabilities. Roughly deferred tax expense = 424 - current portion. Better: S&P FFO = pre-tax profit + D&A + impairments - gains - current tax paid +/- other. Pre-tax profit = Profit + Tax = 1,131 + 424 = 1,555. FFO = 1,555 + 2,228 + 172 - 285 + 92 (equity) - 518 (tax paid) = 3,244 Add: Interest paid? S&P includes it? No, FFO is before dividends but after interest. Wait, S&P FFO = EBIT - interest - tax + D&A - gains... Standard formula: FFO = (Profit from Cont. Ops) + D&A + Impairments + Deferred Tax + (Equity Loss) or - (Equity Income) + Dividends from Associates - Gains on Sales + Other Non-cash Items. Tax: Profit before tax = 1,131 + 424 = 1,555. FFO = 1,555 + 2,228 + 172 - 285 + 92 (eq adj) - 424 (tax expense) + (deferred tax non-cash part?) Actually tax expense already deducted. We add back deferred tax if we used profit after tax? Better: S&P FFO = Pre-tax Income + D&A + Impairments - Gains - Equity Income + Dividends from Associates - Current Tax Paid +/- Other Non-cash. Pre-tax: 1,555 D&A: 2,228 Impairments: 172 Less Gains: -285 Equity adjustment: -(-30) + 62 = +92 Current Tax Paid: 518 Other non-cash: Other Adjustments -194? We'll include it as it's reconciling item (often includes non-cash items). FFO = 1,555 + 2,228 + 172 - 285 + 92 - 518 - 194 = 3,050,000,000. Let's check total: 1,555 + 2,228 = 3,783 + 172 = 3,955 - 285 = 3,670 + 92 = 3,762 - 518 = 3,244 - 194 = 3,050. Alternatively, using Cash from Ops: 2,978 + Working Capital: 606 + Tax Paid: 518 - Cost of Net Debt & Lease Interest: 260 = 3,842. Then subtract non-cash gains etc.? I'll stick with 3,050 M. --- ### Ratio FFO / Net Debt = 3,050,000,000 / 7,440,000,000 ≈ **0.409946** --- 0.4099