I need to estimate S&P's adjusted leverage trend for 2022 by calculating Net Debt / EBITDA for 2021 and 2022, then finding the year-on-year change. First, let me identify the relevant data and calculate EBITDA and Net Debt. **EBITDA Calculation:** EBITDA = Operating Profit Before Depreciation And Amortisation (this is essentially EBITDA) For 2022 (2022-01-01 to 2023-01-01): - Operating Profit Before Depreciation And Amortisation = -4,986,000,000 EUR For 2021 (2021-01-01 to 2022-01-01): - Operating Profit Before Depreciation And Amortisation = 18,005,000,000 EUR **Net Debt Calculation:** Net Debt = Total Debt - Cash and Cash Equivalents I need to find total debt from the balance sheet. Looking at current and non-current financial liabilities: For 2023-01-01 (end of 2022): - Other Noncurrent Financial Liabilities = 71,058,000,000 EUR - Other Current Financial Liabilities = 71,844,000,000 EUR - Total Debt = 71,058,000,000 + 71,844,000,000 = 142,902,000,000 EUR - Cash and Cash Equivalents = 10,948,000,000 EUR - Net Debt (2022) = 142,902,000,000 - 10,948,000,000 = 131,954,000,000 EUR For 2022-01-01 (end of 2021): - Other Noncurrent Financial Liabilities = 56,543,000,000 EUR - Other Current Financial Liabilities = 45,014,000,000 EUR - Total Debt = 56,543,000,000 + 45,014,000,000 = 101,557,000,000 EUR - Cash and Cash Equivalents = 9,919,000,000 EUR - Net Debt (2021) = 101,557,000,000 - 9,919,000,000 = 91,638,000,000 EUR **Net Debt / EBITDA Ratios:** For 2022: - Net Debt / EBITDA = 131,954,000,000 / (-4,986,000,000) = -26.46x For 2021: - Net Debt / EBITDA = 91,638,000,000 / 18,005,000,000 = 5.09x **Year-on-year change:** Change = (-26.46) - 5.09 = -31.55x Wait - this gives a negative leverage ratio for 2022 because EBITDA is negative. This is a massive deterioration. The ratio went from 5.09x to -26.46x, but in terms of absolute leverage position, this is severely deteriorating. However, let me reconsider. When EBITDA is negative, the Net Debt/EBITDA ratio becomes negative, which technically means the metric is "improving" in the mathematical sense (becoming more negative), but from a credit perspective, this is clearly deteriorating as the company cannot cover its debt with operating earnings. Actually, let me re-read the definition more carefully. The gap is calculated as the difference between the two ratios. Gap = Ratio 2022 - Ratio 2021 = -26.46 - 5.09 = -31.55x The absolute value of this gap is 31.55x, which is much greater than 0.3x. But wait - the question says "lower than 0.3x is improving" and "higher is deteriorating." This seems to refer to the absolute value or perhaps the direction needs interpretation. Given that: - If gap is lower than -0.3x (i.e., more negative), this would be "improving" per the literal definition - If gap is higher than +0.3x, this would be "deteriorating" But this doesn't make sense for negative EBITDA. Let me think about this differently. Actually, looking more carefully: "the gap of the ratio Net Debt / EBITDA calculated for the years 2022 and 2023 is among ± 0.3x and ± 0.3x year on year." I think this means: |Ratio_2022 - Ratio_2021| ≤ 0.3 is Stable If the difference is < -0.3 (i.e., ratio decreased by more than 0.3), it's Improving If the difference is > +0.3 (i.e., ratio increased by more than 0.3), it's Deteriorating But with negative EBITDA in 2022, the ratio is negative (-26.46x), while in 2021 it was positive (5.09x). The change is -31.55x, which is a decrease of 31.55x. If we interpret "lower than 0.3x" as the change being less than 0.3x (i.e., a decrease), then -31.55 is certainly lower than -0.3, which would technically be "Improving." But this is clearly wrong from a credit perspective. When EBITDA turns deeply negative, leverage is deteriorating, not improving. Let me reconsider if I should use a different EBITDA measure or if S&P makes adjustments. Actually, looking at the data again, I should verify my EBITDA figure. "Operating Profit Before Depreciation And Amortisation" is indeed EBITDA. However, for credit analysis, when EBITDA is negative, analysts often use an alternative approach or note that the ratio is not meaningful. But the question asks us to estimate based on the data given. Let me check if there's another way to calculate EBITDA. Sometimes EBITDA is calculated as: EBITDA = Revenue - Operating Expenses (excluding D&A) Let me try: Revenue - (Fuel + External Services + Employee Benefits + Other Taxes + Other Operating Income/Expenses) For 2022: Revenue = 143,476,000,000 Fuel Energy Transmission = 121,010,000,000 Other External Services = 9,420,000,000 Employee Benefits = 15,236,000,000 Tax Expense Other Than Income Tax = 3,163,000,000 Other Operating Income/Expenses = 367,000,000 Operating expenses = 121,010 + 9,420 + 15,236 + 3,163 + 0.367 = 149,196,000,000 (approx) This gives negative operating profit, consistent with the -4,986,000,000 EBITDA. Actually, let me recalculate more carefully. The given "Operating Profit Before Depreciation And Amortisation" is -4,986,000,000, so this is the official EBITDA. Given the massive swing from positive 18B EBITDA to negative 5B EBITDA, and net debt increasing significantly, the credit quality has clearly deteriorated. However, mathematically, if we strictly follow the formula: - Ratio 2021 = 5.09x - Ratio 2022 = -26.46x - Change = -31.55x If "lower than 0.3x" means the change is less than 0.3 (i.e., more negative), then -31.55 < -0.3, so it would be "Improving." But this is absurd. The ratio becoming negative due to negative EBITDA indicates severe distress, not improvement. Perhaps the definition intends absolute values? Or perhaps when EBITDA is negative, we should consider the inverse or use absolute EBITDA? Let me try with absolute EBITDA: - Ratio 2022 = 131,954 / 4,986 = 26.46x - Ratio 2021 = 5.09x - Change = 26.46 - 5.09 = 21.37x This is > 0.3, so "Deteriorating." This makes much more sense from a credit perspective. When a company's EBITDA turns negative, its leverage is severely deteriorating. Actually, standard practice in credit analysis when EBITDA is negative is to either: 1. Not calculate the ratio (not meaningful) 2. Use absolute value or note it's "infinite" leverage 3. Use an alternative metric But for this exercise, using absolute EBITDA to show the magnitude of leverage seems most appropriate, or we could say the ratio is "not meaningful" and direction is clearly deteriorating. Let me also verify my net debt calculation. I should check if there are other debt-like items. Looking at the balance sheet: - Special French Public Electricity Distribution Concession Liabilities: These might be debt-like - Provisions could be considered in adjusted debt But for basic Net Debt, my calculation seems correct. Actually, let me recalculate more carefully with potential adjustments S&P might make: For 2022 year-end (2023-01-01): - Noncurrent financial liabilities: 71,058,000,000 - Current financial liabilities: 71,844,000,000 - Cash: 10,948,000,000 - Net debt = 131,954,000,000 For 2021 year-end (2022-01-01): - Noncurrent financial liabilities: 56,543,000,000 - Current financial liabilities: 45,014,000,000 - Cash: 9,919,000,000 - Net debt = 91,638,000,000 Increase in net debt: 131,954 - 91,638 = 40,316,000,000 (about 44% increase) With EBITDA swinging from +18B to -5B, this is clearly a massive deterioration in credit metrics. I think the most reasonable interpretation is that the leverage ratio has deteriorated significantly. Even if we were to use some adjusted EBITDA that turns positive, the direction would still likely be deteriorating. Let me check if there's any way EBITDA could be positive with adjustments. Looking at the income statement items: "Net Changes In Fair Value On Energy And Commodity Derivatives Excluding Trading Activities" = -849,000,000 in 2022 This is often excluded from adjusted EBITDA. If we add this back: Adjusted EBITDA = -4,986,000,000 + (-849,000,000) = -5,835,000,000 (more negative) "Other Income And Expenses Excluded From Ebe" = 687,000,000 in 2022 EBE is "Excédent Brut d'Exploitation" (Gross Operating Surplus), the French equivalent of EBITDA. So items excluded from EBE might be added back or subtracted. Actually, looking at the term "Ebe" - this refers to EBITDA in French accounting. "Other Operating Income And Expenses Included In Ebe" = 367,000,000 is already included. The items "excluded from Ebe" are typically non-recurring or exceptional items that might be adjusted. If we try to make EBITDA positive: -4,986 + 687 (other income excluded) + 1,762 (impairment reversal) + ... Actually, impairment reversal is typically excluded from EBITDA as it's non-cash and non-operating. But adding it back: -4,986 + 1,762 = -3,224 (still negative) Adding other income excluded: -3,224 + 687 = -2,537 (still negative) Adding finance costs? No, EBITDA is pre-financing. I think even with reasonable adjustments, 2022 EBITDA remains negative due to the massive fuel cost increases (121B vs 44B prior year, an increase of 77B) overwhelming the revenue increase (143B vs 84B, increase of 59B). The operating environment severely deteriorated in 2022 due to energy crisis effects. Given this analysis, the leverage trend is clearly **Deteriorating**. Net debt increased by ~44% while EBITDA collapsed from strongly positive to negative. The Net Debt/EBITDA ratio went from ~5x to a negative/not meaningful number, indicating severe stress. Even using absolute values or any reasonable adjustment, the gap between 2022 and 2021 ratios is massively larger than 0.3x in the deteriorating direction. Deteriorating