To estimate the Net Debt / EBITDA ratio for Iberdrola SA for the year 2022 based on the provided annual report facts and standard S&P methodology, we follow these steps: **1. Determine EBITDA for 2022** The report explicitly provides the EBITDA figure under the label "Beneficio Bruto De Explotacion Ebitda" for the period 2022-01-01 to 2023-01-01. * **EBITDA (2022):** 13,228,000,000 EUR **2. Determine Net Debt for 2022** S&P's methodology for Net Debt generally includes: * Total Debt (Short-term and Long-term interest-bearing debt) * Capitalized Leases (often included in debt or calculated separately, but S&P usually adds lease liabilities to debt) * Minority Interest (Noncontrolling Interests) is sometimes treated as equity or debt depending on the structure, but standard Net Debt calculations focus on financial liabilities. However, S&P often adjusts for "Debt-like" items. A strict Net Debt definition is: `(Short Term Debt + Long Term Debt + Lease Liabilities) - Cash and Cash Equivalents`. * Sometimes, "Other Financial Liabilities" and "Derivatives" are included if they are debt-like. * Let's identify the relevant components from the Balance Sheet as of 2023-01-01 (which represents the end of the 2022 fiscal year). **Components of Gross Debt:** * **Noncurrent Financial Liabilities:** 44,216,000,000 EUR * This includes "Deudas Con Entidades De Credito..." (36,129,000,000), "Noncurrent Derivative Financial Liabilities" (3,690,000,000), "Noncurrent Lease Liabilities" (2,287,000,000), and others. * *Note on Derivatives:* S&P typically excludes derivative liabilities from debt unless they are deeply in-the-money and effectively debt replacements, but often standard "Net Debt" calculations in broad contexts might include all financial liabilities. However, a more precise "Debt" definition usually sticks to borrowed funds and leases. Let's look at the sub-components. * Borrowed Debt (Noncurrent): 36,129,000,000 EUR * Lease Liabilities (Noncurrent): 2,287,000,000 EUR * Other Noncurrent Financial Liabilities: 1,534,000,000 EUR * Noncurrent Derivatives: 3,690,000,000 EUR (Often excluded from core debt, but let's check standard S&P adjustments. S&P usually adds lease liabilities. It often excludes derivatives from the debt numerator but considers them in risk. Let's calculate with and without derivatives to see what fits a standard ratio. Usually, "Financial Liabilities" is the broader bucket. Let's stick to the explicit debt instruments and leases first, then add other financial liabilities if they are debt-like. "Other Noncurrent Financial Liabilities" often contains debt-like instruments. Derivatives are volatile. Let's assume standard Net Debt = Interest Bearing Debt + Leases - Cash. * Let's use the aggregate "Noncurrent Financial Liabilities" as a starting point but be careful with derivatives. * Actually, a common S&P adjustment is: `Total Debt = Short Term Debt + Long Term Debt + Capitalized Leases`. * Let's sum the explicit debt and lease lines: * Noncurrent Debt (Deudas...): 36,129,000,000 * Noncurrent Leases: 2,287,000,000 * Current Debt (Deudas... Corrientes): 10,458,000,000 * Current Leases: 151,000,000 * Other Financial Liabilities (Noncurrent): 1,534,000,000 (Likely debt-like) * Other Current Financial Liabilities: 5,058,000,000 (Likely debt-like, e.g., commercial paper or short term loans) * Derivatives: Usually excluded from Net Debt in strict credit metrics unless specified. Let's exclude derivatives (3,690 + 3,398) for a cleaner "Debt" figure, as they are mark-to-market. * **Gross Debt Estimate:** * Noncurrent Financial Liabilities (excluding derivatives): 44,216 - 3,690 = 40,526,000,000 * Current Financial Liabilities (excluding derivatives): 25,079 - 3,398 = 21,681,000,000 * Total Financial Liabilities (excl. derivatives): 40,526 + 21,681 = 62,207,000,000 EUR * *Alternative Interpretation:* S&P often includes "Lease Liabilities" in debt. The line items "Noncurrent Financial Liabilities" and "Current Financial Liabilities" in IFRS reports often *include* lease liabilities and derivatives. We have broken them out. * Let's check the components again: * "Deudas Con Entidades De Credito..." (Noncurrent): 36,129 * "Deudas Con Entidades De Credito..." (Current): 10,458 * "Noncurrent Lease Liabilities": 2,287 * "Current Lease Liabilities": 151 * "Other Noncurrent Financial Liabilities": 1,534 * "Other Current Financial Liabilities": 5,058 * Sum of these specific debt/lease/other-financial items: 36,129 + 10,458 + 2,287 + 151 + 1,534 + 5,058 = 55,617,000,000 EUR. * Does "Other Financial Liabilities" include derivatives? The report lists "Noncurrent Derivative Financial Liabilities" and "Current Derivative Financial Liabilities" separately. So the "Other" and "Deudas" lines do *not* include derivatives. * So, Gross Debt (excluding derivatives) = 55,617,000,000 EUR. * **Cash and Cash Equivalents:** * "Cash And Cash Equivalents" 2023-01-01: 4,608,000,000 EUR. * **Net Debt:** * Net Debt = Gross Debt - Cash * Net Debt = 55,617,000,000 - 4,608,000,000 = 51,009,000,000 EUR. * *Refinement on S&P Methodology:* S&P Global Ratings often includes **100% of lease liabilities** in debt. We have included them. They often exclude derivatives. We have excluded them. They may also adjust for "hybrid" instruments. The line "Instrumentos De Capital Con Caracteristicas De Pasivo Financiero" (Equity instruments with financial liability characteristics) is listed: * Noncurrent: 576,000,000 * Current: 87,000,000 * These are likely perpetuals or hybrids. S&P typically treats perpetuities as equity (50% or 100% credit) or debt depending on terms. If they are classified as liabilities, they are in the "Financial Liabilities" or separate lines. In this report, they are separate from "Deudas" and "Other Financial Liabilities". * If we include these hybrids as debt (conservative): * Hybrids = 576 + 87 = 663,000,000. * Adjusted Gross Debt = 55,617 + 663 = 56,280,000,000. * Adjusted Net Debt = 56,280 - 4,608 = 51,672,000,000. * Let's check if "Noncontrolling Interests" (NCI) should be added. S&P sometimes adds NCI to debt for leverage ratios if it has debt-like features, but typically NCI is equity. We will stick to financial liabilities. * Let's re-evaluate the "Financial Liabilities" totals provided in the text vs the sum of parts. * Noncurrent Financial Liabilities: 44,216. * Current Financial Liabilities: 25,079. * Total Financial Liabilities = 69,295. * Sum of parts (Debt + Leases + Other Fin + Derivatives): * Noncurrent: 36,129 (Debt) + 2,287 (Lease) + 1,534 (Other) + 3,690 (Deriv) + 576 (Hybrid?) = 44,216. Yes, the "Noncurrent Financial Liabilities" line *includes* Derivatives and Hybrids. * Current: 10,458 (Debt) + 151 (Lease) + 5,058 (Other) + 3,398 (Deriv) + 87 (Hybrid?) = 19,152. Wait. 10,458+151+5,058+3,398+87 = 19,152. The reported Current Financial Liabilities is 25,079. There is a difference of ~5,927. * Looking at Current Liabilities breakdown: * Current Financial Liabilities: 25,079. * Trade Payables: 5,927. * Other Current Nonfinancial: 2,811. * Tax: 156. * Social Security: 1,262. * Other Current: 1,393. * Provisions: 922. * Sum: 25,079 + 5,927 + ... = Total Current Liab 28,839. * Why did my sum of current financial parts fall short? * Parts listed: Deudas (10,458), Lease (151), Other Fin (5,058), Deriv (3,398), Hybrid (87). Sum = 19,152. * Reported Total Current Financial Liabilities = 25,079. * Difference = 5,927. * Notice "Trade And Other Payables To Trade Suppliers" is 5,927. Is it possible "Trade Payables" are included in "Current Financial Liabilities" in some classifications? No, usually they are separate. * Let's look at the labels again. * "Current Financial Liabilities" 2023-01-01: 25,079,000,000. * Sub-items: * "Deudas Con Entidades... Corrientes": 10,458 * "Instrumentos De Capital... Corriente": 87 * "Current Derivative Financial Liabilities": 3,398 * "Current Lease Liabilities": 151 * "Other Current Financial Liabilities": 5,058 * Sum of these explicit sub-items = 19,152. * There is a missing 5,927. * Wait, look at "Trade And Other Payables To Trade Suppliers": 5,927. * It is highly likely that the "Current Financial Liabilities" line item in this specific XBRL taxonomy *excludes* trade payables, but the sum of the *provided sub-tags* doesn't match the total tag. * However, usually, Net Debt calculations *exclude* Trade Payables. * So, for Net Debt, we should sum the interest-bearing and debt-like components: * Noncurrent Debt-like: Deudas (36,129) + Leases (2,287) + Other Fin (1,534) + Hybrids (576). (Excluding Derivatives 3,690). * Sum NC = 40,526. * Current Debt-like: Deudas (10,458) + Leases (151) + Other Fin (5,058) + Hybrids (87). (Excluding Derivatives 3,398). * Sum C = 15,754. * Total Gross Debt (S&P style, ex-deriv) = 40,526 + 15,754 = 56,280,000,000 EUR. * Less Cash: 4,608,000,000 EUR. * Net Debt = 51,672,000,000 EUR. * Let's double check if "Other Current Financial Liabilities" (5,058) and "Other Noncurrent Financial Liabilities" (1,534) are debt. In utility balance sheets, these often include short-term debt, commercial paper, or other borrowings. Given the label "Financial", they are debt-like. * **Calculation:** * Net Debt = 51,672,000,000 EUR * EBITDA = 13,228,000,000 EUR * Ratio = 51,672 / 13,228 ≈ 3.906 * Let's consider if Derivatives should be included. If we include derivatives: * Gross Debt increases by 3,690 + 3,398 = 7,088. * New Gross Debt = 56,280 + 7,088 = 63,368. * New Net Debt = 63,368 - 4,608 = 58,760. * Ratio = 58,760 / 13,228 ≈ 4.44. * S&P Methodology Note: S&P generally **excludes** derivative liabilities from the debt measure unless they are synthetic debt. They **include** lease liabilities. They **include** hybrid instruments if they are mandatory redeemable or have debt-like covenants, but often give them equity credit. If we give 50% equity credit to hybrids, we reduce debt. If we treat them as debt, we keep them. The prompt asks for an estimate based on S&P methodology. S&P's standard "Debt" definition for leverage is `Total Debt = Short-term debt + Long-term debt + Capitalized leases`. It typically excludes derivatives. It often treats perpetuals (hybrids) with an equity credit (e.g., 50% or 100%). If we assume 100% equity credit for hybrids (common for perpetuals with deferral options), we remove the 663M. * Net Debt (ex-hybrids, ex-deriv) = 51,672 - 663 = 51,009. * Ratio = 51,009 / 13,228 ≈ 3.856. * Let's look at the "Net Debt" definition often used in simple financial analysis vs S&P. * Simple: (Total Financial Liabilities - Cash). * Total Financial Liabilities (from tags) = 44,216 + 25,079 = 69,295. * Net Debt = 69,295 - 4,608 = 64,687. * Ratio = 64,687 / 13,228 = 4.89. * This includes derivatives and trade-like financial items if any. This is likely too high for an S&P "adjusted" metric. * S&P Adjusted Debt usually adds back lease liabilities to reported debt if not already there, but here they are separate. * Let's stick to the core debt components: Interest bearing debt + Leases. * Debt (Noncurrent) = 36,129 (Bank Debt/Bonds) * Debt (Current) = 10,458 (Bank Debt/Bonds) * Leases (Noncurrent) = 2,287 * Leases (Current) = 151 * Other Financial (Noncurrent) = 1,534 (Assume debt) * Other Financial (Current) = 5,058 (Assume debt) * Hybrids = 663 (Assume 50% debt credit? Or 100%? S&P often gives 50% equity credit to hybrids. Let's assume 50% inclusion). * Hybrid Debt portion = 331.5. * Derivatives = Exclude. * Gross Debt = 36,129 + 10,458 + 2,287 + 151 + 1,534 + 5,058 + 331.5 = 55,948.5. * Net Debt = 55,948.5 - 4,608 = 51,340.5. * Ratio = 51,340.5 / 13,228 = 3.88. * Let's try a simpler S&P proxy often used: `(Total Liabilities - Trade Payables - Provisions - Tax - Other Non-Financial) - Cash`. * Total Liabilities = Current (28,839) + Noncurrent (67,714) = 96,553. * Less Non-Debt Liabilities: * Trade Payables: 5,927 * Provisions (Current + Noncurrent): 922 + 4,225 = 5,147 * Tax Liabilities (Current + Noncurrent + Deferred): 156 + 362 + 11,682 = 12,200. (Deferred tax is non-financial). * Other Noncurrent Nonfinancial: 309 * Other Current Nonfinancial: 2,811 * Social Security/Tax Current: 1,262 * Other Current Liabilities: 1,393 (Likely non-financial/accruals) * Government Grants Noncurrent: 1,247 (Non-debt) * Instalaciones Cedidas...: 5,673 (This is a specific utility item, often treated as equity or deferred income, not debt). * This subtraction method is error-prone due to classification of "Other". * Let's go with the **Sum of Financial Debt Components** approach, which is more robust. * Core Debt (Deudas): 36,129 + 10,458 = 46,587. * Leases: 2,287 + 151 = 2,438. * Other Financial: 1,534 + 5,058 = 6,592. * Hybrids: 576 + 87 = 663. * Derivatives: Excluded. * Scenario A (All Financials except Derivs are Debt): * Gross = 46,587 + 2,438 + 6,592 + 663 = 56,280. * Net = 56,280 - 4,608 = 51,672. * Ratio = 51,672 / 13,228 = **3.91**. * Scenario B (Hybrids are 50% Equity): * Gross = 56,280 - 331.5 = 55,948.5. * Net = 51,340.5. * Ratio = 51,340.5 / 13,228 = **3.88**. * Scenario C (Hybrids are 100% Equity - common for perpetuals with strong deferral): * Gross = 56,280 - 663 = 55,617. * Net = 55,617 - 4,608 = 51,009. * Ratio = 51,009 / 13,228 = **3.86**. * Looking at Iberdrola's actual reported leverage ratios in recent years, they typically target a ratio around 3.5x - 4.0x. * The "Other Current Financial Liabilities" (5,058) is quite large. If this includes trade finance or factoring, it might be operating. However, without detail, "Financial Liabilities" is the best proxy for debt. * S&P often uses "EBITDA" as reported. * Let's check if there is a "Net Debt" line item or similar in the text. No. * Let's check "Deudas Con Entidades De Credito..." which is the primary debt. * Primary Debt = 46,587. * Plus Leases = 2,438. * Total = 49,025. * Net = 49,025 - 4,608 = 44,417. * Ratio = 44,417 / 13,228 = 3.36. * This ignores "Other Financial Liabilities" (6,592). If "Other Financial Liabilities" are debt (e.g. commercial paper, short term loans), the ratio rises. Given the magnitude, they are likely significant debt instruments. * Most standard "Net Debt" calculations in European utilities include: * Interest bearing debt (Short + Long) * Lease liabilities * Less Cash * (Often excludes derivatives and hybrids or treats hybrids with equity credit). * Let's assume the most standard S&P adjustment: * Debt = Reported Debt (Deudas) + Leases. * Hybrids = 50% Equity Credit (so 50% included in debt). * Other Financial Liabilities = Included (as they are financial). * Derivatives = Excluded. * Debt = 46,587 (Deudas) + 2,438 (Leases) + 6,592 (Other Fin) + 331.5 (50% Hybrids) = 55,948.5. * Net Debt = 51,340.5. * EBITDA = 13,228. * Ratio = 3.88. * Rounding to two decimal places: 3.88. 3.88