To estimate the FFO / Net Debt ratio for ERG S.p.A. for the year 2022 based on S&P methodology, we need to calculate two components: Funds From Operations (FFO) and Net Debt. **1. Calculate Funds From Operations (FFO)** According to S&P Global Ratings methodology, FFO is generally calculated as: $$FFO = \text{Net Income} + \text{Depreciation and Amortization} + \text{Other Non-Cash Items} + \text{Change in Working Capital (optional/variable depending on strict definition, but usually FFO is pre-working capital changes or adjusted)}$$ However, a more standard S&P definition for industrial companies is: $$FFO = \text{Net Income from Continuing Operations} + \text{Depreciation} + \text{Amortization} + \text{Impairment Charges (net of reversals)} + \text{Other Non-Cash Items}$$ Let's extract the relevant data for the period 2022-01-01 to 2023-01-01 (Fiscal Year 2022): * **Net Income from Continuing Operations:** 88,966,000 EUR * *Note:* S&P typically uses Net Income from continuing operations. The total Net Income includes discontinued operations (294,131,000 EUR), which are usually excluded from core operating metrics like FFO unless specified otherwise. However, sometimes "Net Income" in broad FFO calculations might start with total profit. Let's look at the components. * Total Profit Loss: 383,098,000 EUR. * Profit from Continuing Operations: 88,966,000 EUR. * Given the significant discontinued operations (likely the sale of the refining business), standard credit rating analysis focuses on the continuing business. We will use **Profit Loss From Continuing Operations**. * **Depreciation Expense:** 176,689,000 EUR * **Amortization Expense:** 58,741,000 EUR * **Impairment Losses/Reversals:** * Impairment Loss Recognised (Trade Receivables): 300,000 EUR (Add back) * Impairment Loss Reversal (Intangible/PPE): 43,185,000 EUR (Subtract, as it's a non-cash gain) * Net Impairment Adjustment = $300,000 - 43,185,000 = -42,885,000$ EUR. * **Other Non-Cash Items / Adjustments:** * S&P FFO often adds back deferred taxes and other non-cash working capital adjustments if they are part of the "funds" generation. However, a simpler proxy often used is: * $FFO \approx \text{Operating Cash Flow} - \text{Changes in Working Capital} + \text{Interest Paid} + \text{Taxes Paid}$? No, that's getting complex. * Let's stick to the standard add-back method to Net Income. * Are there other significant non-cash items? * Share of profit of associates: 2,294,000 EUR (Non-cash income, should be subtracted if included in Net Income). * Finance Income/Costs are cash/non-cash mixes, but FFO is pre-interest. Let's refine the FFO calculation: $$FFO = \text{Net Income (Continuing)} + \text{D\&A} + \text{Net Impairment} - \text{Non-cash Investment Income} + \text{Deferred Tax Expense?}$$ Actually, a very common S&P approximation for FFO is: $$FFO = \text{EBITDA} - \text{Cash Taxes} - \text{Cash Interest} + \text{Other Adjustments}$$ Or simpler: $$FFO = \text{Net Income} + \text{D\&A} + \text{Impairments} - \text{Gains on Asset Sales}$$ Let's try calculating from **Operating Cash Flow (CFO)** which is often a good anchor, then adjusting. * Cash Flows From Operating Activities (Continuing): 502,520,000 EUR. * S&P defines FFO closely to CFO but adjusts for working capital volatility and other items. However, for many industrial firms, **FFO is often approximated as CFO before working capital changes** or simply **CFO** if working capital is stable. * Let's look at the "Cash Flows From Used In Operations Before Changes In Working Capital": 616,360,000 EUR. * From this, we subtract cash taxes and cash interest? * Income Taxes Paid (Operating): 91,854,000 EUR. * Interest Paid (Financing): 29,146,000 EUR. (Note: S&P usually adds back interest paid to get to a pre-interest metric, or calculates FFO as available to pay interest). * Standard S&P FFO definition: **Net Income + Depreciation + Amortization + Impairment + Deferred Taxes + Other Non-Cash Items**. Let's use the explicit add-back method on Continuing Net Income: 1. **Net Income (Continuing):** 88,966,000 2. **Add: Depreciation:** 176,689,000 3. **Add: Amortization:** 58,741,000 4. **Add: Impairment Loss (Trade Receivables):** 300,000 5. **Less: Impairment Reversal (PPE/Intangibles):** (43,185,000) 6. **Less: Share of Profit of Associates/Investments:** (2,294,000) (This is equity income, non-cash). 7. **Add: Deferred Tax Expense?** * Total Tax Expense: 97,569,000. * Cash Tax Paid (Operating): 91,854,000. * The difference is roughly the change in tax liabilities/assets. Deferred tax is a non-cash expense included in Net Income. We should add it back. * Let's estimate Deferred Tax Expense. * Change in Deferred Tax Assets: $150,346,000 - 138,242,000 = 12,104,000$ (Decrease in asset = Expense). * Change in Deferred Tax Liabilities: $197,262,000 - 107,268,000 = 89,994,000$ (Increase in liability = Expense). * Net Deferred Tax Expense $\approx 12.1M + 90.0M = 102.1M$? * Let's check the Tax Reconciliation. * Current Tax Expense is not explicitly given, but Cash Tax Paid is 91.8M. * Usually, $Tax Expense = Current Tax + Deferred Tax$. * If we add back the full Tax Expense (97.5M) and subtract Cash Tax Paid (91.8M), we are effectively adding back the deferred portion. * Alternatively, just add back Deferred Tax. * Let's look at the Cash Flow Statement adjustments. * "Adjustments For Income Tax Expense": 97,569,000. This is added back to Profit to get to CFO pre-tax? No, this is in the reconciliation of Profit to Cash Flow. Let's try a different, more robust S&P proxy: **FFO = Cash Flow from Operations (Continuing) + Cash Interest Paid + Cash Taxes Paid - Changes in Working Capital?** No, S&P FFO is essentially **EBITDA - Cash Interest - Cash Taxes + Non-Cash Working Capital Changes?** Actually, the most standard S&P formula is: $$FFO = \text{Net Income} + \text{Depreciation} + \text{Amortization} + \text{Impairment} + \text{Deferred Taxes} + \text{Other Non-Cash Items}$$ Let's sum these up for Continuing Operations: * Net Income (Cont): 88,966,000 * Depreciation: 176,689,000 * Amortization: 58,741,000 * Net Impairment: $300,000 - 43,185,000 = -42,885,000$ * Share of Associates (Non-cash income): -2,294,000 * Deferred Taxes: * Tax Expense: 97,569,000 * Cash Tax Paid (Op): 91,854,000 * Difference (approx Deferred Tax + change in tax payable): $97,569,000 - 91,854,000 = 5,715,000$. * Let's look at Balance Sheet changes in Tax: * Current Tax Assets: $32,998 - 16,745 = +16,253$ (Use of cash/Asset increase) * Current Tax Liabilities: $52,311 - 19,798 = +32,513$ (Source of cash/Liab increase) * Net Change in Tax Working Capital = $32,513 - 16,253 = +16,260$ (Source). * Cash Tax Paid = Tax Expense - Increase in Tax Liab + Increase in Tax Asset? * $91.854 = 97.569 - \Delta \text{Liab} + \Delta \text{Asset}$? * This is getting too granular. Let's assume **Deferred Tax Expense** is the non-cash portion of the tax expense. * From the OCI, we see tax effects, but for P&L: * Let's use the Cash Flow from Operations (Continuing) as a base and adjust for Interest and Taxes to get to a "Funds From Operations" available to service debt? * S&P FFO is **pre-interest**. * $CFO (Continuing) = 502,520,000$. * CFO includes interest paid? In this report, "Interest Paid Classified As Financing Activities" is 29,146,000. So CFO is **before** interest paid (since interest paid is in Financing). * CFO includes taxes paid? "Income Taxes Paid Classified As Operating Activities" is 91,854,000. So CFO is **after** cash taxes. * S&P FFO is generally **after cash taxes** but **before interest**. * So, is $FFO \approx CFO$? * S&P adjusts CFO for working capital volatility. * Let's check the magnitude. * CFO (Continuing) = 502.5 M. * Let's calculate FFO via the Income Statement add-back method again to compare. * NI (Cont): 89.0 M * + D&A: 235.4 M (176.7 + 58.7) * + Net Impairment: -42.9 M * - Equity Income: -2.3 M * + Deferred Tax: ~? * Sum so far: $89 + 235.4 - 42.9 - 2.3 = 279.2$ M. * This is much lower than CFO (502.5 M). Why? * Working Capital Changes. * "Increase Decrease In Working Capital And Other Operating Activities" = 113,840,000 EUR (Positive, meaning source of cash, i.e., decrease in WC). * $279.2 M + 113.8 M = 393 M$. Still lower. * Other adjustments? * "Other Adjustments For Noncash Items": -198,570,000 EUR. * This is a huge negative adjustment in the Cash Flow statement. What is this? * Likely includes the gain from discontinued operations or fair value changes. * Let's look at "Adjustments For Gains Losses On Change In Fair Value Of Derivatives": 34,549,000. * The big item is likely the **Profit from Discontinued Operations** which is 294 M. * In the Continuing Operations Cash Flow, the starting point is Profit from Continuing Ops (89 M). * So the CFO of 502.5 M is derived from Continuing Ops. Let's reconsider the S&P FFO definition. $FFO = \text{Net Income} + \text{D\&A} + \text{Impairments} + \text{Deferred Tax} + \text{Other Non-Cash}$. If we use **Total Net Income** (including discontinued): * Net Income: 383,098,000 * D&A: 235,430,000 * Net Impairment: -42,885,000 * Equity Income: -2,294,000 * Deferred Tax: ? However, S&P excludes discontinued operations from FFO for ongoing credit analysis. Let's look at the **EBITDA** and subtract Cash Taxes and Add/Subtract Working Capital? EBITDA (Continuing) can be derived from "Profit Loss From Operating Activities Before Interest Taxes Depreciation And Amortisation Expense" which is **499,430,000 EUR**. S&P FFO is often approximated as: $$FFO = EBITDA - \text{Cash Taxes} - \text{Cash Interest} + \text{Non-Cash Working Capital Changes?}$$ No, FFO is a source of funds. Standard S&P Industrial Methodology: $$FFO = \text{Net Income} + \text{Depreciation} + \text{Amortization} + \text{Impairment} + \text{Deferred Taxes} + \text{Other Non-Cash Items}$$ Let's try to reconstruct the "Other Non-Cash Items" and Deferred Taxes more accurately. From the Cash Flow Statement (Continuing): Start: Profit from Continuing Ops: 88,966,000 (implied, though not explicitly listed as start, the total profit is 383M, disc is 294M, so cont is 89M). Adjustments for non-cash items: + D&A: 235,430,000 (176.7 + 58.7) + Net Impairment: -42,885,000 (300k - 43.2M) + Share of Profit/Undistributed: 2,294,000 (Added back? In CF, "Adjustments For Undistributed Profits..." is 2,294,000. Since it's income not received, it's added back to NI? No, if it's equity income, it's subtracted from NI in CF indirect method because it's non-operating/non-cash. Wait. In Indirect Method: NI includes Equity Income. Cash Flow from Equity Income = Dividends Received. Adjustment = Dividends Received - Equity Income. If Undistributed Profits is 2,294,000, then Equity Income (2,294,000) was included in NI, but 0 cash received. So we subtract 2,294,000 from NI. The line item "Adjustments For Undistributed Profits..." is positive 2,294,000 in the provided text? "Adjustments For Undistributed Profits Of Investments Accounted For Using Equity Method" 2022: 2,294,000. Usually, this adjustment is negative in the CF statement if it's an add-back to reconcile? Let's check the sign convention. If NI is 89M. CF Ops is 502M. The difference is huge. Let's look at **EBITDA** = 499,430,000 EUR. S&P often uses **FFO = EBITDA - Cash Taxes - Change in Working Capital (if volatile) - Capital Expenditures?** No, CapEx is for Free Cash Flow. Let's use the definition: **FFO = Cash Flow from Operations + Cash Interest Paid + Cash Taxes Paid**. This effectively gives us Cash Flow from Operations before interest and taxes (but after working capital changes). * CFO (Continuing): 502,520,000 * Cash Interest Paid (Financing): 29,146,000 * Cash Taxes Paid (Operating): 91,854,000 * **Estimated FFO** = $502,520,000 + 29,146,000 + 91,854,000 = 623,520,000$ EUR. Does this make sense? EBITDA is 499 M. How can FFO be 623 M? Because of the **Working Capital Release**. "Increase Decrease In Working Capital And Other Operating Activities" = 113,840,000 EUR (Positive inflow). Also, there might be other adjustments. Wait, if EBITDA is 499 M, and FFO is 623 M, that implies working capital provided 124 M cash, and taxes/interest are added back? $EBITDA - Cash Taxes - Cash Interest + WC Release = FFO$? $499 - 92 - 29 + 114 = 492$ M. This is close to the CFO + Interest + Tax calculation ($502 + 29 + 92 = 623$? No). Let's re-evaluate CFO. CFO (Continuing) = 502,520,000. This figure is **after** cash taxes (91.8 M paid in operating) and **after** working capital changes. It is **before** interest (interest paid in financing). S&P FFO is defined as funds available to pay interest. So it should be **before interest**. Should it be before or after tax? S&P FFO is typically **after cash taxes**. So, $FFO \approx CFO (before interest) + \text{Adjustments for non-operating/non-cash?}$ If we take CFO (Continuing) = 502.5 M. Add back Cash Interest Paid (since FFO is pre-interest): 29.1 M. Result: 531.6 M. Is there any other adjustment? S&P sometimes adjusts for "volatile working capital". If we assume the WC change of 113.8 M is a one-off release (likely due to the discontinued ops separation or normal cycle), we might normalize it. However, without multi-year averages, we use the reported number. Let's check the Discontinued Operations impact. CFO (Discontinued) = 43,594,000. Total CFO = 458,926,000. For Net Debt, we need the Debt of the continuing entity or the whole group? Usually, ratios are calculated on the **consolidated** basis including discontinued ops if they haven't been fully disposed of in terms of debt allocation, or excluding them if they are held for sale. The assets/liabilities of discontinued ops are separated in the Balance Sheet. "Noncurrent Assets Or Disposal Groups Classified As Held For Sale": 226,086,000 (2023) / 776,220,000 (2022). "Liabilities Included In Disposal Groups Classified As Held For Sale": 89,421,000 (2023) / 23,790,000 (2022). S&P typically calculates Net Debt as **Total Debt - Cash**. Total Debt includes interest-bearing liabilities. Let's calculate **Net Debt** at year-end 2022 (2023-01-01 balance sheet represents end of 2022). **Debt Components (2023-01-01):** 1. **Noncurrent Financial Liabilities:** * Other Noncurrent Financial Liabilities: 1,751,255,000 * Noncurrent Lease Liabilities: 150,955,000 * Noncurrent Financial Liabilities at FVTPL: 0 * Total Noncurrent Debt = $1,751,255,000 + 150,955,000 = 1,902,210,000$ 2. **Current Financial Liabilities:** * Other Current Financial Liabilities: 389,716,000 * Current Financial Liabilities at FVTPL: 76,644,000 * Current Lease Liabilities: 6,362,000 * Total Current Debt = $389,716,000 + 76,644,000 + 6,362,000 = 472,722,000$ **Total Gross Debt** = $1,902,210,000 + 472,722,000 = 2,374,932,000$ EUR. **Cash and Cash Equivalents:** * Cash And Cash Equivalents: 392,811,000 EUR. * Are there other liquid assets? "Current Financial Assets At Fair Value Through Profit Or Loss": 141,568,000. * S&P Net Debt usually subtracts **Cash and Cash Equivalents** and sometimes **Short-term Investments** if they are highly liquid and not restricted. * Let's subtract Cash & Cash Equivalents: 392,811,000. * Should we subtract the 141.5 M? These are likely derivatives or short-term investments. Given the "Fair Value Through Profit Or Loss", they might be volatile. S&P is conservative. Often only Cash & Equivalents are subtracted. Let's stick to Cash & Equivalents for a conservative Net Debt, or include short-term financial assets if they are cash-like. * Let's check the previous year. * 2022-01-01 Cash: 860 M. Debt: * Noncurrent: 2,064 M + 122 M = 2,186 M. * Current: 1,342 M + 170 M + 6 M = 1,518 M. * Total Debt: ~3,704 M. * Net Debt: 3,704 - 860 = 2,844 M. Back to 2023-01-01 (End of 2022): Gross Debt: 2,374,932,000 EUR. Cash: 392,811,000 EUR. **Net Debt** = $2,374,932,000 - 392,811,000 = 1,982,121,000$ EUR. Now, back to **FFO**. If we use the **Consolidated** FFO (including discontinued ops cash flow?): Total CFO = 458,926,000. Add Cash Interest (Total): The interest paid is 29,146,000 (Financing). Add Cash Taxes (Total): The tax paid is 91,854,000 (Operating). Note: There might be tax paid in discontinued ops? The line item is "Income Taxes Paid Classified As Operating Activities". It likely covers the whole group or just continuing. Given the structure, usually, discontinued ops have their own cash flows. Let's assume the CFO figures provided are for the specific categories. S&P Ratios are typically based on **Continuing Operations** for forward-looking creditworthiness, but Net Debt is the **Total** debt of the entity (unless debt was transferred with the discontinued ops). The "Liabilities Included In Disposal Groups" is 89 M. This is likely trade payables and provisions, not necessarily interest-bearing debt. The interest-bearing debt seems to be in the "Financial Liabilities" lines which are not in the "Held for Sale" bucket. So, Net Debt applies to the Continuing Entity (ERG after divestment). Therefore, we should use **FFO from Continuing Operations**. Recalculating FFO (Continuing): Method: $CFO (Continuing) + Cash Interest Paid + Cash Taxes Paid$. $502,520,000 + 29,146,000 + 91,854,000 = 623,520,000$ EUR. Let's verify this against the EBITDA based approach. EBITDA (Cont) = 499,430,000. Less Cash Taxes: 91,854,000. Less Cash Interest: 29,146,000. Plus/Minus Working Capital Changes? The difference between EBITDA and CFO is Timing (WC) and Non-Cash items (excluding D&A). $CFO = EBITDA - \Delta WC - Cash Taxes - Cash Interest + Other$. $502.5 = 499.4 - \Delta WC - 91.9 - 29.1 + Other$. This implies $\Delta WC$ was negative (release) or "Other" is large. We know WC change was +113.8 M (inflow). $499.4 + 113.8 - 91.9 - 29.1 = 492.2$ M. This is close to 502.5 M. The difference (10 M) is likely other adjustments (provisions, etc.). So, FFO (pre-interest, after-tax) $\approx 502.5 + 29.1 = 531.6$ M? Or is FFO pre-tax? S&P FFO is **after cash taxes**. So FFO = 531,666,000 EUR. Let's check if S&P adds back deferred taxes? If we use the NI + D&A method: NI (Cont) = 89.0 M. D&A = 235.4 M. Net Impairment = -42.9 M. Deferred Tax Add-back: Tax Expense 97.6 M. Cash Tax 91.9 M. Diff 5.7 M. Equity Income -2.3 M. Sum: $89 + 235.4 - 42.9 - 2.3 + 5.7 = 284.9$ M. This is vastly different from 531 M. Why? **Working Capital.** The NI method does not include WC changes. The CFO method does. S&P FFO **does not** typically include working capital changes in the "Funds" definition for leverage ratios? Actually, **S&P defines FFO as Net Income + Depreciation + Amortization + Impairment + Deferred Taxes + Other Non-Cash Items.** It explicitly **excludes** changes in working capital. So, the **284.9 M** figure is the stricter S&P FFO. However, S&P also calculates "Adjusted FFO" or uses CFO for certain industries. For industrials, the NI-based FFO is standard. Let's refine the NI-based FFO: 1. **Net Income from Continuing Operations**: 88,966,000 2. **Depreciation**: 176,689,000 3. **Amortization**: 58,741,000 4. **Impairment Loss (Trade Receivables)**: 300,000 5. **Impairment Reversal (PPE/Int)**: (43,185,000) 6. **Share of Profit of Associates**: (2,294,000) 7. **Deferred Income Tax Expense**: * We need the exact deferred tax expense. * Tax Expense (Current + Deferred) = 97,569,000. * Current Tax Expense $\approx$ Cash Tax Paid + Change in Tax Payable/Receivable. * Change in Current Tax Assets: +16,253,000 (Increase in asset -> Cash paid > Expense). * Change in Current Tax Liabilities: +32,513,000 (Increase in liab -> Expense > Cash paid). * Net Change in Tax WC = +16,260,000. * Current Tax Expense = Cash Tax Paid (91,854,000) - Increase in Liab (32,513,000) + Increase in Asset (16,253,000)? * Actually: $Cash Paid = Expense - \Delta Liab + \Delta Asset$. * $91,854 = Current Exp - 32,513 + 16,253$. * $Current Exp = 91,854 + 32,513 - 16,253 = 108,114,000$. * Total Tax Expense = 97,569,000. * Deferred Tax Expense = Total - Current = $97,569 - 108,114 = -10,545,000$. * So Deferred Tax is a **benefit** (negative expense). We subtract it from NI add-backs? * In FFO, we add back Deferred Tax **Expense**. If it's negative, we subtract. * Adjustment: -10,545,000. Let's sum: $88,966 + 176,689 + 58,741 + 0.3 - 43.185 - 2.294 - 10.545 = 268.672$ M. This seems low compared to EBITDA of 499 M. Why? Because of the **Impairment Reversal** of 43 M (non-cash gain reducing NI, so we subtract it from FFO? No. NI includes the gain. FFO adds back non-cash charges. A reversal is a non-cash credit. So we subtract it to remove the benefit. Correct. Is there any other large non-cash item? "Other Adjustments For Noncash Items" in CF was -198 M. This likely relates to the **Discontinued Operations** or fair value changes on derivatives/financial assets. Finance Income/Cost includes fair value changes? Finance Income: 75 M. Finance Costs: 112 M. Net Finance Cost: 36 M. If there are large non-cash finance costs, they are excluded from FFO (which is pre-interest). Let's check if **FFO** should include **Preferred Dividends**? None mentioned. Let's consider the **S&P Global Ratings Criteria for Key Credit Metrics**. For industrial companies, FFO is Net Income + D&A + Impairment + Deferred Tax + Other Non-Cash. Let's use the calculated **FFO ≈ 269,000,000 EUR**. **Net Debt:** Gross Debt: 2,374,932,000 EUR. Less Cash: 392,811,000 EUR. Net Debt: 1,982,121,000 EUR. **Ratio:** $FFO / Net Debt = 269,000,000 / 1,982,121,000 \approx 0.135$. However, if we use the **CFO-based FFO** (which some analysts use as a proxy for "Cash FFO"): $FFO = 531,666,000$. Ratio = $531.7 / 1,982.1 \approx 0.268$. Which one is "S&P Methodology"? S&P explicitly defines FFO as the NI-based metric. **However**, S&P also publishes "Adjusted FFO" which may normalize working capital. But the base metric is NI-based. Let's double check the **Impairment Reversal**. The reversal of 43 M is a non-cash gain. It increased NI. To get to cash flow from ops, we subtract it. To get to FFO (which is a proxy for cash generation from ops), we subtract it. Let's double check **Deferred Tax**. If Deferred Tax is a benefit, it increased NI. We subtract it. Let's double check **Equity Income**. Equity income of 2.3 M increased NI. It is non-cash. We subtract it. So the NI-based FFO is indeed around 269 M. Is there a large **Non-Controlling Interest** adjustment? Net Income includes NCI share. FFO is usually attributable to the parent? S&P FFO is generally consolidated Net Income. Let's consider if **Discontinued Operations** should be included in FFO. The divestment happened in 2022. The profit from discontinued ops is 294 M. The cash flow from discontinued ops is 43 M. The assets/liabilities are held for sale. Usually, for the year of divestment, S&P might exclude the discontinued ops from FFO to make it comparable to future years. If we included Discontinued Ops in NI: NI Total = 383 M. Add D&A (Total)? D&A is likely only continuing. This mix is messy. Sticking to Continuing Ops is safer for a "run-rate" estimate. However, 0.13x is a very low FFO/Net Debt ratio. Let's check the **EBITDA/Net Debt** ratio. EBITDA = 499 M. Net Debt = 1,982 M. EBITDA/Net Debt = 0.25x. FFO is usually lower than EBITDA because of Taxes and Interest? No, FFO is pre-interest. FFO = EBITDA - Cash Taxes - Change in WC (if using CFO proxy) - Other. If we use the **CFO + Interest** proxy (531 M): Ratio = 0.27x. If we use the **NI-based** proxy (269 M): Ratio = 0.14x. Let's look at the **Finance Costs**. Cash Interest Paid = 29 M. Finance Costs (P&L) = 112 M. The difference (83 M) is non-cash finance costs (e.g., amortization of debt issuance costs, fair value changes, accruals). These non-cash finance costs reduced NI. In the NI-based FFO, do we add them back? S&P FFO is **before interest**. The NI-based formula starts with Net Income (which is after interest). So we must **add back Interest Expense** (both cash and non-cash) to get to a pre-interest metric? **NO.** Standard S&P FFO is **after interest**? Let's check the definition again. "Funds From Operations (FFO) ... is net income ... plus depreciation ...". Net Income is **after interest**. So FFO is **after interest**. Wait, if FFO is after interest, then it is a measure of cash flow available to pay **principal** and **dividends**, not interest. But the ratio **FFO / Net Debt** is a leverage ratio. Usually, **Debt/EBITDA** and **Debt/FFO** are used. If FFO is after interest, then: FFO (NI-based) = 269 M. This 269 M is after 112 M of finance costs (accrual) and 97 M of tax. Let's verify the "After Interest" part. Yes, FFO is derived from Net Income, which is the bottom line. So, FFO = 269 M. Net Debt = 1,982 M. Ratio = 0.135. However, many users of S&P data use **Adjusted FFO** which adds back non-cash interest? No, usually EBITDA is used for interest coverage. FFO/Debt is a leverage metric. Let's check if the **Impairment Reversal** should be treated differently. If the reversal is considered "operating", it stays in FFO? S&P says: "Add back impairment losses". It doesn't explicitly say "subtract reversals", but logically, if you add back losses, you must subtract gains/reversals to maintain consistency. Let's try one more calculation: **CFO from Continuing Operations** (502 M) as a proxy for FFO? Some simplified models use CFO. If FFO = 502 M. Ratio = 502 / 1982 = 0.253. Given the ambiguity, the **NI-based FFO** is the strict definition. FFO = 268.7 M. Net Debt = 1,982.1 M. Ratio = 0.1355. Let's round to 2 decimal places: 0.14. However, if I look at the **Comprehensive Income** or other metrics... Let's check the **Net Debt** calculation again. Did I miss any debt? "Other Current Financial Liabilities": 389 M. "Other Noncurrent Financial Liabilities": 1,751 M. These are the bulk. Lease Liabilities: 150 M + 6 M = 156 M. FVTPL Liabilities: 76 M. Total Debt = 2,375 M. Cash = 393 M. Net Debt = 1,982 M. If the FFO is 269 M, the ratio is 0.14. 0.14