To estimate the FFO / Net Debt ratio for Bouygues for the year 2022 based on S&P methodology, we need to calculate Funds From Operations (FFO) and identify the Net Debt. **1. Calculate Funds From Operations (FFO)** According to S&P Global Ratings methodology, FFO is generally calculated as: $$FFO = \text{Net Income} + \text{Depreciation and Amortization} + \text{Other Non-Cash Items}$$ *Note: S&P often starts with Net Income attributable to the parent or consolidated Net Income. For a group level ratio, Consolidated Net Income is typically used, adjusted for non-controlling interests if necessary, but standard FFO definitions often use Consolidated Net Income before non-controlling interests or adjust Equity. Let's look at the components provided.* Standard S&P FFO Definition: $$FFO = \text{Consolidated Net Income} + \text{Depreciation and Amortization} + \text{Non-cash working capital changes (sometimes excluded in simple proxies, but S&P usually adds back D&A and adjusts for other non-cash items like deferred taxes, provisions, etc.)} - \text{Gains on asset sales} + \text{Losses on asset sales}$$ Let's extract the relevant data for the period 2022-01-01 to 2023-01-01 (Fiscal Year 2022): * **Net Income (Profit Loss):** 1,131,000,000 EUR * *Note: S&P often uses Net Income attributable to owners of the parent for leverage ratios involving equity, but for FFO/Debt, Consolidated Net Income is the standard starting point for cash flow generation of the entire entity. However, many simplified calculations use Net Income Attributable to Parent. Let's check the magnitude. If we use Consolidated Net Income: 1,131 million. If we use Attributable to Parent: 973 million. S&P Global Ratings typically defines FFO as net income (including noncontrolling interests) plus depreciation and amortization, plus other noncash items. Let's use Consolidated Net Income.* * **Depreciation and Amortization Expense:** 2,228,000,000 EUR * *This includes "Depreciation And Amortisation Expense" (2,228m). Note that "Depreciation Rightofuse Assets" (446m) is likely included within the total Depreciation and Amortization or reported separately. In many IFRS reports, the line "Depreciation and amortization expense" is the total. Let's verify if the 2,228m is the total. The sum of PPE depreciation and Intangible amortization isn't explicitly broken out, but "Depreciation And Amortisation Expense" is a standard total line item. The separate line "Depreciation Rightofuse Assets" (446m) might be part of it or additional. However, looking at the Cash Flow statement adjustments: "Adjustments For Provisions And Adjustments For Depreciation And Amortisation Expense And Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss" is 2,261m. This is close to the 2,228m D&A plus/minus impairments. Let's stick to the explicit "Depreciation And Amortisation Expense" of 2,228m as the primary D&A add-back. S&P usually adds back total D&A including ROU assets. If the 2,228m excludes ROU, we should add it. However, typically "Depreciation and amortization expense" in the P&L summary includes all depreciation. Let's assume 2,228m is the total operating D&A. If we look at the Cash Flow from Operations reconciliation, "Adjustments For Depreciation And Other Adjustments Right Of Use Assets" is 424m. This suggests the 2,228m might be PPE/Intangibles only, or the 424m is a specific adjustment. Let's look closer. "Depreciation And Amortisation Expense" = 2,228m. "Depreciation Rightofuse Assets" = 446m. It is highly probable that the 2,228m figure *excludes* the ROU depreciation if they are listed separately, or it *includes* it. In IFRS, ROU depreciation is part of depreciation expense. Let's assume the standard line item "Depreciation And Amortisation Expense" (2,228m) is the comprehensive figure for PPE and Intangibles. The ROU depreciation (446m) is often included in this total or reported separately. Given the separate line item, let's check if adding them makes sense. Total D&A = 2,228 + 446 = 2,674m? Or is 2,228 the total? Usually, if a specific "Depreciation Rightofuse Assets" is given, it's a subset. However, without a clear "Total Depreciation" line, we must be careful. Let's look at the EBITDA proxy. * Operating Profit (Recurring) = 1,962m. * Add back D&A (2,228m) + ROU Dep (446m)? * Let's check the Cash Flow from Operations (CFO) to reverse engineer. * CFO = 2,978m. * CFO = Net Income (1,131) + D&A + Changes in WC + Other. * If we assume D&A is ~2,228m, then 1,131 + 2,228 = 3,359. Adjustments for provisions/impairment (2,261m total adjustment for D&A/Prov/Impairment in CF statement?) No, the line is "Adjustments For Provisions And Adjustments For Depreciation And Amortisation Expense And Impairment Loss Reversal...". This line is 2,261m. This likely *is* the D&A + Provisions + Impairment add-back. * Let's use the standard S&P FFO formula: $$FFO = \text{Net Income} + \text{Depreciation and Amortization} + \text{Non-cash items (Deferred Tax, Provisions, etc.)} - \text{Gains on Asset Sales}$$ * A simpler and very common approximation for S&P FFO when detailed adjustments aren't fully parsed is: $$FFO \approx \text{EBITDA} - \text{Cash Taxes} - \text{Cash Interest} - \text{Changes in Working Capital (sometimes)}$$ Actually, S&P defines FFO as: Net Income + Depreciation & Amortization + Other Non-Cash Items (like deferred taxes, stock-based comp, provisions) - Gains on asset sales + Losses on asset sales. * Let's sum the likely add-backs to Net Income (1,131m): 1. **Depreciation & Amortization:** 2,228m (Assuming this is the main D&A). Let's add the ROU depreciation of 446m if it's not included. In many Bouygues reports, the "Depreciation and amortization" line includes PPE and Intangibles. ROU is often separate or included. Let's assume the 2,228m is the total D&A for PPE and Intangibles, and 446m is for ROU. Total D&A = 2,228 + 446 = 2,674m. 2. **Impairment/Provisions:** The line "Impairment Loss Reversal... And Provision Expense" is 172m. This is an expense, so it's already deducted in Net Income. We add it back if it's non-cash or part of the standard FFO add-backs. S&P adds back provision expenses (non-cash) and impairment losses. 3. **Deferred Taxes:** Change in Deferred Tax Assets/Liabilities. * DTA: 292 -> 489 (Increase of 197, source of cash/add back) * DTL: 344 -> 759 (Increase of 415, source of cash/add back) * Net Deferred Tax Benefit (Non-cash tax expense reduction): The tax expense is 424m. Cash tax paid is 518m. The difference is due to timing/deferred taxes and working capital. * S&P adds back Deferred Tax Expense. The Income Tax Expense is 424m. The cash tax paid is 518m. This implies deferred taxes were a benefit (negative expense) or working capital drove the difference. * Let's look at the "Adjustments For Income Tax Expense" in the Cash Flow section? No, that's not standard. * Let's use the Cash Flow from Operations (CFO) as a base, which is 2,978m. * S&P FFO is typically higher than CFO because it adds back changes in working capital (which are volatile) and subtracts cash taxes/interest if they were deducted to get to CFO? No, CFO is after interest and taxes paid (usually). * Actually, S&P FFO is closer to **CFO before changes in working capital**. * Let's calculate **CFO before working capital changes**: * CFO = 2,978m. * Increase/Decrease in Working Capital = 606m (Positive means inflow, i.e., decrease in WC assets or increase in WC liabilities). * So, Cash Flow from Operations *before* WC changes = CFO - WC Change = 2,978 - 606 = 2,372m? * Wait, the line "Increase Decrease In Working Capital" is 606m. In the cash flow statement, this is an adjustment to reconcile Net Income to CFO. If it's positive, it increased CFO. So CFO = Net Income + Adjustments + WC Change. * Therefore, Cash Flow from Operations *excluding* WC changes = 2,978 - 606 = 2,372m. * However, S&P FFO also adjusts for **Cash Taxes** and **Cash Interest**? * Standard FFO definition: Net Income + D&A + Other Non-Cash. * Let's try calculating directly from Net Income: * Net Income: 1,131m * Add: Depreciation & Amortization (Total): 2,228m (PPE/Int) + 446m (ROU) = 2,674m. * Add: Impairment/Provisions Expense: 172m. * Add: Deferred Taxes? The tax expense is 424m. Cash tax paid is 518m. The difference (94m) is a cash outflow not in expense, or vice versa. Actually, if Cash Tax > Tax Expense, it means we paid more than we expensed (reducing deferred tax liability or increasing asset). This is a use of cash. FFO usually adds back the *Tax Expense* (accrual) and subtracts *Cash Taxes Paid*? No, FFO is an accrual concept mostly, but S&P modifies it. * S&P's specific definition: **FFO = Net Income + Depreciation & Amortization + Other Non-Cash Items (including deferred taxes, provisions, stock-based comp) - Gains on Asset Sales + Losses on Asset Sales.** * Let's refine the "Other Non-Cash Items": * Provisions/Impairment: 172m (Add back). * Stock-based payment: 15m (from Equity statement "Increase Decrease Through Sharebased Payment Transactions"). Add back. * Deferred Taxes: The change in net deferred tax position. * Net DTA/DTL 2021: 292 (Asset) - 344 (Liab) = -52 (Net Liab). * Net DTA/DTL 2022: 489 (Asset) - 759 (Liab) = -270 (Net Liab). * Change in Net Deferred Tax Liability = -270 - (-52) = -218m (Decrease in Net Liability, which is a use of cash / reduction in add-back). * Alternatively, look at Tax Expense (424) vs Cash Tax (518). The difference is 94m. * Usually, we add back the full Tax Expense (424) to Net Income (which has already deducted it) to get Pre-Tax Income, then subtract Cash Taxes? No, FFO is after-tax. * Correct approach: Start with Net Income (after tax). Add back Non-Cash Tax Expense (Deferred Tax). * Deferred Tax Expense = Tax Expense (424) - Current Tax Expense. * Current Tax Expense can be derived from Cash Tax Paid and change in Current Tax Payables. * Current Tax Payables 2021: 196m. 2022: 349m. Change = +153m. * Cash Tax Paid = 518m. * Current Tax Expense = Cash Paid - Increase in Payable = 518 - 153 = 365m. * Deferred Tax Expense = Total Tax Expense (424) - Current Tax Expense (365) = 59m. * So, we add back Deferred Tax Expense of 59m. * Gains/Losses on Asset Sales: * "Adjustments For Losses Gains On Disposal Of Noncurrent Assets" in Cash Flow is -285m. A negative adjustment in the indirect method means it was a **Gain** (deducted from Net Income to get CFO). So there was a Gain of 285m. * S&P FFO subtracts Gains on asset sales. So we subtract 285m. * Other Non-Cash: * Share of profit of associates: -30m. This is non-cash (equity method). We should add it back? No, it's included in Net Income. The cash received is dividends. S&P usually adds back the equity income and subtracts dividends received? Or just leaves it? Standard FFO adds back equity losses/subtracts equity income. Here, loss of 30m. Add back 30m. * Interest on Lease Liabilities: 62m. This is a financing cost, included in Net Income. S&P FFO is before interest? No, FFO is after interest. But S&P Leverage ratios use FFO which is effectively EBITDA - CapEx? No. * Let's stick to the core: **Net Income + D&A + Deferred Tax + Provisions/Impairment + Stock Based Comp - Gains on Sales + Equity Losses.** * **Calculation:** * Net Income: 1,131m * (+) D&A (PPE/Int): 2,228m * (+) D&A (ROU): 446m * (+) Provisions/Impairment Expense: 172m * (+) Deferred Tax Expense: 59m * (+) Stock-Based Comp: 15m * (+) Equity Loss: 30m * (-) Gain on Asset Sales: 285m * **Estimated FFO** = 1,131 + 2,228 + 446 + 172 + 59 + 15 + 30 - 285 = **3,796m EUR**. * *Alternative Check using CFO:* * CFO = 2,978m. * Add back: Changes in Working Capital (606m inflow, so subtract to get pre-WC): -606m? No, if WC provided cash, CFO is higher than operational cash generation. FFO usually ignores WC changes. So FFO ~ CFO - WC Change + Cash Taxes/Interest adjustments? * S&P FFO is often approximated as **CFO + Cash Taxes Paid + Cash Interest Paid - Changes in Working Capital**. * Let's try this proxy: * CFO: 2,978m * (-) WC Change: -606m (Removing the benefit of WC) -> 2,372m. * (+) Cash Taxes Paid: 518m (Adding back cash tax to get to a pre-tax-like flow? No, FFO is after-tax. But we removed the tax effect in Net Income. This path is tricky.) * Let's use the standard S&P "FFO" definition which is very close to **EBITDA - Cash Taxes - Cash Interest - CapEx?** No, that's Free Cash Flow. * S&P FFO = Net Income + D&A + Non-cash items. * Let's refine the D&A. Is 2,228m inclusive of ROU? * In the Cash Flow statement, "Adjustments For Depreciation And Other Adjustments Right Of Use Assets" is 424m. * "Adjustments For Provisions And Adjustments For Depreciation And Amortisation Expense And Impairment Loss Reversal..." is 2,261m. * If 2,261m includes Provisions (172m) and Impairment (part of 172?), and D&A. * If D&A (PPE/Int) is 2,228m, and Provisions/Impairment is 172m. Sum = 2,400m. This is higher than 2,261m. * It is likely that the 2,228m "Depreciation And Amortisation Expense" *includes* the ROU depreciation or the 2,261m adjustment line is the definitive "Non-cash D&A+Prov+Imp" add-back. * Let's assume the Cash Flow adjustment line "Adjustments For Provisions And Adjustments For Depreciation And Amortisation Expense And Impairment Loss Reversal..." (2,261m) represents the total add-back for D&A, Provisions, and Impairment. * So, Add-back for D&A + Prov + Imp = 2,261m. * Then we add other non-cash items: * Deferred Tax: 59m (calculated above). * Stock-Based Comp: 15m. * Equity Loss: 30m. * Gain on Sales: -285m. * FFO = Net Income (1,131) + 2,261 (D&A/Prov/Imp) + 59 (Def Tax) + 15 (SBC) + 30 (Equity) - 285 (Gain) = **3,211m EUR**. * Let's check if "Adjustments For Depreciation And Other Adjustments Right Of Use Assets" (424m) is *in addition* to the 2,261m. * The Cash Flow statement lists them as separate lines? * Line 1: "Adjustments For Provisions And Adjustments For Depreciation And Amortisation Expense And Impairment Loss Reversal..." = 2,261m. * Line 2: "Adjustments For Depreciation And Other Adjustments Right Of Use Assets" = 424m. * If they are separate, Total D&A/Prov/Imp/ROU = 2,261 + 424 = 2,685m. * Let's re-calculate FFO with this higher D&A figure. * FFO = 1,131 (NI) + 2,685 (D&A/Prov/Imp/ROU) + 59 (Def Tax) + 15 (SBC) + 30 (Equity) - 285 (Gain) = **3,635m EUR**. * Let's verify the D&A inclusion. "Depreciation And Amortisation Expense" (2,228m) vs "Adjustments... D&A..." (2,261m). The adjustment is slightly higher, likely due to timing differences or inclusion of other small items. The ROU adjustment (424m) is close to the ROU Depreciation (446m). It is highly likely that the 2,228m/2,261m figure *excludes* ROU depreciation, which is added separately. * Therefore, Total Non-Cash Operating Add-backs ≈ 2,261 + 424 = 2,685m. * FFO ≈ 1,131 + 2,685 + 59 + 15 + 30 - 285 = 3,635m. * Let's round to **3,635 million EUR**. **2. Identify Net Debt** * The report explicitly states: * "Net Debt" 2023-01-01 (End of 2022): **7,440,000,000 EUR**. * "Net Debt" 2022-01-01 (End of 2021): 941,000,000 EUR. * For the ratio "FFO / Net Debt" for the year 2022, we typically use the **year-end Net Debt** (2023-01-01) or the **average Net Debt**. S&P often uses year-end debt for leverage ratios unless specified otherwise. Given the significant increase in debt (from 941m to 7,440m, likely due to acquisitions like "Cash Flows Used In Obtaining Control Of Subsidiaries" of 6,269m), using the year-end figure is more conservative and standard for current leverage assessment. * Net Debt = **7,440 million EUR**. **3. Calculate the Ratio** * $$FFO / Net Debt = 3,635 / 7,440$$ * Calculation: $3,635 / 7,440 \approx 0.4885$ Let's double check the FFO calculation with a simpler "EBITDA-based" proxy often used for quick checks. * Recurring Operating Profit: 1,962m * Add D&A (Total): 2,228 + 446 = 2,674m * EBITDA (Recurring) = 1,962 + 2,674 = 4,636m * Less: Cash Taxes Paid: 518m * Less: Cash Interest Paid: 260m (Financing) + 62m (Lease interest, usually operating or financing? S&P treats lease interest as interest). Total Interest = 260 + 62 = 322m? * Note: "Cost Of Net Debt" is 198m. "Interest Expense On Lease Liabilities" is 62m. Total Interest Expense = 260m (from "Interest Expense" line? No, "Interest Expense" is 231m. "Cost Of Net Debt" is 198m. The difference is likely interest income netting. Cash Interest Paid is 260m. * Let's subtract Cash Interest (260m) and Cash Taxes (518m) from EBITDA? * $4,636 - 518 - 260 = 3,858m$. * This is close to the 3,635m calculated via Net Income. The difference (223m) might be due to working capital changes included in the EBITDA-to-Cash bridge or non-recurring items. * S&P FFO adjusts for non-recurring items. "Other Operating Income Non Recurring" (93m) and "Other Operating Expense Non Recurring" (183m). Net Non-Recurring Expense = 90m. * Adjusted Operating Profit = 1,962 (Recurring) - 90 (Net Non-Rec) = 1,872m (which matches "Profit Loss From Operating Activities"). * So EBITDA (Total) = 1,872 + 2,674 = 4,546m. * FFO Proxy = 4,546 - 518 (Tax) - 260 (Interest) = 3,768m. * This is in the range of 3,600 - 3,800m. Let's use the more precise Net Income derivation: **3,635m**. Ratio: $3,635 / 7,440 = 0.4885$. If we used Average Net Debt: $(941 + 7,440) / 2 = 4,190.5m$. Ratio: $3,635 / 4,190.5 = 0.867$. S&P Global Ratings typically uses **year-end debt** for its leverage ratios (e.g., Debt/EBITDA, FFO/Debt). Given the prompt asks for "the FFO / Net debt ratio... based on S&P methodology", and S&P defines leverage as Debt/EBITDA or FFO/Debt using point-in-time debt (usually year-end), we will use the year-end Net Debt of 7,440m. Result: ~0.49. Let's refine the FFO one last time. S&P FFO = Net Income + D&A + Non-Cash Items. Net Income: 1,131 D&A: 2,228 (PPE/Int) + 446 (ROU) = 2,674. Non-Cash: - Provisions/Impairment: 172. - Deferred Tax: 59. - Share-based comp: 15. - Equity Loss: 30. - Gain on Sale: -285. Sum: $1,131 + 2,674 + 172 + 59 + 15 + 30 - 285 = 3,796$. Wait, earlier I used 2,261 for the first bucket. If 2,261 includes Provisions (172) and D&A (PPE/Int), then D&A (PPE/Int) = 2,261 - 172 = 2,089? But the P&L says D&A is 2,228. The Cash Flow adjustment "Adjustments For Provisions And Adjustments For Depreciation And Amortisation Expense And Impairment Loss Reversal..." is 2,261. If D&A is 2,228 and Provisions/Impairment is 172, sum is 2,400. Why is the adjustment 2,261? Perhaps the 2,228 D&A includes some non-cash items not added back, or the 172 is net of reversals? "Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss And Provision Expense" = 172. If this is a net expense, we add it back. Let's assume the P&L D&A (2,228) is the correct add-back for PPE/Int. And ROU (446) is the add-back for ROU. And Provisions/Impairment (172) is the add-back for Prov/Imp. Total Add-backs = 2,228 + 446 + 172 = 2,846. FFO = 1,131 (NI) + 2,846 (Add-backs) + 59 (Def Tax) + 15 (SBC) + 30 (Equity) - 285 (Gain) = **3,796m**. Ratio: $3,796 / 7,440 = 0.510$. Let's check if "Net Debt" includes lease liabilities. S&P defines Debt as borrowings + lease liabilities. The report's "Net Debt" line item (7,440m) likely follows the company's definition. Company Net Debt calculation: Borrowings (Long-term 11,586 + Current 1,361 + Overdrafts 418) = 13,365. Lease Liabilities (Non-current 2,107 + Current 498) = 2,605. Total Debt = 15,970. Cash = 5,736. Net Debt = 15,970 - 5,736 = 10,234? This does not match the reported "Net Debt" of 7,440. Bouygues likely excludes certain items or uses a different definition (e.g., excluding cash in some subsidiaries, or netting differently). However, S&P calculates its *own* debt measure. S&P Debt = Borrowings + Lease Liabilities. If we calculate S&P Debt manually: Total Borrowings = 11,586 + 1,361 + 418 = 13,365m. Total Lease Liabilities = 2,107 + 498 = 2,605m. Total Debt = 15,970m. Cash = 5,736m. S&P Net Debt = 15,970 - 5,736 = 10,234m. If we use S&P Net Debt (10,234m): Ratio = 3,796 / 10,234 = **0.37**. Which "Net Debt" should be used? The prompt gives a line item "Net Debt" 2023-01-01: 7,440,000,000 EUR. Usually, if a specific "Net Debt" line is provided in the facts, and the question asks to estimate based on the facts, one might use the provided figure. However, "Based on S&P methodology" implies we should calculate S&P's definition of Debt. S&P methodology for Debt: Includes all interest-bearing debt and lease liabilities. The provided "Net Debt" of 7,440m is significantly lower than the calculated 10,234m. This suggests the company's definition excludes some debt (perhaps non-recourse project finance debt or similar) or includes other cash items. S&P typically includes *all* debt. Let's look at the "Net Debt" reconciliation in typical Bouygues reports. Bouygues often reports "Net Debt" excluding certain items. However, without explicit instructions to recalculate Debt according to S&P rules (which requires judgment on what is "debt"), and given the explicit "Net Debt" fact, there is ambiguity. But wait, S&P *ratings* use their own adjusted debt. If I must follow S&P methodology strictly: 1. Calculate FFO (as done above, ~3,796m). 2. Calculate S&P Net Debt. S&P Debt = Long-term Borrowings + Current Borrowings + Lease Liabilities. From facts: Long-term Borrowings: 11,586 Current Borrowings: 1,361 Current Overdrafts: 418 Non-current Lease Liab: 2,107 Current Lease Liab: 498 Total Debt = 11,586 + 1,361 + 418 + 2,107 + 498 = 15,970m. Cash = 5,736m. S&P Net Debt = 15,970 - 5,736 = 10,234m. Ratio = 3,796 / 10,234 = 0.3709. Let's check if the provided "Net Debt" of 7,440m is the one to use. If the question implies using the provided facts *as is* for the components, but applying S&P *ratio logic* (FFO/Net Debt), it might expect the use of the reported Net Debt if it's considered the "Net Debt" of the entity. However, S&P methodology is specific about *what* constitutes debt. Given the large discrepancy, using the reported 7,440m would yield ~0.51. Using the calculated S&P debt yields ~0.37. In many automated contexts, "Net Debt" provided in the facts is the intended denominator unless "Calculate S&P Adjusted Debt" is specified. However, "Based on S&P methodology" strongly points to using S&P definitions. S&P defines FFO/Net Debt. Let's look at the FFO again. Is it possible FFO is higher? If we use EBITDA (4,546) - Cash Tax (518) - Cash Interest (260) = 3,768. Ratio with 7,440: 0.506. Ratio with 10,234: 0.368. Let's assume the question wants us to use the explicit "Net Debt" fact provided, as recalculating debt components might be out of scope for "estimating... based on this [list of facts]". The list *contains* "Net Debt". It does *not* contain "S&P Adjusted Debt". It contains the components, but the aggregation rule is external knowledge. The FFO calculation requires external knowledge (S&P definition) too. However, the FFO calculation is an *estimate*. The Net Debt is a *given fact*. It is safer to use the given "Net Debt" of 7,440m, as it is the entity's reported Net Debt, and the prompt asks to estimate the ratio *for* the entity, using the provided facts. The "S&P methodology" likely refers to the FFO calculation numerator. Let's refine the FFO numerator one more time to be precise. S&P FFO = Net Income + D&A + Non-Cash Items. Net Income: 1,131. D&A: 2,228 + 446 = 2,674. Non-Cash: - Provisions/Impairment: 172. - Deferred Tax: 59. - SBC: 15. - Equity Loss: 30. - Gain on Sale: -285. Total FFO = 3,796. Ratio = 3,796 / 7,440 = 0.5102. 0.51