Step 1 — Relevant industry methodology EDP, S.A. is an integrated electricity and gas utility engaged in generation, transmission, distribution, electricity supply, and gas supply. Based on the supplied methodologies, the best fit is primarily **Regulated Utilities**, with some exposure to unregulated power/gas activities. For the requested ratio estimation, I apply the regulated-utilities framework and the baseline S&P-style adjustments using available annual-report data. Key practical assumptions: - Reconstruct EBITDA from the reported pre-provisions/depreciation/financial/tax line, which is effectively EBITDA-like. - Add back lease depreciation/interest only if separately available; here, lease liabilities are not directly provided, but right-of-use assets are. To avoid double counting and unsupported estimates, I do not add a separate lease adjustment beyond using reported borrowings. - Use cash interest paid from the cash flow statement as cash interest. - Use income tax and CESE cash outflow from operating cash flow as cash taxes. - Use reported gross borrowings as debt: long-term borrowings + current borrowings/current portion. - Eligible cash is cash and cash equivalents. - No reliable data is provided for pension deficit, guarantees, hybrid debt portions, or purchased-power-contract debt-like adjustments, so these are not added. - Joint ventures and associates are already included in the EBITDA-like line via the reported share of joint ventures and associates; no further proportional EBITDA adjustment is made due to lack of proportional JV EBITDA data. --- Step 2 — Estimate 2021 Adjusted EBITDA Reported EBITDA-like measure: “Profit/Loss before provisions, amortisation and impairment, financial income/expenses, tax and CESE” 2021 = **€3,723.050 million** Adjustments: - Lease adjustment: €0 million, not separately estimable - Nonrecurring losses/gains: €0 million, not clearly identified - Pension adjustments: €0 million, not separately estimable - JV proportional EBITDA: €0 million, not available - Other normalization: €0 million Therefore: **2021 Adjusted EBITDA = €3,723.050 million** --- Step 3 — Estimate 2021 FFO Formula: FFO = Adjusted EBITDA − cash interest − cash taxes Inputs: - 2021 Adjusted EBITDA = €3,723.050 million - Cash interest: “Interest and similar costs of financial debt including hedge derivatives” = €481.329 million Plus “Interest and similar costs relating to loans from non-controlling interests” = €18.244 million Total cash interest = **€499.573 million** - Cash taxes: “Income Tax and CESE” = €89.845 million cash outflow Use positive deduction = **€89.845 million** Calculation: FFO 2021 = 3,723.050 − 499.573 − 89.845 = **€3,133.632 million** --- Step 4 — Estimate 2021 Adjusted Debt Use year-end 2021 balance sheet, i.e. 2022-01-01 figures. Reported debt: - Long-term borrowings 2022-01-01 = €15,299.588 million - Current borrowings and current portion of noncurrent borrowings 2022-01-01 = €1,518.348 million Gross reported borrowings = 15,299.588 + 1,518.348 = **€16,817.936 million** Eligible cash: - Cash and cash equivalents 2022-01-01 = **€3,222.409 million** Adjusted Debt = gross debt − eligible cash = 16,817.936 − 3,222.409 = **€13,595.527 million** --- Step 5 — 2021 Adjusted Debt / Adjusted EBITDA 2021 Adjusted Debt / Adjusted EBITDA = 13,595.527 / 3,723.050 = **3.65x** --- Step 6 — 2021 FFO / Adjusted Debt 2021 FFO / Adjusted Debt = 3,133.632 / 13,595.527 = **0.2305**, or **23.1%** --- Step 7 — Estimate 2022 Adjusted EBITDA Reported EBITDA-like measure: “Profit/Loss before provisions, amortisation and impairment, financial income/expenses, tax and CESE” 2022 = **€4,523.539 million** Adjustments: - Lease adjustment: €0 million, not separately estimable - Nonrecurring losses/gains: €0 million, not clearly identified - Pension adjustments: €0 million, not separately estimable - JV proportional EBITDA: €0 million, not available - Other normalization: €0 million Therefore: **2022 Adjusted EBITDA = €4,523.539 million** --- Step 8 — Estimate 2022 FFO Formula: FFO = Adjusted EBITDA − cash interest − cash taxes Inputs: - 2022 Adjusted EBITDA = €4,523.539 million - Cash interest: “Interest and similar costs of financial debt including hedge derivatives” = €716.454 million Plus “Interest and similar costs relating to loans from non-controlling interests” = €12.885 million Plus “Interest and similar costs of loans from related parties including hedge derivatives” = €0.111 million Total cash interest = **€729.450 million** - Cash taxes: “Income Tax and CESE” = €258.849 million cash outflow Use positive deduction = **€258.849 million** Calculation: FFO 2022 = 4,523.539 − 729.450 − 258.849 = **€3,535.240 million** --- Step 9 — Estimate 2022 Adjusted Debt Use year-end 2022 balance sheet, i.e. 2023-01-01 figures. Reported debt: - Long-term borrowings 2023-01-01 = €15,782.604 million - Current borrowings and current portion of noncurrent borrowings 2023-01-01 = €4,239.869 million Gross reported borrowings = 15,782.604 + 4,239.869 = **€20,022.473 million** Eligible cash: - Cash and cash equivalents 2023-01-01 = **€4,900.205 million** Adjusted Debt = gross debt − eligible cash = 20,022.473 − 4,900.205 = **€15,122.268 million** --- Step 10 — 2022 Adjusted Debt / Adjusted EBITDA 2022 Adjusted Debt / Adjusted EBITDA = 15,122.268 / 4,523.539 = **3.34x** --- Step 11 — 2022 FFO / Adjusted Debt 2022 FFO / Adjusted Debt = 3,535.240 / 15,122.268 = **0.2338**, or **23.4%** --- Step 12 — Year-on-year credit trend classification Signal 1: Leverage - 2021 Adjusted Debt / EBITDA = 3.65x - 2022 Adjusted Debt / EBITDA = 3.34x - Change = 3.34x − 3.65x = **−0.31x** Threshold: - ≤ −0.2x = Improving So leverage signal = **Improving** Signal 2: Cash-flow coverage - 2021 FFO / Adjusted Debt = 0.2305 - 2022 FFO / Adjusted Debt = 0.2338 - Change = 0.2338 − 0.2305 = **+0.0033**, or +0.33 percentage points Threshold: - Between −0.03 and +0.03 = Stable So cash-flow coverage signal = **Stable** Combined result: - One signal is Improving and the other is Stable. - Per the rule, return the non-Stable category. Final credit trend: **Improving** Improving