ASSISTANTOkay, let’s break down the process step-by-step. **Step 1: Identify the relevant industry** ENI S.P.A. is an integrated oil and gas company. The provided methodologies include “Oil And Gas Exploration And Production” as a specific industry. While ENI is integrated, the E&P methodology is the one provided that best applies to its core upstream focus. However, the financial formulas given in the prompt are baseline, with instructions to modify them if the industry methodology says so. The Oil and Gas E&P methodology does not provide a specific alternate formula for Adjusted Debt or Adjusted EBITDA; it mentions supplementary ratios (FOCF/debt, DCF/debt) but does not override the baseline calculation of Adjusted Debt or Adjusted EBITDA. Therefore, I will apply the baseline formulas. **Step 2: Estimate Adjusted_Debt** The baseline formula is: `Adjusted_Debt = (reported_debt + leases + pension_deficit + guarantees + hybrid_debt_portion + other_debt_like_items) - eligible_cash` Let’s compute the components using data for the year ended December 31, 2022. I will use closing balances (2023-01-01) as that is the standard for leverage ratios unless otherwise stated (and the methodology doesn’t specify averages). **Reported Debt:** - Short-term Borrowings: 4,446,000,000 - Current Portion of Long-term Borrowings: 3,097,000,000 - Long-term Borrowings: 19,374,000,000 Total Reported Debt = 4,446,000,000 + 3,097,000,000 + 19,374,000,000 = 26,917,000,000 EUR **Leases:** - Current Lease Liabilities: 884,000,000 - Noncurrent Lease Liabilities: 4,067,000,000 Total Leases = 884,000,000 + 4,067,000,000 = 4,951,000,000 EUR **Pension Deficit:** - Noncurrent Provisions For Employee Benefits: 786,000,000 - Current employee provisions? Not listed. I’ll assume this is the total. 786,000,000 EUR. **Guarantees:** Not listed, assume 0. **Hybrid Debt Portion:** ENI has “Perpetual Subordinated Bonds” classified as equity. The methodology says to include a portion. The equity movements show “Increase Decrease Through Net Issue Reimbursement Of Perpetual Subordinated Bonds Equity” and coupon payments. We don’t have a specific debt portion value, but we can look at the equity items. Usually, S&P includes 50% of the outstanding amount as debt, but the prompt doesn't specify the percentage. The “Decrease Through Coupon Payment On Perpetual Subordinated Bonds Equity” suggests they exist. Looking at the equity balances: - Other Reserves at 2022-01-01: 6,289,000,000. In 2021, there was "Increase Decrease Through Net Issue Reimbursement Of Perpetual Subordinated Bonds Equity": 2,000,000,000 (increases reserves). - At 2020-01-01, Other Reserves were 1,564,000,000. - Issuances: 2021: 2,000,000,000; 2020: 3,000,000,000. - Other Reserves also include other items (OCI, etc.). It’s hard to isolate the outstanding hybrid amount exactly. However, typical S&P treatment is 50% equity / 50% debt until a certain point. We can approximate: Issued hybrid in 2020: 3,000M, in 2021: 2,000M. None issued in 2022? Total hybrids likely = 5,000,000,000. 50% of that = 2,500,000,000 EUR. (No redemptions mentioned). Hybrid Debt Portion = 2,500,000,000. **Other Debt-Like Items:** - Other Long-term Provisions: 15,267,000,000. S&P sometimes includes asset retirement obligations (AROs) and other provisions as debt-like. This is a large amount typical for oil & gas (decommissioning). We will include it. But wait: the prompt says "other_debt_like_items". Let's check "Other Longterm Provisions": 15,267,000,000. **Eligible Cash:** - Cash and Cash Equivalents: 10,155,000,000. - Current Financial Assets at Fair Value Through P&L: 8,251,000,000. (We need to know if these are liquid/surplus. S&P usually includes surplus cash and liquid marketable securities. We have “Other Current Financial Assets”: 1,504,000,000, etc.) Standard adjustable cash = Cash + short-term liquid securities. I’ll assume “Current Financial Assets At Fair Value Through Profit Or Loss” are liquid securities (8,251,000,000). “Other Current Financial Assets” (1,504,000,000) may also be liquid. Total = 10,155,000,000 + 8,251,000,000 + 1,504,000,000 = 19,910,000,000. But S&P caps eligible cash at debt-like items? No, formula says - eligible_cash. Let’s calculate Adjusted Debt: 26,917,000,000 (Debt) + 4,951,000,000 (Leases) + 786,000,000 (Pension) + 2,500,000,000 (Hybrid) + 15,267,000,000 (Other Provisions) = 50,421,000,000 Minus Eligible Cash: 19,910,000,000 Adjusted Debt = 50,421,000,000 - 19,910,000,000 = 30,511,000,000 EUR. Wait, “Current Financial Assets At Fair Value Through Profit Or Loss” — are they all debt instruments? If equity instruments, S&P may exclude from surplus cash. But let’s assume they are liquid funds/debt securities as they are “Current”. Let’s refine: S&P’s standard approach: Surplus Cash = Cash & equivalents + Liquid securities. We'll use Cash (10,155M) + Current Fin Assets FVTPL (8,251M) + Other Current Financial Assets (1,504M). I'll stick with 30,511,000,000 for Adjusted Debt. Wait, let’s check alternative items: “Noncurrent Inventories” (1,786,000,000) — oil & gas inventories are not debt-like. “Other Noncurrent Financial Assets” (1,967,000,000) — these might include investments. “Net Deferred Tax Assets” (4,569,000,000) — not debt. “Current Tax Assets Noncurrent” (114,000,000) — not debt. Okay. **Step 3: Estimate Adjusted_EBITDA** Baseline formula: `Adjusted_EBITDA = EBITDA + lease_adj + nonrecurring_losses - nonrecurring_gains ± pension_adj ± JV_EBITDA ± other_normalizations` First, calculate EBITDA. From the data: - Revenue And Other Income: 133,687,000,000 - Profit Loss From Operating Activities: 17,510,000,000. We can reconstruct EBITDA: EBITDA = Profit from operating activities + Depreciation + Impairment + Write-offs - Depreciation And Amortisation Expense: 7,205,000,000 - Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss: 1,140,000,000 (this is a loss/reversal? It says “Impairment loss...”: 1,140M for 2022. In the contextual list, "Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss" 2022-01-01 - 2023-01-01: 1,140,000,000 EUR. If it's an impairment *loss*, it is an expense, we add it back. But wait, the line says "Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss". The amount is 1,140,000,000. Usually a positive number is a loss. If it was a reversal, it would be negative. So we add back 1,140,000,000. - Write Off Of Tangible And Intangible Assets: 599,000,000 EBITDA = 17,510,000,000 + 7,205,000,000 + 1,140,000,000 + 599,000,000 = 26,454,000,000 EUR. Next, add lease adjustments, if any. The prompt says "adjustment_leases (if any)". Since we already capitalized leases as debt, we typically add back the lease interest/depreciation. We can use the lease payments or simply add back the depreciation on ROU assets and lease interest. Simplified S&P approach: Adjusted EBITDA includes lease depreciation and interest. We have: - Payments of Lease Liabilities Classified as Financing Activities: 994,000,000. This is cash outflow. The difference between the lease expense in P&L and this? Given standard adjustments, we add back the entire operating lease expense and subtract the new depreciation/interest, but since we don't have exact details, we can just use the lease payments as a proxy? Actually, IFRS 16 already put it in EBITDA. So no major adjustment, or we add back the implied interest. Usually S&P adds back ROU depreciation and adjusts. I'll leave EBITDA as is for now, but we could add back the lease interest portion. Since we don't have it, I'll assume EBITDA already includes the rental expense properly. I'll keep 26,454,000,000. Add: Non-recurring losses/gains. - Gains/Losses On Financial Assets At Fair Value Through P&L: -55,000,000 (loss) -> add back. - Gains/Losses On Change In Fair Value Of Derivatives: 13,000,000 (gain) -> subtract. - Other Income/Expense From Investments: 3,623,000,000 (gain) -> it is part of Investment Income Expense (which is below operating profit). Finance income/Finance costs are also below. "Profit Loss From Operating Activities" already captures operating non-recurring items. Are there any one-off items inside Revenue and Other Income? "Other Income And Revenues": 1,175,000,000. "Other Operating Income Expense": -1,736,000,000. These seem part of operations. We'll leave them. Pension adjustments: We have "Noncurrent Provisions For Employee Benefits": 786,000,000. The P&L is "Employee Benefits Expense": 3,015,000,000. The difference between pension service cost and the actual cash contributions? We don't have enough data. I'll ignore this. Joint Ventures: ENI has "Investment Accounted For Using Equity Method": 12,092,000,000. "Share Of Profit Loss Of Equity Accounted Investments": 1,841,000,000. S&P typically adds the proportional share of the JV's EBITDA. We don't have the JV's EBITDA, but we have the net profit. If we assume JV depreciation and interest are proportional, we could add those, but we lack data. Without JV financials, we can't precisely compute proportional EBITDA. I will just add the JV's net income contribution? No, EBITDA is higher. I'll ignore JV EBITDA adjustment due to lack of data, or we can note that the share of profit is 1,841,000,000. We can add this to EBITDA? Actually, EBITDA is before financial items. Share of profit of equity accounted investments is already included in "Investment Income Expense" which is below Operating Profit. "Profit Loss From Operating Activities" = 17,510,000,000. The "Share of Profit Loss of Equity Accounted Investments" is 1,841,000,000, which is part of "Profit Loss Before Tax". So Operating Profit doesn't include it. We might add it to EBITDA if we treat it as part of operating, but it's an investment item. In unregulated power/gas and E&P, S&P may or may not proportionally consolidate. The prompt does not give JV financials. I will not add it to EBITDA, keeping Adjusted EBITDA = 26,454,000,000. (Alternatively, if I add the share of profit, EBITDA becomes 26,454 + 1,841 = 28,295). Wait, the prompt says "Other Income Expense From Investments" 3,623,000,000 includes JV revaluation? "Share of profit of equity accounted investments" is 1,841,000,000. "Other Income/Expense From Investments" is 3,623,000,000 (this seems to be dividends/gains). Total investment income = 5,464,000,000. Let's check: "Investment Income Expense" = 5,464,000,000. This includes "Share of profit/loss of equity accounted investments" 1,841,000,000, and "Other income/expense from investments" 3,623,000,000 (which is mainly dividends/gains from sales). But these are already below Operating Profit. EBITDA based on operating profit is 26,454,000,000. I'll stick with 26,454,000,000. **Step 4: Calculate the ratio** Adjusted_Debt = 30,511,000,000 EUR Adjusted_EBITDA = 26,454,000,000 EUR Ratio = 30,511 / 26,454 = 1.15337 Rounding to two decimals: 1.15. Let me double-check the formula and adjustments quickly. If I shouldn't include "Other Current Financial Assets" as cash? S&P usually limits to 3 months liquidity? No, they just deduct all cash and liquid investments surplus to operating needs? The prompt doesn't specify, baseline formula says `- eligible_cash`. I'll keep all. Reported debt: Short-term borrowings + Current portion + Long-term borrowings = 4,446 + 3,097 + 19,374 = 26,917. Leases = 884 + 4,067 = 4,951. Hybrid 50% of 5,000M = 2,500. Other long-term provisions = 15,267. Total = 26,917 + 4,951 + 786 + 2,500 + 15,267 = 50,421 - 19,910 = 30,511. Adjusted EBITDA = 17,510 + 7,205 + 1,140 + 599 = 26,454. 30,511 / 26,454 = 1.153. It’s a clean answer. 1.15