**Step 1: Identify the relevant industry** REDEIA CORPORACION SA (formerly Red Eléctrica Corporación, S.A.) is the parent company of Red Eléctrica, Spain's transmission system operator (TSO) for electricity. According to its annual report facts, it operates in the electricity transmission sector. This is a regulated utility, specifically an "Electricity National industry and utilities" company under the "Regulated Utilities" methodology. **Step 2: Estimate Adjusted Debt** The formula for Adjusted Debt is: `Adjusted_Debt = reported_debt + leases + pension_deficit + guarantees + hybrid_debt_portion + other_debt_like_items - eligible_cash` For a regulated utility, we need to consider specific adjustments. Based on the data provided: - **Reported Debt:** Total financial debt = "Noncurrent Financial Liabilities" + "Current Financial Liabilities" (specific borrowings). - Long-term borrowings: 5,491,124,000 (Noncurrent Financial Liabilities is 5,543,755,000, but "Longterm Borrowings" is 5,491,124,000; we will use borrowings). - Current borrowings and current portion of noncurrent borrowings: 721,845,000. - Other financial liabilities (noncurrent and current): 52,631,000 + 983,432,000 = 1,036,063,000. (These might include leases, but we lack a specific breakdown. We'll sum all financial liabilities for gross debt). - Total reported financial liabilities = 5,543,755,000 + 1,705,277,000 = 7,249,032,000. - **Leases:** Likely included in financial liabilities. No separate adjustment unless explicitly disclosed as operating leases, which we don't have. - **Pension deficit:** "Other Longterm Provisions" might include pension deficits. There are no specific pension plan deficits shown. The "Reserve Of Gains And Losses On Remeasurements Of Defined Benefit Plans" exists, but the liability side "Other Longterm Provisions" is 139,822,000. We will assume this is the deficit for simplicity, but S&P typically adds back the entire deficit. Let's assume the provision is the deficit: 139,822,000. - **Hybrid debt:** No information on hybrid bonds. - **Eligible Cash:** "Cash And Cash Equivalents" = 794,824,000. S&P typically caps surplus cash. We don't have a minimum cash requirement, so we use the full amount (or assume no surplus). We'll use total cash as eligible. **Adjusted Debt Calculation:** `Adjusted_Debt = 7,249,032,000 (Total Financial Liabilities) + 139,822,000 (Pension Provisions) - 794,824,000 (Cash)` `Adjusted_Debt = 7,388,854,000 - 794,824,000 = 6,594,030,000` Let's refine financial debt to just borrowings (bonds and loans): Borrowings = 5,491,124,000 + 721,845,000 = 6,212,969,000. Other financial liabilities = 52,631,000 + 983,432,000 = 1,036,063,000. Total financial liabilities = 7,249,032,000. Adjusted Debt = 7,249,032,000 + 139,822,000 - 794,824,000 = 6,594,030,000. **Step 3: Estimate Adjusted EBITDA** Formula: `Adjusted_EBITDA = EBITDA ± adjustments` First, calculate reported EBITDA. - "Profit Loss From Operating Activities" (EBIT): 961,554,000 - "Depreciation And Amortisation Expense": 544,992,000 - "Imputacion De Subvenciones De Inmovilizado No Financiero YOtras" (amortization of grants): 15,780,000 (This is included in operating profit, but is a non-cash item reducing OPEX). - "Deterioro YResultado Por Enajenaciones Del Inmovilizado" (impairment/gains on disposals): 488,000 (Loss) EBITDA = EBIT + Depreciation & Amortization + Amortization of Grants? Let's check the income statement logic: Revenue: 2,015,036,000 + Other Work Capitalised: 62,903,000 + Share of Profit of JVs: 50,405,000 + Misc Other Operating Income: 77,673,000 - Aprovisionamientos: (37,061,000) - Employee Benefits: (210,614,000) - Other Operating Expenses: (467,088,000) - D&A: (544,992,000) - Imputacion Subvenciones: 15,780,000 - Deterioro: (488,000) = EBIT: 961,554,000 So, EBITDA = EBIT + D&A + Imputacion Subvenciones (since it's amortization of grants, similar to D&A) + Deterioro? No, D&A is added back. Imputacion Subvenciones is an income item (reducing D&A or increasing revenue), so we don't add it back. Actually, grants are deferred income. The amortization is credited to P&L. Standard EBITDA = Revenue + Other Income - OPEX + D&A add-back. From Operating Profit: EBIT = 961,554,000 Add back D&A: 544,992,000 Add back Impairment/Deterioro: -488,000 (It's a loss, so we add back the absolute value? "Deterioro... = 488,000" which is a loss. Wait, "Deterioro YResultado" = 488,000, positive number, but in the breakdown it's subtracted, so it's a net loss. We add it back.) Deterioro (loss): 488,000 EBITDA = 961,554,000 + 544,992,000 + 488,000 = 1,506,053,000 (Wait, let's look at 2021: EBIT 991,970,000, D&A 522,114,000, Deterioro -730,000. 991,970 + 522,114 + 730 = 1,514,814. But "Deterioro" is -730,000, meaning a gain. So if it's -730, we subtract it from EBIT? No, Deterioro = gain, so EBIT includes it positively. We should not add it back, or subtract it.) Let's use the exact line: "Deterioro YResultado..." 2022: 488,000. 2021: -730,000. If 2021 is -730,000, it's a gain. Formatted as subtraction in P&L, so - (-730) = +730. So, EBITDA = EBIT + D&A - Gain on disposal + Loss on disposal. Wait, the formula for EBIT includes these. Better: EBITDA = Operating Profit + Depreciation + Amortization + Impairment Losses. Here, Deterioro = 488,000 means an impairment loss of 488,000. (Subtracted from profit: -488,000). EBITDA = 961,554,000 + 544,992,000 + 488,000 = 1,507,034,000. Check with 2021: EBIT = 991,970,000. D&A = 522,114,000. Deterioro = -730,000 (Gain). EBITDA = 991,970,000 + 522,114,000 - 730,000 = 1,513,354,000. Wait, Imputacion Subvenciones is not D&A, it's a grant amortization. Is it part of EBITDA? It's included in EBIT. It's a non-cash credit. To get a cash-like EBITDA, we might subtract it. But standard S&P EBITDA usually adds back D&A and Impairment. Grant amortization is usually not added back, it's a recurring part of EBITDAR. We will leave it in EBIT. Reported EBITDA = 961,554,000 + 544,992,000 + 488,000 = 1,507,034,000. Adjustments: - **Leases:** No operating lease adjustment needed if already capitalized. - **Non-recurring items:** None explicitly identified as non-recurring. - **Pension adjustments:** The service cost is in Employee Benefits. The "Other Comprehensive Income" includes actuarial gains/losses ("Gains Losses On Remeasurements Of Defined Benefit Plans") = 21,147,000 before tax. S&P typically adds back the actual plan expenses recognized in P&L and deducts the service cost? No, standard S&P adjustment is to remove the P&L pension expense and replace with service cost. Not enough details to break out the pension expense in "Employee Benefits Expense" (210,614,000). We assume no adjustment or the provision change covers it. - **Joint Ventures:** "Participacion En Beneficios De Sociedades Valoradas Por El Metodo De La Participacion" (Share of profit of equity method investees) = 50,405,000. This is non-cash income. S&P generally deducts dividends received from JVs if they are regular, or applies proportional consolidation. Since it's an equity method, we subtract the share of profit and add back dividends received. - Dividends received from JVs: We can find this in the Cash Flow Statement: "Dividends Received Classified As Operating Activities" = 7,578,000. However, this might include dividends from other investments. We have "Adjustments For Undistributed Profits Of Investments Accounted For Using Equity Method" = 50,405,000 in the CFS. This means the P&L included 50,405,000 profit, and the CFS adjusts by deducting this amount. Dividends received are likely the difference, but we only have total dividends received. Let's assume no adjustment for simplicity, or use the adjustment. - Adjusted EBITDA = EBITDA - 50,405,000 (equity income) + dividends received (e.g., 7,578,000 if all from JVs, but we don't know). - We'll deduct the full 50,405,000 and add back "Dividends Received Classified As Operating Activities" = 7,578,000. This is a common S&P proxy. Adjusted EBITDA = 1,507,034,000 - 50,405,000 + 7,578,000 = 1,464,207,000. **Step 4: Calculate the ratio** `Adjusted_Debt = 6,594,030,000` `Adjusted_EBITDA = 1,464,207,000` `Ratio = 6,594,030,000 / 1,464,207,000 = 4.5034...` Rounding to two decimal places: 4.50. Let's double-check if we missed any standard S&P adjustments for regulated utilities. S&P adjusted debt for regulated utilities typically includes: - Reported long-term and short-term debt. - Operating lease liabilities. - Pension and other post-retirement benefit deficits. - Minus Surplus cash. We used: - Total financial liabilities: 7,249,032,000 - Pension deficit: 139,822,000 - Cash: 794,824,000 Total debt = 7,249,032,000 + 139,822,000 - 794,824,000 = 6,594,030,000. Could there be an adjustment for government grants? "Noncurrent Government Grants" = 746,498,000. This is a liability/equity. No, it's a deferred income item. Not treated as debt. Let's review "Noncurrent Derivative Financial Liabilities" = 22,016,000. Included in financial liabilities. What about "Other Noncurrent Liabilities" = 114,461,000? Might be provisions. "Other Longterm Provisions" = 139,822,000. We added this. What about hybrid debt? Not explicit. So, Adjusted Debt = 6,594,030,000. EBITDA: Reported EBIT: 961,554,000 + D&A: 544,992,000 + Impairment: 488,000 - Equity method profit: 50,405,000 + Dividends from JVs: 7,578,000 = 1,464,207,000. Ratio = 6,594,030,000 / 1,464,207,000 = 4.503. Wait, is the grant amortization "Imputacion De Subvenciones" = 15,780,000 considered an EBITDA item? In the CFS, "Ajustes Por Imputacion De Subvenciones De Capital YOtros" = 24,996,000. This implies the P&L had non-cash grant amortization of 24,996,000. Wait, the P&L line "Imputacion De Subvenciones De Inmovilizado No Financiero YOtras" is 15,780,000. There's a discrepancy, possibly due to other items. But standard EBITDA is not usually adjusted for grant amortization unless it's a significant non-recurring item. Let's use the CFS reconciliation approach for EBITDA: "Cash Flows From Used In Operating Activities" = 1,566,829,000. + "Interest Paid Classified As Operating Activities" = 123,524,000 + "Income Taxes Paid Refund Classified As Operating Activities" = 363,996,000 - "Interest Received Classified As Operating Activities" = 15,680,000 - "Dividends Received Classified As Operating Activities" = 7,578,000 + "Other Inflows Outflows Of Cash Classified As Operating Activities" = 5,565,000 Wait, "Other Inflows Outflows..." is negative: -5,565,000. Funds From Operations (FFO) = 1,566,829,000 + 123,524,000 + 363,996,000 - 15,680,000 - 7,578,000 - 5,565,000 = 2,024,526,000. Wait, FFO = Net Income + Depreciation + Impairment - Equity Income + Other Non-Cash Items. "Profit Loss" = 681,187,000. + D&A = 544,992,000. + "Adjustments For Provisions" = 35,046,000. + "Adjustments For Finance Costs" = 116,468,000 + "Adjustments For Finance Income" = -23,161,000 + Other Adjustments... Cash Flow from Ops is FFO + Working Capital + Other. But FFO + Interest + Taxes = EBITDA? Actually, EBITDA = FFO + Interest + Taxes - Provisions? No. FCF = EBITDA - Interest - Taxes - Capex - Leases. Let's use the simple method from P&L: EBITDA = EBIT + D&A + Impairment. = 961,554,000 + 544,992,000 + 488,000 = 1,507,034,000. Adjustments for JV: - 50,405,000 (equity income) + 7,578,000 (dividends) = 1,464,207,000. This is solid. Final ratio: 4.50 4.50