Let’s go step-by-step through the requested workflow. --- ### **Step 1 – Identify the relevant industry** Naturgy Energy Group SA is a Spanish integrated gas and electricity utility with regulated and unregulated activities, including gas distribution, electricity transmission and distribution, and renewables. Its main operations fall under **regulated utilities** (network operations) and **unregulated power and gas** (generation, supply, and gas trading). Given the split, S&P would analyze the company using both the **Regulated Utilities** and **Unregulated Power And Gas** methodologies and weight them by cash flow contribution. However, for the purpose of this estimation, we will apply the **unregulated power and gas** methodology because Naturgy’s EBITDA is significantly generated from market-exposed generation and gas supply and only partly from stable regulated networks. This makes the unregulated methodology more relevant for the ratios requested. Also, we will use the **standard volatility table** (not medial), unless data shows that two-thirds of cash flows are low-risk. Given the available data, ~60%+ of EBITDA may come from liberalized activities, so standard volatility applies. --- ### **Step 2 – Estimate Adjusted EBITDA** **Reported EBITDA** From the given data: "Beneficio Bruto De Explotacion Ebitda" (EBITDA) 2022: **4,954,000,000 EUR** **Adjustments:** - **Lease adjustment**: Under IFRS 16, lease depreciation is included in EBITDA but rent expense is not. S&P adds back lease depreciation to reported EBITDA because they treat operating lease payments as financing. From "Amortizacion Y Perdidas Por Deterioro De Activos" 2022: 1,532,000,000 EUR. We don’t have the exact lease depreciation split, but we can estimate from right-of-use assets and lease liabilities. Right-of-use assets at end of 2022: 1,162,000,000 EUR. Lease liabilities (noncurrent + current): 1,309,000,000 + 177,000,000 = 1,486,000,000 EUR. The difference from start to end of year in ROU assets: 1,229M to 1,162M = ~67M decrease, implying depreciation around 67M + new leases - impairments. For simplicity, we take ROU asset at average ÷ typical ROU life (~10–13 years). If avg ROU = 1,195.5M, depreciation ~92–120M. Given lease liability ~1,486M and payment likely ~200M, depreciation ~120M seems reasonable. So lease depreciation add-back: **+120,000,000 EUR**. - **Nonrecurring items**: "Other Gains Losses" (2022): –111,000,000 EUR (losses). These are likely nonrecurring, so we add back: **+111,000,000 EUR**. "Gains On Disposals Of Property Plant And Equipment" 2022: +8,000,000 EUR (nonrecurring gain), subtract: **–8,000,000 EUR**. "Increase Decrease In Allowance Account For Credit Losses" 2022: –228,000,000 EUR (non-cash), add back: **+228,000,000 EUR**. - **Pension adjustments**: Not separately given; assume zero. - **Joint-venture proportional EBITDA**: "Share Of Other Comprehensive Income Of Associates..." given as 128,000,000 EUR, but this is not EBITDA; we lack P&L share of associates’ EBITDA, so assume 0 based on available data. **Adjusted EBITDA** = 4,954,000,000 + 120,000,000 + 111,000,000 – 8,000,000 + 228,000,000 = **5,405,000,000 EUR**. --- ### **Step 3 – Estimate FFO** Formula: FFO = Adjusted EBITDA – cash interest – cash taxes - **Cash interest**: From 2022 cash flow: "Interest Paid Classified As Operating Activities": 520,000,000 EUR. - **Cash taxes**: "Income Taxes Paid Classified As Operating Activities" 2022: 762,000,000 EUR. FFO = 5,405,000,000 – 520,000,000 – 762,000,000 = **4,123,000,000 EUR**. --- ### **Step 4 – Estimate Adjusted Debt** Formula: Adjusted Debt = reported debt + leases + pension deficit + guarantees + hybrid debt portion + other – eligible cash - **Reported debt**: Long-term borrowings + current borrowings = 12,689,000,000 + 2,110,000,000 = **14,799,000,000 EUR** (We exclude "Other financial liabilities" and lease liabilities.) - **Leases**: Noncurrent lease liabilities + current lease liabilities = 1,309,000,000 + 177,000,000 = **1,486,000,000 EUR**. - **Pension deficit**: "Noncurrent Provisions" likely includes pensions; not split. Assume pension-related provisions = 0 for this exercise (conservative, but lacking detail). - **Guarantees, hybrid, other debt-like items**: Not given; assume 0. - **Less eligible cash**: Cash & equivalents: 3,985,000,000 EUR. S&P caps eligible surplus cash; here we can use all as offset for simplicity. Adjusted Debt = 14,799,000,000 + 1,486,000,000 + 0 + 0 + 0 + 0 – 3,985,000,000 = **12,300,000,000 EUR**. --- ### **Step 5 – FFO / Adjusted Debt** = 4,123,000,000 / 12,300,000,000 = **0.3352** (after rounding to 4 decimals). --- 0.3352