**Step 1: Identify the Relevant Industry** The company is "REN - REDES ENERGÉTICAS NACIONAIS, SGPS, S.A." Based on the name and the annual report facts (revenue from rendering of services, construction services for intangible asset, significant intangible assets, concession assets, etc.), REN is an energy network company. It operates electricity and gas transmission and distribution networks in Portugal. This fits the **Regulated Utilities** sector. Within the S&P methodology, regulated utilities are assessed under the "Regulated Utilities" industry-specific framework. The relevant adjustments for financial metrics for regulated utilities are specified in "Corporate Methodology: Ratios And Adjustments." Since the specific adjustment guidelines for regulated utilities (such as treatment of regulatory deferrals, construction service revenue, etc.) are not fully detailed in the provided excerpt beyond the general principles, I will apply standard S&P adjustments where industry-specific guidance is missing, but I will consider the business context evident in the data (e.g., treating the "Asset/Liability related to the transitional gas price stabilization regime" as a pass-through regulatory item, treatment of construction service revenue). **Step 2: Estimate Adjusted_EBITDA** First, reconstruct EBITDA from the income statement. *Profit/Loss from Operating Activities* = Operating Revenue - Operating Expenses. From the facts: Revenue and Operating Income = 824,683,000 EUR Operating Expense = 584,962,000 EUR Profit Loss From Operating Activities = 239,721,000 EUR *Operating Expense* includes: - Cost Of Sales: 901,000 - Costs With Construction Of Concession Assets: 175,095,000 - Services Expense: 82,516,000 - Employee Benefits Expense: 58,519,000 - Depreciation And Amortisation Expense: 249,276,000 - Changes In Other Provisions: -2,230,000 - Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss: 1,437,000 (Note: this is an expense? Wait, "Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss" of 1,437,000 EUR. Usually, reversal is negative expense / positive income. Let's check the total.) Total listed = 901 + 175,095 + 82,516 + 58,519 + 249,276 - 2,230 + 1,437 + 14,988 = 580,502? Wait, the total Operating Expense is 584,962,000. There might be other items, but depreciation is clearly 249,276,000. Let's calculate EBITDA from operating profit: Operating Profit (EBIT) = 239,721,000 EUR Add back Depreciation and Amortisation = 249,276,000 EUR Add back Impairment Loss Reversal? Usually impairment loss is added back, but reversal reduces expenses. The line "Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss" is 1,437,000. Since it's a reversal, it increased profit. To get EBITDA from EBIT, we subtract reversals (or add impairments). The line item reporting might show positive = expense. But the wording "Reversal" means it's negative expense. If we're just adding back D&A to EBIT: EBITDA_reconstructed = 239,721 + 249,276 = 488,997,000 EUR. But wait, are there other non-cash charges? "Changes In Other Provisions" is -2,230,000. Provisions are usually non-cash until paid. So to get EBITDA, we might adjust for provision movements. If provisions decreased (negative expense), it's a non-cash gain. We should exclude it. Alternatively, we can calculate EBITDA from top down: Revenue = 824,683,000 Less: Operating expenses (excluding D&A, impairment, provisions): Cost Of Sales: 901,000 Costs With Construction: 175,095,000 Services Expense: 82,516,000 Employee Benefits Expense: 58,519,000 Miscellaneous Other Operating Expense: 14,988,000 Total cash operating expenses = 332,019,000. Revenue - Cash OpEx = 824,683 - 332,019 = 492,664,000. Add Other Operating Income (Miscellaneous): 27,225,000. Wait, Revenue and Operating Income = 824,683,000 already includes "Miscellaneous Other Operating Income" of 27,225,000 and "Revenue From Rendering Of Services" 588,130,000, "Revenue From Sale Of Goods" 96,000, "Revenue Recognised On Exchanging Construction Services" 197,420,000, "Share Of Profit Loss Of Associates" 11,812,000. Total sum = 96 + 588,130 + 197,420 + 11,812 + 27,225 = 824,683. Yes. So Operating Expenses (total) = 584,962,000. We subtract D&A (249,276), impairments (1,437 is reversal, so we add it back? Wait, impairment reversal means expense was negative 1,437. If D&A is 249,276 and impairment reversal is -1,437, and provisions change is -2,230, the sum of non-cash charges (positive) = 249,276 - 1,437 - 2,230 = 245,609. But Operating Profit = 239,721. So EBITDA = Operating Profit + Non-cash charges = 239,721 + (249,276) - 1,437 - 2,230. (Actually adding back the positive D&A, subtracting the negative non-cash items which are gains) = 485,330? Let's recalc: EBIT = 239,721. Add D&A: 249,276. Add Impairment: 1,437. Add Provisions change: -2,230. (Provisions decreased, so it's income, we subtract it from EBITDA). EBITDA_prelim = 239,721 + 249,276 = 488,997. The "Changes In Other Provisions" of -2,230,000 means provisions released (gain), so deduct this from EBITDA. But wait, provisions release is a non-cash gain, so we subtract it to get EBITDA from operations. The impairment reversal of 1,437,000 is also a non-cash gain, subtract it. So EBITDA = 488,997 - 1,437 - (-2,230)? Wait. The expense line item "Changes In Other Provisions" is -2,230 (meaning it reduced expenses, i.e. added to profit). "Impairment Loss Reversal" is 1,437 (meaning expense is positive? Or negative? The line says "Impairment Loss Reversal... 1,437,000". If positive means expense, then it's an impairment expense, not reversal. But it says "Reversal". Usually, a reversal is an income, reducing expense. Let's assume the value 1,437,000 is a positive number in the income line, representing an income. So it reduced operating expense. Thus, both -2,230 and 1,437 are incomes. We subtract incomes. EBITDA = EBIT + D&A - Non-cash Gains + Non-cash Losses. Here, Non-cash gains = 2,230 + 1,437 = 3,667. EBITDA = 239,721 + 249,276 - 3,667 = 485,330,000 EUR. Now, S&P adjustments for regulated utilities: - **Share of profit of associates**: EBITDA from equity method investees may need proportional consolidation or should be replaced by dividends. Since it's an operating line (Share of profit/loss is included in Revenue and Operating Income), we might subtract it and add actual dividends. But actual dividends from associates is "Revenue From Dividends" which is for financial investments, not associates. Dividends from associates classified as investing activities = 21,551,000 EUR. Wait, "Dividends Received Classified As Investing Activities" is 21,551,000. This could include dividends from equity-accounted investees. But the share of profit is 11,812,000. S&P typically replaces share of profit with dividends received. So subtract 11,812 and add 21,551. Net adjustment = +9,739. - **Revenue and Costs from Construction of Concession Assets**: S&P treats margins on construction of own assets as non-operating if it's an intangible asset under IFRIC 12. Revenue = 197,420,000. Costs = 175,095,000. Margin = 22,325,000. S&P removes this margin from EBITDA because it's essentially self-constructed assets. So deduct 22,325,000. - **Miscellaneous Other Operating Income/Expense**: These are usually considered part of operating unless clearly non-recurring. The income is 27,225,000, expense is 14,988,000. Net = 12,237. Likely recurring. - **Changes In Other Provisions**: might be operating, but we already excluded the non-cash part? Actually, we already adjusted EBITDA to exclude the non-cash provision movement. The cash portion is fine. - **Regulatory Asset/Liability**: 1,000,000,000 EUR asset and liability related to the transitional gas price stabilization regime. This is a pass-through regulatory balance. No P&L impact mentioned directly, but it might affect working capital; however, in the P&L, "Revenue From Rendering Of Services" is 588,130,000, expenses are normal. This regime likely just creates a balance sheet item. No EBITDA impact unless costs/income flow through P&L. We assume no P&L impact on EBITDA, but it's a massive working capital item. The cash flow statement shows "Receipts from sales" = 3,214,161,000, huge compared to revenue 588,130. This confirms the 1,000,000,000 is cash in/out related to the regime, drastically inflating cash flow. S&P would likely deconsolidate these pass-through items or adjust EBITDA/debt for them. The cash balance includes 365 million, but operating cash flow is 613 million, largely driven by this regime. S&P might treat the 1 billion as a non-operating cash flow and adjust debt/cash. But for EBITDA, the price stabilization might be revenue/cost neutral? If it's a flow-through, it has no margin. It's not included in operating revenue line (588M) - it just inflated receipts. So likely no EBITDA adjustment. Let's recalculate Adjusted EBITDA: EBITDA_reconciled = 485,330,000 Add: Dividends from associates replacing equity income: +9,739,000 Subtract: IFRIC 12 construction margin: -22,325,000 Adjusted EBITDA = 485,330 + 9,739 - 22,325 = 472,744,000 EUR. Are there any pension adjustments? "Other Comprehensive Income Before Tax Gains Losses On Remeasurements Of Defined Benefit Plans" = 27,254,000 gain (actuarial gain). This is not in EBITDA. Pension cost in EBITDA is maybe the service cost. "Employee Benefits Expense" includes pension cost. The cash paid may differ, but no info on cash contributions vs. expense. The provision for employee benefits increased? 2022: 64,939,000, 2023: 94,109,000? Actually 2023-01-01 (end of 2022) is 64,939,000; 2022-01-01 (end of 2021) is 94,109,000. Provision decreased by 29,170,000. This is likely due to remeasurements (interest cost + contributions, etc.). We'll assume no further adjustment beyond D&A/provisions. **Step 3: Estimate FFO** FFO = Adjusted EBITDA - Cash Interest - Cash Taxes Let's identify Cash Interest and Cash Taxes. **Cash Interest:** "Interest Paid Classified As Financing Activities" = 40,545,000 EUR (2022). Also "Payments Of Lease Interests" = 26,000 EUR. Total Cash Interest = 40,545 + 26 = 40,571,000 EUR. Wait, capitalized interest? "Finance Costs" in P&L = 67,394,000 EUR. Cash interest paid is 40,571,000. The difference might be non-cash amortization of fees, capitalized interest related to construction? Or accrued interest. S&P typically uses cash interest paid. So 40,571,000. **Cash Taxes:** "Income Taxes Paid Refund Classified As Operating Activities" = 77,970,000 EUR. Also, check "Energy Sector Extraordinary Contribution" = 28,019,000. Is this a tax? S&P treats mandatory contributions as taxes. It might be paid. In cash flow, "Other Inflows Outflows Of Cash Classified As Operating Activities" is -51,733,000. The taxes paid line is 77,970,000. We should include it. Total Cash Taxes = 77,970 + 28,019? But the extraordinary contribution might be included in income taxes paid, or in the other outflows line. It's not clear. To be conservative, we'll take total income taxes paid (77,970) plus the extraordinary contribution (28,019) as total cash taxes since the contribution represents a tax-like payment. S&P guidance usually includes all taxes. Total Cash taxes = 77,970 + 28,019 = 105,989,000 EUR. FFO = 472,744 - 40,571 - 105,989 = 326,184,000 EUR. **Step 4: Estimate Adjusted_Debt** Adjusted_Debt = (reported_debt + leases + pension_deficit + hybrid_debt_portion + other_debt_like_items) - eligible_cash **Reported Debt:** Longterm Borrowings (2023-01-01): 1,695,362,000 Current Borrowings (2023-01-01): 638,944,000 Total Borrowings = 2,334,306,000 EUR. **Leases:** Are leases included in borrowings? Usually, lease liabilities are included in "Other Non Current Payables" and "Trade And Other Payables Current" or in borrowings. Let's check. "Trade And Other Non Current Payables" = 450,297,000. "Trade And Other Payables Current" = 885,416,000. The cash flow items: "Payments Of Lease Liabilities Classified As Financing Activities" = 2,157,000, "Payments Of Lease Interests" = 26,000. Lease liabilities are likely small. S&P usually adds operating leases to debt, but IFRS 16 already puts them on balance sheet. If they are in borrowings, no adjustment. If in payables, we add them. Hard to estimate from this data. Let's assume they are in financial debt or payables? "Noncurrent Borrowings" probably includes lease liabilities? But interest paid on leases is shown separately. Let's assume we add the lease liability. But we don't have the explicit balance. We can approximate from payments. With interest of 26k and principal of 2,157k, the balance is likely around ~10-20M. We'll ignore as immaterial or assume embedded. For safety, let's assume debt is complete. **Pension Deficit:** Noncurrent Provisions For Employee Benefits (2023): 64,939,000. Deferred Tax Assets (2023): 69,803,000. Deferred Tax Liabilities: 115,064,000. Is the pension provision underfunded? We only see a provision, so it's a deficit. We add the full deficit? S&P adds the unfunded portion net of tax? Usually, we add the pension deficit. 64,939,000. (Because it's a liability). **Hybrid Debt:** No mention of hybrids. 0. **Other debt-like items:** Asset Related To The Transitional Gas Price Stabilization Regime = 1,000,000,000. Liability Related To The Transitional Gas Price Stabilization Regime = 1,000,000,000. These are exactly matched. We can net them out. Deconsolidation principle might apply; they don't affect net debt in terms of economics if fully matched. **Eligible Cash:** S&P may not deduct all cash. "Cash And Cash Equivalents" = 365,292,000. We need to see if there's trapped cash. "Cash And Cash Equivalents If Different From Statement Of Financial Position" = 365,292,000 (same). No mention of trapped cash. We assume all cash is freely available. S&P deducts cash from debt. Adjusted_Debt = Total Debt + Pension Deficit - Cash Adjusted_Debt = 2,334,306,000 + 64,939,000 - 365,292,000 = 2,033,953,000 EUR. **Step 5: Calculate FFO / Adjusted_Debt** FFO / Adjusted_Debt = 326,184,000 / 2,033,953,000 = 0.160369... Rounding to four decimal places: 0.1604 0.1604