**Step 1: Identify the relevant industry** "ØRSTED A/S" is a Danish company operating in renewable energy development, construction, and operation (offshore wind, onshore wind, solar, etc.), with additional activities in bioenergy and other segments. Based on the description of methodologies, Ørsted does not fit "Regulated Utilities" (it is not a traditional rate-regulated network utility), "Oil and Gas Exploration and Production" (it is a renewable energy company), or "Transportation Infrastructure." The closest fit is **Unregulated Power and Gas**, which covers renewable generation companies that benefit from policy support, fixed-price/feed-in tariffs, or long-term PPAs with creditworthy off-takers, but are not shielded by protective rate regulation. Therefore, I will apply the **Unregulated Power and Gas** methodology, with the general corporate baseline formulas as modified by that sector's specific guidance. The methodology for Unregulated Power and Gas does not specify different formulas for Adjusted EBITDA, FFO, or Adjusted Debt from the baseline, but it does mention: - Adjustments for long-term PPAs (similar to regulated utilities adjustments). - Use of medial volatility table only if significant proportion of cash flows from lower-risk activities (strongly protected unregulated revenue). I will note this later, but for ratio calculation I will follow baseline formulas, as sector-specific modifications are not quantitatively detailed for the formulas given. - The adjustments for leases, pensions, hybrids, and JVs are standard. **Step 2: Estimate 2021 "Adjusted_EBITDA"** Baseline formula: Adjusted_EBITDA = EBITDA (reported or reconstructed) + adjustment_leases (if any) + nonrecurring_losses - nonrecurring_gains ± pension_adjustments ± joint_venture_proportional_EBITDA ± other_normalization_adjustments From the data: - EBITDA (Profit Loss From Operating Activities Before Interest Taxes Depreciation And Amortisation Expense) 2021: 24,296,000,000 DKK. - The company reports "Other Income" and "Other Expense By Nature". "Other Income" includes gains on disposal of assets (which are nonrecurring). We see "Adjustments For Losses Gains On Disposal Of Noncurrent Assets" in the cash flow: -7,920,000,000 DKK for 2021 (this is an adjustment to reconcile profit to cash, subtracting gains). This implies significant nonrecurring gains. In P&L, "Other Income" was 10,185,000,000 and "Other Expense" 386,000,000. Net other income is large. Some of this is likely recurring, but gains on disposals are nonrecurring. The cash flow adjustment "-7920" means gains of ~7920 included in profit. We should remove nonrecurring gains. - "Other Income" may also include other items. I'll assume the gains on disposal are the major nonrecurring item. The reported EBITDA includes these gains. So Adjusted_EBITDA = 24,296 - 7,920 = 16,376? Wait, the adjustment "Adjustments For Losses Gains On Disposal Of Noncurrent Assets" is -7,920, meaning the P&L includes a positive gain which is subtracted to get from operating profit to cash flow? In the CFO statement, "Adjustments For Losses Gains On Disposal Of Noncurrent Assets" is a line item. Usually, a negative number means gains were subtracted to arrive at operating cash flow. So the EBITDA includes these gains. To normalize, we subtract nonrecurring gains. So Adjusted_EBITDA = 24,296 - 7,920 = 16,376? But wait, there could be other nonrecurring items. I'll check "Depreciation Amortisation And Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss" = 8,101 (included in EBITDA). No adjustment needed there unless impairment is nonrecurring; impairment is usually nonrecurring. But the data does not separate impairment from depreciation. I'll assume depreciation/amortization is standard. - Leases: "Other External Expenses" includes leases? There are lease liabilities. For S&P, operating leases are capitalized. EBITDA is adjusted to add back lease depreciation and remove lease interest? The baseline formula mentions "adjustment_leases (if any)". Usually, we add back operating lease expense (which is in EBITDA) and instead treat it as depreciation/interest. So reported EBITDA already deducts lease expenses. S&P adds back lease expense to EBITDA. How to estimate? We have lease payments: "Payments Of Lease Liabilities Classified As Financing Activities" = 520,000,000. This is principal repayment? Actually, payments of lease liabilities include principal and interest. But we need lease expense. "Other External Expenses" could include lease costs. Not enough detail. I'll skip explicit lease adjustment due to lack of data, or assume the difference is immaterial. Alternatively, S&P might adjust by adding back lease depreciation and interest. I will ignore lease adjustment as data insufficient. - Pensions: No data on pension deficit. "Employee Benefits Expense" includes pension costs. No indication of significant pension adjustment needed. - Joint ventures: "Share Of Profit Loss Of Associates And Joint Ventures Accounted For Using Equity Method Core Business" = -17,000,000 and non-core = -10,000,000. Total = -27,000,000. This is not in EBITDA. S&P might proportionally consolidate JV EBITDA. But the data only gives profit/loss. Small amounts, I'll ignore. - Other normalization: "Other Expense By Nature" is 386,000,000, small. Given the large "Other Income" and the disposal gains, it's plausible that a significant portion of Other Income is nonrecurring. The cash flow adjustment explicitly shows gains on disposals of 7,920. Let's assume Other Income consists mainly of these gains. So Adjusted_EBITDA = 24,296 - 7,920 = 16,376? But wait, "Other Income" 10,185 minus gains 7,920 = 2,265 remaining. Could be recurring. "Other Expense" 386. Net other operating income = 9,799. Removing 7,920 gains leaves 1,879 net other income. That seems okay. So Adjusted_EBITDA 2021 = 24,296 - 7,920 = 16,376 million DKK. Let's denote 16,376. Wait, is the disposal gain included in EBITDA? Yes, "Other Income" is part of operating activities. EBITDA includes it. So I'll subtract. **Step 3: Estimate 2021 "FFO"** FFO = Adjusted_EBITDA - cash_interest - cash_taxes Cash interest: "Interest Paid Classified As Operating Activities" = 3,985,000,000 (2021). This is cash interest. But S&P might deduct all interest paid, net of interest received? Usually FFO deducts gross interest. But we have "Interest Received" = 3,518,000,000. S&P sometimes uses net interest or gross. For FFO, typical S&P formula is Adjusted_EBITDA - cash interest paid - current tax paid. Let's stick to that. Cash taxes: "Income Taxes Paid Classified As Operating Activities" = 1,380,000,000 (2021). FFO 2021 = 16,376 - 3,985 - 1,380 = 11,011 million DKK. **Step 4: Estimate 2021 "Adjusted_Debt"** Adjusted_Debt = reported_debt + leases + pension_deficit + guarantees + hybrid_debt_portion + other_debt_like_items - eligible_cash - Reported debt: Long-term borrowings + Short-term borrowings = 31,502 + 19,493 = 50,995 million DKK (2022-01-01, which is end of 2021 fiscal year). - Leases: Noncurrent Lease Liabilities + Current Lease Liabilities = 6,812 + 720 = 7,532. - Hybrid capital: "Hybrid Capital" 17,984. S&P might treat 50% as debt and 50% as equity for investment grade, or 100% equity if it meets certain criteria. Given it's "Hybrid Capital", typically S&P includes a portion in debt. For simplicity, I'll assume 50% debt treatment: 17,984 * 0.5 = 8,992. (No specific guidance given, standard approach). - Pensions: No deficit reported. - Other debt-like items: "Noncurrent Provisions" 15,124, "Current Provisions" 764. Some provisions might be debt-like, but typically asset retirement obligations (ARO) are included. Ørsted has "Noncurrent Provisions" likely for decommissioning. S&P includes ARO in adjusted debt. I'll include 100% of provisions? S&P often includes provisions for decommissioning and similar in adjusted debt. Let's add total provisions: 15,124 + 764 = 15,888. - Eligible cash: "Cash" 8,624. S&P caps eligible cash at some level; typically all cash is subtracted. So Adjusted_Debt 2021 = 50,995 + 7,532 + 8,992 + 15,888 - 8,624 = 74,783 million DKK. (Note: I did not include derivative liabilities, which can be significant but are usually operating unless speculative. "Noncurrent Derivative Financial Liabilities" 17,464 and Current 32,325. These might be related to hedging. S&P sometimes nets derivative assets and liabilities if same counterparty, but here it's complex. I'll ignore for simplicity, but acknowledge this could be material.) **Step 5: Calculate 2021 "Adjusted_Debt / Adjusted_EBITDA"** = 74,783 / 16,376 = 4.57x **Step 6: Calculate 2021 "FFO / Adjusted_Debt"** = 11,011 / 74,783 = 0.147 or 14.7% **Step 7: Estimate 2022 "Adjusted_EBITDA"** EBITDA 2022: 32,057 million DKK. Adjustments: "Adjustments For Losses Gains On Disposal Of Noncurrent Assets" = -10,885. So gains on disposals = 10,885. Adjusted_EBITDA 2022 = 32,057 - 10,885 = 21,172 million DKK. **Step 8: Estimate 2022 "FFO"** Cash interest paid: 8,548. Cash taxes paid: 1,263. FFO 2022 = 21,172 - 8,548 - 1,263 = 11,361 million DKK. **Step 9: Estimate 2022 "Adjusted_Debt"** - Long-term borrowings: 60,451. Short-term: 2,830. Total = 63,281. - Leases: 7,697 + 569 = 8,266. - Hybrid: 19,793 * 0.5 = 9,896.5 - Provisions: 19,121 + 585 = 19,706. - Cash: 16,178. Adjusted_Debt 2022 = 63,281 + 8,266 + 9,896.5 + 19,706 - 16,178 = 84,971.5 million DKK. **Step 10: Calculate 2022 "Adjusted_Debt / Adjusted_EBITDA"** = 84,971.5 / 21,172 = 4.01x **Step 11: Calculate 2022 "FFO / Adjusted_Debt"** = 11,361 / 84,971.5 = 0.1337 or 13.37% **Step 12: Classify trend** Signal 1: Leverage change = 4.01 - 4.57 = -0.56x Threshold: ≤ -0.2x is Improving. → **Improving** Signal 2: FFO / Adjusted_Debt change = 0.1337 - 0.147 = -0.0133 (i.e., -1.33 percentage points) Threshold: between -0.03 and +0.03 is Stable. → **Stable** Combining: One Improving, one Stable → result is **Improving**. **Final reasoning**: The leverage improved significantly (by more than 0.2x), driven by higher EBITDA after adjusting for nonrecurring gains. Cash flow coverage was almost stable, declining by only 1.3 percentage points, which is within the Stable band. Following the rule that one non-Stable signal determines the outcome, the trend is Improving. Improving