1. **Identify the relevant industry:** "ELECTRICITE DE FRANCE" (EDF) is a major French electric utility company. It operates in generation, transmission, distribution, and supply of electricity. Given its significant regulated (transmission/distribution via Enedis/RTE) and unregulated (generation, supply) activities, the relevant industry methodologies are **Regulated Utilities** and **Unregulated Power And Gas**. EDF has a substantial generation fleet (nuclear, hydro, renewables) and is a state-owned entity. The methodology for Regulated Utilities or Unregulated Power and Gas will apply. Given its dominant presence in French regulated distribution (Enedis) and its massive generation portfolio, we will apply the adjustments typically used for these sectors. 2. **Estimate 2021 "Adjusted_EBITDA":** * *Baseline formula:* `Adjusted_EBITDA = EBITDA + nonrecurring_losses - nonrecurring_gains ± other_adjustments` * From the data, `Operating Profit Before Depreciation And Amortisation` (EBITDA) for 2021 is `18,005,000,000 EUR`. * We need to check for non-recurring items within "Other Operating Income And Expenses Included In Ebe" (which is already part of EBITDA) or B/S items. * "Other Operating Income And Expenses Included In Ebe" 2021: `4,262,000,000 EUR`. This seems large and likely includes non-recurring items (e.g., asset sales, government grants). However, without a detailed breakdown, we assume the reported EBITDA is the starting point. * Adjustments for leases, pensions, and JVs: * *Leases:* `Depreciation And Amortisation Expense` (10,789M) + `Interest Expense` (1,459M) - lease depreciation/interest not easily separable. Usually, lease-adjusted EBITDA = EBITDA + lease expense in OpEx. Not enough data to precisely adjust. We will use reported EBITDA as proxy for S&P EBITDA. * *Non-recurring items:* "Other Operating Income And Expenses Included In Ebe" at 4,262M is high. Compared to 2022 (367M), the 2021 figure looks one-off. We should investigate. 2021 `Other Operating Income And Expenses Included In Ebe` = 4,262M. 2022 value is 367M. The difference is ~3.9B. A large gain in 2021 should be subtracted. Let's assume 3.5B is non-recurring gain. * Let's re-evaluate: Standard S&P methodology often uses `Profit Loss From Operating Activities` + `Depreciation And Amortisation Expense` + `Impairment Loss` as a proxy for EBITDA. * 2021: * Profit/Loss From Operations: `5,225,000,000` * Depreciation: `10,789,000,000` * Impairment: `653,000,000` * Reconstructed EBITDA = 5,225 + 10,789 + 653 = `16,667,000,000` * This differs from reported EBITDA `18,005,000,000`. The difference is `1,338,000,000`, likely due to `Net Changes In Fair Value On Energy And Commodity Derivatives` (`-215,000,000`) and `Other Income And Expenses Excluded From Ebe` (`1,123,000,000`) and `Other Operating Income And Expenses Included In Ebe` (`4,262,000,000`). Wait, `Profit From Operating Activities` is reported as 5,225M. * EBITDA (18,005) - Depr (10,789) = 7,216. * 7,216 - NetFVChg (-215) + OtherExcl (-1,123) + Impairment (-653) = 7,216 - 215 -1,123 - 653 = 5,225. Correct. * Given the complexity and volatility, S&P might treat `Net Changes In Fair Value On Energy And Commodity Derivatives` as a normalization. We'll add it back if it's a non-cash loss. In 2021, it's -215M (a loss). We add back the 215M loss. * `Other Operating Income And Expenses Included In Ebe` at 4,262M includes large one-off gains (e.g., from disposal of Edison Renewables). We should deduct the non-recurring portion. Let's assume 3.8B is non-recurring gain. * Adjusted EBITDA (2021) = Reported EBITDA (18,005) - Non-recurring gains (3,800) + Other normalized items = `14,205,000,000`. (Let's refine this). * Wait, looking at the Cash Flow statement: * `Cash Flows From Used In Operating Activities` = 12,648M * `Income Taxes Paid Refund` = 2,276M * `Net Financial Expeneses Disbursed` = 588M * Funds From Operations (FFO) before working capital = 12,648 + 2,276 + 588 = 15,512M. * This matches `Net Cash Flow From Operations Before Net Financial Expenses Disbursed And Income Taxes Paid` = 15,512M. * So, S&P likely uses FFO = CFO before WC + Cash Taxes + Cash Interest. * `Net Cash Flow From Operations Before Net Financial Expenses` = 15,512M. * Adjusted EBITDA = FFO + Cash Interest + Cash Taxes. * Adjusted EBITDA (2021) = 15,512M + 588M + 2,276M = `18,376,000,000`. (Wait, this includes Dividends Received which are part of FFO). * `Dividends Received Classified As Operating Activities` 2021 = 467M. * Adjusted EBITDA = 18,376 - 467 = `17,909,000,000`. * Let's use this FFO-based proxy: **Adjusted EBITDA (2021) = 17,909M EUR**. 3. **Estimate 2021 "FFO":** * Formula: `FFO = Adjusted_EBITDA - cash_interest - cash_taxes` * Cash interest: `Net Financial Expeneses Disbursed Including Dividends Received` (588M). Wait, this includes dividends received! `Net Financial Expeneses Disbursed` = Interest Paid - Interest Received. * `Interest Expense` = -1,459M. `Finance Income Cost` = 360M. This is net finance income. * Let's estimate Cash Interest = `Interest Expense` + Other finance costs paid. * `Cash Flows From Used In Operating Activities Continuing Operations` = 12,648M. * `Income Taxes Paid` = 2,276M. * `Net Financial Expeneses Disbursed` = 588M. * FFO = CFO + Net Financial Expenses + Income Taxes Paid = 12,648 + 588 + 2,276 = 15,512M. * FFO already includes Dividends Received (467M). S&P usually includes dividends received in FFO. * So, FFO (2021) = `15,512,000,000 EUR`. 4. **Estimate 2021 "Adjusted_Debt":** * Formula: `Adjusted_Debt = (reported_debt + leases + pension_deficit + hybrid_debt_portion + other_debt_like_items) - eligible_cash` * Reported debt: `Other Noncurrent Financial Liabilities` (56,543M) + `Other Current Financial Liabilities` (45,014M) + `Special French Public Electricity Distribution Concession Liabilities` (48,853M). * Wait, `Special French Public Electricity Distribution Concession Liabilities` is a liability to return concession assets. S&P might treat this as debt or as an adjustment. Yes, for utilities, concession liabilities are treated as debt. * Also, `Noncurrent Provisions` include nuclear decommissioning (62,067M) and employee benefits (21,716M). S&P treats nuclear asset retirement obligations (ARO) as debt. Employee benefit deficits are treated as debt. * Total Debt-like items: * Financial Debt (Non-current) = 56,543M * Financial Debt (Current) = 45,014M * Concession Liabilities = 48,853M * Nuclear ARO = 62,067M (Current + Noncurrent? `Provisions Related To Nuclear Generation` = 62,067M (Noncurrent only). Total = 62,067M. Wait, `Noncurrent Provisions` = 89,225M. Total Nuclear = 62,067M. Employee benefits = 21,716M.) * Employee Benefit Deficit = 21,716M. * Other Provisions = 5,442M (Noncurrent) + 6,836M (Current). Let's assume 50% of other provisions are debt-like. But let's keep it simple: exclude other provisions. * Total Debt = 56,543 + 45,014 + 48,853 + 62,067 + 21,716 = `234,193,000,000`. * Leases: Included in `Other Noncurrent Financial Liabilities` (IFRS 16?). Assume already included in financial debt. * Hybrid Debt: `Proceeds From Issue Of Subordinated Liabilities And Convertible Instruments`. EDF has perpetual hybrid bonds. S&P typically includes 50% as debt. * We don't have the outstanding hybrid stock, only issuances. Let's look at equity changes: `Payments On Perpetual Subordinated Bonds` = -547M, `Issuance And Redemption Of Perpetual Subordinated Bonds` = 972M. * We need the stock. Let's skip hybrids due to lack of precise stock data, or estimate. We'll assume hybrid stock is not directly visible in the B/S breakdown. `Other Noncurrent Financial Liabilities` likely includes them. EDF is known for high hybrid debt. Let's add a nominal value. * Eligible Cash: `Cash And Cash Equivalents` (9,919M). * Adjusted Debt (2021) = 234,193M - 9,919M = `224,274,000,000 EUR`. 5. **Calculate 2021 "Adjusted_Debt / Adjusted_EBITDA":** * `Adjusted Debt` = 224,274M * `Adjusted EBITDA` = 17,909M * Ratio = 224,274 / 17,909 = **12.52x** 6. **Calculate 2021 "FFO / Adjusted_Debt":** * `FFO` = 15,512M * `Adjusted Debt` = 224,274M * Ratio = 15,512 / 224,274 = **6.92%** 7. **Estimate 2022 "Adjusted_EBITDA":** * Using the same FFO-based proxy: * `Cash Flows From Used In Operating Activities` = -7,425M (Wait, this is negative). * `Net Cash Flow From Operations Before Net Financial Expenses Disbursed And Income Taxes Paid` = -5,140M. * `Income Taxes Paid Refund` = 1,282M. * `Net Financial Expeneses Disbursed Including Dividends Received` = 1,003M. * FFO = -5,140 + 1,282 + 1,003 = -2,855M. * `Dividends Received Classified As Operating Activities` = 590M. * Adjusted EBITDA = FFO + Cash Interest + Cash Taxes + Dividends Received = -2,855 + 1,003 + 1,282 = -570M. * Wait, FFO formula was `Net Cash Flow From Operations Before` = -5,140. * Let's recalc: FFO = CFO before WC + Cash Interest + Cash Taxes. * FFO = -5,140M. * Adjusted EBITDA = FFO + Cash Interest + Cash Taxes = -5,140 + 1,003 + 1,282 = `-2,855,000,000`. * Wait, `Dividends Received` are included in FFO. To get EBITDA, we need to add back Cash Interest and Cash Taxes to FFO. * Adjusted EBITDA (2022) = FFO + Cash Interest + Cash Taxes = -5,140 + 1,003 + 1,282 = **-2,855M EUR**. 8. **Estimate 2022 "FFO":** * FFO (2022) = `Net Cash Flow From Operations Before Net Financial Expenses Disbursed And Income Taxes Paid` = **-5,140M EUR**. 9. **Estimate 2022 "Adjusted_Debt":** * Financial Debt (Non-current) = 71,058M * Financial Debt (Current) = 71,844M * Concession Liabilities = 49,459M * Nuclear ARO = 56,021M * Employee Benefit Deficit = 16,231M * Other Provisions = 4,671M (Noncurrent) + 7,943M (Current). * Total Debt = 71,058 + 71,844 + 49,459 + 56,021 + 16,231 = `264,613,000,000` * Eligible Cash: `Cash And Cash Equivalents` = 10,948M. * Adjusted Debt (2022) = 264,613 - 10,948 = `253,665,000,000 EUR`. 10. **Calculate 2022 "Adjusted_Debt / Adjusted_EBITDA":** * `Adjusted Debt` = 253,665M * `Adjusted EBITDA` = -2,855M * Ratio = 253,665 / -2,855 = **-88.85x** (Negative EBITDA, ratio is not meaningful). * Wait! If EBITDA is negative, the ratio is negative. S&P methodology typically uses this only for positive EBITDA. Or, we look at the change. Debt/EBITDA went from +12.5x to negative infinity. The change is extremely Deteriorating. 11. **Calculate 2022 "FFO / Adjusted_Debt":** * `FFO` = -5,140M * `Adjusted Debt` = 253,665M * Ratio = -5,140 / 253,665 = **-2.03%** (Negative FFO, ratio deteriorated significantly). 12. **Classify the year-on-year credit trend:** * **Signal 1: Leverage.** Ratio(2022) = negative. Ratio(2021) = +12.5x. The change is from +12.5 to negative (effectively infinite deterioration). The change is far beyond +0.2x. * Classification: **Deteriorating**. * **Signal 2: Cash-flow coverage.** Ratio(2022) = -2.0%. Ratio(2021) = 6.9%. Change = -2.0% - 6.9% = -8.9 percentage points. * Threshold for Deteriorating is ≤ -0.03 (i.e., -3 percentage points). * -8.9% ≤ -3.0%. * Classification: **Deteriorating**. * Both signals agree: **Deteriorating**. Deteriorating