**Step 1: Identify the relevant industry** Iberdrola is a Spanish multinational electric utility company. It is primarily engaged in regulated and unregulated electricity and gas activities across multiple geographies. Its main business is electricity generation, transmission, distribution, and supply. Therefore, it fits into the umbrella of **Unregulated Power And Gas** or **Regulated Utilities**. Iberdrola is a vertically integrated utility, a major player in renewable energy (unregulated), and owns significant regulated networks. According to the S&P methodology, an integrated company with both regulated and unregulated activities can be assessed under the methodology where it derives the majority of its cash flows, or we must apply the specific volatility tables. Iberdrola has significant regulated networks (transmission/distribution) alongside unregulated generation (renewables). Given the data provided, the company reports "Revenue" and "Beneficio Bruto De Explotacion Ebitda" (EBITDA). There's no separate breakdown of regulated vs. unregulated EBITDA in the provided facts, but the company as a whole is a power and gas utility. We will use the **Unregulated Power And Gas** industry methodology as a starting point, but the baseline formulas for Adjusted EBITDA, FFO, and Adjusted Debt provided in the prompt are general corporate baseline formulas, modified as required. The prompt says: "If the entity does not fit into any of the provided industry methodologies, apply the general corporate baseline formulas provided in the following steps." Iberdrola fits into Unregulated Power and Gas, but the specific adjustments are not explicit in the baseline formulas. We will apply the baseline formulas provided in steps 2, 3, and 4, as the methodology for Unregulated Power and Gas references the general corporate methodology ("Corporate Methodology: Ratios And Adjustments"). **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 facts, we have: - "Beneficio Bruto De Explotacion Ebitda" 2021-01-01 - 2022-01-01: 12,006,000,000 EUR - There is no explicit breakdown of nonrecurring items, leases (operating lease expense is not in EBITDA under IFRS 16, but lease depreciation might be in Depreciation; Iberdrola uses IFRS per the Spanish names). IFRS 16 already puts lease depreciation and interest in the P&L, so EBITDA is adjusted for leases. However, S&P adds back operating lease expense to EBITDA to capitalize it. Under IFRS 16, leases are capitalized, but S&P may still make adjustments. Since no operating lease expense is broken out, and we have "Right-of-use" assets and lease liabilities, we assume IFRS 16 is applied. S&P's adjustment typically adds back lease depreciation and interest, or if reported EBITDA excludes them, no adjustment? Actually, EBITDA under IFRS 16 excludes lease interest but includes lease depreciation. S&P's standard adjustment for leverage is to treat leases as debt. For EBITDA, they might add back lease depreciation to get a pre-lease-capitalization EBITDA? No, for IFRS 16, S&P uses the reported depreciation and interest, and treats the lease liability as debt. There's no separate "adjustment_leases" like under IAS 17. - We have "Other Gains Losses" 2021: 995,000,000 EUR. This includes gains on asset sales, etc. We don't have enough detail to remove nonrecurring gains/losses. - We have "Share of profit of associates" is not directly in EBITDA if it's post-operating profit? The fact "Share Of Other Comprehensive Income Of Associates..." is OCI, not P&L. But "Profit Loss From Operating Activities" includes equity method results? No, operating profit is 7,343,000,000. The difference between EBITDA (12,006) and Operating Profit (7,343) is Depreciation/Amortization/Impairment (4,294) and "Correccion Valorativa" (369). 12,006 - 4,294 - 369 = 7,343. So EBITDA doesn't include associates. - We'll assume reported EBITDA is a reasonable proxy for Adjusted EBITDA in the absence of material adjustments. Adjusted EBITDA 2021 = 12,006,000,000 EUR **Step 3: Estimate 2021 FFO** Formula: `FFO = Adjusted_EBITDA - cash_interest - cash_taxes` We need: - Cash Interest: "Finance Costs" 2021: 2,268,000,000. This includes interest expense on debt, leases, etc. "Finance Income" is 1,265,000,000. Net finance cost is 1,003,000,000. For FFO, we typically subtract gross interest expense, not net. We use "Finance Costs" = 2,268M. However, this is accrual, not cash. We might need to adjust for non-cash interest. Without a detailed cash flow statement, we use the income statement interest. - Cash Taxes: "Income Tax Expense Continuing Operations" 2021: 1,914,000,000. But this is accrual tax. "Income Taxes Paid Classified As Operating Activities" 2021: 832,000,000. We use cash taxes paid: 832,000,000. FFO 2021 = 12,006 - 2,268 - 832 = 8,906,000,000 EUR **Step 4: Estimate 2021 Adjusted Debt** Formula: `Adjusted_Debt = (reported_debt + leases + pension_deficit + guarantees + hybrid_debt_portion + other_debt_like_items) - eligible_cash` From the balance sheet (Previously Stated Member 2022-01-01 for year-end 2021): - Noncurrent Financial Liabilities: 37,175,000,000 - Current Financial Liabilities: 21,297,000,000 Total Reported Financial Debt = 58,472,000,000 EUR - Leases: Already in financial liabilities. Noncurrent Lease Liabilities: 2,253,000,000; Current Lease Liabilities: 158,000,000. Total leases = 2,411,000,000. Since IFRS 16, these are included in the debt above. No further lease adjustment needed to avoid double counting? S&P typically uses the reported debt including leases, but sometimes adds back if they are not in debt. They are in "Noncurrent Financial Liabilities" and "Current Financial Liabilities". So we don't add them again. - Pension deficit: "Noncurrent Provisions For Employee Benefits" 2021: 1,592,000,000. "Current Provisions For Employee Benefits" 2021: 27,000,000. Total provisions for employee benefits = 1,619,000,000. This might be underfunded pension, we add it. - Hybrid debt: "Instrumentos De Capital Con Caracteristicas De Pasivo Financiero No Corriente" 2021: 525,000,000; Corriente: 100,000,000. Total = 625,000,000. These are likely hybrid bonds, treated as 50% debt? S&P treats hybrid capital with some equity content. For simplicity, we treat 100% as debt or 50%? Standard S&P adjustment for hybrids is 50% debt, 50% equity. We'll assume 50% debt: 312,500,000. Actually, the formula says "+ hybrid_debt_portion". We'll add 50% * 625M = 312.5M. - Eligible Cash: "Cash And Cash Equivalents" 2021: 4,033,000,000. S&P usually subtracts "surplus" cash, but for simplicity, we follow the formula and subtract eligible cash (often all cash less minimum operating cash). We'll just subtract total cash: 4,033M. Adjusted Debt 2021 = 58,472 + 1,619 + 312.5 - 4,033 = 56,370.5M Wait, we should also check Other noncurrent financial liabilities and other debt-like items. "Other Noncurrent Financial Liabilities" 2021: 1,545,000,000. These might already be in Noncurrent Financial Liabilities? The Noncurrent Financial Liabilities is the sum of its sub-items: Deudas (31,179) + Instrumentos (525) + Derivative (1,673) + Lease (2,253) + Other (1,545) = 37,175. So Other is included. Current Financial Liabilities: Deudas (9,984) + Instrumentos (100) + Derivative (2,111) + Lease (158) + Other (2,980) + Trade payables? Wait, "Trade And Other Payables To Trade Suppliers" is 5,964, but that is usually not in financial debt. Current Financial Liabilities = 21,297. Sum of: 9,984 + 100 + 2,111 + 158 + 2,980 + 5,964 = 21,297. Trade payables included? The label "Trade And Other Payables To Trade Suppliers" is included in "Current Financial Liabilities". This might be a broader definition of financial liabilities. S&P usually deducts operating payables from debt. "Trade And Other Payables To Trade Suppliers" = 5,964M. We should remove this from Adjusted Debt. Adjusted Debt = Total debt - trade payables. Corrected Total Financial Liabilities (2021): 37,175 + 21,297 = 58,472. Trade payables included = 5,964. So adjusted financial debt = 58,472 - 5,964 = 52,508. Add pension deficit: 1,619. Add hybrid portion (50%): 312.5. Subtract cash: 4,033. Adjusted Debt 2021 = 52,508 + 1,619 + 312.5 - 4,033 = 50,406.5M **Step 5: Calculate 2021 Adjusted Debt / Adjusted EBITDA** = 50,406.5 / 12,006 = 4.20x **Step 6: Calculate 2021 FFO / Adjusted Debt** = 8,906 / 50,406.5 = 0.1767 (17.67%) **Step 7: Estimate 2022 Adjusted EBITDA** Reported EBITDA 2022: 13,228,000,000 Adjusted EBITDA 2022 = 13,228M **Step 8: Estimate 2022 FFO** Adjusted EBITDA = 13,228 Finance Costs 2022 = 3,042 Cash Taxes 2022 = 1,055 FFO 2022 = 13,228 - 3,042 - 1,055 = 9,131M **Step 9: Estimate 2022 Adjusted Debt** Balance sheet 2023-01-01 (year-end 2022): - Noncurrent Financial Liabilities: 44,216 - Current Financial Liabilities: 25,079 Total Reported = 69,295 Trade Payables = 5,927 Adjusted Financial Debt = 69,295 - 5,927 = 63,368 Pension provisions = 1,226 + 42 = 1,268 Hybrid debt = 576 + 87 = 663. 50% * 663 = 331.5 Cash = 4,608 Adjusted Debt 2022 = 63,368 + 1,268 + 331.5 - 4,608 = 60,359.5M **Step 10: Calculate 2022 Adjusted Debt / Adjusted EBITDA** = 60,359.5 / 13,228 = 4.56x **Step 11: Calculate 2022 FFO / Adjusted Debt** = 9,131 / 60,359.5 = 0.1513 (15.13%) **Step 12: Classify year-on-year credit trend** Signal 1: Leverage change in Adjusted Debt / Adjusted EBITDA 2022: 4.56x 2021: 4.20x Change = +0.36x ≥ +0.2x → Deteriorating Signal 2: Cash-flow coverage change in FFO / Adjusted Debt 2022: 0.1513 2021: 0.1767 Change = -0.0254 (-2.54 ppts) Between -0.03 and +0.03 (exclusive)? -0.0254 is > -0.03. So Stable. Combining: One is Stable, one is Deteriorating. Return the non-Stable category → Deteriorating. **Final Answer:** Deteriorating