# S&P FFO-to-Debt Ratio Estimation for Fortum Oyj (2022)

## Step 1: Identify the Relevant Industry

Fortum Oyj is a Finnish energy company with operations in:
- Electricity generation and distribution
- Heat and gas distribution
- Power trading

Based on the business activities, Fortum operates across multiple segments:
- **Regulated Utilities** (electricity and heat distribution)
- **Unregulated Power and Gas** (generation and trading)
- **Oil and Gas Exploration & Production** (historically, but largely divested in 2022)

Given that the 2022 report shows "Profit Loss From Discontinued Operations" of -11,302 million EUR (primarily from Russian operations divestiture), I'll focus on **continuing operations** and apply a blend of **Regulated Utilities** and **Unregulated Power & Gas** methodologies, with emphasis on continuing operations.

---

## Step 2: Estimate Adjusted_EBITDA

### 2.1: Reconstruct EBITDA from Continuing Operations

From the data provided:
- Operating Profit Before Depreciations EBITDA (2022): 1,842 million EUR
- This includes both continuing and discontinued operations

For **Continuing Operations** specifically:
- Profit Loss From Operating Activities (Continuing): 1,277 million EUR
- Depreciation And Amortisation Expense: 566 million EUR
- **EBITDA (Continuing Operations) = 1,277 + 566 = 1,843 million EUR**

### 2.2: Adjustments to EBITDA

**Items Affecting Comparability (IAC):**
- Items Affecting Comparability (2022): -593 million EUR (mostly non-recurring losses)
- This represents write-downs and impairments related to Russian operations and market impacts

**Share of loss from JVs and associates:**
- Share Of Profit Loss Of Associates And Joint Ventures: -629 million EUR
- This is already excluded from operating profit for continuing operations

**Non-cash adjustments:**
- Impairment Loss Reversal: 905 million EUR (non-recurring)
- Capital Gains: 785 million EUR (non-recurring)
- Changes in Fair Values of Derivatives: 393 million EUR (non-recurring)

**S&P Adjustments for normalization:**

Following S&P methodology, I'll add back non-recurring items and normalize earnings:

```
Adjusted_EBITDA = EBITDA (Continuing) + IAC adjustments + normalization
                = 1,843 + 593 (add back IAC losses) - 905 (subtract impairment reversal gains)
                  - 785 (subtract capital gains) - 393 (subtract FX/derivative gains)
                = 1,843 + 593 - 905 - 785 - 393
                = 353 million EUR
```

However, given that we're normalizing, and the company experienced significant market disruption (Russian operations exit), a more reasonable approach is to use **Comparable Operating Profit** from continuing operations.

**Alternative calculation using Comparable EBITDA concept:**
- Comparable Operating Profit (2022): 1,871 million EUR
- Add back Depreciation: 566 million EUR
- **Comparable EBITDA = 1,871 + 566 = 2,437 million EUR**

This matches the "Comparable Ebitda" figure of 2,436 million EUR provided in the data.

**For continuing operations, I'll use a blended approach:**
Using Comparable EBITDA as the base (which normalizes for non-recurring items):

```
Adjusted_EBITDA = 2,436 million EUR (approximately)
```

---

## Step 3: Estimate FFO

### 3.1: Determine Cash Interest and Cash Taxes

**Cash Interest (from continuing operations):**
- Interest Expense: 179 million EUR
- Interest Received: 87 million EUR
- Net Cash Interest Paid: 201 million EUR (from cash flow statement)

**Cash Taxes:**
- Income Tax Expense (Continuing): -556 million EUR (credit/benefit in 2022)
- Income Taxes Paid (from cash flow): 167 million EUR

Since the company had a tax benefit (negative tax expense), I'll use the actual cash paid for taxes:

```
Cash Taxes Paid = 167 million EUR
```

### 3.2: Calculate FFO

```
FFO = Adjusted_EBITDA - Cash_Interest - Cash_Taxes
    = 2,436 - 201 - 167
    = 2,068 million EUR
```

---

## Step 4: Estimate Adjusted_Debt

### 4.1: Identify Reported Debt

From the balance sheet as of 2023-01-01 (end of 2022):

**Non-current Financial Liabilities:**
- Other Noncurrent Financial Liabilities: 3,658 million EUR

**Current Financial Liabilities:**
- Other Current Financial Liabilities: 4,127 million EUR

**Total Reported Debt = 3,658 + 4,127 = 7,785 million EUR**

### 4.2: Add Lease Obligations

The data does not explicitly break out lease obligations separately. S&P typically adds operating leases as debt-like obligations. Given the energy infrastructure nature, I'll estimate conservatively. The data shows "Repayments Of Non Current Borrowings And Repayments Of Lease Liabilities" of 5,888 million EUR, but this is operating cash flow, not a balance sheet item.

Without detailed lease capitalization data, I'll assume lease adjustments are minimal relative to total debt.

**Lease Adjustments: ~200 million EUR (conservative estimate for infrastructure company)**

### 4.3: Adjust for Pension Deficits

From equity movements:
- Noncurrent Recognised Liabilities Defined Benefit Plan (2022): 1,190 million EUR

This represents underfunded pension obligations. S&P typically adjusts for these:

**Pension Deficit Adjustment: 1,190 million EUR**

### 4.4: Deduct Eligible Cash

**Liquid Funds (Cash) as of 2023-01-01:** 3,919 million EUR

### 4.5: Calculate Adjusted_Debt

```
Adjusted_Debt = Reported_Debt + Leases + Pension_Deficit - Eligible_Cash
              = 7,785 + 200 + 1,190 - 3,919
              = 5,256 million EUR
```

---

## Step 5: Calculate FFO / Adjusted_Debt Ratio

```
FFO / Adjusted_Debt = 2,068 / 5,256
                    = 0.3936
```

Rounding to four decimal places: **0.3936**

<answer>0.3936</answer>