I'll work through this step-by-step, analyzing Fortum Oyj's financial data and applying S&P's methodology. ## Step 1: Identify Relevant Industry for Fortum Oyj Fortum Oyj is a Finnish energy company. Based on the data: - It has "Unregulated Power And Gas" activities (revenue from power/gas sales, trading activities) - It has regulated utility-like activities (nuclear waste management fund, network operations) - It has significant discontinued operations (likely divestment of Uniper) Given the mix of unregulated power generation, trading, and some regulated activities, Fortum fits primarily in the **Unregulated Power And Gas** sector, with some regulated utility characteristics. However, given the significant trading and generation assets, and the volatile commodity exposure, I'll apply the **Unregulated Power And Gas** methodology as primary, with consideration for regulated utility elements. Actually, looking more carefully: Fortum is a major Nordic power company with generation (nuclear, hydro, thermal, renewables), heat, electricity distribution, and waste services. The presence of nuclear, district heating, and distribution networks suggests significant regulated/natural monopoly elements. However, the large derivative positions and commodity exposure indicate substantial unregulated activity. Given the methodology guidance and Fortum's actual business mix (heavily exposed to power markets, commodity prices, with significant trading), I'll classify this as **Unregulated Power And Gas** with potential medial volatility table eligibility due to regulated components. ## Step 2: Estimate 2021 Adjusted_EBITDA From the data: - "Operating Profit Before Depreciations Ebitda" 2021: 4,913,000,000 EUR - "Comparable Ebitda" 2021: 2,016,000,000 EUR The reported EBITDA includes items affecting comparability. For S&P purposes, we want sustainable, recurring EBITDA. The "Comparable EBITDA" is already adjusted for items affecting comparability. However, looking at the formula: Adjusted_EBITDA = EBITDA + adjustment_leases + nonrecurring_losses - nonrecurring_gains ± other adjustments For 2021: - EBITDA (reported): 4,913,000,000 EUR - Items Affecting Comparability: 2,897,000,000 EUR (positive, meaning gains) The "Items Affecting Comparability" for 2021 was +2,897,000,000 EUR (positive, so gains). This includes capital gains and other related items of 2,673,000,000 EUR. For S&P, we adjust out nonrecurring gains: Adjusted_EBITDA = 4,913,000,000 - 2,897,000,000 (remove gains) = 2,016,000,000 EUR This matches the Comparable EBITDA, which makes sense. Let me verify: - Capital Gains and Other Related Items: 2,673,000,000 EUR - Changes In Fair Values Of Derivatives Hedging Future Cash Flow: -264,000,000 EUR - Other Adjustments Affecting Comparability: 6,000,000 EUR - Impairment Loss Reversal: 35,000,000 EUR Wait - the Items Affecting Comparability is 2,897,000,000 EUR positive. Let me check if this is gains or losses. Looking at 2022, it's -593,000,000 EUR (negative, so losses). For 2021, positive items affecting comparability means gains we should remove. Adjusted_EBITDA (2021) = 4,913,000,000 - 2,897,000,000 = 2,016,000,000 EUR Or using Comparable EBITDA directly: 2,016,000,000 EUR Let me also consider if there are lease adjustments. The data doesn't explicitly show operating lease adjustments. Looking at "Repayments Of Non Current Borrowings And Repayments Of Lease Liabilities" - this suggests leases exist, but without specific lease expense data, I'll use the Comparable EBITDA as the base. Actually, for more precision, let me reconstruct: - Operating Profit (Profit Loss From Operating Activities): 4,325,000,000 EUR - Depreciation And Amortisation Expense: 587,000,000 EUR - EBITDA = 4,325,000,000 + 587,000,000 = 4,912,000,000 ≈ 4,913,000,000 EUR ✓ Now, Comparable Operating Profit: 1,429,000,000 EUR Comparable EBITDA = 1,429,000,000 + 587,000,000 = 2,016,000,000 EUR ✓ So Adjusted_EBITDA (2021) = **2,016,000,000 EUR** (using comparable, already normalized) ## Step 3: Estimate 2021 FFO FFO = Adjusted_EBITDA - cash_interest - cash_taxes From cash flow data: - Interest Paid Classified As Operating Activities: 147,000,000 EUR - Income Taxes Paid Refund Classified As Operating Activities: 279,000,000 EUR (positive means paid) Wait - let me check: "Income Taxes Paid Refund Classified As Operating Activities" 2021: 279,000,000 EUR. This is likely taxes paid (positive outflow). From income statement: - Interest Expense: 154,000,000 EUR - Income Tax Expense Continuing Operations: 325,000,000 EUR (positive means expense) For FFO, S&P typically uses cash interest and cash taxes paid: - Cash interest paid: 147,000,000 EUR - Cash taxes paid: 279,000,000 EUR FFO (2021) = 2,016,000,000 - 147,000,000 - 279,000,000 = **1,590,000,000 EUR** Wait - let me also check if we need to add back dividends from equity method investments or other items. Standard FFO also includes working capital changes? No, the formula given is FFO = Adjusted_EBITDA - cash_interest - cash_taxes. Actually, looking more carefully at S&P methodology, FFO typically also includes dividends received from investments. But sticking to the formula provided: FFO (2021) = 2,016,000,000 - 147,000,000 - 279,000,000 = 1,590,000,000 EUR ## Step 4: Estimate 2021 Adjusted_Debt Adjusted_Debt = reported_debt + leases + pension_deficit + guarantees + hybrid_debt_portion + other_debt_like_items - eligible_cash First, need to identify debt from balance sheet. The data doesn't explicitly show "debt" as a line item. Let me look for financial liabilities: From balance sheet 2022-01-01 (end of 2021): - Other Noncurrent Financial Liabilities: 8,701,000,000 EUR - Noncurrent Derivative Financial Liabilities: 16,657,000,000 EUR - Other Current Financial Liabilities: 8,519,000,000 EUR - Current Derivative Financial Liabilities: 71,947,000,000 EUR Total financial liabilities = 8,701 + 16,657 + 8,519 + 71,947 = 105,824,000,000 EUR Wait - this seems extremely high. The derivatives are likely gross, not net, and include trading positions. For S&P purposes, derivative liabilities related to trading/hedging may need special treatment. Actually, looking at the methodology for Unregulated Power And Gas: "For unregulated power and gas companies that enter into long-term power purchase agreements (PPAs), we make adjustments to account for those obligations." And for regulated utilities: "We use our purchased power methodology to adjust measures for such contracts' debt-like obligations." But Fortum's derivatives are likely largely trading-related. The key question is what's "debt-like" vs. operating. Looking at margin liabilities: 985,000,000 EUR And margin receivables: 9,163,000,000 EUR For S&P, typically we look for: - Long-term debt - Short-term debt - Current portion of long-term debt From the cash flow statement: - Proceeds From Noncurrent Borrowings: 2,809,000,000 EUR - Repayments Of Non Current Borrowings And Repayments Of Lease Liabilities: 2,153,000,000 EUR - Cash Flows From Used In Increase Decrease In Current Borrowings: 1,844,000,000 EUR (positive means increase? or "used in" means negative?) Actually "Cash Flows From Used In Increase Decrease In Current Borrowings" 2021: 1,844,000,000 EUR. The "From Used In" suggests this is a source (positive = borrowing increase). Let me try another approach. S&P typically focuses on interest-bearing debt. From the balance sheet items that look debt-like: Other Noncurrent Financial Liabilities (8,701) + Other Current Financial Liabilities (8,519) = 17,220,000,000 EUR But this may include more than just debt. Looking at the financing activities: - Dividends paid: 1,166,000,000 EUR - The borrowing/repayment flows suggest debt levels Actually, let me look at total liabilities and equity structure. Total liabilities 2022-01-01: 135,997,000,000 EUR. This includes derivatives. For a power company with heavy trading, S&P would likely net derivatives where possible or look at the economic exposure. Given the complexity, let me try to identify a cleaner debt figure. In many European utility financials, "interest-bearing debt" is separately disclosed. Looking at the items: From 2021 year-end (2022-01-01 balance sheet): - Other Noncurrent Financial Liabilities: 8,701,000,000 - Other Current Financial Liabilities: 8,519,000,000 These likely include debt, leases, and other financial obligations. Without more detail, I'll use these as the base for debt, but need to consider if derivatives should be included. Actually, for S&P Global Ratings methodology, when companies have significant derivative trading positions (especially for commodities), they often look through to the economic exposure or net where master netting agreements exist. The gross derivative positions here are huge (16.6bn noncurrent + 71.9bn current liabilities), suggesting Fortum was heavily in energy trading. Given Fortum's 2022 situation (massive losses from Uniper/discontinued operations), the 2021 position likely reflects normal trading operations. For practical purposes, let me estimate debt as: - Noncurrent financial liabilities (excluding derivatives): hard to separate - Current financial liabilities (excluding derivatives): hard to separate Let me try a different approach using cash flow from financing: - Total borrowings proceeds: 2,809 (noncurrent) + implied current borrowings increase - Total repayments: 2,153 (noncurrent) + lease repayments embedded Actually, looking at "Repayments Of Non Current Borrowings And Repayments Of Lease Liabilities" = 2,153,000,000. This combines debt and lease repayments. Given the difficulty in precise decomposition, let me use a practical approach: look for total interest-bearing debt approximation. From the balance sheet, items that are clearly debt-like (excluding trading derivatives): - Other Noncurrent Financial Liabilities: 8,701,000,000 - Other Current Financial Liabilities: 8,519,000,000 But these likely include some non-debt items too. Let me check if there's a better proxy. Actually, for S&P purposes, a common approach is to use "financial debt" as reported by the company or approximated. Given the data limitations, let me estimate: Looking at interest expense (154M) vs. debt levels - if interest rate is say 3%, debt would be ~5.1B. But this is too rough. Let me use: Other Noncurrent Financial Liabilities + Other Current Financial Liabilities as a starting point for gross debt, then adjust. Debt approximation = 8,701 + 8,519 = 17,220,000,000 EUR But wait - this seems low for a company with 64B revenue. Let me reconsider. Actually, I think I need to include more. The "Noncurrent Derivative Financial Liabilities" and "Current Derivative Financial Liabilities" - for trading positions, these are typically not counted as debt for credit purposes (they're mark-to-market, not funding obligations). However, for power/gas companies, long-term derivative positions or PPAs may be debt-like. Given the complexity and data limitations, let me use a simplified approach focusing on the clear debt items and make reasonable estimates. From S&P methodology, Adjusted Debt typically includes: - Short-term and long-term borrowings - Finance lease obligations - Pension deficits - Less: cash and equivalents (if eligible) From balance sheet 2021 year-end: - Liquid Funds (cash): 7,592,000,000 EUR For debt, I'll use: Other Noncurrent Financial Liabilities + Other Current Financial Liabilities as the base, assuming these are primarily debt and lease obligations. But let me check if this is reasonable by looking at 2022 changes. In 2022, Other Noncurrent Financial Liabilities dropped to 3,658 and Other Current to 4,127. This 8.4B reduction aligns with significant deleveraging/disposal. Actually, looking more carefully at the 2022 balance sheet post-Uniper disposal: total assets dropped from 149.7B to 23.6B, a massive reduction. This confirms Uniper was consolidated and then disposed. For 2021, with Uniper consolidated, the figures are inflated by Uniper's trading positions. Given this, for 2021 Adjusted_Debt, I need to be careful about what's Fortum's core debt vs. Uniper's trading positions. From the equity structure, Fortum owned about 75-80% of Uniper. The disposal in 2022 resulted in massive losses. For S&P analysis in 2021, they would have looked at Fortum's consolidated position including Uniper. Let me estimate debt more carefully. Looking at financing cash flows 2021: - Proceeds from noncurrent borrowings: 2,809M - Repayments of noncurrent borrowings and lease liabilities: 2,153M - Increase in current borrowings: 1,844M This suggests active debt management but doesn't give closing balance directly. Given the limitations, let me use a practical estimate based on typical S&P approach for such companies: Adjusted_Debt (2021) ≈ Other Noncurrent Financial Liabilities + Other Current Financial Liabilities + some portion of derivatives if debt-like - cash = 8,701 + 8,519 - 7,592 = 9,628,000,000 EUR But this seems too low. Let me reconsider - the derivatives may include margin financing and other debt-like items. Actually, looking at "Margin Liabilities" 2022-01-01: 985,000,000 EUR and "Margin Receivables": 9,163,000,000 EUR. These are collateral positions, not debt per se. Let me try: Total liabilities excluding working capital items = 135,997 - 16,477 (trade payables) - 2,299 (short-term provisions) - 985 (margin liabilities) - other non-debt current liabilities. This is getting too complex. Let me use a simpler approach: for utilities, S&P often focuses on "total debt" as short-term + long-term debt + current portion of long-term debt. From the data, I'll estimate: - Long-term debt: 8,701M (other noncurrent financial liabilities) - Short-term debt: 8,519M (other current financial liabilities) - Less: Cash: 7,592M Adjusted_Debt (2021) = 8,701 + 8,519 - 7,592 = 9,628,000,000 EUR But I need to add pension deficits. From balance sheet: - Noncurrent Recognised Liabilities Defined Benefit Plan: 1,190,000,000 EUR Adjusted_Debt (2021) = 9,628 + 1,190 = 10,818,000,000 EUR Hmm, but this may still miss significant debt. Let me check if there are other debt-like items. Looking at "Nuclear Non Current Provisions": 3,891,000,000 EUR - these are regulatory/operating obligations, not typically counted as debt. "Other Longterm Provisions": 4,108,000,000 EUR - also operating. I'll proceed with: Adjusted_Debt (2021) = **10,818,000,000 EUR** (or approximately 10.8B) Actually, let me reconsider. The "Other Noncurrent Financial Liabilities" and "Other Current Financial Liabilities" likely include more than just debt - they may include derivatives, accrued interest, etc. Given the massive trading operations, perhaps I should look at this differently. For energy trading companies, S&P may view certain trading liabilities as working capital rather than debt. Let me try a more conservative approach: assume debt is primarily the non-derivative financial liabilities. But the data doesn't split this out. Given time constraints, I'll use: Adjusted_Debt (2021) ≈ **12,000,000,000 EUR** as a rounded estimate, or try to be more precise. Wait - let me look at the 2022 position for comparison. In 2022, with Uniper gone: - Other Noncurrent Financial Liabilities: 3,658M - Other Current Financial Liabilities: 4,127M - Total: 7,785M - Cash: 3,919M - Net: 3,866M + pension deficit (13M noncurrent) ≈ 3,879M This 2022 net debt of ~3.9B seems reasonable for core Fortum without Uniper. For 2021, with Uniper, if core Fortum had similar leverage and Uniper added proportionally... Uniper was larger than Fortum. Actually, looking at this more carefully: the 2021 total assets of 149.7B and 2022 of 23.6B shows Uniper was the vast majority. So 2021 debt was mostly Uniper's. For S&P rating purposes in 2021, they would have rated Fortum including Uniper. The credit trend from 2021 to 2022 reflects the disposal and massive losses. Given this, let me use a simpler approach based on available data and typical utility metrics. Let me use total financial liabilities minus cash as a broad measure: 2021: (8,701 + 16,657 + 8,519 + 71,947) - 7,592 = 105,824 - 7,592 = 98,232M But this includes gross derivatives which are not debt. For a more reasonable estimate, I'll use: (8,701 + 8,519) + portion of derivatives that are debt-like - cash. Given the uncertainty, let me try to infer from interest coverage. Interest expense was 154M on what debt? If average rate 3%, debt ~5.1B. If 4%, debt ~3.9B. This seems too low for the consolidated group. Actually, the 154M interest expense might be after significant capitalized interest or net of interest income. Finance Income Cost is -161M total. Let me use a different approach: look at "Cash Flows From Used In Financing Activities Continuing Operations" 2021: 1,603,000,000 EUR (positive, meaning net inflow). This includes dividends, borrowings, etc. Given the complexity and data limitations, I need to make reasonable estimates. Let me use: For 2021: Based on the structure and typical Nordic utility metrics, and the fact that 2021 was pre-Uniper crisis with strong performance, let me estimate Adjusted_Debt at approximately **15,000,000,000 EUR** as a working estimate, recognizing this is uncertain. Actually, let me step back and use a more data-driven approach. Looking at the 2022 post-disposal numbers: 2022 year-end (2023-01-01): - Other Noncurrent Financial Liabilities: 3,658M - Other Current Financial Liabilities: 4,127M - Total clear debt-like: 7,785M - Less cash: 3,919M - Plus pension: 13M - Net: ~3,879M For 2021 year-end, scaling by relative size: - 2021 total assets: 149,661M - 2022 total assets: 23,642M - Ratio: 6.3x If debt scaled similarly: 3,879 × 6.3 ≈ 24,400M. But this assumes same leverage ratio, which may not hold. Actually, Uniper was more leveraged than core Fortum. Let me try another approach. Given the extreme uncertainty in debt figures, let me focus on what I can calculate more precisely and note that for trend analysis, the direction matters more than absolute levels. Let me use a simplified approach: I'll estimate debt based on the "Other Financial Liabilities" categories which are most likely to be debt, and make reasonable assumptions. For 2021: - Other Noncurrent Financial Liabilities: 8,701M - Other Current Financial Liabilities: 8,519M - Subtotal: 17,220M - Less: Cash and liquid funds: 7,592M - Plus: Pension deficit (noncurrent recognized liability): 1,190M - Adjusted_Debt (2021): 17,220 - 7,592 + 1,190 = **10,818,000,000 EUR** For 2022: - Other Noncurrent Financial Liabilities: 3,658M - Other Current Financial Liabilities: 4,127M - Subtotal: 7,785M - Less: Cash: 3,919M - Plus: Pension deficit: 13M - Adjusted_Debt (2022): 7,785 - 3,919 + 13 = **3,879,000,000 EUR** This shows massive deleveraging, which makes sense with Uniper disposal. But wait - I need to check if pension deficit is already in "Other Noncurrent Financial Liabilities" or separate. The balance sheet shows "Noncurrent Recognised Liabilities Defined Benefit Plan" as a separate line item, so it's additive. However, I also need to consider if there are lease obligations embedded in these figures. The cash flow shows "Repayments Of Non Current Borrowings And Repayments Of Lease Liabilities" combined, suggesting leases are part of the debt figure. Given this, my estimates may be reasonable. Let me proceed with these figures but note the uncertainty. Actually, I realize I should double-check the 2022 numbers. The 2022 balance sheet is post-Uniper disposal, so much smaller. The 2021 is pre-disposal with Uniper consolidated. For 2021, with Uniper included, the debt should be much higher. My 10.8B estimate seems too low. Let me reconsider. Looking at 2021 financing cash flows: - Proceeds from noncurrent borrowings: 2,809M - Repayments: 2,153M - Current borrowings increase: 1,844M This suggests net borrowing increase of ~2,500M in 2021. If year-end debt was only 10.8B, this would imply very low starting debt, which seems inconsistent with Uniper's size. Let me try: maybe "Other Current Financial Liabilities" of 71,947M includes significant debt-like trading obligations? Or perhaps the derivatives are collateralized and effectively debt-financed? For energy traders, derivative positions are often collateralized with cash or letters of credit, but the mark-to-market itself isn't debt. Given the time I've spent, let me use a pragmatic approach. I'll estimate 2021 Adjusted_Debt higher, around **20,000,000,000 EUR**, recognizing that Uniper added significant debt. This is roughly double my pure financial liability estimate to account for Uniper's consolidation and other debt-like items. Actually, let me try one more approach. Looking at equity: - 2021 equity: 13,665M - 2022 equity: 7,737M If debt/equity was say 1.5x in 2021 (typical for utilities), debt would be ~20,500M. If 2x, ~27,300M. Given Fortum's BBB rating typical leverage, let me use **Adjusted_Debt (2021) = 20,000,000,000 EUR** as a working estimate. Hmm, but this is getting very speculative. Let me go back to my more data-driven estimate of 10,818M but note it may be conservative. Actually, I think I found an issue. Let me re-read: "Other Noncurrent Financial Liabilities" 2022-01-01: 8,701,000,000. But in 2021, Fortum had significant operations. Let me check if there's any other data. Wait - I think I need to include more. For S&P, "Adjusted Debt" includes: - Short-term borrowings - Long-term borrowings - Current portion of long-term debt - Finance leases - Less: cash (if eligible) The "Other Current Financial Liabilities" of 8,519M and "Other Noncurrent Financial Liabilities" of 8,701M are likely the main debt categories. But for a large utility with trading, there may also be commercial paper, bank overdrafts, etc. Let me try yet another approach: use total liabilities minus clearly non-debt items. 2021 total liabilities: 135,997M Less: clearly operating/non-debt: - Trade payables: 16,477M - Short-term provisions: 2,299M - Margin liabilities: 985M - Current tax: not shown as liability separately - Deferred tax: 827M (this is non-debt) - Nuclear provisions: 3,891M (regulatory, not debt) - Other long-term provisions: 4,108M - Other noncurrent liabilities: 397M Remaining: 135,997 - 16,477 - 2,299 - 985 - 827 - 3,891 - 4,108 - 397 = 107,013M This includes derivatives (16,657 + 71,947 = 88,604M) and financial liabilities (17,220M), totaling 105,824M, close to 107,013M. So derivatives + financial liabilities = ~106,000M. The derivatives are 88,604M (gross). For S&P, if we exclude gross derivatives (not debt), we get ~17,220M financial liabilities. This matches my earlier figure. But is this right? For a trading company, gross derivatives aren't debt. However, the cash collateral posted/received (margin) is a working capital item. Given this analysis, I think 17,220M gross debt - 7,592M cash = 9,628M, plus pension 1,190M = 10,818M is a reasonable lower bound. But this seems too low for Uniper-consolidated Fortum. Perhaps Uniper's debt was largely non-recourse or ring-fenced? Or perhaps Fortum's share of Uniper debt was limited? Actually, Fortum owned ~75% of Uniper but didn't fully consolidate its debt in the same way. In equity method accounting, only the investment is shown, not full consolidation. But wait - the data shows full consolidation in 2021 (massive assets/liabilities), then equity method or disposal in 2022. Looking at 2022: "Investment Accounted For Using Equity Method" 2023-01-01: 1,249M, down from 2,461M in 2022-01-01. This suggests Uniper was still equity-accounted in early 2022, then fully disposed. Actually, the timeline: Fortum took control of Uniper in late 2019/early 2020, fully consolidated, then the 2022 crisis led to German government takeover, and Fortum was left with losses. So 2021 is full consolidation, 2022 is partial (until disposal). Given this, my debt estimate of 10.8B may still be too low. Let me check if there are other debt items I missed. Looking again: "Other Noncurrent Financial Liabilities" 8,701M - this could include: - Long-term debt - Derivatives (noncurrent portion) - Lease liabilities - Other Similarly, "Other Current Financial Liabilities" 8,519M could include: - Short-term debt - Current portion of long-term debt - Derivatives (current portion) - Trade payables (but these are separate) - Accrued expenses Actually, I think the "Other" in these categories is meant to distinguish from derivatives, which are separately reported. So: - Noncurrent Derivative Financial Liabilities: 16,657M (separate line) - Current Derivative Financial Liabilities: 71,947M (separate line) - Other Noncurrent Financial Liabilities: 8,701M (non-derivative) - Other Current Financial Liabilities: 8,519M (non-derivative) This interpretation makes sense! So "Other" financial liabilities exclude derivatives. If so, then debt is primarily in "Other Noncurrent Financial Liabilities" and "Other Current Financial Liabilities", totaling 17,220M. This could be accurate - Fortum/Uniper's debt may have been around 17B, with massive derivative positions (88B gross) that are not debt. Adjusted_Debt (2021) = 17,220 - 7,592 (cash) + 1,190 (pension) = 10,818M Or if we include only 75% of cash (some restricted for trading): 17,220 - 5,694 + 1,190 = 12,716M I'll use **Adjusted_Debt (2021) = 11,000,000,000 EUR** rounded, or more precisely 10,818M. For 2022: Adjusted_Debt (2022) = 7,785 - 3,919 + 13 = 3,879M ≈ **3,900,000,000 EUR** Let me proceed with these figures. ## Step 5: Calculate 2021 Adjusted_Debt / Adjusted_EBITDA = 11,000 / 2,016 = **5.46x** (using rounded) Or 10,818 / 2,016 = **5.37x** (using precise) ## Step 6: Calculate 2021 FFO / Adjusted_Debt FFO (2021) = 1,590M Adjusted_Debt (2021) = 11,000M = 1,590 / 11,000 = **0.145** or **14.5%** Or with precise: 1,590 / 10,818 = 0.147 = **14.7%** ## Step 7: Estimate 2022 Adjusted_EBITDA From data: - Operating Profit Before Depreciations Ebitda 2022: 1,842,000,000 EUR - Comparable Ebitda 2022: 2,436,000,000 EUR - Items Affecting Comparability 2022: -593,000,000 EUR (negative = losses) Adjusted_EBITDA (2022) = 1,842 - (-593) = 2,435? No wait. Reported EBITDA = 1,842M Items affecting comparability = -593M (losses, negative) To get comparable: 1,842 - (-593) = 2,435? Or is it 1,842 + 593 = 2,435? Actually, Comparable EBITDA is given as 2,436M, which matches. But for S&P, do we add back losses? Typically yes, if nonrecurring. Looking at 2022 items: - Impairment Loss Reversal: 905M (positive, so gain/reversal) - Capital Gains And Other Related Items: 785M (positive, gains) - Changes In Fair Values Of Derivatives: 393M (positive) - Other Adjustments: 80M (positive) Wait, these sum to 905 + 785 + 393 + 80 = 2,163M positive, but Items Affecting Comparability is -593M negative. This doesn't add up directly. Actually, looking at the income statement: "Items Affecting Comparability" 2022: -593,000,000 EUR. This is the net item. From operating profit: 1,277M (reported) vs 1,871M (comparable). Difference is 594M, which matches the -593M items (losses in comparable means gains removed or losses added). Wait: Profit Loss From Operating Activities 2022: 1,277M. Comparable Operating Profit: 1,871M. So 1,277 - 1,871 = -594M, meaning reported is lower by 594M due to negative items (losses). So Items Affecting Comparability = -593M means losses of 593M that reduced reported profit. For S&P Adjusted_EBITDA, we add back these losses (if nonrecurring): Adjusted_EBITDA = 1,842 + 593 = 2,435 ≈ 2,436M (matches Comparable EBITDA) But wait - are these truly nonrecurring? The large impairment reversal (905M) and capital gains (785M) seem nonrecurring, but they partially offset other losses. Actually, looking more carefully: the -593M items include various components. For S&P, we need to identify what's truly nonrecurring vs. recurring. Given that Comparable EBITDA is 2,436M and is meant to be the sustainable figure, I'll use: Adjusted_EBITDA (2022) = **2,436,000,000 EUR** ## Step 8: Estimate 2022 FFO FFO = Adjusted_EBITDA - cash_interest - cash_taxes From cash flow data 2022: - Interest Paid Classified As Operating Activities: 201,000,000 EUR - Income Taxes Paid Refund Classified As Operating Activities: 167,000,000 EUR (positive = paid) From income statement: - Interest Expense: 179,000,000 EUR - Income Tax Expense: -556,000,000 EUR (negative = benefit/refund) Cash interest paid: 201M Cash taxes paid: 167M FFO (2022) = 2,436 - 201 - 167 = **2,068,000,000 EUR** ## Step 9: Estimate 2022 Adjusted_Debt From balance sheet 2023-01-01 (end of 2022): - Other Noncurrent Financial Liabilities: 3,658,000,000 EUR - Other Current Financial Liabilities: 4,127,000,000 EUR - Subtotal: 7,785,000,000 EUR - Less: Cash (Liquid Funds): 3,919,000,000 EUR - Plus: Pension deficit (noncurrent): 13,000,000 EUR Adjusted_Debt (2022) = 7,785 - 3,919 + 13 = **3,879,000,000 EUR** Or rounded: **3,900,000,000 EUR** ## Step 10: Calculate 2022 Adjusted_Debt / Adjusted_EBITDA = 3,879 / 2,436 = **1.59x** Or with rounded: 3,900 / 2,436 = **1.60x** ## Step 11: Calculate 2022 FFO / Adjusted_Debt = 2,068 / 3,879 = **0.533** or **53.3%** Or with rounded debt: 2,068 / 3,900 = 0.530 = **53.0%** ## Step 12: Classify Year-on-Year Credit Trend ### Signal 1: Leverage (Adjusted_Debt / Adjusted_EBITDA) - 2021: 5.46x (or 5.37x with precise) - 2022: 1.59x (or 1.60x) - Change: 1.59 - 5.46 = **-3.87x** (or -3.77x) This is a massive decrease in leverage (improvement). Threshold: ≤ -0.2x = Improving **Signal 1: Improving** ### Signal 2: Cash-flow coverage (FFO / Adjusted_Debt) - 2021: 0.145 (14.5%) - 2022: 0.533 (53.3%) - Change: 0.533 - 0.145 = **+0.388** (+38.8 percentage points) Threshold: ≥ +0.03 = Improving **Signal 2: Improving** ### Combining the two signals: Both signals agree: **Improving** However, I need to critically assess this. The massive "improvement" is largely due to the Uniper disposal, which caused massive losses (-10.3B total comprehensive income) but reduced debt and asset base. Is this truly credit-improving? From a pure ratio perspective, yes - leverage dropped dramatically and cash flow coverage improved. But the underlying business is now much smaller, and Fortum suffered massive losses. For S&P, the rating trend would consider: - The disposal reduced risk exposure (Uniper was the source of crisis) - Core Fortum is now cleaner but smaller - The massive losses were recognized but don't affect ongoing cash flows However, there's a conservative bias in the instructions. Let me reconsider if any signal should be viewed differently. Actually, looking at my calculations, I may have an issue. The 2022 Adjusted_EBITDA of 2,436M is for the continuing/core operations post-impairment. But is this sustainable? The 2021 figure of 2,016M was with Uniper; 2022 of 2,436M is without Uniper but with higher power prices (Nordic power market was strong in 2022). Wait - let me check: 2022 revenue was 8,804M vs 2021's 6,422M. But 2021 included Uniper for full year; 2022 only until disposal. The revenue increase seems odd if Uniper was removed. Actually, 2022 power prices were extremely high due to energy crisis, so core Fortum's revenue and profits surged even without Uniper. For debt: my 2022 figure of 3,879M seems reasonable for core Fortum. 2021's 10,818M may be understated if Uniper added more debt. Let me recheck 2021. If Fortum consolidated Uniper with its massive trading, debt should be higher. But my analysis of "Other Financial Liabilities" excluding derivatives gives 17,220M gross. Perhaps this is correct - Uniper's trading was derivative-based, not debt-financed. Actually, looking at Uniper's actual 2021 financials: Uniper had significant debt, around 10-15B EUR itself. So Fortum's consolidated debt should include this. Hmm, but my figure of 17,220M gross financial liabilities includes both Fortum and Uniper. If Uniper had 10-15B debt, this would be mostly captured. Let me verify with another approach. In 2022, after Uniper disposal, Fortum's debt was ~7.8B gross. In 2021, with Uniper, it was 17.2B gross. The difference is ~9.4B, which could be Uniper's debt contribution. This seems reasonable. So my figures may be directionally correct: debt dropped from ~10.8B net to ~3.9B net, while EBITDA improved from 2.0B to 2.4B. The trend is clearly improving on both metrics. But is this "real" improvement or just a mechanical effect of disposal? For S&P credit trend purposes, the disposal: - Removed a troubled, loss-making subsidiary - Reduced consolidated debt and assets - Improved the remaining group's credit metrics - But at the cost of massive equity losses The rating trend would likely be Stable or potentially Improving if the disposal is viewed as reducing risk, despite the losses. However, the losses were already taken, and the go-forward entity is cleaner. Given both signals strongly agree on Improving, and the disposal does represent a fundamental reduction in risk exposure (Uniper was the source of existential risk), I would classify this as **Improving** from a pure metrics perspective, but with caveats. However, I need to consider: did the massive losses impair Fortum's equity and future capacity? Retained earnings dropped from 10,062M to 6,467M (despite 1,013M dividends). The comprehensive loss was huge. But for credit metrics (leverage and coverage), the trend is clearly improving. Let me double-check my 2021 FFO calculation. I used cash taxes of 279M. But the income tax expense was 325M. If there were tax refunds or changes in deferred taxes, cash taxes could differ. Using cash flow figures is correct for FFO. Actually, I want to recheck: "Income Taxes Paid Refund Classified As Operating Activities" 2021: 279,000,000 EUR. Is this paid or refund? The label says "Paid Refund" which is ambiguous. Given it's positive and in operating activities, and labeled with "Paid" first, I'll assume taxes paid. But wait - in 2022, it's 167M with income tax expense of -556M (benefit). So 2022 had tax benefits (likely due to losses), but still paid 167M cash taxes? That seems odd. Perhaps the 167M is refund received (negative in cash flow terms)? Looking at the label: "Income Taxes Paid Refund Classified As Operating Activities" - this is a single line item. In 2021: 279M. In 2022: 167M. In cash flow statements, this is typically "Income taxes paid (refund)" where positive means paid, negative means refund. Given 2022 had massive losses, a refund would make sense. But the figure is positive 167M. Unless this is for continuing operations only, and discontinued operations had separate tax effects. Actually, looking at the cash flow structure, there are separate lines for continuing and discontinued operations. The 167M is for continuing operations, which were profitable (1,011M profit from continuing operations). So 167M cash tax on 1,011M pre-tax continuing profit seems reasonable (effective rate ~16% after various adjustments). For 2021, 279M on 4,332M pre-tax profit is ~6.4%, also reasonable with tax adjustments. My FFO calculations seem correct. ### Final Assessment: Signal 1 (Leverage): -3.87x change → **Improving** (massively below -0.2x threshold) Signal 2 (Coverage): +0.388 change → **Improving** (massively above +0.03 threshold) Both signals agree: **Improving** However, I should note the conservative bias instruction: "If the two signals conflict, lean toward the more negative signal." They don't conflict here. But let me reconsider if the improvement is truly credit-positive. The Uniper disposal: - Caused massive losses (-10.3B comprehensive loss in 2022) - Reduced equity from 13.7B to 7.7B - But improved go-forward leverage and coverage For a rating agency, this is a mixed bag. The equity impairment is negative, but the reduced debt and improved cash flow coverage are positive. The net effect on credit quality depends on whether the remaining business is sustainable. Given Fortum's core operations (Nordic power generation, district heating, waste management) are generally stable with regulated elements, and the removal of Uniper's trading/commodity risk is a net positive for credit quality, I believe **Improving** is appropriate for the metrics-based trend. One final check: are my 2021 and 2022 figures comparable? The 2022 figures are post-impairment and post-disposal. The 2021 figures include Uniper. This is an apples-to-oranges comparison in terms of entity composition, but for S&P's year-on-year trend analysis, this is exactly what they would observe: the metrics improved dramatically due to the disposal. The answer is **Improving**. Improving