Here is the estimation of the S&P-adjusted FFO-to-debt ratio for TenneT Holding B.V. for the fiscal year ended December 31, 2022. ### Step 1: Identify the Relevant Industry Based on the provided description, TenneT Holding B.V. is a transmission system operator (TSO). This places the entity squarely in the **"Regulated Utilities"** sector, which operates under a natural monopoly with regulated tariffs. The company is owned by the Dutch State. ### Step 2: Estimate Adjusted EBITDA We will use the provided financial data to calculate Adjusted EBITDA. **1. Reported Operating Profit/Loss:** "Profit Loss From Operating Activities" for 2022: **-976,000,000 EUR** **2. Add Back Depreciation and Amortisation:** "Depreciation And Amortisation Expense" for 2022: **1,233,000,000 EUR** **3. Add Back Other Non-Recurring Losses (and subtract Gains):** "Other Gains Losses" for 2022: **-38,000,000 EUR** (This is a loss, so we add it back). **4. Calculate Reported EBITDA:** EBITDA = Operating Profit + Depreciation & Amortisation + Other Losses EBITDA = (-976,000,000) + 1,233,000,000 + 38,000,000 EBITDA = **295,000,000 EUR** **5. Adjustments for Joint Ventures and Associates:** S&P methodology for Adjusted EBITDA typically includes the proportional share of EBITDA from equity-method investments. - "Share Of Profit Loss Of Associates And Joint Ventures Accounted For Using Equity Method" = 120,000,000 EUR. - To adjust from net profit to EBITDA, we need to add back D&A and interest for these investments. The cash flow statement gives us some details, but not a full breakdown. However, the "Adjustments For Undistributed Profits Of Investments Accounted For Using Equity Method" is 120,000,000 EUR, which is equal to the share of profit/loss. This suggests that the entire share of profit/loss is undistributed. - "Dividends Received Classified As Operating Activities" = 92,000,000 EUR. - Following a common approach when full proportional EBITDA is unavailable, we can adjust EBITDA by substituting the investor's reported share of profit with the actual cash dividends received from the JV/Associates. This is more conservative and cash-flow oriented. - EBITDA Adjustment = Cash Dividends Received - Share of Profit/Loss - EBITDA Adjustment = 92,000,000 - 120,000,000 = **-28,000,000 EUR** **6. Other Normalization Adjustments (Pensions):** The methodology mentions pension adjustments. We check the pension expense reported in the income statement. The employee benefits expense includes pension costs. However, the cash flow statement shows "Adjustments For Provisions" of 104,000,000 EUR. We also see "Other Adjustments For Noncash Items" of 1,347,000,000 EUR, which is a very large item and likely relates to pass-through costs and working capital items typical for a TSO (like EEG accounts - renewable energy surcharge mechanisms). Given the complexity and lack of specific pension breakdown (service cost vs. interest cost vs. expected return), we will assume the pension adjustments are implicit in the reported cash flow from operations, and no additional major normalization is feasible from the data. We will not adjust the EBITDA further for pensions due to insufficient data. **7. Lease Adjustments:** The formula baseline includes `+ adjustment_leases (if any)`. Since 2019 (IFRS 16), leases are capitalized, meaning the right-of-use asset is depreciated and lease payments are split into depreciation and interest. The reported EBITDA already excludes the depreciation part of the lease. No add-back of lease payments is needed to get an adjusted EBITDA for FFO calculation, as FFO is a pre-leasing payment metric (depreciation is added back, and the lease principal repayment is treated as debt repayment, not an operating expense). The baseline formula `Adjusted_EBITDA = EBITDA + adjustment_leases` is typically used for pre-IFRS 16 adjustments, which is not the case here. We will stick with the calculated EBITDA. **8. Final Adjusted EBITDA:** Adjusted_EBITDA = 295,000,000 - 28,000,000 Adjusted_EBITDA = **267,000,000 EUR** ### Step 3: Estimate Funds From Operations (FFO) FFO = Adjusted_EBITDA - cash_interest - cash_taxes **1. Cash Interest Paid:** This is typically "Finance Costs" less non-cash interest, or from the cash flow statement. "Interest Paid Classified As Financing Activities" = **202,000,000 EUR** (This is used as the S&P definition of cash interest in FFO). **2. Cash Taxes Paid:** "Income Taxes Paid Refund Classified As Operating Activities" = **231,000,000 EUR** **3. Calculate FFO:** FFO = 267,000,000 - 202,000,000 - 231,000,000 FFO = **-166,000,000 EUR** ### Step 4: Estimate Adjusted Debt We follow the S&P formula: `Adjusted_Debt = (reported_debt + leases + pension_deficit + guarantees + hybrid_debt_portion + other_debt_like_items) - eligible_cash` **1. Gross Reported Debt:** This is the sum of reported short-term and long-term borrowings. - "Long-term Borrowings" (2023-01-01): 19,006,000,000 EUR - "Short-term Borrowings" (2023-01-01): 709,000,000 EUR - Total Reported Debt = 19,715,000,000 EUR **2. Leases:** This is the sum of non-current and current lease liabilities. - "Noncurrent Lease Liabilities" (2023-01-01): 574,000,000 EUR - "Current Lease Liabilities" (2023-01-01): 155,000,000 EUR - Total Leases = 729,000,000 EUR **3. Pension Deficit:** This is the "Noncurrent Recognised Liabilities Defined Benefit Plan". - "Noncurrent Recognised Liabilities Defined Benefit Plan" (2023-01-01): 174,000,000 EUR **4. Hybrid Capital:** For a government-owned utility with a very high debt burden, S&P typically treats 50% of hybrid capital as debt and 50% as equity. - "Hybrid Capital" (2023-01-01): 2,125,000,000 EUR - 50% of Hybrid Capital treated as adjusted debt: 0.50 * 2,125,000,000 = 1,062,500,000 EUR **5. Other Debt-Like Items:** "Current Bank Overdrafts" (2023-01-01): 0 EUR "Other Noncurrent Financial Liabilities" (2023-01-01): 185,000,000 EUR "Other Current Financial Liabilities" (2023-01-01): 550,000,000 EUR We will include these other financial liabilities as debt-like items. Total Other = 185,000,000 + 550,000,000 = 735,000,000 EUR **6. Surplus Cash:** S&P typically deducts "surplus cash" from debt. Surplus cash is cash not needed for day-to-day operations. "Cash And Cash Equivalents" (2023-01-01): 6,547,000,000 EUR Given that the company has 7,489,000,000 EUR in "Trade And Other Current Payables", a significant portion of this is likely EEG-related pass-through positions, meaning the cash is not freely available to repay debt. In the absence of detailed disclosure, S&P's standard approach, or a conservative one, would be to not net all cash against debt for a utility with working capital volatility. However, as a starting point, we will deduct the cash entirely as a baseline, but we must note the material impact of working capital. Let's check if the EEG working capital cash is identifiable. "Cash Flows From Used In Operations Excluding Eeg Working Capital" was 596,000,000 EUR, whereas the total change in cash was 3,407,000,000 EUR. This confirms massive EEG-related inflows. A strict reading of the baseline formula suggests deducting `eligible_cash`. Given the huge cash balance, using 100% would heavily distort the ratio. We will assume, as S&P often does for utilities with pass-through accounts, that the surplus cash is nil or limited, or we calculate it exactly. However, without an S&P-specific liquidity analysis, the standard calculation deducts the cash balance. We will present the calculation with the full deduction, and note the impact. Eligible Cash to deduct = 6,547,000,000 EUR. **7. Total Adjusted Debt:** Adjusted_Debt = 19,715,000,000 + 729,000,000 + 174,000,000 + 1,062,500,000 + 735,000,000 - 6,547,000,000 Adjusted_Debt = 22,415,500,000 - 6,547,000,000 Adjusted_Debt = **15,868,500,000 EUR** ### Step 5: Calculate FFO / Adjusted Debt FFO = -166,000,000 EUR Adjusted_Debt = 15,868,500,000 EUR FFO / Adjusted_Debt = -166,000,000 / 15,868,500,000 = -0.010461... Rounding to four decimal places: **-0.0105** -0.0105