# S&P Adjusted Debt-to-EBITDA Analysis for NATURGY ENERGY GROUP SA

## Step 1: Identify the Relevant Industry

NATURGY ENERGY GROUP SA is a multi-utility company providing gas, electricity, and water services. Based on the company's core operations in regulated and unregulated energy distribution and generation, it fits primarily within the **Regulated Utilities** sector (multi-utilities), with some exposure to unregulated power and gas operations.

The company operates across:
- Gas distribution and supply (regulated)
- Electricity distribution and supply (regulated)
- Water services (regulated)
- Unregulated generation and trading

For a multi-utility with predominantly regulated operations, S&P's Regulated Utilities methodology applies as the primary framework, with considerations for unregulated activities.

## Step 2: Estimate Adjusted_Debt

### Reported Debt Components (as of 2022-01-01):

**Current Borrowings:**
- Current Borrowings and Current Portion of Noncurrent Borrowings: €1,493M
- Current Lease Liabilities: €196M
- Current Financial Liabilities (other): €9M
- **Total Current Debt: €1,698M**

**Noncurrent Borrowings:**
- Longterm Borrowings: €13,786M
- Noncurrent Lease Liabilities: €1,325M
- Other Noncurrent Financial Liabilities: €3M
- **Total Noncurrent Debt: €15,114M**

**Total Reported Debt: €16,812M**

### Lease Adjustments:

According to S&P methodology for utilities, operating leases are capitalized. The data shows:
- Current Lease Liabilities: €196M
- Noncurrent Lease Liabilities: €1,325M
- Right-of-use Assets: €1,229M (2022-01-01)

These lease liabilities are already reflected in financial liabilities. However, per S&P's purchased power/lease methodology for utilities, we should ensure they are properly treated as debt-like obligations.

**Total Lease Liabilities: €1,521M** (already included in reported debt above)

### Cash and Cash Equivalents:

- Cash and Cash Equivalents (2022-01-01): €3,965M

### Pension Adjustments:

No pension deficit is disclosed in the data. The data shows pension-related OCI adjustments but no unfunded pension obligation.

### Hybrid Debt or Other Debt-like Items:

No hybrid securities are explicitly identified in the balance sheet. However, we should check for any guarantees or other obligations. None are explicitly disclosed.

### Calculated Adjusted_Debt:

```
Adjusted_Debt = Total Reported Debt - Eligible Cash
Adjusted_Debt = €16,812M - €3,965M
Adjusted_Debt = €12,847M
```

## Step 3: Estimate Adjusted_EBITDA

### Reported EBITDA (fiscal year 2021-01-01 to 2022-01-01):

The data provides:
- "Beneficio Bruto De Explotacion Ebitda" (2021-01-01 to 2022-01-01): **€3,529M**

This is the reported EBITDA for fiscal year 2021 (ending 2022-01-01).

### Adjustments Required:

**Lease Adjustments:**
Per S&P utilities guidance, if operating leases have been capitalized as debt, the associated rental expense should be added back to EBITDA. The implicit rent cost on capitalized leases is typically approximated.

For €1,521M in lease liabilities, using an average cost of capital assumption (typically 4-5%), the annual implied rent would be approximately €61-76M. However, this is already reflected in operating expenses in the P&L structure provided.

**Nonrecurring Items:**
- "Other Gains Losses" (2021-01-01 to 2022-01-01): -€99M (loss, so add back)
- "Increase Decrease In Allowance Account For Credit Losses": -€99M (provision, already excluded from EBITDA calculation)

**Share of Equity Accounted Entities:**
- "Share Of Other Comprehensive Income Of Associates And Joint Ventures Accounted For Using Equity Method" (2021-01-01 to 2022-01-01): €90M

However, the EBITDA metric provided should already be a consolidated measure. Per S&P guidance for utilities, adjustments for equity-accounted JVs are typically made at the operating cash flow level, not EBITDA level.

**Key Observation:**
The provided "Beneficio Bruto De Explotacion Ebitda" (€3,529M) appears to be a reconciling line item in the income statement. Let me verify this is appropriate EBITDA:

From the income statement structure:
- Revenue: €22,140M
- Operating expenses (Cost of goods sold, employee benefits, other operating): ~€18,611M
- Reported EBITDA: €3,529M

This yields an EBITDA margin of ~16%, which is reasonable for a regulated utility.

### Nonrecurring/Normalization Adjustments:

**Losses to Add Back:**
- Other Gains Losses: €133M (gain in 2021, so subtract; this is normalized)
- Changes in allowance for credit losses: €-99M (provision increase, already in operating expenses)

Since the EBITDA is reported as a line item, most operating adjustments should already be embedded. The main normalization question is whether there are one-time gains or losses.

**Other Gains/Losses analysis:**
- 2021-01-01 to 2022-01-01: €133M gain (normalized as recurring)
- This appears to be typical operating items

### Calculated Adjusted_EBITDA:

```
Adjusted_EBITDA = Reported_EBITDA + Lease Adjustments + Normalizations
Adjusted_EBITDA = €3,529M + €0M (leases already in reported debt) + €0M (no material one-time items)
Adjusted_EBITDA = €3,529M
```

Note: The reported EBITDA of €3,529M is for fiscal year 2021 (ending 2022-01-01). Given that debt is measured at 2022-01-01, this is the appropriate matching period.

## Step 4: Calculate Adjusted_Debt / Adjusted_EBITDA Ratio

```
Adjusted_Debt / Adjusted_EBITDA = €12,847M / €3,529M
Adjusted_Debt / Adjusted_EBITDA = 3.64
```

## Verification and Reasonableness Check

For a regulated utility:
- Naturgy is a multi-utility with predominantly regulated operations
- Typical leverage for European regulated utilities ranges from 2.0x to 4.5x depending on regulatory regime
- The calculated 3.64x is within the reasonable range for a stable regulated utility with moderate leverage

The ratio reflects:
- Significant debt load (€12.8B net)
- EBITDA generation of €3.5B annually
- This is consistent with a capital-intensive utility business model

<answer>3.64</answer>