# S&P FFO-to-Debt Ratio Analysis for ENGIE - FY 2022

## Step 1: Identify the Relevant Industry

ENGIE is a diversified global energy company operating across:
- **Regulated utilities** (electricity, gas distribution)
- **Unregulated power** (renewable and conventional generation)
- **Energy services and solutions**

The company's portfolio is mixed, but given its significant presence in regulated utility operations and the methodology guidance that applies to companies with multiple business lines, I will apply a **blended approach** primarily referencing the Regulated Utilities methodology for the core EBITDA adjustments, while being mindful of any unregulated exposure.

---

## Step 2: Estimate Adjusted_EBITDA

### Baseline Calculation

From the income statement for FY 2022 (2022-01-01 to 2023-01-01):

| Item | Value (EUR millions) |
|------|----------------------|
| Profit from Operating Activities | 1,127 |
| Depreciation Amortization And Provisions | 5,187 |
| **EBITDA (reconstructed)** | **6,314** |

### Required Adjustments

**1. Non-recurring items and impairments:**
- Impairment Loss Reversal: 2,774 million EUR (add back loss, subtract gain)
- Restructuring Expenses: 230 million EUR (add back)
- Other Non-Recurring Items: (1,328) million EUR (already in operating income, clarification needed)

The "Current Operating Income Including Operating Mtm" was 4,309 million EUR, and "Profit Loss From Operating Activities" was 1,127 million EUR. The difference reflects impairments, restructuring, and other non-recurring items.

**Adjustments:**
- Add back: Impairment losses = +2,774 (net of reversals, this is a loss to add back)
- Add back: Restructuring expenses = +230
- Other non-recurring adjustments already in operating income are netted

**Normalized adjustment:** +2,774 + 230 = +3,004 million EUR

**2. Share of Profit of Associates (Equity Method):**
According to the guidelines, undistributed profits of equity method investments should be adjusted:
- Share of Profit/Loss of Associates: 1,059 million EUR (this is already in operating income but represents proportional earnings)
- Dividend Income from Associates: (713) million EUR
- Net Adjustment: +1,059 - 713 = +346 million EUR

However, standard treatment is to add back the full equity earnings and subtract cash dividends received. The adjustment for undistributed profits is: +1,059 (from cash flow statement line "Adjustments For Undistributed Profits Of Investments Accounted For Using Equity Method")

**3. Tax Expense Other Than Income Tax:**
- This includes excise taxes, environmental taxes, etc., which should be added back: +3,380 million EUR

**4. Other Income adjustments:**
- Other Income: (1,624) million EUR (already in operating income, generally not adjusted)

### Adjusted_EBITDA Calculation

```
Reported EBITDA:                           6,314
Add: Impairment losses                   + 2,774
Add: Restructuring expenses                 +230
Add: Non-income tax expenses              +3,380
Add: Undistributed equity profits         +1,059
Less: Dividend income from associates       (713)
─────────────────────────────────────────────
Adjusted_EBITDA                          13,044
```

**Adjusted_EBITDA = 13,044 million EUR**

---

## Step 3: Estimate FFO (Funds From Operations)

### Formula:
```
FFO = Adjusted_EBITDA - cash_interest - cash_taxes
```

### Cash Interest Paid

From cash flow statement:
- Interest Paid Classified As Financing Activities: 822 million EUR

However, this represents only the cash paid for financing. Finance Costs from P&L were 3,700 million EUR. The difference reflects:
- Non-cash interest accruals
- Interest capitalized
- Other financing adjustments

For S&P analysis, we use **actual cash interest paid**:
- **Cash Interest = 822 million EUR**

### Cash Taxes Paid

From cash flow statement:
- Income Taxes Paid Refund Classified As Operating Activities: (1,504) million EUR

This is a **refund/cash inflow**, indicating the company received more in tax refunds than it paid. This could reflect:
- Loss carryforwards
- Prior year overpayments
- Tax credits

For FFO calculation:
- **Cash Taxes Paid = (1,504) million EUR** (negative, meaning cash inflow)

Or expressed as: Cash taxes = -1,504 (tax refund received)

### FFO Calculation

```
Adjusted_EBITDA                          13,044
Less: Cash Interest Paid                    (822)
Less: Cash Taxes Paid                     1,504  (refund, so negative outflow)
─────────────────────────────────────────────
FFO                                      13,726
```

**FFO = 13,726 million EUR**

---

## Step 4: Estimate Adjusted_Debt

### Components of Adjusted Debt

**1. Reported Debt (from Balance Sheet as of 2023-01-01):**
- Current Borrowings: 12,508 million EUR
- Longterm Borrowings: 28,083 million EUR
- **Total Reported Debt = 40,591 million EUR**

**2. Lease Obligations:**
- Not explicitly itemized in balance sheet provided
- S&P typically requires adjustment for operating leases under IFRS 16
- Data not clearly provided; assume minimal or already included

**3. Derivative Liabilities (Hedging):**
According to S&P guidance for utilities with substantial commodity exposure:
- Current Derivative Financial Liabilities: 11,859 million EUR
- Noncurrent Derivative Financial Liabilities: 39,417 million EUR

These represent mark-to-market hedging positions. S&P guidance states to include derivatives that represent debt-like obligations. Given the size and nature (commodity hedges for a utilities company), these should be included:
- **Derivatives = 51,276 million EUR** (but this represents MTM value; traditional S&P approach would exclude MTM derivatives unless they represent firm obligations)

**Conservative treatment (excluding MTM derivatives):** Not included in adjusted debt calculation initially.

**4. Pension Deficit:**
- Not explicitly provided in balance sheet
- Noncurrent provisions of 24,663 million EUR may include pension obligations
- Without specific breakdown, assume included in provisions

**5. Guarantees and Other Obligations:**
- Not explicitly itemized

**6. Hybrid Debt (Deeply Subordinated Perpetual Notes):**
- Reported as equity: 3,393 million EUR (as of 2023-01-01)
- These are typically hybrid instruments that S&P may treat as debt-like
- However, they are recorded as equity; S&P treatment requires case-by-case assessment
- Given perpetual nature and subordination, partial inclusion may be warranted: assume **50% = 1,697 million EUR**

**7. Eligible Cash to Deduct:**
- Cash And Cash Equivalents (2023-01-01): 15,570 million EUR

### Adjusted_Debt Calculation

```
Current Borrowings                       12,508
Longterm Borrowings                      28,083
─────────────────────────────────────
Total Reported Debt                      40,591

Add: Hybrid Instruments (50%)            + 1,697
Less: Cash and equivalents              (15,570)
─────────────────────────────────────
Adjusted_Debt                            26,718
```

**Adjusted_Debt = 26,718 million EUR**

---

## Step 5: Calculate FFO / Adjusted_Debt

```
FFO / Adjusted_Debt = 13,726 / 26,718 = 0.5137
```

---

## Final Verification and Rounding

- FFO: 13,726 million EUR
- Adjusted_Debt: 26,718 million EUR
- Ratio: 13,726 ÷ 26,718 = 0.51373...

Rounded to four decimal places: **0.5137**

<answer>0.5137</answer>