# ENI S.P.A. Credit Trend Analysis (2021-2022) ## Step 1: Identify Relevant Industry ENI S.P.A. is an integrated oil and gas company with operations across: - **Upstream E&P (Oil & Gas Exploration and Production)** - primary business - **Downstream refining and chemicals** - **Power generation and utilities** - **Trading and midstream** Given the company's primary focus on oil and gas exploration and production with significant downstream and integrated operations, the **Oil and Gas Exploration and Production (E&P)** industry methodology is most appropriate as the core analytical framework. --- ## Step 2: Calculate 2021 Adjusted_EBITDA **Starting with reconstructed EBITDA:** - Profit/Loss from Operating Activities (2021): €12,341 million - Add: Depreciation and Amortization (2021): €7,063 million - Add: Impairment Loss (2021): €167 million - Add: Write-off of Tangible/Intangible Assets (2021): €387 million **EBITDA (2021) = 12,341 + 7,063 + 167 + 387 = €19,958 million** **Adjustments per S&P Oil & Gas methodology:** - Lease adjustments: ROU lease assets of €4,821 million (2021) are already partially reflected; operating lease adjustments would be captured in the financing analysis - Joint venture/equity earnings: Share of loss from equity-accounted investments (2021) = €(1,091) million (already in operating profit, should be addback for proportional consolidation purposes) - Nonrecurring items: Minimal additional nonrecurring items identified beyond normal operations **Adjusted_EBITDA (2021) = €19,958 million** (Note: The company operates in a cyclical commodity sector; this represents reported adjusted EBITDA) --- ## Step 3: Calculate 2021 FFO **Formula:** FFO = Adjusted_EBITDA - cash_interest - cash_taxes - Adjusted_EBITDA (2021): €19,958 million - Cash Interest Paid (2021): €792 million - Income Taxes Paid (2021): €3,726 million **FFO (2021) = 19,958 - 792 - 3,726 = €15,440 million** --- ## Step 4: Calculate 2021 Adjusted_Debt **Components:** - Current Borrowings (short-term): €2,299 million - Current Portion of Long-term Borrowings: €1,781 million - Non-current Borrowings: €23,714 million - Current Lease Liabilities: €948 million - Non-current Lease Liabilities: €4,389 million - **Total Reported Debt & Leases: €33,131 million** **Less: Eligible Cash** - Cash and Cash Equivalents (2021): €8,254 million - Deduct conservative portion for operations: Use total reported **Adjusted_Debt (2021) = 33,131 - 8,254 = €24,877 million** (Leases included as per S&P oil & gas methodology for capital structure analysis) --- ## Step 5: Calculate 2021 Adjusted_Debt / Adjusted_EBITDA **Leverage Ratio (2021) = 24,877 / 19,958 = 1.25x** --- ## Step 6: Calculate 2021 FFO / Adjusted_Debt **Cash Flow Coverage (2021) = 15,440 / 24,877 = 0.620** --- ## Step 7: Calculate 2022 Adjusted_EBITDA **Starting with reconstructed EBITDA:** - Profit/Loss from Operating Activities (2022): €17,510 million - Add: Depreciation and Amortization (2022): €7,205 million - Add: Impairment Loss/Reversal (2022): €1,140 million - Add: Write-off of Assets (2022): €599 million **EBITDA (2022) = 17,510 + 7,205 + 1,140 + 599 = €26,454 million** **Adjustments:** - Joint venture earnings: Share of profit from equity-accounted investments (2022) = €1,841 million (already in operating profit; minimal additional adjustments needed) - Nonrecurring items: The gain on financial assets (€55 million loss) is relatively minor **Adjusted_EBITDA (2022) = €26,454 million** (Higher than 2021 due to significantly improved commodity prices in 2022) --- ## Step 8: Calculate 2022 FFO **Formula:** FFO = Adjusted_EBITDA - cash_interest - cash_taxes - Adjusted_EBITDA (2022): €26,454 million - Cash Interest Paid (2022): €851 million - Income Taxes Paid (2022): €8,488 million **FFO (2022) = 26,454 - 851 - 8,488 = €17,115 million** --- ## Step 9: Calculate 2022 Adjusted_Debt **Components:** - Current Borrowings (short-term): €4,446 million - Current Portion of Long-term Borrowings: €3,097 million - Non-current Borrowings: €19,374 million - Current Lease Liabilities: €884 million - Non-current Lease Liabilities: €4,067 million - **Total Reported Debt & Leases: €31,868 million** **Less: Eligible Cash** - Cash and Cash Equivalents (2022): €10,155 million **Adjusted_Debt (2022) = 31,868 - 10,155 = €21,713 million** (Debt decreased despite higher absolute borrowings due to significantly increased cash position) --- ## Step 10: Calculate 2022 Adjusted_Debt / Adjusted_EBITDA **Leverage Ratio (2022) = 21,713 / 26,454 = 0.82x** --- ## Step 11: Calculate 2022 FFO / Adjusted_Debt **Cash Flow Coverage (2022) = 17,115 / 21,713 = 0.788** --- ## Step 12: Assess Credit Trend ### Signal 1: Leverage Change - 2021 Leverage: 1.25x - 2022 Leverage: 0.82x - **Change: 0.82 - 1.25 = -0.43x** - **Assessment: ≤ -0.2x → IMPROVING** ✓ ### Signal 2: Cash Flow Coverage Change - 2021 FFO/Debt: 0.620 - 2022 FFO/Debt: 0.788 - **Change: 0.788 - 0.620 = +0.168** - **Assessment: ≥ +0.03 → IMPROVING** ✓ ### Combined Assessment **Both signals agree and point to IMPROVING:** 1. **Leverage improved dramatically** (-0.43x), driven by: - EBITDA growth of 32.5% (€19,958m → €26,454m) due to elevated oil/gas prices in 2022 - Debt reduction of €3.2 billion despite higher short-term borrowings - Significant cash accumulation (+€1.9 billion to €10.2 billion), reflecting strong cash generation 2. **Cash flow coverage strengthened substantially** (+0.168 or +16.8 percentage points): - FFO increased by 10.9% (€15,440m → €17,115m) - Debt decreased by 12.8% - Coverage improved from 62.0% to 78.8%, indicating much stronger ability to service debt 3. **Context from E&P Sector:** - 2022 saw exceptional energy prices globally (Russia-Ukraine conflict) - Company demonstrated resilience and cash generation capability - Both absolute deleveraging and cash generation metrics improved The improvement is substantial and unambiguous across both financial metrics. Improving