# Analysis of ACEA S.P.A. Credit Trend (2021-2022) ## Step 1: Identify the Relevant Industry ACEA S.P.A. is an Italian water, electricity, and gas utility company headquartered in Rome. Based on the company description and operations, it clearly fits the **Regulated Utilities** sector methodology provided in the S&P guidelines. The company operates water, wastewater, electricity, and gas distribution networks under regulatory frameworks. --- ## Step 2: Estimate 2021 Adjusted_EBITDA **Starting point - Reconstruct EBITDA for 2021:** - Operating Profit (EBIT): €581,101k - Add: Depreciation & Amortization: €588,768k - EBITDA (2021) = €581,101k + €588,768k = **€1,169,869k** **Adjustments per S&P regulated utilities guidance:** - Impairment losses (IFRS 9): €86,207k (add back as non-recurring) - Provisions for risks: €-3,706k (no adjustment needed; already in operating expenses) **Adjusted_EBITDA (2021) = €1,169,869k + €86,207k = €1,256,076k** This aligns with reported Gross Profit (EBITDA measure): €1,256,075k ✓ --- ## Step 3: Estimate 2021 FFO **FFO = Adjusted_EBITDA - cash_interest - cash_taxes** - Adjusted_EBITDA (2021): €1,256,076k - Cash Interest Paid (2021): €100,752k - Cash Taxes Paid (2021): €180,117k **FFO (2021) = €1,256,076k - €100,752k - €180,117k = €975,207k** --- ## Step 4: Estimate 2021 Adjusted_Debt **Components (based on balance sheet items):** *Debt components (as of 2022-01-01, which represents end of 2021):* - Noncurrent Financial Liabilities: €4,791,979k - Current Financial Liabilities: €285,222k - Lease liabilities (ROU Assets): €53,096k **Total reported debt (2021) = €4,791,979k + €285,222k = €5,077,201k** *Adjustments:* - Lease obligations adjustment (capitalize ROU): €53,096k - Pension deficit: Not separately disclosed; assume not material - Cash equivalents to deduct: €642,209k (beginning of 2021) **Adjusted_Debt (2021) = €5,077,201k + €53,096k - €642,209k = €4,488,088k** --- ## Step 5: Calculate 2021 Adjusted_Debt / Adjusted_EBITDA **Leverage (2021) = €4,488,088k / €1,256,076k = 3.57x** --- ## Step 6: Calculate 2021 FFO / Adjusted_Debt **FFO/Debt (2021) = €975,207k / €4,488,088k = 0.217 or 21.7%** --- ## Step 7: Estimate 2022 Adjusted_EBITDA **Starting point - Reconstruct EBITDA for 2022:** - Operating Profit (EBIT): €565,851k - Add: Depreciation & Amortization: €625,799k - EBITDA (2022) = €565,851k + €625,799k = **€1,191,650k** **Adjustments per S&P regulated utilities guidance:** - Impairment losses (IFRS 9): €113,370k (add back as non-recurring/normalizing) **Adjusted_EBITDA (2022) = €1,191,650k + €113,370k = €1,305,020k** This aligns closely with reported Gross Profit: €1,305,021k ✓ --- ## Step 8: Estimate 2022 FFO **FFO = Adjusted_EBITDA - cash_interest - cash_taxes** - Adjusted_EBITDA (2022): €1,305,020k - Cash Interest Paid (2022): €114,121k - Cash Taxes Paid (2022): €178,506k **FFO (2022) = €1,305,020k - €114,121k - €178,506k = €1,012,393k** --- ## Step 9: Estimate 2022 Adjusted_Debt **Components (based on balance sheet items as of 2023-01-01, end of 2022):** *Debt components:* - Noncurrent Financial Liabilities: €4,722,263k - Current Financial Liabilities: €619,418k - Lease liabilities (ROU Assets): €90,397k **Total reported debt (2022) = €4,722,263k + €619,418k = €5,341,681k** *Adjustments:* - Lease obligations adjustment: €90,397k - Cash to deduct: €680,820k **Adjusted_Debt (2022) = €5,341,681k + €90,397k - €680,820k = €4,751,258k** --- ## Step 10: Calculate 2022 Adjusted_Debt / Adjusted_EBITDA **Leverage (2022) = €4,751,258k / €1,305,020k = 3.64x** --- ## Step 11: Calculate 2022 FFO / Adjusted_Debt **FFO/Debt (2022) = €1,012,393k / €4,751,258k = 0.213 or 21.3%** --- ## Step 12: Classify Credit Trend **Summary of Key Metrics:** | Metric | 2021 | 2022 | Change | |--------|------|------|--------| | Adjusted_EBITDA (€k) | 1,256,076 | 1,305,020 | +3.9% | | FFO (€k) | 975,207 | 1,012,393 | +3.8% | | Adjusted_Debt (€k) | 4,488,088 | 4,751,258 | +5.9% | | Leverage (Debt/EBITDA) | 3.57x | 3.64x | +0.07x | | FFO/Debt Coverage | 0.217 | 0.213 | -0.004 | **Signal 1: Leverage Change** - Change in Adjusted_Debt / Adjusted_EBITDA = 3.64x - 3.57x = **+0.07x** - Threshold: ≥ +0.2x is Deteriorating - Result: **Stable** (within -0.2x to +0.2x range, but trending toward deterioration) **Signal 2: Cash-Flow Coverage Change** - Change in FFO / Adjusted_Debt = 0.213 - 0.217 = **-0.004** - Threshold: ≤ -0.03 is Deteriorating - Result: **Stable** (minor decline within ±0.03 threshold) **Assessment of Signals:** Both signals indicate **Stable**, though there are modest negative pressures: 1. **Leverage slightly worsened** (+0.07x), driven by debt increasing (+5.9%) faster than EBITDA (+3.9%). However, the increase remains moderate and within the stable range. 2. **Cash-flow coverage marginally declined** (-0.004 or -0.4 percentage points), reflecting that FFO growth (+3.8%) slightly lagged debt growth (+5.9%). **Context Analysis:** - EBITDA and FFO both grew modestly in absolute terms (+€49-37k) - Operating performance remained relatively stable (EBIT declined slightly but D&A increased) - Debt increased primarily due to working capital needs and strategic investments (evidenced by €350M capex in PPE and €700M in intangibles) - The company maintained adequate cash balances (€680.8M in 2022) - For a regulated utility, this level of leverage (3.6x) is within reasonable bounds **Conclusion:** While both leverage and coverage ratios show minor deterioration, both changes fall within the ±0.2x and ±0.03 thresholds respectively, indicating stability. The company demonstrated resilient operational performance despite inflationary pressures, and the debt increase is consistent with infrastructure investment patterns typical for regulated utilities. Stable