I'll work through this step-by-step, identifying the relevant industry and calculating the S&P-adjusted FFO-to-debt ratio for EDP, S.A. ## Step 1: Identify the Relevant Industry EDP, S.A. is "EDP - Energias de Portugal, S.A." with principal activities in "generation, transmission, distribution and supply of electricity and supply of gas." This is a **regulated utility** (specifically a multi-utility with electricity and gas operations). However, EDP also has significant unregulated activities (generation, supply). Given the mix, I need to look at both methodologies. Looking at the facts: EDP has both regulated and unregulated activities. The company is described as having generation, transmission, distribution and supply of electricity and gas. Given the significant regulated network activities (transmission and distribution) plus generation and supply, this is best classified as a **regulated utility** with some unregulated power and gas components. However, for the financial metrics calculation, I'll apply the general corporate baseline with regulated utility considerations where relevant. Actually, re-reading: EDP is primarily a utility with regulated and unregulated components. For S&P purposes, given the methodology structure, I'll apply the **general corporate baseline formulas** with appropriate adjustments, primarily following the regulated utility approach for debt and FFO calculations. ## Step 2: Estimate Adjusted_EBITDA First, let me reconstruct EBITDA from the income statement data. From the facts for 2022 (2022-01-01 to 2023-01-01): - "Profit Loss Before Financial Income And Financial Expenses Income Tax Expense And Extraordinary Contribution To The Energy Sector CESE" (EBIT): 2,529,993,000 EUR - "Depreciation Amortisation And Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss": 1,979,007,000 EUR So EBITDA = EBIT + Depreciation/Amortization = 2,529,993,000 + 1,979,007,000 = **4,509,000,000 EUR** Let me verify using another approach: - "Profit Loss Before Provisions Amortisation And Impairment Financial Income And Financial Expenses Income Tax Expense And Extraordinary Contribution To The Energy Sector CESE": 4,523,539,000 EUR - Less: "Provisions Expenses": 14,539,000 EUR - Less: "Depreciation Amortisation And Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss": 1,979,007,000 EUR - = EBIT: 4,523,539,000 - 14,539,000 - 1,979,007,000 = 2,529,993,000 EUR ✓ So EBITDA = 4,523,539,000 - 14,539,000 = 4,509,000,000 EUR (or 2,529,993,000 + 1,979,007,000 = 4,509,000,000 EUR) **Adjustments to EBITDA:** **Leases adjustment:** - Right-of-use assets: 1,320,270,000 (2023-01-01) vs 1,007,029,000 (2022-01-01) - For regulated utilities, S&P capitalizes operating leases. Looking at the cash flow: "Payments Of Lease Liabilities Classified As Financing Activities": 133,696,000 EUR - The interest component of lease payments would be part of finance costs. Let me estimate lease depreciation + interest. - Looking at right-of-use assets change: 1,320,270,000 - 1,007,029,000 = 313,241,000 increase. This suggests significant new leases. - For S&P purposes, we add back lease expense and subtract depreciation. The typical approach is to add operating lease expense (if expensed) or make proportional adjustments. - Given IFRS 16 is used, leases are already capitalized. S&P typically makes a "leases adjustment" to reflect operating lease-like treatment for comparability. The adjustment is typically: + lease expense (as if operating lease) - lease depreciation already in D&A. - From cash flows: Payments Of Lease Liabilities = 133,696,000. This is principal + interest. - Looking at finance costs: total 1,753,220,000. Hard to separate lease interest. - For regulated utilities with IFRS 16, S&P may not make significant lease adjustments if the regulatory framework already accommodates this. However, for cross-border comparability, they often add back. - Let me check if there's explicit lease expense in the income statement. The "Other Expense By Nature" or "Services Expense" might include lease costs. - Actually, under IFRS 16, there's no separate operating lease expense. The "depreciation" of right-of-use assets is included in D&A, and interest is in finance costs. - S&P's typical adjustment: add back the depreciation of right-of-use assets and the interest on lease liabilities, then subtract an "operating lease expense" estimate (typically 1/3 to 1/2 of total lease payments as proxy for "rent" expense). - Alternatively, for simplicity and given limited data, I'll estimate the lease adjustment as the increase in right-of-use assets or use the cash flow information. Given complexity, let me use a pragmatic approach: The lease adjustment for EBITDA is typically +depreciation of ROU assets + interest on lease liabilities - estimated operating lease payment. With IFRS 16 already capitalized, S&P often adds back the ROU depreciation to get to a "pre-IFRS 16" comparable EBITDA. ROU assets increased by 313,241,000. Depreciation of ROU assets would be roughly: if average life is 5-10 years, annual depreciation ~100-200M. Let's estimate from the financing cash flow: payments were 133,696,000. If interest is ~30,000,000, principal is ~103,696,000. Depreciation might be similar to principal for stable portfolio, so ~100-130M. Actually, let me look at this differently. For S&P's regulated utility methodology, they mention: "Where substantial seasonal working capital requirements...distort leverage measures, we adjust inventory and debt balances." They don't emphasize lease adjustments as heavily. For practical purposes, given EDP is a European utility with IFRS 16 already applied, and the regulated utility methodology doesn't heavily emphasize lease adjustments for EBITDA, I'll use a **minimal lease adjustment** or estimate based on available data. Let me estimate: The ROU assets are 1,320,270,000. If average lease term is 8 years, straight-line depreciation = ~165M/year. Interest at 5% on average liability ~65M. Total "lease expense" under IFRS 16 = ~230M. Operating lease proxy (1/3 of payments) would be less. I'll use a simplified approach: add back estimated ROU depreciation of **150,000,000 EUR** and subtract estimated "operating lease" proxy. Actually, for S&P, the typical adjustment is to add operating lease expense back to EBITDA (if it was subtracted) and capitalize leases in debt. Under IFRS 16, depreciation and interest are already separated, so EBITDA already includes the depreciation component. Wait - let me reconsider. Under IFRS 16: - EBIT includes depreciation of ROU assets - EBITDA = EBIT + D&A includes depreciation of ROU assets - So EBITDA is already "inflated" compared to pre-IFRS 16 S&P wants comparability. They typically adjust by: adding back ROU depreciation to EBITDA (to get back to pre-IFRS 16 where operating lease expense was below EBITDA), then capitalize leases in debt. So adjustment_leases = + depreciation of ROU assets. Let me estimate this as roughly 150,000,000 EUR (based on ROU asset level and typical lease terms). Actually, looking more carefully at cash flows: "Payments Of Lease Liabilities Classified As Financing Activities" = 133,696,000. This is principal repayment. The interest portion would be in finance costs. Total lease liability change can be inferred from balance sheet. Let me check if there's lease liability on balance sheet. Not explicitly stated, but "Other Noncurrent Financial Liabilities" and "Other Current Financial Liabilities" might include lease liabilities. Given data limitations, I'll make a reasonable estimate. For European utilities, S&P often uses a multiplier approach. Let me use the ROU asset change and financing payment to estimate. Actually, let me take a different approach. Looking at the S&P methodology more carefully - for regulated utilities, the key adjustments mentioned are: - Purchased power methodology for integrated electric utilities - Seasonal working capital adjustments for gas distribution utilities - Deconsolidation of securitized debt There's no explicit mention of lease adjustments for regulated utilities in the same way as general corporates. Given this, and that IFRS 16 is now standard, I may not need a significant lease adjustment for EBITDA. However, for the general formula provided in the instructions, I should consider if leases need adjustment. Let me check if EDP's leases are "debt-like" and should be treated as such. Given the complexity, let me proceed with **EBITDA = 4,509,000,000 EUR** as base, and consider lease adjustments in debt rather than EBITDA (S&P sometimes does this - keeps EBITDA as reported under IFRS 16, but adds lease liabilities to debt). **Nonrecurring items:** Looking at the income statement: - "Gains Losses On Disposal And Scope Effects Except Asset Rotation": -4,377,000 EUR (negative = gain) - This is a gain, so nonrecurring_gains = 4,377,000 EUR Other potential nonrecurring items: - "Other Income": 927,450,000 EUR - this includes various items, may have nonrecurring components - "Extraordinary Contribution To The Energy Sector CESE": 51,534,000 EUR - this is a tax-like item, already excluded from EBIT Looking at "Other Adjustments To Reconcile Profit Loss" in cash flow: -1,384,104,000 EUR. This is large and negative. This likely includes working capital and other adjustments. For S&P purposes, nonrecurring items to adjust in EBITDA typically include large one-time gains/losses on asset sales, impairments, restructuring, etc. From the facts: - "Impairment Loss Impairment Gain And Reversal Of Impairment Loss Determined In Accordance With IFRS9": 60,199,000 EUR (expense) - In D&A: "Depreciation Amortisation And Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss": 1,979,007,000 EUR - this includes impairment reversals or losses The gain on disposal: -4,377,000 EUR (i.e., gain of 4.377M) is clearly nonrecurring. Also, looking at "Cash Flows From Losing Control Of Subsidiaries Or Other Businesses Classified As Investing Activities": 1,552,131,000 EUR - this is proceeds from disposals, suggesting significant divestment activity. The "Other Adjustments To Reconcile Profit Loss" of -1,384,104,000 EUR is quite large. This might include various normalization items. For conservative S&P analysis, let me identify clear nonrecurring items: - Gain on disposal/scope effects: 4,377,000 EUR (subtract from EBITDA) - Large other adjustments - need to analyze Actually, looking at the cash flow reconciliation more carefully: - "Other Adjustments To Reconcile Profit Loss": -1,384,104,000 EUR - This is negative, meaning it reduces profit to get to operating cash flow. This could include working capital changes, provisions, etc. Let me look at what's in this. The cash flow from operations is: - Profit Loss: 1,169,749,000 - Adjustments for D&A and impairment: 1,979,007,000 - Adjustments for provisions: 14,539,000 - Adjustments for JVs and associates: -208,684,000 (dividends/returns from equity method) - Adjustments for finance income/cost: 910,220,000 - Gains/losses on disposal: -4,377,000 - Working capital adjustments: 405,817,000 + 766,260,000 - 142,137,000 + 502,859,000 - Other adjustments: -1,384,104,000 - Income tax and CESE: -258,849,000 = Cash Flows From Used In Operations: 4,200,324,000 Let me verify: 1,169,749 + 1,979,007 + 14,539 - 208,684 + 910,220 - 4,377 + 405,817 + 766,260 - 142,137 + 502,859 - 1,384,104 - 258,849 = ? = 1,169,749 + 1,979,007 = 3,148,756 + 14,539 = 3,163,295 - 208,684 = 2,954,611 + 910,220 = 3,864,831 - 4,377 = 3,860,454 + 405,817 = 4,266,271 + 766,260 = 5,032,531 - 142,137 = 4,890,394 + 502,859 = 5,393,253 - 1,384,104 = 4,009,149 - 258,849 = 3,750,300 Hmm, this doesn't match 4,200,324. Let me recheck. Actually "Cash Flows From Used In Operations" is 4,200,324,000. My calculation gives 3,750,300. Difference is about 450M. Possibly I missed something or the "Other Adjustments" includes items I need to understand. Actually, re-reading: "Other Adjustments To Reconcile Profit Loss" might include items like equity compensation, fair value changes, etc. The -1,384,104,000 seems very large. For S&P normalization, I should focus on clearly identifiable nonrecurring items. Let me look for: - Asset rotation gains/losses - Large one-time items From the income statement: - "Joint Ventures And Associates": 239,429,000 EUR (income from equity method) - In EBIT, this is included: "Profit Loss Before Provisions Amortisation And Impairment Financial Income And Financial Expenses Income Tax Expense And Extraordinary Contribution To The Energy Sector CESE" = 4,523,539,000 includes equity income Actually wait - the EBIT of 2,529,993,000 is after JVs? Let me check: - 4,523,539,000 (before provisions, D&A) - minus 14,539,000 (provisions) - minus 1,979,007,000 (D&A) - = 2,529,993,000 But 4,523,539,000 includes "Joint Ventures And Associates" of 239,429,000? Actually, looking at standard income statement format, "Joint Ventures And Associates" is typically shown after operating profit but before financing costs. Let me check if it's in the 4,523,539,000 or after. Looking at the labels: "Profit Loss Before Provisions Amortisation And Impairment Financial Income And Financial Expenses Income Tax Expense And Extraordinary Contribution To The Energy Sector CESE" - this is essentially operating profit before financing, tax, etc. It likely includes share of profit of associates. Then "Profit Loss Before Financial Income And Financial Expenses Income Tax Expense And Extraordinary Contribution To The Energy Sector CESE" = 2,529,993,000 is after provisions and D&A, so this is EBIT. And EBIT includes the 239,429,000 from JVs? Actually, share of profit of associates is typically after EBIT in some presentations, or included in operating profit. Looking at the cash flow adjustment "Adjustments For Joint Ventures And Associates": -208,684,000, this suggests the equity income is included in profit but needs to be adjusted out for cash flow. Actually, in many IFRS statements, "Share of profit of associates and joint ventures" is presented after operating profit (as part of "profit before tax" but not in EBIT). Let me assume EBIT of 2,529,993,000 does NOT include the 239,429,000 JV income, and it's added later to get to profit before tax. Wait - let me check: Profit Before Income Tax And CESE = 1,619,773,000 And EBIT = 2,529,993,000 Finance Income = 843,000,000 Finance Costs = 1,753,220,000 Net finance = -910,220,000 2,529,993,000 - 910,220,000 = 1,619,773,000 ✓ So the 239,429,000 JV income must be included in the 2,529,993,000 EBIT or is part of finance income. Looking at cash flow: "Adjustments For Joint Ventures And Associates" = -208,684,000. This adjusts the equity method income. The difference between 239,429,000 (income statement JV income) and 208,684,000 (cash flow adjustment) might be dividends received vs equity income. Actually, "Dividends Received" in investing activities = 81,394,000. And "Adjustments For Joint Ventures And Associates" = -208,684,000. Sum = -127,290,000, which doesn't match 239,429,000. This is getting complex. Let me focus on the key S&P adjustments and use a more streamlined approach. **Simplified Adjusted_EBITDA calculation:** Base EBITDA = 4,509,000,000 EUR Key normalization adjustments for S&P: 1. **Nonrecurring gain on disposal**: -4,377,000 EUR (subtract this gain) 2. **Other nonrecurring items**: Looking at "Other Income" of 927,450,000 - this may include nonrecurring items. However, without detailed breakdown, I'll be conservative and not adjust. 3. **Pension adjustments**: Looking at OCI, "Gains Losses On Remeasurements Of Defined Benefit Plans" net of tax = 196,716,000 total (187,276,000 parent + 5,540,000 NCI). The pre-tax was 285,544,000, tax 88,828,000. For S&P, service cost is in EBITDA, interest cost is below. The remeasurements are nonrecurring. However, these are in OCI not P&L typically. Looking at "Noncurrent Provisions For Employee Benefits": 644,299,000 (2023) vs 940,266,000 (2022) - significant decrease. "Current Provisions For Employee Benefits": 126,767,000 vs 179,534,000. For S&P pension adjustment: we typically add back pension interest cost (if net interest is in finance costs) and adjust for cash contributions. The net pension liability/asset position matters. Given complexity and data limitations, let me make reasonable estimates. The defined benefit remeasurements in OCI suggest some volatility. For EBITDA, we typically don't adjust OCI items. For the P&L, if pension costs are in "Employee Benefits Expense" (770,800,000), this is operating and stays in EBITDA. 4. **JV proportional EBITDA**: S&P sometimes proportionally consolidates JVs rather than equity method. The equity income is 239,429,000. If we proportional consolidate, we'd add our share of JV EBITDA. Without JV financials, hard to estimate. The cash flow adjustment suggests dividends of ~81M received. I'll estimate JV proportional EBITDA adjustment as roughly 2-3x equity income = ~500M, but this is very rough. Actually, for regulated utilities, S&P is less likely to make proportional consolidation adjustments unless significant. Given EDP's JVs are likely power projects, and the equity income is 239M on profit of 1,170M (20%), this is material. Let me estimate proportional EBITDA as: equity income 239M + our share of JV D&A and interest. If JVs are similar leverage to EDP, JV EBITDA might be 400-600M for EDP's share. Let me use a pragmatic estimate: **+300,000,000 EUR** for JV proportional EBITDA adjustment (roughly 1.25x equity income, assuming moderate leverage and D&A at JVs). Actually, rethinking: S&P's general approach for JVs is to replace equity income with proportional share of EBITDA, then subtract proportional share of D&A, interest, tax. The net effect on EBITDA is: + proportional EBITDA - equity income. If JVs have EBITDA margin similar to EDP's ~22%, and EDP's share of JV revenue is roughly 239M/0.22 = ~1.1B revenue, then proportional EBITDA ~240M. This suggests JVs are low margin or my estimate is off. Given uncertainty, let me be conservative and use **minimal JV adjustment** or check if equity income is already "above EBITDA." Actually, in standard presentation, share of profit of associates is AFTER EBIT. So EBIT does not include equity income. Then EBITDA also doesn't include it. So no JV adjustment needed for EBITDA if we're using EBIT + D&A. Wait, let me re-verify. If EBIT is 2,529,993,000 and we add D&A 1,979,007,000 to get EBITDA 4,509,000,000, and equity income is presented after EBIT, then EBITDA is correct and doesn't include JVs. But then "Profit Before Income Tax And CESE" = 1,619,773,000 = EBIT - net finance + equity income? Or is equity income in EBIT? Standard IFRS: Operating profit includes share of profit of associates when using equity method (IAS 28). Actually, I need to check this. Under IAS 28, the equity method investment is presented as a single line item, typically after operating profit but before finance costs. So it's NOT in EBIT. Let me verify with numbers: If EBIT = 2,529,993,000, and it doesn't include equity income: Then PBT = EBIT - net finance (910,220,000) + equity income (239,429,000) + other items = ? 2,529,993,000 - 910,220,000 = 1,619,773,000. But this equals PBT without adding equity income. So either: - Equity income is in EBIT, OR - There are other items, OR - My understanding is wrong Actually 1,619,773,000 = PBT. And 2,529,993,000 - 910,220,000 = 1,619,773,000. This exactly equals PBT. So equity income of 239,429,000 must be included in the 2,529,993,000 EBIT, or there's something else. Wait - "Finance Income" = 843,000,000 and "Finance Costs" = 1,753,220,000. Net = -910,220,000. But "Adjustments For Finance Income Cost" in cash flow = 910,220,000 (positive, added back). This matches. Hmm, but where is the 239,429,000 equity income? Looking at "Joint Ventures And Associates" line - this might be presented after EBIT as "Share of profit of associates and joint ventures" but before finance costs. In that case: Profit before tax = EBIT + Share of profit of associates - Net finance costs = 2,529,993,000 + 239,429,000 - 910,220,000 = 1,859,202,000 But actual PBT is 1,619,773,000. Difference is 239,429,000. So maybe share of profit is included in EBIT, or there's a different presentation. Actually, re-reading: "Profit Loss Before Provisions Amortisation And Impairment Financial Income And Financial Expenses Income Tax Expense And Extraordinary Contribution To The Energy Sector CESE" = 4,523,539,000. This explicitly says "before Financial Income And Financial Expenses" - so it's before all finance items. And "Joint Ventures And Associates" = 239,429,000 might be included in this. Then after provisions and D&A: 2,529,993,000. This is "Profit Loss Before Financial Income And Financial Expenses..." = EBIT. Then PBT = 1,619,773,000 = EBIT + equity income? - net finance? 2,529,993,000 + 239,429,000 - 910,220,000 = 1,859,202,000 ≠ 1,619,773,000 Or: 2,529,993,000 - 239,429,000 - 910,220,000 = 1,380,344,000 ≠ 1,619,773,000 Neither works. So equity income must be in EBIT already, or there's something else. Let me try: 2,529,993,000 includes equity income. Then EBIT excluding equity income = 2,529,993,000 - 239,429,000 = 2,290,564,000. Then PBT = 2,290,564,000 - 910,220,000 = 1,380,344,000. Still not 1,619,773,000. Hmm, difference is 239,429,000. So maybe PBT = EBIT - net finance + equity income, meaning equity income is not in EBIT: 2,529,993,000 - 910,220,000 + 239,429,000 = 1,859,202,000. No. Or PBT includes some other income. "Other Income" = 927,450,000. Maybe part is in EBIT and part after? Actually, looking at typical income statement structure: Revenue - Cost of sales = Gross profit - Operating expenses (services, employee, other, impairment, D&A) + Other income +/- Share of JVs = EBIT (operating profit) - Finance costs + Finance income = PBT If this is the case: EBIT = 4,523,539,000 - 14,539,000 - 1,979,007,000 = 2,529,993,000. But this should include "Other Income" and "Share of JVs" if they are above this line. Actually, "Profit Loss Before Provisions Amortisation And Impairment Financial Income And Financial Expenses Income Tax Expense And Extraordinary Contribution To The Energy Sector CESE" = 4,523,539,000. This is before provisions, D&A, finance, tax, CESE. It includes operating income, other income, JVs? The components seem to be: - Net Of Revenue And Cost Of Energy Sales And Other: 6,121,051,000 - Other Income: 927,450,000 - Less: Services Expense: 1,103,668,000 - Less: Employee Benefits Expense: 770,800,000 - Less: Other Expense By Nature: 829,724,000 - Less: Impairment: 60,199,000 - Plus: Joint Ventures And Associates: 239,429,000 = ? 6,121,051 + 927,450 - 1,103,668 - 770,800 - 829,724 - 60,199 + 239,429 = 4,523,539 ✓ Yes! So "Profit Loss Before Provisions Amortisation And Impairment..." = 4,523,539,000 includes JVs and Other Income. Then after provisions and D&A, we get EBIT of 2,529,993,000. So EBIT includes equity income from JVs. For S&P, if we want to replace equity method with proportional consolidation, we need to adjust EBITDA. But for now, let me proceed with practical estimates. Given time constraints, I'll use: **Adjusted_EBITDA = 4,509,000,000 + 0 (leases, already in EBITDA) - 4,377,000 (nonrecurring gain) + 0 (pension, minimal service cost impact) + 300,000,000 (estimated JV proportional adjustment, conservative) = 4,804,623,000 EUR** Actually, let me reconsider the JV adjustment. If equity income is already in EBIT (and thus EBITDA), and S&P wants proportional consolidation, the adjustment would be: - Remove equity income: -239,429,000 - Add proportional share of JV EBITDA: +? If JVs have similar margins to EDP, and equity income is 239M, JV EBITDA might be 400-500M for EDP's share. Net adjustment = +200-300M. I'll use **+200,000,000** as conservative. Revised: Adjusted_EBITDA = 4,509,000,000 - 4,377,000 + 200,000,000 = **4,704,623,000 EUR** Hmm, but this is getting speculative. Let me check if S&P for utilities typically makes JV proportional adjustments. Actually, for regulated utilities, they may not if JVs are small. Given EDP's JVs are 1.6B investment and generate 239M income (15% return), they're material. Let me use a cleaner approach: look at what S&P actually does for EDP if possible, or use standard methodology. Given uncertainty, I'll use **Adjusted_EBITDA ≈ 4,700,000,000 EUR** as working estimate, with detailed calculation: - Base EBITDA: 4,509,000,000 - Less: Nonrecurring gain on disposal: (4,377,000) - Plus: Estimated lease adjustment (ROU depreciation addback for comparability): 150,000,000 - Plus: JV proportional EBITDA adjustment (net): 200,000,000 - Other normalizations (pension, etc.): minimal Adjusted_EBITDA = **4,854,623,000 EUR** or roughly **4,850,000,000 EUR** Let me round to **4,850,000,000 EUR** for practical purposes. Actually, I want to be more careful. Let me re-examine if lease adjustment is needed. Under IFRS 16, EBITDA includes ROU depreciation. For S&P comparability with pre-IFRS 16 companies, they add back ROU depreciation. But many European utilities now use IFRS 16, so comparability is less of an issue. However, for global comparability with US GAAP companies (where operating leases are still off-balance sheet for many), S&P does adjust. I'll include a moderate lease adjustment: +150,000,000 ROU depreciation addback. Final Adjusted_EBITDA estimate: **4,855,000,000 EUR** ## Step 3: Estimate FFO FFO = Adjusted_EBITDA - cash_interest - cash_taxes **Cash interest:** From cash flow: "Interest And Similar Costs Of Financial Debt Including Hedge Derivatives" = 716,454,000 "Interest And Similar Costs Relating To Loans From Non Controlling Interests" = 12,885,000 "Interest And Similar Costs Of Loans From Related Parties Including Hedge Derivatives" = 111,000 Total interest paid (financing activities): 716,454,000 + 12,885,000 + 111,000 = 729,450,000 But wait, there's also "Interest Received Classified As Investing Activities" = 101,841,000. This is interest received, not paid. And "Finance Income" = 843,000,000, "Finance Costs" = 1,753,220,000. The cash interest paid is typically less than accrual due to timing, capitalized interest, etc. For S&P FFO, we use **cash interest paid**, not accrual. From financing activities: 729,450,000. But we need to check if there's capitalized interest in investing activities. Looking at investing outflows: "Cash Payments Relating To Property Plant And Equipment And Intangible Assets" = 3,499,996,000. No explicit capitalized interest shown. Also, "Other Inflows Outflows Of Cash Classified As Operating Activities" = -422,539,000. This might include interest received or paid classified as operating. Actually, looking at IAS 7, interest paid can be classified as operating or financing. EDP seems to classify most interest as financing. The "Other Inflows Outflows Of Cash Classified As Operating Activities" might include some interest. For conservative estimate, let me use total cash interest paid = 729,450,000 + portion of other operating outflows. But I'll use **729,450,000 EUR** as base, and add estimate for other interest. Actually, "Adjustments For Finance Income Cost" in operating cash flow = 910,220,000. This is the non-cash/accrual adjustment for finance income/cost. The actual cash amount is in financing activities. Total finance cost accrual = 1,753,220,000 - 843,000,000 = 910,220,000 net expense. Cash paid = 729,450,000 per financing activities. Difference = 180,770,000 might be capitalized, accrued, or in other categories. For S&P purposes, cash interest = **729,450,000 EUR** (from financing activities) + any capitalized interest. I'll estimate capitalized interest as roughly 100,000,000 based on the difference and typical utility practice. Total cash interest ≈ **830,000,000 EUR** **Cash taxes:** "Income Tax Expense Continuing Operations" = 398,490,000 "Extraordinary Contribution To The Energy Sector CESE" = 51,534,000 Total tax expense = 450,024,000 From cash flow: "Income Tax And CESE" = -258,849,000 (negative means outflow). This is cash tax paid. But wait, "Tax Liabilities-Current" increased from 582,686,000 to 1,001,102,000, and "Tax Assets-Current" increased from 551,842,000 to 814,298,000. The change suggests some timing differences. Cash taxes paid = 258,849,000 (from cash flow, positive number in operating section means outflow, shown as negative). Actually in my earlier reading, "Income Tax And CESE" = -258,849,000 in the reconciliation (reducing profit), meaning cash outflow of 258,849,000. But "Income Tax Expense And Extrodinary Contribution To The Energy Sector Cese" = 450,024,000. The difference (450M - 259M = 191M) is non-cash or timing. For S&P FFO, we use **cash taxes paid** = **258,849,000 EUR** However, CESE might be considered more like a tax. The cash flow shows "Income Tax And CESE" together as 258,849,000. But wait - is this the right sign? In cash flow reconciliation, it's -258,849,000, meaning subtracted from profit (cash outflow). So cash tax + CESE paid = 258,849,000. Hmm, but tax expense was 450,024,000. If only 258,849,000 was paid, there's 191M of unpaid tax/CESE. Let me check tax liabilities: Current tax liabilities went from 582,686,000 to 1,001,102,000 (increase of 418,416,000). Tax assets went from 551,842,000 to 814,298,000 (increase of 262,456,000). Net tax liability position changed. Actually, this is getting complex. Let me use cash taxes = 258,849,000 as per cash flow statement, but note that this seems low. Alternatively, maybe the -258,849,000 is a net figure including refunds. For conservative FFO, I'll use **cash taxes = 350,000,000 EUR** (roughly the expense adjusted for known timing, or about 78% of expense which is typical). Actually, let me stick closer to reported: cash taxes = **258,849,000 EUR** from cash flow, but add CESE if not included. The label says "Income Tax And CESE" so it should include both. FFO = 4,855,000,000 - 830,000,000 - 258,849,000 = **3,766,151,000 EUR** Or with slightly different estimates: FFO = 4,850,000,000 - 830,000,000 - 350,000,000 = **3,670,000,000 EUR** Let me use **FFO ≈ 3,700,000,000 EUR** as a working estimate, with more precise calculation below. Actually, let me recalculate more carefully with explicit components: Adjusted_EBITDA = 4,509,000,000 (base EBITDA) + 150,000,000 (lease adjustment, ROU depreciation addback) - 4,377,000 (nonrecurring gain) + 200,000,000 (JV proportional, net) = 4,854,623,000 ≈ **4,855,000,000** Cash interest: - From financing activities: 729,450,000 - Estimated capitalized interest: 100,000,000 - Other interest elements: 50,000,000 = **880,000,000** Cash taxes: - From cash flow: 258,849,000 - Additional CESE/timing adjustments: 50,000,000 = **310,000,000** FFO = 4,855,000,000 - 880,000,000 - 310,000,000 = **3,665,000,000 EUR** Or using tighter numbers: FFO = **3,700,000,000 EUR** Let me cross-check with another approach. "Cash Flows From Used In Operating Activities" = 3,777,785,000. This is after working capital changes and other items. FFO should be higher than this because FFO is before working capital changes. From cash flow reconciliation: Profit: 1,169,749,000 + D&A: 1,979,007,000 + Provisions: 14,539,000 - JVs: 208,684,000 (dividends/returns, not equity income) + Finance cost adjustment: 910,220,000 - Gain on disposal: 4,377,000 + Working capital: 405,817,000 + 766,260,000 - 142,137,000 + 502,859,000 + Other adjustments: -1,384,104,000 - Income tax/CESE cash paid: 258,849,000 = 4,200,324,000 (operations before other items) Then + other operating: -422,539,000 = 3,777,785,000 net operating cash flow For FFO (funds from operations), S&P defines it as: FFO = Net income + D&A + deferred taxes + other non-cash items - gain on sale + adjustments Or from EBITDA: FFO = EBITDA - cash interest - cash taxes (± other items) My estimate of 3,700M seems reasonable. Let me use **3,750,000,000 EUR** to be slightly conservative, or calculate more precisely. Actually, let me use the standard S&P formula more directly: FFO = Net income + D&A + other non-cash - gain on sale + adjustments Net income: 1,169,749,000 + D&A: 1,979,007,000 + Provisions expense (non-cash): 14,539,000 - Gain on disposal: 4,377,000 + Equity income (non-cash, replaced by dividends): need to adjust - Dividends received (cash, already in investing): 81,394,000? Actually, S&P FFO from net income: = 1,169,749,000 + 1,979,007,000 (D&A) + 14,539,000 (provisions, non-cash portion) - 4,377,000 (gain on disposal) - 239,429,000 (equity income, non-cash) + 208,684,000 (dividends/returns from JVs, cash - but this is already in investing) + 910,220,000 (finance cost, non-cash accrual adjustment) - ? This gets messy with the cash flow adjustments. Let me use the EBITDA-based approach which is cleaner. FFO = EBITDA - cash interest - cash taxes + other adjustments = 4,509,000,000 - 729,450,000 - 258,849,000 + lease adjustments + other normalizations = 3,520,701,000 + adjustments With lease addback (+150M) and JV adjustment (+200M) and nonrecurring (-4M): = 3,520,701,000 + 150,000,000 + 200,000,000 - 4,377,000 = 3,866,324,000 Less additional cash interest estimate (capitalized, etc.): -100,000,000 = **3,766,324,000 EUR** I'll use **FFO = 3,750,000,000 EUR** as a rounded but reasonable estimate. ## Step 4: Estimate Adjusted_Debt Adjusted_Debt = reported_debt + leases + pension_deficit + guarantees + hybrid_debt_portion + other_debt_like_items - eligible_cash **Reported debt:** - "Longterm Borrowings" (2023-01-01): 15,782,604,000 - "Current Borrowings And Current Portion Of Noncurrent Borrowings" (2023-01-01): 4,239,869,000 - Total borrowings = 20,022,473,000 But we need year-end 2022 debt for 2022 metrics? Actually, the question asks for 2022 ratio, and the fiscal year ended Dec 31, 2022. The balance sheet dates are 2022-01-01 (beginning) and 2023-01-01 (end). So 2023-01-01 is Dec 31, 2022. Total borrowings at year-end 2022 = 15,782,604,000 + 4,239,869,000 = **20,022,473,000 EUR** **Leases:** Under IFRS 16, lease liabilities are included in debt. We need to estimate operating lease liability not already in borrowings. Looking at: - Right-of-use assets: 1,320,270,000 - These are roughly matched by lease liabilities From financing activities: "Payments Of Lease Liabilities" = 133,696,000. This suggests lease liabilities exist. Looking at liability breakdown, lease liabilities are likely in: - "Other Noncurrent Financial Liabilities": 5,159,496,000 - "Other Current Financial Liabilities": 3,600,893,000 These are large categories that likely include lease liabilities, derivatives, and other items. For S&P, if leases are already in "borrowings" or these other categories, we need to identify what's already debt-like. The standard approach is to add operating leases if not already capitalized. But under IFRS 16, they are capitalized. However, S&P may still make a lease adjustment for comparability: they estimate the operating lease liability as NPV of lease payments. Given ROU assets of 1,320,270,000, the lease liability is similar (maybe slightly different due to timing). If lease liabilities are already included in total debt (borrowings + other financial liabilities), then no additional adjustment needed. But if they're in "other financial liabilities" and we haven't counted those in "reported debt," we need to add. Let me check: "Other Noncurrent Financial Liabilities" = 5,159,496,000 and "Other Current Financial Liabilities" = 3,600,893,000. These likely include: - Lease liabilities - Derivative liabilities - Other financial items For S&P, we typically include all debt-like items. Let me include "Other Noncurrent Financial Liabilities" and "Other Current Financial Liabilities" as part of debt, or at least the debt-like portions. Actually, looking more carefully at S&P's approach: they often use "total debt" as short-term borrowings + long-term borrowings + current portion of L.T. debt + notes payable + other similar items. From EDP's balance sheet, the explicit borrowings are: - Longterm Borrowings: 15,782,604,000 - Current Borrowings And Current Portion Of Noncurrent Borrowings: 4,239,869,000 The "Other Financial Liabilities" might include derivatives, leases, and other items. Some of these are debt-like, some are not (e.g., derivative liabilities for hedging). For conservative approach, let me include a portion of other financial liabilities as debt-like. But this requires more detailed breakdown. Actually, for regulated utilities, S&P's main adjustment mentioned is for purchased power contracts and seasonal working capital, not leases (since rate regulation typically allows cost recovery). Let me use a cleaner approach: **reported debt = total borrowings = 20,022,473,000** Then add: - **Leases**: Estimate lease liability not in borrowings. If ROU assets = 1,320,270,000 and lease liability is similar, but some may be in borrowings. Let me estimate additional lease liability to add = **500,000,000** (conservative, assuming some already in other categories). Actually, looking at IFRS 16 implementation, lease liabilities are typically in "borrowings" or "lease liabilities" specifically. Given EDP doesn't show separate "lease liabilities," they're likely in "Other Financial Liabilities." Let me add all of "Other Noncurrent Financial Liabilities" and "Other Current Financial Liabilities" as debt-like, then subtract non-debt portions (derivatives, etc.). But this is too speculative. Alternative: Use total financial liabilities approach: - Borrowings: 20,022,473,000 + Other noncurrent financial liabilities: 5,159,496,000 + Other current financial liabilities: 3,600,893,000 + Institutional partnerships (debt-like): 2,212,162,000 = 30,995,024,000 Then subtract: derivatives, payables that aren't debt-like, etc. This is getting too complex. Let me use a more standard S&P approach for utilities: **Reported debt** = Short-term borrowings + Long-term borrowings + Current portion of long-term debt = 4,239,869,000 + 15,782,604,000 = **20,022,473,000** **Lease adjustment**: Add estimated operating lease liability. Under IFRS 16, this is already in debt. But for comparability with pre-IFRS 16, S&P might add back. Actually no - for IFRS 16 companies, S&P typically uses reported debt including lease liabilities, then makes EBITDA adjustment. Wait, I need to be consistent. If I added ROU depreciation back to EBITDA (inflating EBITDA), I should also add lease liability to debt. Let me check my earlier logic. Actually, the standard S&P approach for IFRS 16: - Add back ROU depreciation to EBITDA (to get comparable EBITDA) - Add lease liabilities to debt (to get comparable debt) So if I made the EBITDA adjustment, I need the debt adjustment too. Lease liability estimate: Roughly equal to ROU assets, adjusted for timing. Let's use **1,200,000,000 EUR** as lease liability to add (slightly less than ROU assets due to some leases being low-interest). **Pension deficit:** "Noncurrent Provisions For Employee Benefits": 644,299,000 "Current Provisions For Employee Benefits": 126,767,000 Total employee benefit provisions: 771,066,000 But we need pension deficit specifically. "Other Comprehensive Income" includes remeasurements of defined benefit plans. The net liability position isn't clear. Looking at "Reserves And Retained Earnings" and equity components, there are remeasurements. But for deficit calculation, we need plan assets vs obligations. Without detailed pension data, I'll estimate pension deficit based on provisions. The 771M employee benefits likely includes pension and other post-employment benefits. For S&P, we add pension deficit (liability minus plan assets). If plan assets are zero or not shown, the liability is the deficit. But "Noncurrent Provisions For Employee Benefits" decreased from 940,266,000 to 644,299,000, suggesting significant change. This might include pension settlements. For conservative estimate, let me use **pension deficit = 500,000,000 EUR** (rough estimate of underfunded status). Actually, looking at OCI remeasurements: net of tax gain of 196,716,000 on defined benefit plans. This suggests plans were overfunded or assumptions changed favorably. If plans are in surplus, deficit is zero. Given uncertainty, I'll use **pension deficit = 0** (assuming roughly funded status, or surplus not recognized due to asset ceiling). **Guarantees**: No explicit data. Estimate **0**. **Hybrid debt portion**: No explicit data on hybrid instruments. EDP may have some. Estimate **0** or small amount. **Other debt-like items**: - "Institutional Partnerships In North America": 2,212,162,000 - this looks like non-controlling interests or partnership structures that are debt-like. S&P may view these as debt. - "Trade Payables And Other Liabilities From Commercial Activities-Non Current": 1,412,454,000 - some may be debt-like - "Noncurrent Payables On Social Security And Taxes Other Than Income Tax": 179,250,000 - not debt-like For institutional partnerships: These are likely structures where EDP has sold interests in assets but retains control or significant exposure. They could be debt-like if they have fixed returns. Let me include **Institutional Partnerships** as debt-like: **2,212,162,000 EUR** Also, "Collateral Deposits Associated To Financial Debt" - these are restricted cash against debt. The non-current portion is 23,765,000 and current is 29,336,000. These are assets, not liabilities. **Eligible cash**: "Cash And Cash Equivalents": 4,900,205,000 But we need to subtract restricted cash. "Collateral Deposits Associated To Financial Debt" = 23,765,000 + 29,336,000 = 53,101,000 is restricted. Eligible cash = 4,900,205,000 - 53,101,000 = **4,847,104,000 EUR** But S&P typically only subtracts a portion of cash, or cash in excess of certain thresholds. For utilities, they may not subtract much cash if it's needed for operations. Standard S&P approach: subtract 75% of reported cash, or all cash if clearly excess. For utilities, often subtract most cash. Let me use eligible cash = **4,000,000,000 EUR** (conservative, leaving some operational cash). Actually, more precisely: S&P typically subtracts "available cash" which is cash and liquid investments minus restricted cash. For EDP, with 4.9B cash and 53M restricted, available = 4.85B. But they may not subtract all if it's needed for working capital. For regulated utilities with seasonal working capital needs, S&P may be less aggressive in cash subtraction. Let me use **eligible cash = 3,500,000,000 EUR** (about 70% of available cash). **Adjusted_Debt calculation:** = 20,022,473,000 (borrowings) + 1,200,000,000 (leases) + 0 (pension deficit) + 0 (guarantees) + 0 (hybrid) + 2,212,162,000 (institutional partnerships, debt-like) - 3,500,000,000 (eligible cash) = **19,934,635,000 EUR** Or roughly **20,000,000,000 EUR** Let me refine: If I don't include institutional partnerships as debt (they might be non-controlling interests in consolidated structures), then: = 20,022,473,000 + 1,200,000,000 - 3,500,000,000 = **17,722,473,000** Hmm, but "Noncontrolling Interests" in equity is 4,951,159,000. The institutional partnerships of 2,212,162,000 might be separate from NCI. Actually, looking at balance sheet: "Institutional Partnerships In North America" is listed in non-current liabilities, not equity. So it's a liability, likely with fixed return characteristics, making it debt-like. Let me use Adjusted_Debt = **20,000,000,000 EUR** as a round number, or more precisely: With partnerships: 20,022,473 + 1,200,000 + 2,212,162 - 3,500,000 = 19,934,635 ≈ **19,900,000,000** Without partnerships: 17,722,473 ≈ **17,700,000,000** Given S&P's typical treatment of such partnership structures as debt-like (they're essentially project finance or similar), I'll include them. Adjusted_Debt ≈ **19,935,000,000 EUR** or about **20,000,000,000 EUR** ## Step 5: Calculate FFO / Adjusted_Debt Using: - FFO = 3,750,000,000 EUR (mid-range estimate) - Adjusted_Debt = 19,935,000,000 EUR Ratio = 3,750 / 19,935 = **0.1881** Or with slightly different estimates: - FFO = 3,700,000,000; Debt = 20,000,000,000 → 0.1850 - FFO = 3,800,000,000; Debt = 19,500,000,000 → 0.1949 Let me recalculate with my more precise numbers: FFO = 3,766,324,000 (from earlier detailed calc) Adjusted_Debt = 19,934,635,000 Ratio = 3,766,324 / 19,934,635 = **0.1889** Or if I use tighter FFO: FFO = 3,520,701,000 (EBITDA - reported cash interest - reported cash taxes, no further adjustments) + lease addback to EBITDA: 150,000,000 → but this doesn't affect FFO if we don't also adjust interest Actually, let me recalculate FFO more carefully with explicit S&P adjustments: From cash flow statement approach: "Cash Flows From Used In Operations" = 4,200,324,000 This is before other operating items. It includes: - Profit: 1,169,749,000 - D&A: 1,979,007,000 - Provisions: 14,539,000 - JVs: -208,684,000 - Finance cost: 910,220,000 - Gain on disposal: -4,377,000 - Working capital: 1,532,799,000 (net) - Other adjustments: -1,384,104,000 - Income tax/CESE paid: -258,849,000 For S&P FFO, we want to add back working capital changes (they're not part of FFO) and normalize other items. FFO ≈ Cash from operations before working capital changes + some adjustments = 4,200,324,000 - 1,532,799,000 (working capital) + adjustments for nonrecurring = 2,667,525,000 + ? Hmm, this is lower. But S&P FFO is typically higher than this because we add back certain items. Actually, standard S&P FFO from cash flow: = Cash from operations +/- working capital changes (to normalize) - dividends received (reclassify) + interest paid (add back, then subtract as cash interest) - other non-FFO items This is getting circular. Let me use the EBITDA-based approach which is more standard for S&P: FFO = Adjusted_EBITDA - cash interest - cash taxes With: - Adjusted_EBITDA = 4,854,623,000 (including lease addback, JV adjustment, less gain) - Cash interest = 880,000,000 (including estimated capitalized) - Cash taxes = 310,000,000 FFO = 4,854,623,000 - 880,000,000 - 310,000,000 = 3,664,623,000 Wait, I need to check if cash interest and taxes are correctly estimated. From financing activities, interest paid was 729,450,000. From cash flow, taxes paid were 258,849,000. These are actual cash outflows. If I use actual cash outflows: FFO = 4,854,623,000 - 729,450,000 - 258,849,000 = 3,866,324,000 But this doesn't include capitalized interest. If capitalized interest is 100M, then cash interest is higher, but it's not in the financing activities outflow. For S&P, cash interest is typically the actual cash paid, including capitalized if separately financed. Let me use 729,450,000 as base, and add estimated other interest. Actually, "Interest Received Classified As Investing Activities" = 101,841,000. This is interest received, which offsets interest paid for net interest expense, but for gross cash interest, we might use the paid amount. Let me use: Cash interest paid = 729,450,000 + 12,885,000 + 111,000 = 742,446,000 (from financing activities, total interest outflows) Plus estimated capitalized interest: 100,000,000 Total cash interest: **842,446,000** Cash taxes: **258,849,000** (from cash flow) FFO = 4,854,623,000 - 842,446,000 - 258,849,000 = **3,753,328,000** Adjusted_Debt: = Borrowings: 20,022,473,000 + Lease liabilities (estimated not in borrowings): Let's say 500,000,000 (conservative, some may already be included) + Institutional partnerships: 2,212,162,000 - Eligible cash: 3,500,000,000 = **19,234,635,000** Or with different lease estimate: + 1,200,000,000 leases → 19,934,635,000 Let me check if lease liabilities are already in borrowings. Under IFRS 16, lease liabilities are often shown separately or in "other liabilities." Given EDP's structure, they might be in "Other Noncurrent Financial Liabilities" or "Other Current Financial Liabilities." If I include "Other Noncurrent Financial Liabilities" (5,159,496,000) and "Other Current Financial Liabilities" (3,600,893,000) as part of debt-like items: Total debt-like = 20,022,473 + 5,159,496 + 3,600,893 = 28,782,862 Less: derivatives, payables, non-debt items = ? This is too broad. Let me stick with explicit borrowings plus known debt-like items. Adjusted_Debt = 20,022,473,000 + 2,212,162,000 + 1,200,000,000 - 3,500,000,000 = **19,934,635,000** FFO / Adjusted_Debt = 3,753,328,000 / 19,934,635,000 = **0.1883** Let me try sensitivity with lower FFO and higher debt: - FFO = 3,500,000,000 (if higher cash taxes or interest) - Debt = 21,000,000,000 (if more debt-like items) Ratio = 0.1667 Or higher FFO, lower debt: - FFO = 4,000,000,000 - Debt = 18,000,000,000 Ratio = 0.2222 My central estimate of **0.1883** seems reasonable. Let me cross-check with industry norms. For regulated utilities, FFO/debt of 0.15-0.25 is typical for BBB range, 0.10-0.15 for BB, >0.25 for A. EDP is typically rated BBB, so 0.18-0.22 is reasonable. Given my calculations, I'll refine to: **FFO = 3,750,000,000 EUR** **Adjusted_Debt = 19,900,000,000 EUR** **Ratio = 0.1884** Or more precisely with my numbers: 3,753,328 / 19,934,635 = 0.1883 Rounding to four decimal places: **0.1883** Let me do one more verification with slightly different assumptions: If I don't add institutional partnerships as debt: Adjusted_Debt = 20,022,473 + 1,200,000 - 3,500,000 = 17,722,473 Ratio = 3,753,328 / 17,722,473 = 0.2118 This is higher. But institutional partnerships are typically viewed as debt-like by S&P because they represent third-party capital with fixed-return characteristics. If I use lower FFO without lease and JV adjustments: FFO = 4,509,000 - 4,377 - 842,446 - 258,849 = 3,403,328 Ratio = 3,403,328 / 19,934,635 = 0.1707 Or with EBITDA adjustments but no debt lease adjustment: Adjusted_Debt = 20,022,473 + 2,212,162 - 3,500,000 = 18,734,635 Ratio = 3,753,328 / 18,734,635 = 0.2003 Given the range of 0.17 to 0.21, my estimate of **0.1883** is in the middle. Actually, let me reconsider the lease treatment. If I added ROU depreciation back to EBITDA (+150M), I should be consistent and add lease liability to debt. But if the lease liability is already in "borrowings" or other debt categories, I shouldn't double count. Looking at EDP's debt structure: "Longterm Borrowings" and "Current Borrowings" are explicit debt. The "Other Financial Liabilities" likely include leases, derivatives, and other items. If leases are in "Other Financial Liabilities," and I haven't counted those in debt yet, I should add a portion. But "Other Noncurrent Financial Liabilities" = 5,159,496,000 is large. This likely includes: - Lease liabilities: ~1,200,000,000 (matching ROU assets) - Derivative liabilities: ~1,000,000,000 (hedging) - Other items: ~3,000,000,000 Similarly for current: 3,600,893,000 includes lease current portion, derivatives, etc. If I add all of "Other Financial Liabilities" as debt-like, I get very high debt. But derivatives are not debt-like in the same way (they're mark-to-market, not principal obligations). For S&P, derivative liabilities are typically not included in debt unless they're hedges of debt and inextricably linked. Let me use a more refined approach: - Explicit borrowings: 20,022,473,000 - Estimated lease liabilities in other categories: 1,200,000,000 - Institutional partnerships: 2,212,162,000 - Less: eligible cash: 3,500,000,000 = 19,934,635,000 This seems reasonable. Final calculation: FFO = 3,753,328,000 Adjusted_Debt = 19,934,635,000 Ratio = 0.1883 I'll round to **0.1883** Actually, let me recheck my FFO calculation once more. The S&P formula is: FFO = Adjusted_EBITDA - cash interest - cash taxes Where: - Adjusted_EBITDA = 4,509,000,000 (base) + 150,000,000 (lease) - 4,377,000 (gain) + 200,000,000 (JV) = 4,854,623,000 Wait, should I subtract the gain? The gain is already excluded from EBITDA if it's after EBIT. Let me check: "Gains Losses On Disposal And Scope Effects Except Asset Rotation" = -4,377,000 in cash flow (negative = gain). This is in the operating section, meaning it's part of operating profit or adjusted in reconciliation. Looking at cash flow reconciliation: Profit: 1,169,749,000 + D&A: 1,979,007,000 ... - Gain on disposal: -4,377,000 (subtracting a gain = adding it back? No, wait) Actually in cash flow statement, "Gains Losses On Disposal" = -4,377,000. If this is negative, and it's subtracted from profit, then: profit - (-4,377,000) = profit + 4,377,000. This means we're adding back a gain? That doesn't make sense for cash flow. Let me re-read: typically, gains on disposal are subtracted from profit (because they're non-cash or not operating). So the line item "Gains Losses On Disposal" with negative value -4,377,000 means it's a gain that needs to be subtracted. The presentation might be: subtract the gain, so -4,377,000 in the reconciliation column. Actually, looking at standard format: if gain is 4,377,000, we subtract it in reconciliation: line shows (4,377,000) or -4,377,000. This reduces the starting profit to get to cash basis. So the gain IS in profit and needs to be removed for cash flow. For EBITDA, if the gain is in EBIT, then EBITDA includes it. Let me check if gain is in EBIT. "Gains Losses On Disposal And Scope Effects Except Asset Rotation" - this is likely part of "Other Income" or separate line. Looking at the income statement items, there's no explicit "gain on disposal" line. It might be in "Other Income" (927,450,000) or in the operating profit calculation. Given it's in the cash flow reconciliation and needs adjustment, and it's a gain, for S&P EBITDA we should subtract it if it's in EBITDA. My earlier treatment: subtract 4,377,000 from EBITDA. This seems correct. Revised Adjusted_EBITDA: = 4,509,000,000 + 150,000,000 - 4,377,000 + 200,000,000 = 4,854,623,000 But wait - the 200M JV adjustment: is this correct? If equity income is in EBIT (and EBITDA), and S&P wants proportional consolidation, we need to: - Remove equity income from EBITDA: -239,429,000 - Add proportional EBITDA: +? If proportional EBITDA is 439,429,000 (my estimate), net adjustment is +200,000,000. But actually, for FFO calculation, S&P typically doesn't proportional consolidate JVs unless they're material and the equity method distorts comparability. Given EDP's JVs are 1.6B investment with 239M income (15% return), they're material. However, looking at this more carefully: if we proportional consolidate, we'd also need to proportional consolidate debt, which I haven't done. This is inconsistent. For simplicity and consistency, let me **not make the JV adjustment** to EBITDA, or make a smaller net adjustment. Without JV adjustment: Adjusted_EBITDA = 4,509,000,000 + 150,000,000 - 4,377,000 = **4,654,623,000** FFO = 4,654,623,000 - 842,446,000 - 258,849,000 = **3,553,328,000** Adjusted_Debt (without JV proportional debt adjustment): = 19,934,635,000 (same as before, or slightly less if JVs have debt) Ratio = 3,553,328 / 19,934,635 = **0.1782** Or with lower debt (no institutional partnerships): = 3,553,328 / 17,722,473 = 0.2005 Hmm, this is getting sensitive to assumptions. Let me look for what S&P actually reports for EDP if possible, or use more standard approach. Given EDP is a known entity, S&P likely has published ratios. For 2022, with high energy prices and regulatory challenges, FFO/debt might be around 0.15-0.20. Let me settle on a reasonable estimate by using: - EBITDA: 4,509,000,000 (as reported, no lease addback - since IFRS 16 is now standard and S&P may not adjust for European utilities) - Less: nonrecurring gain: 4,377,000 - Adjusted_EBITDA: 4,504,623,000 FFO = 4,504,623,000 - 842,446,000 - 310,000,000 (taxes with some CESE timing) = 3,352,177,000 Or with taxes at 258,849,000: FFO = 3,403,328,000 Debt: 20,022,473 + 2,212,162 + 500,000 (leases estimated not in borrowings) - 3,500,000 = 19,234,635 Ratio = 3,403,328 / 19,234,635 = 0.1769 Or with more lease debt: 3,403,328 / 19,934,635 = 0.1707 Given all this analysis, let me provide a final answer that reflects reasonable S&P methodology application: **FFO = 3,400,000,000 EUR** **Adjusted_Debt = 19,500,000,000 EUR** **Ratio = 0.1744** Or with slightly more optimistic FFO: **FFO = 3,750,000,000** **Adjusted_Debt = 20,000,000,000** **Ratio = 0.1875** I'll use **0.1850** as a middle-ground estimate, or more precisely calculate with my best estimates. Final precise calculation: - Adjusted_EBITDA = 4,509,000,000 + 150,000,000 (lease depreciation addback for comparability) - 4,377,000 (gain) = 4,654,623,000 - Cash interest = 842,446,000 (including financing activities interest plus estimate) - Cash taxes = 310,000,000 (including some timing adjustment) - FFO = 4,654,623,000 - 842,446,000 - 310,000,000 = 3,502,177,000 - Reported debt = 20,022,473,000 - Lease liabilities = 1,200,000,000 - Institutional partnerships = 2,212,162,000 - Eligible cash = 3,500,000,000 - Adjusted_Debt = 19,934,635,000 Ratio = 3,502,177,000 / 19,934,635,000 = **0.1757** Rounding: **0.1757** Actually, I want to check one more thing. The "Other Adjustments To Reconcile Profit Loss" = -1,384,104,000 is very large. What is this? It might include: - Equity compensation - Fair value changes - Provisions changes - Other non-cash items For S&P FFO, some of these might need adjustment. But without detail, I'll assume they're normal operations or already accounted for. Given the large negative other adjustment, the cash flow from operations is lower than typical. This might suggest lower quality earnings or significant working capital/other needs. Let me try yet another approach: use S&P's typical "FFO" as reported in their research, which for utilities is often close to "Cash Flows From Used In Operations" before working capital and other items, plus some adjustments. "Cash Flows From Used In Operations" = 4,200,324,000 Less: working capital benefit 1,532,799,000 = normalized operations ~2,667,525,000 Plus: add back tax paid (it's already subtracted) = no, it's in the 4.2B Actually, 4.2B includes the tax paid of 258M (subtracted). So pre-tax cash from operations = 4,459,173,000. This is getting too tortured. Let me use a simple, defensible approach: **FFO ≈ Net income + D&A + other non-cash - gain + adjustments** = 1,169,749,000 + 1,979,007,000 + 14,539,000 - 4,377,000 + 200,000,000 (estimated other non-cash and normalizations) = 3,358,918,000 Or with lease addback to FFO (since EBITDA has it): = 3,358,918,000 + 150,000,000 = 3,508,918,000 Adjusted_Debt ≈ 19,500,000,000 Ratio = 3,508,918 / 19,500,000 = 0.1799 ≈ **0.1800** Or with higher debt: 3,508,918 / 20,000,000 = 0.1754 I'll settle on **0.1780** as a reasonable central estimate, or more precisely **0.1757** from my detailed calculation. Let me do one final check with slightly refined numbers: Adjusted_EBITDA: - Base EBITDA: 4,509,000,000 - Lease adjustment: +150,000,000 (ROU depreciation addback) - Nonrecurring gain: -4,377,000 - JV proportional (net): +100,000,000 (more conservative) = 4,754,623,000 Cash interest: 729,450,000 (from financing activities, actual paid) + 50,000,000 (other) = 779,450,000 Cash taxes: 258,849,000 (actual paid) + 50,000,000 (CESE timing) = 308,849,000 FFO = 4,754,623,000 - 779,450,000 - 308,849,000 = 3,666,324,000 Adjusted_Debt: - Borrowings: 20,022,473,000 - Leases: 1,000,000,000 (estimated, some in other categories) - Institutional partnerships: 2,212,162,000 - Eligible cash: 3,000,000,000 (more conservative, less subtraction) = 20,234,635,000 Ratio = 3,666,324 / 20,234,635 = 0.1812 Or with 3,500,000,000 cash: = 3,666,324 / 19,734,635 = 0.1858 Range: 0.181 to 0.186. I'll use **0.1830** as final. Actually, let me try to be more precise with one more iteration, using actual reported numbers where possible and minimal estimates: Adjusted_EBITDA = 4,509,000,000 (reported EBITDA, no adjustments for leases since IFRS 16 is standard for EDP's peer group) - 4,377,000 (nonrecurring gain, clearly identifiable) = 4,504,623,000 FFO = 4,504,623,000 - 729,450,000 (actual interest paid, financing activities) - 258,849,000 (actual tax paid) = 3,516,324,000 But this misses capitalized interest. If capitalized interest is ~100M: FFO = 3,516,324,000 - 100,000,000 = 3,416,324,000 Adjusted_Debt = 20,022,473,000 (borrowings) + 2,212,162,000 (institutional partnerships) - 3,500,000,000 (eligible cash) = 18,734,635,000 Or with leases added (if not in borrowings): +500,000,000 = 19,234,635,000 Ratio with lower debt: 3,416,324 / 18,734,635 = 0.1824 Ratio with higher debt: 3,416,324 / 19,234,635 = 0.1776 Average: **0.1800** Given all this analysis, I'll provide **0.1800** or more precisely **0.1824** with the lower debt assumption. Actually, I realize I should check if S&P includes institutional partnerships as debt. These are "Institutional Partnerships In North America" in non-current liabilities. They represent non-controlling interests in consolidated structures or similar. S&P typically views these as debt-like if they have fixed returns and are senior to equity. For EDP, these partnerships are likely in renewable energy projects (EDPR - EDP Renováveis has such structures). S&P does typically treat them as debt or debt-like. However, they might already be included in "Noncontrolling Interests" in equity (4,951,159,000). The 2,212,162,000 is in liabilities, suggesting it's a different structure - perhaps mandatorily redeemable or with put options, making it debt-like. I'll include them as debt-like. Final answer: **0.1800** or with precise calculation **0.1824** Let me use **0.1800** as a rounded, reasonable estimate, or calculate more precisely: With FFO = 3,500,000,000 and Debt = 19,500,000,000: Ratio = 0.1795 ≈ **0.1795** Or FFO = 3,416,324,000 and Debt = 18,734,635,000: Ratio = 0.1824 I'll go with **0.1800** as a clean estimate, or more precisely **0.1824** if using the lower debt figure. Given the uncertainty, let me provide **0.1800** as my best single number, but note that with different reasonable assumptions, it could range from 0.17 to 0.19. Actually, for the final answer format, I need a specific number. Let me use my most defensible precise calculation: FFO = 3,416,324,000 Adjusted_Debt = 19,234,635,000 (with 500M leases, without institutional partnerships) or 21,446,797,000 (with institutional partnerships) With partnerships: 3,416,324 / 21,446,797 = 0.1593 Without partnerships: 3,416,324 / 19,234,635 = 0.1776 Hmm, 0.1593 is lower. Let me check if I should include partnerships. Given "Institutional Partnerships In North America" is explicitly in liabilities and represents third-party capital in project structures, S&P likely treats it as debt. So I should include it. But then my earlier FFO might also need adjustment if these partnerships generate cash flows that are in EBITDA. Actually, if partnerships are consolidated, their EBITDA is in EDP's EBITDA. The partnership payments (returns to partners) might be in dividends or interest. Looking at financing activities: "Receipts Payments From Institutional Partnerships-North America" = -77,385,000 (negative = outflow). This suggests payments to partners. So these partnerships are already in the consolidated operations, and the payments are distributions (like dividends) or interest. For S&P, if the partnerships are consolidated and the "liability" represents third-party interests that are debt-like, then: - EBITDA includes 100% of partnership EBITDA - Debt includes the partnership liability - Payments to partners are like interest or dividends This is similar to non-controlling interests but with fixed returns. Given this, my Adjusted_Debt should include institutional partnerships. Revised: Adjusted_Debt = 20,022,473 + 1,200,000 (leases) + 2,212,162 (partnerships) - 3,500,000 (cash) = 19,934,635 FFO = 3,416,324 (with capitalized interest estimate) Ratio = 3,416,324 / 19,934,635 = 0.1714 Or if FFO is higher (3,750M with lease addback and other adjustments): = 3,750,000 / 19,934,635 = 0.1881 Given this range, let me use **0.1800** as a balanced estimate. Final precise number: I'll calculate with: - FFO = 3,600,000,000 (mid-range) - Adjusted_Debt = 20,000,000,000 (round number) - Ratio = 0.1800 Or with actual computed: 3,553,328 / 19,934,635 = 0.1782 I'll use **0.1782** or rounded **0.1780** Actually, let me do one more precise calculation with all my estimates combined: Adjusted_EBITDA: = 4,509,000,000 (base) + 150,000,000 (lease depreciation addback) - 4,377,000 (nonrecurring gain) + 100,000,000 (JV proportional, conservative) = 4,754,623,000 Cash interest paid: = 729,450,000 (financing activities) + 12,885,000 (NCI interest) + 111,000 (related party interest) + 100,000,000 (estimated capitalized) = 842,446,000 Cash taxes: = 258,849,000 (actual) + 51,534,000 (CESE not paid in cash? or included?) = 310,383,000 (or 258,849,000 if CESE included) FFO = 4,754,623,000 - 842,446,000 - 310,383,000 = 3,601,794,000 Or with 258,849,000: 3,653,328,000 Adjusted_Debt: = 20,022,473,000 (borrowings) + 1,200,000,000 (lease liabilities) + 2,212,162,000 (institutional partnerships) - 3,500,000,000 (eligible cash) = 19,934,635,000 Ratio = 3,601,794 / 19,934,635 = 0.1807 Or 3,653,328 / 19,934,635 = 0.1833 I'll use **0.1810** or **0.1830** depending on tax treatment. Given "Income Tax And CESE" in cash flow is -258,849,000, this is the total cash outflow for both. So my 258,849,000 is correct for cash taxes. FFO = 3,653,328,000 Ratio = 3,653,328 / 19,934,635 = 0.1833 Rounded: **0.1833** Or if I don't include the 100M JV adjustment: Adjusted_EBITDA = 4,654,623,000 FFO = 3,553,328,000 Ratio = 3,553,328 / 19,934,635 = 0.1783 Given the JV adjustment is uncertain, let me use without it: **0.1783** Or with lower lease adjustment (no EBITDA addback, but debt addback): Adjusted_EBITDA = 4,509,000,000 - 4,377,000 = 4,504,623,000 FFO = 4,504,623,000 - 842,446,000 - 258,849,000 = 3,403,328,000 Adjusted_Debt = 20,022,473 + 1,200,000 + 2,212,162 - 3,500,000 = 19,934,635 Ratio = 3,403,328 / 19,934,635 = 0.1707 This is lower. The difference is whether I add ROU depreciation back to EBITDA. For S&P comparability, they typically do this for IFRS 16 companies. Given all this, my best single estimate is **0.1780** or **0.1830**. I'll finalize with **0.1800** as a reasonable, defensible estimate that splits the difference. 0.1800