I'll work through this step-by-step. ## Step 1: Identify the relevant industry TenneT Holding B.V. is described as a "transmission system operator" - this is a **regulated utility** (electricity transmission). It operates under regulatory frameworks with cost-of-service regulation and return-on-investment requirements. ## Step 2: Estimate 2021 Adjusted_EBITDA For regulated utilities, I need to reconstruct EBITDA. Let me use the available data: From the P&L for 2021 (period 2021-01-01 to 2022-01-01): - Revenue: 5,524,000,000 EUR - Energy Transmission Charges: 4,102,000,000 EUR - Employee Benefits Expense: 287,000,000 EUR - Depreciation and Amortisation: 1,165,000,000 EUR - Miscellaneous Other Operating Expense: 303,000,000 EUR - Other Gains/Losses: -4,000,000 EUR - Operating Expense: 5,861,000,000 EUR First, let me reconstruct EBIT/Operating Profit: - Profit Loss From Operating Activities: -275,000,000 EUR EBITDA = Profit Loss From Operating Activities + Depreciation and Amortisation - EBITDA = -275,000,000 + 1,165,000,000 = 890,000,000 EUR For regulated utilities, S&P notes they use ROE for cost-of-service utilities, but we need EBITDA for leverage calculations. Let me check if there are adjustments needed. Looking at the methodology: "We typically use the EBITDA margin as key indicator of profitability, unless it is distorted--for example, by pass-through costs like congestion revenue or collection of third-party revenue" Energy Transmission Charges of 4,102M on Revenue of 5,524M suggests ~74% is pass-through. This could distort EBITDA margin. However, for leverage ratios, we need absolute EBITDA. For regulated utilities, S&P mentions they may use ROC or ROE when EBITDA is distorted. But for the financial risk profile, we need EBITDA-based measures. Let me proceed with reconstructed EBITDA and consider if adjustments are needed: - EBITDA (reconstructed) = 890,000,000 EUR Looking at adjustments: - Leases: Right-of-use assets went from not reported separately in 2021 start to 433M in 2022 start. The lease liability change: Noncurrent lease liabilities 235M (2022) vs not separately stated in 2021; Current lease liabilities 169M (2022). - For 2021, I need to check if lease adjustments apply. Under IFRS 16, leases are capitalized. Actually, looking more carefully at the data structure: The 2022-01-01 values are for year-end 2021, and 2023-01-01 values are for year-end 2022. For 2021 year-end (2022-01-01): - Rightofuse Assets: 433,000,000 EUR - Noncurrent Lease Liabilities: 235,000,000 EUR - Current Lease Liabilities: 169,000,000 EUR For 2022 year-end (2023-01-01): - Rightofuse Assets: 748,000,000 EUR - Noncurrent Lease Liabilities: 574,000,000 EUR - Current Lease Liabilities: 155,000,000 EUR For regulated utilities, S&P's "Ratios And Adjustments" mentions netting seasonal working capital and deconsolidating securitized debt. For leases, they typically add back lease expense or capitalize. Given IFRS 16 is already applied (right-of-use assets on balance sheet), EBITDA already includes the depreciation of right-of-use assets and interest on lease liabilities is in finance costs. So no EBITDA adjustment needed for operating leases (already capitalized). For 2021, let me check nonrecurring items: - Other Gains Losses: -4,000,000 EUR (small loss) Joint ventures: Share of profit is below operating profit line, so not in EBITDA. Let me verify EBITDA calculation another way: Operating Expense = 5,861,000,000 This includes: Employee Benefits (287M) + Depreciation (1,165M) + Miscellaneous Other Operating (303M) + other items Revenue - Operating Expense = 5,524 - 5,861 = -337M, but reported operating loss is -275M. Difference of 62M - likely Other Gains Losses (-4M) and Share of profit of JVs (not in operating expense?). Actually, looking at structure: "Profit Loss From Operating Activities" = -275M. This is EBIT before share of JVs? Or after? Standard structure: Revenue - Operating Expenses = Operating Profit/EBIT. Then + Share of profit of associates = EBIT. Let me check: -275M (operating) + 62M (share of JVs) = -213M... doesn't match. Actually, looking more carefully: Operating Expense line includes everything. The Share of Profit of Associates and JVs is 62M. Profit Loss From Operating Activities (-275M) + Finance Income (2M) - Finance Costs (202M) + Share of Profit of Associates and JVs (62M) = -413M before tax... but reported is -475M. Let me recalculate: -275 + 2 - 202 + 62 = -413. But Profit Before Tax is -475M. Difference of 62M. Hmm, let me re-read: "Profit Loss From Operating Activities" likely already includes share of JVs or excludes some items. Actually, standard IFRS: Operating profit includes share of profit of equity-accounted investees. So: Revenue 5,524 Less: Energy Transmission Charges 4,102 Less: Employee Benefits 287 Less: Depreciation 1,165 Less: Misc Other Operating 303 Less: Other Gains/Losses -4 (i.e., loss of 4) = 5,524 - 4,102 - 287 - 1,165 - 303 + 4 = -329? Wait, Other Gains Losses is -4,000,000 which means a loss. So subtracting a loss means adding back? No, if it's already a negative, then: Let me try: Revenue (5,524) - Operating Expense (5,861) = -337. But operating activities is -275. Difference is 62M, which equals share of JVs. So Operating Expense might not include share of JVs, or "Profit Loss From Operating Activities" includes them. Actually, looking at typical IFRS presentation: "Profit Loss From Operating Activities" is after all operating items including share of equity-accounted investees. So: EBITDA = Profit Loss From Operating Activities - Share of Profit of Associates and JVs + Depreciation and Amortisation + Interest + Taxes... no wait, we need to add back D&A only. EBITDA = Operating Profit + D&A (if D&A is included in operating expenses) From the data, D&A is separately stated as 1,165M. If this is part of operating expenses, then: EBITDA = -275M + 1,165M = 890M (if share of JVs is included in operating activities) But wait, is share of JVs in operating activities? The line "Share Of Profit Loss Of Associates And Joint Ventures" is 62M. If this is below operating activities, then: Operating Activities (-275) = Revenue - OpEx (excluding JVs) + JVs? Or = EBIT before JVs? Let me check with tax: PBT (-475) = Operating Activities (-275) + Finance Income (2) - Finance Costs (202) + JVs (62)? = -413, not -475. Or: PBT = -275 + 2 - 202 = -475. That works! So Operating Activities (-275) includes JVs? No, -275 + 2 - 202 = -475 exactly. So JVs must be in Operating Activities. Then: -275 includes 62M from JVs. So EBIT excluding JVs = -337M. EBITDA = -337 + 1,165 = 828M? Or is D&A already added back? Actually, let me just use: EBITDA = Revenue - Cash Operating Costs = Revenue - (OpEx - D&A) ... but OpEx is 5,861 which includes D&A? Operating Expense 5,861 = Employee Benefits (287) + D&A (1,165) + Misc Other (303) + Energy Transmission Charges (4,102) + Other Gains Losses (-4)? 287 + 1,165 + 303 + 4,102 = 5,857. Plus Other Gains Losses (-4) = 5,853. Not 5,861. Difference of 8M. Maybe there are other operating expenses. Regardless, let me use: EBITDA = Operating Profit + D&A = -275 + 1,165 = 890M. This assumes D&A is not already in "Profit Loss From Operating Activities" - but it must be, as D&A is an operating expense. Actually, "Profit Loss From Operating Activities" is after D&A. So adding D&A back gives EBITDA. **2021 Adjusted_EBITDA = 890,000,000 EUR** Let me check if nonrecurring adjustments needed: Other Gains Losses of -4M is small. I'll include it as is (it's already in operating profit). For regulated utilities, S&P mentions they focus on "economics and actual cash flow generation" not regulatory accounting. But this is IFRS, not US GAAP regulatory accounting. ## Step 3: Estimate 2021 FFO FFO = Adjusted_EBITDA - cash_interest - cash_taxes Cash interest: Finance Costs are 202,000,000 EUR. But this includes non-cash items? For regulated utilities, we need actual cash interest paid. From cash flow: "Interest Paid Classified As Financing Activities" = 174,000,000 EUR Cash taxes: "Income Taxes Paid Refund Classified As Operating Activities" = 246,000,000 EUR (paid, so positive = outflow) FFO = 890,000,000 - 174,000,000 - 246,000,000 = 470,000,000 EUR Wait - but FFO typically adds back interest paid (financing) and is before working capital changes. Let me re-check S&P definition. Actually, S&P FFO = Funds From Operations = Net Income + D&A + deferred taxes + other non-cash items - working capital changes... no, that's more like CFO. Standard S&P FFO = Adjusted EBITDA - cash interest - cash taxes (± working capital? No, FFO is before working capital typically). Actually, let me re-read: "FFO = Adjusted_EBITDA - cash_interest - cash_taxes" - this is the formula given. But wait, is this correct? Typically FFO = Net Income + D&A + deferred taxes + other non-cash - gains/losses... Let me verify with alternative calculation: Net Income = -340,000,000 Add: D&A = 1,165,000,000 Add: deferred tax (expense is -135, so benefit is 135M... but "Income Tax Expense" is -135M, meaning a benefit? No, -135M expense = benefit? Wait, negative expense = income. Actually "Income Tax Expense Continuing Operations" = -135,000,000. This is negative, meaning a tax benefit. Add: Other non-cash (share of JVs profit -62, since it's equity accounted not cash) Less: Other gains/losses (already in) This gets messy. Let me stick with the formula: FFO = Adj EBITDA - cash interest - cash taxes = 890 - 174 - 246 = 470M. But wait - cash taxes paid is 246M, but tax expense is -135M (benefit). If taxes are refunded, cash taxes might be negative (inflow). The data says "Income Taxes Paid Refund" = 246,000,000. If this is paid, it's an outflow. But with negative tax expense (benefit), maybe this is net paid. Actually, looking at cash flow: "Income Taxes Paid Refund Classified As Operating Activities" = 246,000,000. The positive number suggests paid (outflow in cash flow statement, but presented as positive = use of cash). Hmm, in standard cash flow presentation, positive = outflow for payments. So 246M paid. But with PBT of -475M, there should be no tax payable. The 246M might include prior year payments or withholding taxes. For S&P FFO, we use cash taxes actually paid. **2021 FFO = 470,000,000 EUR** ## Step 4: Estimate 2021 Adjusted_Debt Adjusted_Debt = reported_debt + leases + pension_deficit + guarantees + hybrid_debt_portion + other_debt_like_items - eligible_cash Reported debt: - Longterm Borrowings: 12,366,000,000 - Shortterm Borrowings: 1,339,000,000 - Current Bank Overdrafts: 64,000,000 Total reported debt = 13,769,000,000 EUR Leases: Already capitalized under IFRS 16. The lease liabilities are: - Noncurrent Lease Liabilities: 235,000,000 - Current Lease Liabilities: 169,000,000 Total lease liabilities = 404,000,000 EUR But these are already in debt? Under IFRS 16, lease liabilities are included in borrowings or separately stated. Looking at the data, "Longterm Borrowings" and "Shortterm Borrowings" likely include lease liabilities, or they are separate. The separate line items suggest they might be additional. Actually, looking at structure: "Noncurrent Lease Liabilities" and "Current Lease Liabilities" are separate from "Longterm Borrowings" and "Shortterm Borrowings". So total debt-like obligations include both. However, for S&P purposes, if leases are already in borrowings, we don't double count. Let me assume they are separate (common IFRS presentation). Pension deficit: "Noncurrent Recognised Liabilities Defined Benefit Plan" = 351,000,000 EUR. This is a liability, but is it debt-like? For S&P, pension deficits are added to debt. Hybrid debt: "Hybrid Capital" = 2,125,000,000 EUR. This is equity-like but has debt features. S&P typically treats hybrid capital as 50% debt or 100% debt depending on terms. For "Hybrid Capital" with dividends paid, it's often treated as 50% debt for investment grade. But let me check - the methodology says "hybrid_debt_portion". I'll assume 50% or check if it's treated as equity. Actually, looking at equity: "Equity Attributable To Owners Of Parent" includes Hybrid Capital as a separate member. Total equity = 7,424M = Ordinary 4,844 + Hybrid 2,125 + NCI 455. For S&P, hybrid capital is typically treated as 50% debt (unless it's deeply subordinated perpetual with deferrable coupons). Given the name "Hybrid Capital" and it's in equity, I'll use 50% debt treatment = 1,062,500,000 EUR. Or, if it's treated as equity for S&P (some hybrids get 100% equity), then 0. But given the formula explicitly mentions "hybrid_debt_portion", I'll include 50% = 1,062,500,000. Other debt-like items: - Other Noncurrent Financial Liabilities: 183,000,000 - Other Current Financial Liabilities: 281,000,000 - Current Contract Liabilities: 2,000,000 (not really debt-like, more deferred revenue) - Noncurrent Contract Liabilities: 428,000,000 (deferred revenue, not debt-like) Financial liabilities are debt-like. Let me include "Other Noncurrent Financial Liabilities" and "Other Current Financial Liabilities". Guarantees: Not separately stated, assume 0. Eligible cash: "Cash And Cash Equivalents" = 3,204,000,000 EUR. But we need to check if all is eligible. For liquidity, S&P may haircut or exclude restricted cash. Assume 100% eligible for now, or check if there's restricted portion. Actually, "Cash And Cash Equivalents If Different From Statement Of Financial Position" = 3,140,000,000 vs 3,204,000,000. Difference of 64M = Current Bank Overdrafts? 3,204 - 3,140 = 64. Yes! So cash net of overdrafts = 3,140M. For debt calculation, we use gross cash or net? S&P typically uses gross cash against gross debt, or net debt. The formula says "eligible_cash" subtracted from debt. Let me use Cash and Cash Equivalents = 3,204,000,000 (or 3,140,000,000 if netting overdrafts). I'll use 3,204,000,000 as gross, and include overdrafts in debt. Adjusted_Debt calculation: - Longterm Borrowings: 12,366,000,000 - Shortterm Borrowings: 1,339,000,000 - Current Bank Overdrafts: 64,000,000 - Noncurrent Lease Liabilities: 235,000,000 (if not in borrowings) - Current Lease Liabilities: 169,000,000 (if not in borrowings) - Noncurrent Recognised Liabilities Defined Benefit Plan: 351,000,000 - Hybrid debt portion (50%): 1,062,500,000 - Other Noncurrent Financial Liabilities: 183,000,000 - Other Current Financial Liabilities: 281,000,000 - Less: Cash and Cash Equivalents: (3,204,000,000) Wait - are lease liabilities already in borrowings? Let me check if 12,366 + 1,339 includes leases. Typically in IFRS 16, lease liabilities are either in "Borrowings" or separately disclosed. Given separate disclosure, they might not be in borrowings. Total debt + lease-like = 12,366 + 1,339 + 235 + 169 + 64 = 14,173,000,000 (including overdrafts in borrowings or separate) Actually, let me include all: Reported debt = 12,366 + 1,339 + 64 = 13,769 + Leases (if not in above) = 235 + 169 = 404 + Pension = 351 + Hybrid 50% = 1,062.5 + Other financial liabilities = 183 + 281 = 464 - Cash = (3,204) Adjusted_Debt = 13,769 + 404 + 351 + 1,062.5 + 464 - 3,204 = 12,846,500,000 EUR Hmm, but this seems high. Let me reconsider if leases are in borrowings. Actually, looking at typical IFRS presentation post-IFRS 16: lease liabilities are often included within "Borrowings" and separately disclosed in notes. The separate line items in the balance sheet suggest these are additional disclosures, not additional liabilities. Let me assume "Longterm Borrowings" and "Shortterm Borrowings" include lease liabilities, and the separate "Lease Liabilities" lines are just detailed breakdowns. So I won't double count. Revised: Reported debt = 12,366 + 1,339 + 64 = 13,769 + Pension = 351 + Hybrid 50% = 1,062.5 + Other financial liabilities = 183 + 281 = 464 - Cash = (3,204) Adjusted_Debt = 13,769 + 351 + 1,062.5 + 464 - 3,204 = 12,442,500,000 EUR Or about 12,443M. Let me round to 12,443,000,000. Actually, I need to check: are "Other Current Financial Liabilities" debt-like? They include derivatives, accrued interest, etc. Some may be operating. Given the name "financial liabilities", they are debt-like. **2021 Adjusted_Debt = 12,443,000,000 EUR** (approximately) Let me be more precise: 13,769 + 351 + 1,062.5 + 464 - 3,204 = 12,442.5M. Use 12,442,500,000. ## Step 5: Calculate 2021 Adjusted_Debt / Adjusted_EBITDA = 12,442,500,000 / 890,000,000 = 13.98x This seems very high. Let me recheck EBITDA. Wait - for regulated utilities with pass-through costs, EBITDA might be distorted. Let me reconsider if I should use a different measure. Actually, looking at the revenue: 5,524M with Energy Transmission Charges of 4,102M. If these are pass-through costs that don't generate margin, then "revenue" includes a large pass-through component. The actual "net revenue" or "regulated revenue" might be different. But S&P says for leverage, they still use EBITDA. The high leverage is concerning though - let me verify my EBITDA. Operating loss of -275M + D&A of 1,165M = 890M EBITDA. This seems correct. But wait - is "Energy Transmission Charges" an expense or a contra-revenue? It's listed separately from revenue, so likely an expense. But in TSOs, transmission charges are often the main cost that is passed through. Let me recalculate operating profit from components: Revenue: 5,524 Less: Energy Transmission Charges: 4,102 Less: Employee Benefits: 287 Less: D&A: 1,165 Less: Misc Other Operating: 303 Add/Less: Other Gains/Losses: -4 (loss) = 5,524 - 4,102 - 287 - 1,165 - 303 - 4 = -337? But reported is -275. Difference is 62M = share of JVs! So "Profit Loss From Operating Activities" (-275) = the above -337 + 62 (JVs) = -275. Yes! So EBIT before JVs = -337M. EBITDA before JVs = -337 + 1,165 = 828M. Then + JVs contribution (cash dividends received from JVs was 56M, but equity profit is 62M). For S&P, EBITDA typically includes equity-accounted investees on a dividends-received basis or proportional consolidation? Actually, for FFO, S&P may include dividends from JVs. But in standard EBITDA, equity-accounted profits are typically NOT included (they're below EBIT). So my 890M includes the 62M share of JVs if "Operating Activities" includes it. Actually, in IFRS, "Operating Profit" or "Profit from Operating Activities" typically includes share of profit of equity-accounted investees. So -275 includes +62 from JVs. EBIT excluding JVs = -337. EBITDA = -337 + 1,165 = 828M. Hmm, but then "Profit Loss From Operating Activities" is defined as including JVs. For S&P purposes, do they want EBITDA before or after JVs? The formula says "± joint_venture_proportional_EBITDA". This suggests we might adjust JVs to proportional EBITDA. For 2021: Share of profit of JVs = 62M. This is after their D&A and interest. To get proportional EBITDA, we'd need their financials. Not available. I'll use 890M as reported EBITDA (including JVs on equity basis) or adjust if needed. Given lack of data, use 890M. Actually, let me recalculate: if "Operating Activities" = -275 includes JVs, and JVs contributed +62, then core operations = -337. D&A of 1,165 is from core operations (not JVs). So core EBITDA = -337 + 1,165 = 828. Total EBITDA with JVs dividends? For S&P, they sometimes use "EBITDA including dividends from JVs" as a variation. Let me stick with 890M or 828M. Given the formula mentions "joint_venture_proportional_EBITDA", and we can't calculate it, I'll use reported EBITDA of 890M but note this includes equity-accounted JVs. Actually, re-reading: the adjustment is "± joint_venture_proportional_EBITDA". This suggests replacing equity earnings with proportional EBITDA. Without data, I'll assume the equity earnings approximate the cash flow contribution and leave as is. Let me use **EBITDA = 890,000,000 EUR** (from operating activities + D&A, which includes equity-accounted JVs). Ratio: 12,442.5 / 890 = 13.98x. This is very high for a regulated utility. Let me recheck debt. Actually, I think I may have double-counted or overcounted. Let me reconsider: for a regulated TSO, debt should be high due to capital intensity, but EBITDA should also be higher if regulated returns are earned. Wait - the problem might be that "Revenue" is not the right top line. Let me check if "Energy Transmission Charges" should be netted against revenue to get "net revenue". In some TSOs, the revenue is collected as a surcharge and passed through. The actual "regulated revenue" might be different. But the financials show Revenue = 5,524 and Energy Transmission Charges = 4,102 as separate lines. Actually, looking at 2022: Revenue 8,299 and Energy Transmission Charges 7,517. The ratio is similar (~90%). This suggests Energy Transmission Charges are the main cost, leaving ~10-15% margin. For 2021: 5,524 - 4,102 = 1,422 "net margin" before other costs. Then 287 + 1,165 + 303 + 4 = 1,759 other costs. So operating loss before JVs = 1,422 - 1,759 = -337. Yes. This suggests the TSO is not earning its regulated return in 2021 - it's under-recovering. This is temporary and should adjust in future rate periods. For S&P, they might look through this to "regulatory EBITDA" or normalized earnings. But I need to use actuals. Let me proceed with calculations and see if 2022 is better. Actually, let me recheck: is "Energy Transmission Charges" an expense or part of revenue presentation? In some structures, TSOs collect transmission tariffs (revenue) and pay for energy transmission to other TSOs (expense). The net is their margin. Given the data structure, I'll treat as expense. **2021 Adjusted_Debt / Adjusted_EBITDA = 12,442.5 / 890 = 13.98x** This seems wrong for an investment-grade utility. Let me recheck if EBITDA should include other items or if I should use a different starting point. Actually, wait - "Operating Expense" = 5,861. This includes all operating costs. Revenue - Operating Expense = -337. But "Profit Loss From Operating Activities" = -275. The difference is 62 = share of JVs. So Operating Expense does NOT include share of JVs (it's added after). So: Revenue (5,524) - Operating Expense (5,861) = -337. Then + Share of JVs (62) = -275 Operating Activities. Operating Expense 5,861 includes: Energy Transmission (4,102) + Employee (287) + D&A (1,165) + Misc (303) + Other Gains/Losses (-4)? Let's check: 4,102 + 287 + 1,165 + 303 = 5,857. Plus other items = 5,861. Close enough. So EBITDA = Revenue - (Operating Expense - D&A) = 5,524 - (5,861 - 1,165) = 5,524 - 4,696 = 828. Or: EBIT (-337 before JVs, or -275 after JVs) + D&A (1,165) = 828 or 890. I think the correct EBITDA depends on whether we include JVs. For consolidated EBITDA with equity-accounted investees, S&P sometimes uses proportional consolidation. But without data, using 828 (core) or 890 (with equity JVs) are both options. Let me use **890,000,000** as it's based on reported operating activities including JVs. But actually, for leverage ratios, S&P typically wants EBITDA from consolidated operations plus dividends from JVs, not equity earnings. The equity earnings are non-cash. Hmm, but the formula says "joint_venture_proportional_EBITDA" which suggests adding proportional EBITDA, not equity earnings. Given I can't calculate this, let me use 828 (before JVs) and add nothing, or 890 and note it includes non-cash equity earnings. Let me try a different approach: use "Cash Flows From Used In Operations" and work backwards. 2021 Cash Flow From Operations = 5,705,000,000 (positive = inflow? Or outflow?) Wait, "Cash Flows From Used In Operating Activities" = 5,705,000,000. The word "Used In" suggests outflow, but the number is positive. In standard presentation, positive = inflow. But "Used In" suggests negative. Actually, looking at 2022: "Cash Flows From Used In Operating Activities" = 1,196,000,000. This is much lower. Given 2021 had negative operating profit but positive CFO, and 2022 had worse operating profit but lower CFO... Wait, 2021: "Cash Flows From Used In Operations Excluding Eeg Working Capital" = -1,260,000,000 (negative). Then "Cash Flows From Used In Operating Activities" = 5,705,000,000. The difference is working capital, mainly EEG working capital. EEG = German renewable energy surcharge mechanism. Large working capital swings. For 2021, CFO including EEG working capital was +5,705M (inflow). This is because EEG working capital provided +4,445M (from -6,800M excluding to +5,705M total, difference = 12,505M... no wait). Actually: CFO excl EEG WC = -1,260. EEG WC change = -4,445 (from -4,445M "Increase Decrease In Working Capital Eeg Working Capital"). Total = -1,260 + (-4,445)? No, that would be more negative. Wait, "Increase Decrease In Working Capital Eeg Working Capital" = -4,445,000,000. Negative means decrease in working capital = source of cash. So CFO = -1,260 + 4,445 = 3,185? But reported is 5,705. Hmm, let me check: "Increase Decrease In Working Capital Excluding Eeg Working Capital" = -680,000,000. This is total non-EEG WC. Then "Cash Flows From Used In Operations Excluding Eeg Working Capital" = -1,260,000,000. Formula: CFO excl EEG = Operating profit + D&A + other non-cash - non-EEG WC changes - cash interest - cash taxes? Actually, standard: CFO = Net Income + non-cash - WC changes. From data: "Cash Flows From Used In Operations Excluding Eeg Working Capital" = -1,260M. This is after working capital changes but before EEG. Then total CFO = 5,705M. So EEG working capital contribution = 5,705 - (-1,260) = 6,965M? Or is it 5,705 = -1,260 + something else. Actually, looking at components: "Increase Decrease In Working Capital Eeg Working Capital" = -4,445M. If this is the change, and it's negative (decrease = source of cash), then add to CFO excl EEG: -1,260 + 4,445 = 3,185. Not 5,705. Let me check other components. There are also "Adjustments For Decrease Increase In Trade And Other Receivables Eeg Working Capital" = 1,956M and "Adjustments For Increase Decrease In Trade And Other Payables Eeg Working Capital" = 2,961M. Sum = 4,917M. Plus "Adjustments For Decrease Increase In Trade And Other Receivables Eeg Working Capital Over Three Months" = -472M. Net = 4,445M. Yes, matches. But how does this flow to total CFO? The total CFO of 5,705 seems to include these. Maybe the -1,260 is before all WC changes, and total WC change is -680 (non-EEG) + (-4,445) (EEG) = -5,125? Then CFO = operating profit adjusted + 5,125 = 5,705? Operating profit adjusted would be 580? Doesn't match. This is getting complex. Let me just use the EBITDA and debt calculations as per formula and proceed. Actually, I realize I should double-check my 2021 debt. Let me recalculate more carefully: From 2022-01-01 balance sheet (year-end 2021): - Longterm Borrowings: 12,366,000,000 - Shortterm Borrowings: 1,339,000,000 - Current Bank Overdrafts: 64,000,000 - Noncurrent Lease Liabilities: 235,000,000 - Current Lease Liabilities: 169,000,000 - Noncurrent Recognised Liabilities Defined Benefit Plan: 351,000,000 - Other Noncurrent Financial Liabilities: 183,000,000 - Other Current Financial Liabilities: 281,000,000 - Hybrid Capital: 2,125,000,000 (in equity) Question: Are lease liabilities included in borrowings? In many IFRS 16 presentations, lease liabilities are shown within "Borrowings" with separate note disclosure. But here they're separate line items on balance sheet. This suggests they might NOT be in borrowings. Total borrowings + leases = 12,366 + 1,339 + 64 + 235 + 169 = 14,173 Add pension deficit: 351 Add hybrid 50%: 1,062.5 Add other financial liabilities: 183 + 281 = 464 Less cash: 3,204 Adjusted Debt = 14,173 + 351 + 1,062.5 + 464 - 3,204 = 12,846.5M Or if leases are in borrowings: 13,769 + 351 + 1,062.5 + 464 - 3,204 = 12,442.5M Difference is 404M. Let me check if 12,366 + 1,339 = 13,705 includes leases. The total borrowings 13,769 includes overdrafts. Actually, looking at 2023-01-01: Longterm 19,006 + Shortterm 709 = 19,715. Plus overdrafts 0 = 19,715. Plus leases 574 + 155 = 729. Total = 20,444. If leases are NOT in borrowings, then total debt-like = 20,444 + pension 174 + other financial 185 + 550 = 21,353 + hybrid - cash. The increase from 2021 to 2022 in long-term borrowings is 19,006 - 12,366 = 6,640. This is roughly the net financing of 5,999 plus some reclassification. Given the magnitude, I'll assume leases are NOT in borrowings (separate line items). **Revised 2021 Adjusted_Debt = 14,173 + 351 + 1,062.5 + 464 - 3,204 = 12,846,500,000** Let me recalculate ratio: 12,846.5 / 890 = 14.43x. Even higher! Hmm, this can't be right for a regulated utility. Let me check if I'm using the right EBITDA. Actually, I think the issue is that "Revenue" includes large pass-through items that don't generate margin. For S&P, when EBITDA is "distorted by pass-through costs", they use ROC or ROE. But for leverage, they still need a debt/EBITDA-like measure. For regulated utilities, S&P might use "FFO to debt" as primary, and debt/EBITDA might not be the best metric if EBITDA is distorted. But the workflow requires me to calculate it. Let me proceed and see the trend, which is what matters. Actually, let me recheck 2021 EBITDA using a different approach. Maybe "Energy Transmission Charges" is not an operating expense but a contra-revenue or pass-through that should be excluded from both revenue and expense for margin calculation. If we view it as pass-through: Net Revenue = 5,524 - 4,102 = 1,422. Then EBITDA margin on net revenue = 890 / 1,422 = 62.6%. This is reasonable for a TSO (regulated asset return). But for leverage, S&P uses debt / EBITDA, not debt / net revenue. The high ratio reflects the pass-through distortion. Let me check if 2022 is similar or better. ## Step 7: Estimate 2022 Adjusted_EBITDA 2022 data (2022-01-01 to 2023-01-01): - Revenue: 8,299,000,000 - Energy Transmission Charges: 7,517,000,000 - Employee Benefits: 285,000,000 - D&A: 1,233,000,000 - Misc Other Operating: 322,000,000 - Other Gains/Losses: -38,000,000 - Operating Expense: 9,395,000,000 - Profit Loss From Operating Activities: -976,000,000 - Share of JVs: 120,000,000 Check: Revenue - OpEx = 8,299 - 9,395 = -1,096. Plus JVs 120 = -976. Yes! EBITDA = -976 + 1,233 = 257,000,000? Or before JVs: -1,096 + 1,233 = 137,000,000. Plus JVs contribution. Wait, this is much worse! Operating loss increased significantly. EBITDA = Operating Activities (-976) + D&A (1,233) = 257,000,000 EUR Or if excluding JVs: -1,096 + 1,233 = 137,000,000, then add JVs dividends or proportional. Using 257M (includes equity-accounted JVs). ## Step 8: Estimate 2022 FFO Cash interest: "Interest Paid Classified As Financing Activities" = 202,000,000 Cash taxes: "Income Taxes Paid Refund" = 231,000,000 FFO = 257 - 202 - 231 = -176,000,000 EUR Negative FFO! This is concerning. Wait, let me verify: is "Interest Paid" the right cash interest? Or should I use Finance Costs (300M)? Finance Costs = 300M (includes non-cash accretion, etc.) Interest Paid = 202M (actual cash outflow) For S&P FFO, use cash interest paid = 202M. FFO = 257 - 202 - 231 = -176M. Negative. But let me check if taxes are paid or refunded. "Income Taxes Paid Refund" = 231,000,000. Positive usually means paid (outflow). But with PBT of -1,233M, there should be no tax. This might be prior year payments or withholding taxes. If taxes are actually refunded (negative number in cash flow = inflow), then FFO would be higher. But the presentation format suggests 231M is paid. Actually, looking at 2021: tax expense was -135M (benefit), but cash taxes paid were 246M. This suggests cash payments despite accounting benefit. For 2022: tax expense is -354M (benefit), cash taxes paid 231M. I'll use 231M as cash tax outflow. **2022 FFO = -176,000,000 EUR** (negative) This seems problematic. Let me recheck if EBITDA is correct. Revenue 8,299 - Energy Transmission 7,517 = 782 net. Then 285 + 322 + 38 = 645 other cash costs. Plus D&A 1,233. So 782 - 645 - 1,233 - 38 = -1,134 before JVs? Let me recalculate: Revenue (8,299) - OpEx (9,395) = -1,096. This includes D&A. So EBIT = -1,096 + 120 (JVs) = -976. EBITDA = -976 + 1,233 = 257. Yes. But wait - is "Operating Expense" = 9,395 the same as total operating costs? Let me verify: 7,517 + 285 + 1,233 + 322 + 38 = 9,395. Yes! 7,517 + 285 = 7,802; +1,233 = 9,035; +322 = 9,357; +38 = 9,395. Yes. So EBITDA = 8,299 - 7,802 - 285 - 322 - 38? No, D&A is non-cash. Revenue - cash operating costs = 8,299 - (9,395 - 1,233) = 8,299 - 8,162 = 137. Then + JVs cash (not equity) = ? The 120M share of JVs is equity-accounted, not necessarily cash. Dividends received from JVs = 92M in 2022 (from cash flow). So cash-like EBITDA ≈ 137 + 92 = 229? Or 137 + 120 = 257 if we include equity earnings. I think 257M is correct per S&P's formula (using reported EBITDA including equity earnings). But FFO = 257 - 202 - 231 = -176M is negative, which is very bad. Wait - I need to re-examine. The FFO formula is "Adjusted_EBITDA - cash_interest - cash_taxes". But standard S&P FFO also adds back dividends from unconsolidated subsidiaries or JVs if not in EBITDA, and subtracts other items. Actually, looking at standard S&P FFO: Net income + D&A + deferred taxes + other non-cash - gains/losses + dividends from unconsolidated entities - maintenance capex... no that's discretionary cash flow. For "Funds From Operations" in S&P terms: Net income before extraordinary items + depreciation + deferred taxes + other non-cash items. Let me try: Net Income (-879) + D&A (1,233) + deferred taxes (tax benefit -354, so add back? No, tax benefit increases net income already). Actually, tax expense is -354, meaning a benefit. This is already in net income. FFO standard = NI + D&A + deferred taxes + other non-cash. Deferred taxes = change in deferred tax. From balance sheet: Deferred Tax Assets increased from 162 to 711, change = +549. This is a use of cash or non-cash? Deferred tax asset increase = more future tax benefits = non-cash credit to tax expense. So add back? It's already reducing tax expense. Actually, FFO = NI + D&A + deferred tax expense (not benefit). If tax benefit includes deferred tax, we need to add back the deferred portion. This is getting too complex. Let me stick with the given formula: FFO = Adj EBITDA - cash interest - cash taxes. But with negative FFO, the ratio will be meaningless. Let me recheck if cash taxes should be subtracted or if tax refunds add to FFO. If "Income Taxes Paid Refund" means net paid (after refunds), and it's positive 231M, then taxes paid = 231M outflow. But wait - in 2022, with PBT of -1,233M, the company has tax losses. It might be getting refunds, not paying. The cash flow statement shows 231M, but is this paid or received? In standard presentation, "Income Taxes Paid" is shown as positive = outflow. "Income Taxes Refund" might be shown as negative = inflow, or separately. The label "Income Taxes Paid Refund" suggests it could be either. The positive 231M suggests paid (outflow). However, looking at 2021: tax expense -135M (benefit), cash 246M paid. This is odd - getting accounting benefit but paying cash. Actually, this might be due to timing differences or foreign taxes. I'll proceed with 231M as cash outflow. Given negative FFO, let me see if I should use a different approach. Maybe the formula implies "cash taxes" as in "taxes actually paid" which could be less than "income taxes paid" if there are refunds. Alternatively, maybe I should use the cash flow from operations excluding working capital as a proxy for FFO. 2022: "Cash Flows From Used In Operations Excluding Eeg Working Capital" = 596,000,000. This is positive! And much higher than my FFO calculation. This includes: operating profit adjustments, non-cash items, working capital excluding EEG, minus cash interest and taxes? Let me check: This is "Cash Flows From Used In Operations" not "Cash Generated From Operations". The term "Used In" suggests outflow, but 596M is positive. Actually, looking at 2021: -1,260M was negative (used in = outflow). 2022: 596M positive... but "Used In" still? Maybe the sign convention is opposite. In 2021, total CFO was 5,705M positive (inflow). "Used In Operations Excl EEG" was -1,260M. If negative means inflow, then -1,260 = inflow? That doesn't make sense. I think the label is confusing. Let me assume positive numbers are inflows (standard), so 596M is inflow in 2022. This 596M includes working capital changes (excluding EEG). For FFO, we want before working capital changes. From the reconciliation: "Cash Flows From Used In Operations Excluding Eeg Working Capital" = 596M. This is after non-EEG working capital changes. To get pre-working capital: 596 - "Increase Decrease In Working Capital Excluding Eeg Working Capital" = 596 - 736 = -140M? Wait, "Increase Decrease In Working Capital Excluding Eeg Working Capital" = 736,000,000. Positive means decrease in working capital = source of cash. So add to get pre-WC: 596 + 736 = 1,332? No, if WC decrease is source, then pre-WC cash flow = 596 - 736 = -140? That can't be right. Actually: CFO excl EEG = EBIT + D&A - cash interest - cash taxes ± non-EEG WC changes. If WC changes provided 736M cash, then pre-WC CFO = 596 - 736 = -140M? Or +736? Let me think: If receivables decrease (source of cash), that's positive in cash flow. So if "Increase Decrease In Working Capital" = 736M positive, this means working capital decreased, providing cash. CFO = Core CFO + WC changes. So Core CFO = 596 - 736 = -140M? But this should equal EBIT + D&A - cash interest - cash taxes. With EBIT -976 + D&A 1,233 = 257. Minus cash interest 202, minus cash taxes 231 = -176. Close to -140? Difference of 36M. Hmm, -140 vs -176. Difference might be other items. Actually, "Cash Flows From Used In Operations Excluding Eeg Working Capital" includes other adjustments. Let me check the components: From cash flow reconciliation: - Adjustments for D&A: 1,233 - Adjustments for disposal losses: 38 - Adjustments for undistributed JVs: 120 - Dividends received: 92 - Adjustments for provisions: 104 - Other adjustments for noncash items: 1,347 - Adjustments for receivables excl EEG: -1,026 - Adjustments for inventories: -49 - Adjustments for payables excl EEG: -33 - Adjustments for contract liabilities: 103 - Adjustments for current financial liabilities: 269 - Increase decrease in WC excl EEG: 736 Sum of WC items: -1,026 - 49 - 33 + 103 + 269 = -736? But stated as +736. Sign convention might be opposite. Actually, "Adjustments For Decrease Increase In Trade And Other Receivables" = -1,026. If receivables increased, this is use of cash = negative adjustment. So negative = outflow. Then total WC excl EEG = -1,026 - 49 - 33 + 103 + 269 = -736. But stated as +736. So signs are flipped in presentation, or "Increase Decrease" means different things. Given confusion, let me just use the stated "Increase Decrease In Working Capital Excluding Eeg Working Capital" = 736,000,000 and assume it's already in the 596M. For FFO, I want pre-WC, pre-interest, pre-tax cash flow from operations. Actually, standard S&P FFO = Net Income + D&A + deferred taxes + other non-cash - gains + dividends from unconsolidated entities. Let me try: Net Income (-879) + D&A (1,233) + deferred tax change + other. Deferred tax assets increased from 711 to 162? No, 2021 was 162, 2022 is 711. Change = +549. This is a non-cash benefit. Other non-cash: share of JVs profit 120 (non-cash, subtract? No, it's already in NI). Dividends received 92 (cash, add if not in NI). Actually, share of JVs 120 is in NI. Dividends received 92 is cash flow, not in NI. So FFO might include 92 instead of 120, or add 92. Let me try: FFO = NI (-879) + D&A (1,233) + deferred tax benefit (add back the non-cash portion) + other non-cash. Tax expense = -354 (benefit). Cash taxes paid = 231. So deferred tax benefit = -354 - (-231)? No, total tax benefit 354 includes cash refund and deferred. Actually, if cash taxes paid are 231 (outflow), and total tax benefit is 354, then there must be a deferred tax benefit of 585 (354 + 231)? That doesn't make sense. Let me try: Accounting tax benefit = 354. Cash tax paid = 231. Deferred tax benefit = 354 - 231 = 123? Or = 354 + 231 = 585 if cash paid is outflow and accounting is benefit. If accounting tax is -354 (benefit to P&L), and cash tax paid is +231 (outflow), then deferred tax = -354 - 231 = -585? No. Actually: Total tax = current tax + deferred tax. If total = -354 (benefit), and current tax = +231 (expense, paid), then deferred tax = -354 - 231 = -585 (benefit). This means deferred tax asset increased by 585. But balance sheet shows DTA increased from 162 to 711 = 549. Close to 585, difference of 36. Might be FX or other. So deferred tax benefit = 585, non-cash. Add back to FFO? It's already in NI as a benefit (reducing loss). So no need to add back - it's already included. For FFO, we add back non-cash items that reduced earnings. D&A 1,233 reduced earnings, add back. Deferred tax benefit increased earnings (reduced loss), so don't add back. Other non-cash: provisions increase, etc. Let me try simple FFO: NI (-879) + D&A (1,233) = 354. Plus other non-cash items (share of JVs is non-cash but already in NI as positive, so if we want cash, subtract 120 and add 92 dividends?). FFO with dividends = -879 + 1,233 - 120 + 92 = 326? Or without adjusting JVs = 354. Then minus cash interest 202? No, FFO is before interest in some definitions. I think the formula given "FFO = Adj EBITDA - cash_interest - cash_taxes" is the right approach, even if it gives negative. But let me recheck: Adj EBITDA = 257. Cash interest = 202. Cash taxes = 231. FFO = -176. Alternatively, if "cash taxes" should be "cash tax refund" of 231 (inflow), then FFO = 257 - 202 + 231 = 286. But the formula says minus cash_taxes, and if taxes are refunded, cash_taxes is negative, so minus negative = plus. Hmm, the label is "Income Taxes Paid Refund". If it's a refund, the number might be negative in the accounting system but shown as positive for disclosure. I think given the confusion, let me use the cash flow from operations excluding working capital as a proxy, or use the formula as stated. Actually, let me re-read the formula: "FFO = Adjusted_EBITDA - cash_interest - cash_taxes". This is explicit. I'll use it. But with negative FFO, the FFO/Debt ratio will be negative, which is problematic for trend analysis. Let me check if 2021 FFO was also problematic: 890 - 174 - 246 = 470. Positive. So 2021 FFO/Debt = 470 / 12,846.5 = 3.66%. 2022 FFO/Debt = -176 / 18,337 = -0.96%. Big deterioration. But let me first recalculate 2022 debt. ## Step 9: Estimate 2022 Adjusted_Debt 2022 year-end (2023-01-01): - Longterm Borrowings: 19,006,000,000 - Shortterm Borrowings: 709,000,000 - Current Bank Overdrafts: 0 - Noncurrent Lease Liabilities: 574,000,000 - Current Lease Liabilities: 155,000,000 - Noncurrent Recognised Liabilities Defined Benefit Plan: 174,000,000 - Other Noncurrent Financial Liabilities: 185,000,000 - Other Current Financial Liabilities: 550,000,000 - Hybrid Capital: 2,125,000,000 (in equity, unchanged) - Cash And Cash Equivalents: 6,547,000,000 Assuming leases not in borrowings: Reported debt = 19,006 + 709 = 19,715 + Leases = 574 + 155 = 729 + Pension = 174 + Hybrid 50% = 1,062.5 + Other financial liabilities = 185 + 550 = 735 - Cash = 6,547 Adjusted_Debt = 19,715 + 729 + 174 + 1,062.5 + 735 - 6,547 = 15,868,500,000 Wait, let me recheck: 19,715 + 729 = 20,444. + 174 = 20,618. + 1,062.5 = 21,680.5. + 735 = 22,415.5. - 6,547 = 15,868.5. **2022 Adjusted_Debt = 15,868,500,000 EUR** ## Step 10: Calculate 2022 Adjusted_Debt / Adjusted_EBITDA = 15,868.5 / 257 = 61.74x This is extremely high due to very low EBITDA. ## Step 11: Calculate 2022 FFO / Adjusted_Debt = -176 / 15,868.5 = -1.11% Negative. ## Recalculating with Alternative EBITDA Assumptions Given the extreme ratios, let me reconsider if EBITDA should include or exclude certain items. For regulated utilities, S&P notes: "We typically use the EBITDA margin as key indicator of profitability, unless it is distorted--for example, by pass-through costs like congestion revenue or collection of third-party revenue, or by accelerated asset depreciation that we do not view as sustainable in the long run. In such cases, we would use ROC or ROE to benchmark the company against peers." They also say: "For regulated utilities subject to full cost-of-service regulation and return-on-investment requirements, we normally measure profitability using ROE." But for leverage, they still need a debt/EBITDA-like measure. However, they might adjust EBITDA for pass-through costs. If we define "Adjusted Revenue" = Revenue - Energy Transmission Charges (pass-through), then: 2021: Net Revenue = 5,524 - 4,102 = 1,422 2022: Net Revenue = 8,299 - 7,517 = 782 Then EBITDA margin on net revenue = 890/1,422 = 62.6% for 2021, and 257/782 = 32.9% for 2022. But this doesn't help with absolute EBITDA for leverage. Alternatively, maybe "Energy Transmission Charges" is already deducted to get to a gross margin, and other costs are overhead. The "revenue" might be regulated revenue already. Actually, looking at the P&L structure again: "Revenue" and "Energy Transmission Charges" are separate line items. In TSO accounting, "Revenue" is the total transmission tariffs collected, and "Energy Transmission Charges" is what they pay to other TSOs or for energy costs. The net is their gross margin. Then they have overhead, D&A, etc. For S&P, they might look at "regulatory EBITDA" or "allowed EBITDA" based on the regulatory asset base, not actual reported EBITDA. But given the workflow requires using actuals, let me proceed. However, I want to check if my 2022 EBITDA is correct by using an alternative calculation. From cash flow: "Adjustments For Depreciation And Amortisation Expense" = 1,233. This is added back to net income to get CFO. Net Income = -879. Add D&A 1,233 = 354. This is after-tax, after-interest "operating cash flow" before working capital. Add back interest (after tax): Finance costs 300, less finance income 43 = 257. After tax = 257 * (1 - tax rate). With negative tax, this is messy. Rough pre-tax, pre-interest cash flow = -879 + 1,233 + 257 (net finance) + tax benefit 354 = 965? Or = 354 + 300 - 43 = 611 before tax effects. Actually, standard: EBIT = -1,096 (before JVs) or -976 (after JVs). Add D&A = 257 or 137. Let me use 257 as EBITDA. Given the extreme leverage ratio of 61.7x, I suspect I'm either miscalculating or the company had a very bad year in 2022. Let me check if 2022 was indeed unusual. The operating loss worsened from -275M to -976M. Revenue increased 50% but energy transmission charges increased 83%, squeezing margins. This suggests regulatory lag - costs increased faster than allowed revenue. For a regulated utility, this should be temporary - future tariffs will adjust to recover costs. But for 2022, actual EBITDA was very low. Let me see if there's any normalization S&P would do. The methodology says: "We may observe a clear difference between the volatility of actual reported profitability and the volatility of underlying regulatory profitability. In these cases, we could use the regulatory accounts as a proxy to judge earnings stability." If I use regulatory/allowed EBITDA instead of actual, it would be higher. But I don't have that data. Let me proceed with actuals and see the trend direction, which is what matters for the question. Actually, wait - I need to recheck my 2021 and 2022 calculations for consistency. Let me recalculate 2021 debt more carefully and check if I should include certain items. ## Recalculation with Consistent Approach Let me define Adjusted_Debt consistently: **Debt items:** - Long-term borrowings - Short-term borrowings - Bank overdrafts - Lease liabilities (if not in borrowings) - Pension deficit (liability) - Hybrid capital (debt portion) - Other financial liabilities **Less: Cash and equivalents** For 2021 (2022-01-01): - LT borrowings: 12,366 - ST borrowings: 1,339 - Bank overdrafts: 64 - Noncurrent leases: 235 - Current leases: 169 - Pension liability: 351 - Other noncurrent financial liabilities: 183 - Other current financial liabilities: 281 - Hybrid 50%: 1,062.5 - Cash: 3,204 Total = 12,366 + 1,339 + 64 + 235 + 169 + 183 + 281 + 1,062.5 + 351 - 3,204 = 12,846.5 For 2022 (2023-01-01): - LT borrowings: 19,006 - ST borrowings: 709 - Bank overdrafts: 0 - Noncurrent leases: 574 - Current leases: 155 - Pension liability: 174 - Other noncurrent financial liabilities: 185 - Other current financial liabilities: 550 - Hybrid 50%: 1,062.5 - Cash: 6,547 Total = 19,006 + 709 + 0 + 574 + 155 + 185 + 550 + 1,062.5 + 174 - 6,547 = 15,868.5 Debt increased significantly due to higher borrowings, partly offset by higher cash. For EBITDA: 2021: 890 2022: 257 For FFO: 2021: 890 - 174 - 246 = 470 2022: 257 - 202 - 231 = -176 ## Ratios **2021:** - Debt/EBITDA = 12,846.5 / 890 = 14.43x - FFO/Debt = 470 / 12,846.5 = 3.66% **2022:** - Debt/EBITDA = 15,868.5 / 257 = 61.74x - FFO/Debt = -176 / 15,868.5 = -1.11% ## Step 12: Classify Credit Trend Signal 1: Leverage (Debt/EBITDA) - 2021: 14.43x - 2022: 61.74x - Change: +47.31x Threshold: ≥ +0.2x = Deteriorating **Signal 1: Deteriorating** (massively) Signal 2: Cash-flow coverage (FFO/Debt) - 2021: 0.0366 (3.66%) - 2022: -0.0111 (-1.11%) - Change: -0.0477 (-4.77 percentage points) Threshold: ≤ -0.03 = Deteriorating **Signal 2: Deteriorating** (-0.0477 < -0.03) Both signals agree: **Deteriorating** However, I want to sanity-check this. The 2022 EBITDA seems anomalously low due to regulatory lag. Let me verify if I should use a normalized EBITDA. Actually, let me recheck 2022 EBITDA calculation. Is "Profit Loss From Operating Activities" really -976M? From components: Revenue 8,299 Less: Energy Transmission Charges 7,517 Less: Employee Benefits 285 Less: D&A 1,233 Less: Misc Other Operating 322 Less: Other Gains/Losses -38 (i.e., loss of 38) Sum of expenses: 7,517 + 285 + 1,233 + 322 + 38 = 9,395. Yes, matches Operating Expense. Revenue - Operating Expense = 8,299 - 9,395 = -1,096. But "Profit Loss From Operating Activities" = -976. Difference = 120 = Share of JVs! So Operating Activities includes share of JVs. EBIT before JVs = -1,096. EBITDA before JVs = -1,096 + 1,233 = 137. If I use EBITDA before JVs (137) vs after JVs (257), both are very low. Actually, for proportional EBITDA from JVs: if JVs earned 120M net profit, their EBITDA might be higher. If they have similar margins, maybe 200-300M EBITDA. Then proportional EBITDA = 137 + 200 = 337? Still low. The fundamental issue is that 2022 was a very bad year for TenneT due to energy crisis and regulatory lag. Costs (energy transmission charges) rose much faster than allowed revenue. For S&P, they might normalize this. But based on actual reported numbers, the trend is clearly deteriorating. Let me double-check if my FFO calculation is correct. The formula says "FFO = Adjusted_EBITDA - cash_interest - cash_taxes". But in S&P's actual methodology for regulated utilities, FFO might be calculated differently. Let me check if there's an alternative. Actually, looking at the cash flow statement: "Cash Flows From Used In Operations Excluding Eeg Working Capital" = 596M in 2022. This is positive cash flow from core operations. If I use this as a proxy for "FFO-like" cash flow: 2021: -1,260M (negative!) 2022: +596M (positive) This would show improvement, not deterioration! But this includes working capital changes (excluding EEG). FFO should be before working capital changes. Let me calculate pre-WC: 2022 core CFO 596 + WC changes 736 = 1,332? Or minus? Actually, "Increase Decrease In Working Capital Excluding Eeg Working Capital" = 736M. If this is source of cash (decrease in WC), then pre-WC CFO = 596 - 736 = -140M? Hmm, this is confusing. Let me look at components: - Receivables excl EEG: -1,026 (increase = use of cash) - Inventories: -49 (increase = use) - Payables excl EEG: -33 (decrease = use? or increase = source) - Contract liabilities: 103 (increase = source) - Current financial liabilities: 269 (increase = source) Sum: -1,026 - 49 - 33 + 103 + 269 = -736. But stated as +736. So signs are flipped in the "Increase Decrease" presentation. If "Adjustments For Decrease Increase In Receivables" = -1,026, and receivables increased (use of cash), then in standard cash flow, this is negative. So the "adjustment" is negative. Then "Increase Decrease In Working Capital" = 736 might mean decrease (source) of 736. CFO excl EEG = 596 includes this 736 benefit. So pre-WC = 596 - 736 = -140? That gives negative, which seems wrong. Actually, let me try: CFO = Net Income + non-cash - WC changes. If WC decreased (source), WC change is negative in "changes in assets/liabilities" format. So -(-736) = +736 in CFO. CFO excl EEG = Core CFO + WC effect. If WC effect = +736, then Core CFO = 596 - 736 = -140. But Core CFO should equal EBITDA - cash interest - cash taxes = 257 - 202 - 231 = -176. Close to -140. Difference of 36M, likely other items. So my FFO calculation of -176 is roughly correct. The -140 includes some other adjustments. Given both signals show deterioration, the answer is clear. But let me verify 2021 FFO using same approach. 2021: "Cash Flows From Used In Operations Excluding Eeg Working Capital" = -1,260. "Increase Decrease In Working Capital Excluding Eeg Working Capital" = -680. If WC change = -680 (negative = increase in WC = use of cash? or decrease = source?). In 2021, receivables excl EEG: -90 (increase), inventories: -18, payables: +540, contract liabilities: +52, current financial liabilities: +196. Sum = -90 - 18 + 540 + 52 + 196 = 680. Positive = source? But stated as -680. Hmm, signs are confusing. Let me assume the stated "Increase Decrease In Working Capital" = -680 means increase in WC (use of cash). Then CFO excl EEG = -1,260 includes -680 WC effect. Core CFO = -1,260 - (-680) = -580? Or = -1,260 + 680 = -580. My FFO formula gave 470. Big difference. Actually, let me recheck: -1,260 is "Cash Flows From Used In Operations". If positive = inflow, then -1,260 = outflow. But it's presented as negative number, so maybe negative = outflow. In that case, CFO excl EEG = -1,260 (outflow of 1,260). WC effect = -680 (increase in WC, use of cash). Core CFO = -1,260 - (-680) = -580? No, if both are outflows/uses... I think the sign convention is: "Cash Flows From Used In" means negative = outflow. So -1,260 is outflow. But it's shown as -1,260,000,000 (negative number). Then "Increase Decrease In Working Capital" = -680. Negative means... increase in WC (use of cash)? Core CFO = CFO - WC effect = -1,260 - (-680) = -580? Or plus? Actually, CFO = Core CFO + WC effect. If WC increased (use of cash), WC effect is negative in CFO. So CFO = Core CFO + (-680) = -1,260. Then Core CFO = -1,260 + 680 = -580. But my FFO = 470. Very different. Hmm, let me recheck my 2021 FFO. EBITDA = 890. Cash interest = 174. Cash taxes = 246. 890 - 174 - 246 = 470. But if Core CFO is -580, then either EBITDA is wrong, or cash interest/taxes are wrong, or there are other items. Wait - "Cash Flows From Used In Operations Excluding Eeg Working Capital" might include other items like dividends received, which are not in EBITDA. Dividends received classified as operating activities = 56M in 2021. Also, "Other Adjustments For Noncash Items" = 1,101M. This includes items not in EBITDA. So CFO excl EEG = EBITDA - cash interest - cash taxes ± other items. If other items are negative (uses of cash), then FFO < CFO. Actually, let me look at 2021 reconciliation: - D&A: 1,165 - Disposal losses: 0 - Undistributed JVs: 61 - Dividends received: 56 - Provisions: -59 - Other noncash: 1,101 - Receivables: -90 - Inventories: -18 - Payables: 540 - Contract liabilities: 52 - Current financial liabilities: 196 - WC excl EEG: -680 Sum of non-WC adjustments: 1,165 + 0 + 61 + 56 + (-59) + 1,101 = 2,324. Net income: -340. CFO excl EEG = -340 + 2,324 + (-680) = 1,304? But stated as -1,260. Sign issue. If -1,260 is actually outflow (negative), then maybe the presentation uses opposite signs. Let me try: CFO = -340 + 1,165 + 0 + 61 + 56 - 59 + 1,101 - 90 - 18 + 540 + 52 + 196 = 2,664. Not matching. I think there are sign conventions I'm missing. Let me just trust the formula given in the workflow and proceed. Given the explicit formula "FFO = Adjusted_EBITDA - cash_interest - cash_taxes", I'll use that. But wait - I want to double-check if "cash_taxes" should be the absolute amount or signed. If taxes are refunded, cash_taxes is negative (inflow), so minus cash_taxes = plus. In 2022, with PBT of -1,233, the company likely got tax refunds, not paid taxes. The "Income Taxes Paid Refund" = 231 might mean "paid (refund)" = net paid after refunds, or "paid or refund" with sign indicating which. Given the positive number and "Paid Refund" label, I'll assume 231 is net paid (outflow). But this seems wrong economically. If instead 231 is a refund (inflow), then cash_taxes = -231 (negative), and FFO = 257 - 202 - (-231) = 257 - 202 + 231 = 286. Then 2022 FFO/Debt = 286 / 15,868.5 = 1.80%. Still low but positive. And 2021: if 246 is also refund? No, 2021 PBT was -475, so also loss. If 246 is refund, FFO = 890 - 174 + 246 = 962. FFO/Debt = 7.49%. Then changes: FFO/Debt from 7.49% to 1.80% = -0.0569. Still deteriorating (> -0.03 threshold). Signal 2 still Deteriorating. Given both signals deteriorate regardless, I'll stick with my calculation. Actually, let me try yet another interpretation: "Income Taxes Paid Refund" = taxes paid minus refunds. If net is refund, it's negative. But shown as positive 231, maybe it's gross paid. I'll use my original calculation for consistency: FFO = EBITDA - cash interest - cash taxes (both as positive outflows). Final numbers: - 2021: Debt/EBITDA = 14.43x, FFO/Debt = 3.66% - 2022: Debt/EBITDA = 61.74x, FFO/Debt = -1.11% Changes: - Debt/EBITDA: +47.31x (>> +0.2x, Deteriorating) - FFO/Debt: -0.0477 (<< -0.03, Deteriorating) Both signals agree: **Deteriorating** Deteriorating