I'll work through this step-by-step for ENGIE. ## Step 1: Identify the relevant industry for ENGIE ENGIE is a French multinational electric utility company. Based on the provided methodologies, ENGIE fits into **multiple categories**: - **Regulated Utilities** (electricity, gas, multi-utilities) - **Unregulated Power And Gas** (merchant generation, retail supply, trading) ENGIE is a large integrated utility with both regulated network activities (distribution, transmission) and unregulated activities (generation, supply, trading, services). Given its mixed nature, I'll need to consider both methodologies. However, for financial metric calculations, I'll follow the general corporate baseline formulas with appropriate industry adjustments. Given ENGIE's significant unregulated activities and the complexity of its business model, I'll primarily use the **general corporate baseline** with relevant adjustments from both methodologies. ## Step 2: Estimate 2021 Adjusted_EBITDA First, let me reconstruct 2021 EBITDA from the income statement data: **2021 Data:** - Revenue: 57,866 M EUR - Purchases And Operating Derivatives: 38,861 M EUR - Employee Benefits Expense: 7,692 M EUR - Depreciation Amortization And Provisions: 4,840 M EUR - Tax Expense Other Than Income Tax Expense: 1,479 M EUR - Other Income: 1,122 M EUR - Current Operating Income Including Operating Mtm: 6,116 M EUR Let me verify: Revenue - Purchases - Employee Benefits - Depreciation - Tax Other + Other Income = Operating Income 57,866 - 38,861 - 7,692 - 4,840 - 1,479 + 1,122 = 6,116 ✓ **EBITDA (reported/reconstructed)** = Current Operating Income Including Operating Mtm + Depreciation Amortization And Provisions = 6,116 + 4,840 = **10,956 M EUR** Or alternatively: Revenue - Purchases - Employee Benefits - Tax Other + Other Income = 57,866 - 38,861 - 7,692 - 1,479 + 1,122 = 10,956 M EUR ✓ Now applying adjustments per S&P guidelines: **Nonrecurring items to consider:** - Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss: 1,028 M EUR (loss/impairment - negative for EBITDA, but this is below operating income) - Expense Of Restructuring Activities: 204 M EUR (nonrecurring loss - add back) - Other Income Expense From Subsidiaries Jointly Controlled Entities And Associates: 1,107 M EUR (this is below operating income, likely equity method) - Other Non Recurring Items: -69 M EUR (negative means gain, so subtract) Wait - let me look more carefully. The "Current Operating Income Including Operating Mtm" is already before these items. Let me trace to "Profit Loss From Operating Activities": Current Operating Income Including Operating Mtm: 6,116 + Share Of Profit Loss Of Associates: 800 = Current Operating Income Including Operating Mtm And Share In Net Income: 6,916 - Impairment Loss Reversal: -1,028 (expense) - Expense Of Restructuring Activities: -204 + Other Income Expense From Subsidiaries etc: +1,107 + Other Non Recurring Items: -69 (this is negative, so it's a gain? or expense?) Let me check: 6,916 - 1,028 - 204 + 1,107 - 69 = 6,722... but Profit Loss From Operating Activities is 6,722. Wait: 6,916 - 1,028 = 5,888; 5,888 - 204 = 5,684; 5,684 + 1,107 = 6,791; 6,791 - 69 = 6,722. But reported is 6,722? No, Profit Loss From Operating Activities is 6,722? Let me check: no, it's 6,722? The data says 6,722,000,000? No wait: "Profit Loss From Operating Activities" 2021: 6722000000. Yes 6,722. Hmm but 6,916 - 1,028 - 204 + 1,107 - 69 = 6,722. ✓ Actually, looking at "Other Non Recurring Items" 2021: -69000000. The negative sign suggests this is a gain (income). So it's a nonrecurring gain to subtract. For EBITDA adjustments, I need to think about what's above vs below EBITDA line. "Current Operating Income Including Operating Mtm" appears to be pre-impairment, pre-restructuring, etc. Actually, let me re-read: "Current Operating Income Including Operating Mtm" - this seems to be a measure of operating income before certain items. The depreciation is already deducted. For S&P purposes, Adjusted EBITDA typically starts from operating income and adds back depreciation, then makes adjustments. Let me use: **Adjusted EBITDA = EBITDA + nonrecurring losses - nonrecurring gains** From the items between Current Operating Income and Profit Loss From Operating Activities: - Impairment Loss: 1,028 (loss - add back) - Restructuring Expense: 204 (loss - add back) - Other Income Expense From Subsidiaries: 1,107 (this looks like equity method income, already excluded from EBITDA) - Other Non Recurring Items: -69 (gain - subtract) But wait - are these items already included in or excluded from EBITDA? "Current Operating Income Including Operating Mtm" is 6,116. The depreciation is 4,840. So EBITDA = 10,956. The items from Current Operating Income to Profit Loss From Operating Activities happen AFTER operating income. So they're not in EBITDA. Actually, let me re-look. "Current Operating Income Including Operating Mtm" - is this EBIT or something else? It includes "Operating Mtm" (mark-to-market). For S&P, we want sustainable operating cash flow. Let me check if there are adjustments needed: From the cash flow statement, I can also calculate: - Net Depreciation Amortization Impairment And Provisions: 5,484 (this includes impairments) - Adjustments For Gains Losses On Change In Fair Value Of Derivatives: -721 (negative = gain) For 2021 Adjusted EBITDA, I'll use: - Base EBITDA: 10,956 - Adjust for nonrecurring: The impairments and restructuring are already in the income statement path... Actually, let me look more carefully. "Profit Loss From Operating Activities" (6,722) is after: - Impairment (1,028) - Restructuring (204) - Other items But "Current Operating Income Including Operating Mtm" (6,116) is before these. So 6,116 is more like EBIT before special items. Wait, that doesn't add up. 6,116 is LESS than 6,722. So "Current Operating Income Including Operating Mtm" is actually lower, meaning the other items added to it. Let me recheck: 6,116 + 800 (share of profit) = 6,916. Then 6,916 - 1,028 - 204 + 1,107 - 69 = 6,722. Yes. So "Current Operating Income Including Operating Mtm" = 6,116 is pre-associates, pre-impairment etc. Hmm but 6,116 + 4,840 = 10,956 EBITDA. And then we add share of profit 800 = 10,956 + 800? No, share of profit is after EBIT typically. Actually for EBITDA calculation, we need to be careful. Let me use: **Reported EBITDA** = Revenue - Cash Operating Costs (excluding D&A) = 57,866 - 38,861 - 7,692 - 1,479 + 1,122 = 10,956? Or: 57,866 - 38,861 = 19,005 gross margin 19,005 - 7,692 = 11,313 11,313 - 1,479 = 9,834 9,834 + 1,122 = 10,956. Yes. Now for S&P Adjusted EBITDA 2021: - Base: 10,956 - Add back: Restructuring 204 (nonrecurring expense) - Add back: Impairment? S&P typically adds back impairments if nonrecurring... but this depends. Looking at cash flow: "Net Depreciation Amortization Impairment And Provisions" = 5,484. This includes D&A (4,840) + impairments (1,028) + other provisions net. Actually S&P adds back impairment losses as nonrecurring. But in the EBITDA calculation, if we start from operating profit and add D&A, impairment is already excluded from operating profit. Let me think differently. S&P Adjusted EBITDA from FFO perspective or from reported? Standard approach: Start with EBIT, add D&A, adjust for nonrecurring. EBIT = Current Operating Income Including Operating Mtm = 6,116? Or is this already after some items? Actually, let me check if Current Operating Income includes D&A. Given that Depreciation is 4,840 and Current Operating Income is 6,116, and Revenue - all costs = 6,116, yes D&A is deducted. So EBIT = 6,116 (before associates, impairments, etc.) EBITDA = 6,116 + 4,840 = 10,956 Now adjustments to get Adjusted EBITDA: - Operating Mtm: included in 6,116. Is this recurring? For utilities, some mark-to-market is normal but can be volatile. S&P may adjust if highly volatile. - Nonrecurring items below this line but affecting cash: Restructuring 204 (expense, add back), Impairment 1,028 (noncash, add back if we started from net income, but from EBIT it's already excluded) Actually from EBIT of 6,116, to get to "Profit Loss From Operating Activities" of 6,722: + 800 (equity method) - 1,028 (impairment) - 204 (restructuring) + 1,107 (other) - 69 (other nonrecurring) = 6,722 The impairment and restructuring are below EBIT line. For S&P Adjusted EBITDA, typical adjustments: - Add back nonrecurring losses (restructuring 204) - Subtract nonrecurring gains (other nonrecurring items -69, meaning gain of 69... wait it's negative -69, so if it's "Other Non Recurring Items" = -69, that's a gain) But also: "Other Income Expense From Subsidiaries Jointly Controlled Entities And Associates" = 1,107. This seems like dividend or other income, not equity method (which is separate line). This might be nonrecurring. Let me check: "Share Of Profit Loss Of Associates And Joint Ventures" = 800 (equity method). Then "Other Income Expense From Subsidiaries..." = 1,107. This could be gains on disposal or other. For conservative S&P approach, I'll treat clearly nonrecurring items: - Restructuring: +204 (add back loss) - Other Non Recurring Items: -69 means it's a gain of 69, so -69 (subtract from EBITDA) - Other Income Expense From Subsidiaries: likely nonrecurring gain of 1,107, so -1,107 But wait, this would reduce EBITDA significantly. Let me reconsider. Actually, looking at cash flow statement: "Impact Of Changes In Scope Of Consolidation And Other Non Recurring Items" = 1,039 (positive, meaning cash inflow or add back). This suggests significant nonrecurring gains. And "Other Cash Payments To Acquire Equity Or Debt Instruments" = 1,548 - this is investing. Let me try a cleaner approach using cash flow data to verify: From Cash Flows From Used In Operations Before Changes In Working Capital: 9,807 This = Net Income + D&A + other noncash adjustments - nonrecurring gains +... Net Income (Profit Loss) = 3,758 + Net Depreciation Amortization Impairment And Provisions = 5,484 + Adjustments For Undistributed Profits Of Investments = 800 - Adjustments For Dividend Income = -662 + Impact Of Changes In Scope = 1,039 - Adjustments For Gains Losses On Change In Fair Value Of Derivatives = -721 (negative = gain, so subtract) + Other Adjustments For Noncash Items = -501 + Adjustments For Income Tax Expense = 1,695 + Adjustments For Finance Income Cost = -1,350 = 3,758 + 5,484 + 800 - 662 + 1,039 - 721 - 501 + 1,695 - 1,350 = 9,842? Close to 9,807, difference due to rounding or my interpretation. Actually let me recalculate: 3,758 + 5,484 = 9,242; +800 = 10,042; -662 = 9,380; +1,039 = 10,419; -721 = 9,698; -501 = 9,197; +1,695 = 10,892; -1,350 = 9,542. Not matching 9,807. Hmm, let me re-read. "Adjustments For Finance Income Cost" = -1,350. Negative means... it's an adjustment. In cash flow, we add back losses, subtract gains. If finance cost is expense, we add it back. But -1,350 suggests it's a negative adjustment (subtracting gain). Actually I think "Net Financial Income Loss" = -1,350 (loss). So to add back: +1,350. But the adjustment shows -1,350. This might mean the sign convention is different. Let me try: 3,758 + 5,484 + 800 - 662 + 1,039 + (-721) + (-501) + (-83) + (-1,350)? No, tax expense is 1,695. Actually "Adjustments For Income Tax Expense" = 1,695. But in income statement, tax is 1,695 expense. To reconcile to operating cash flow before working capital, we add back tax expense... but actually we want pre-tax operating cash flow. I think I'm overcomplicating this. Let me use a standard approach: **2021 Adjusted EBITDA** = EBIT + D&A + nonrecurring adjustments EBIT = Profit Loss From Operating Activities - Share Of Profit + Impairment + Restructuring - Other Income + Other Non Recurring = 6,722 - 800 + 1,028 + 204 - 1,107 + 69? No wait, let me go backwards from Profit Loss From Operating Activities: 6,722 = Current Operating Income incl MTM (6,116) + 800 - 1,028 - 204 + 1,107 - 69 So EBIT before all this = 6,116 (Current Operating Income). But this includes MTM. For S&P, "Current Operating Income Including Operating Mtm" - we need to check if MTM is recurring or not. Given the complexity, let me use a practical approach: **Base EBITDA** = 10,956 (from Revenue - cash costs, or EBIT 6,116 + D&A 4,840) **Adjustments for S&P:** - Add: Restructuring expense 204 (nonrecurring) - Add: Impairment 1,028 (nonrecurring, noncash - but this is already excluded from EBIT 6,116) - Subtract: Other nonrecurring gain 69 (from "Other Non Recurring Items" = -69) - Subtract/Add: Other items as appropriate Actually since impairment is below EBIT 6,116, it's already not in EBITDA. So no adjustment needed for impairment if we start from 10,956. But "Other Income Expense From Subsidiaries" = 1,107 - this is below EBIT line. Is this nonrecurring? Likely yes (gain on disposal). So: **Adjusted EBITDA 2021** = 10,956 + 204 (restructuring) - 1,107 (gain on disposals/subsidiaries) - 69 (other nonrecurring gain) = **9,984 M EUR** Wait, but I need to check if restructuring is already in 10,956. "Current Operating Income Including Operating Mtm" is 6,116. Restructuring is below this. So yes, add back. But actually, let me verify: is "Current Operating Income Including Operating Mtm" before or after restructuring? From the roll-forward, it's before all those items. So yes. However, I want to check if there are other items. Looking at the cash flow, "Impact Of Changes In Scope Of Consolidation And Other Non Recurring Items" = 1,039. This is a positive number in cash flow adjustments, meaning it reduced net income (gain). This roughly matches my 1,107 - 69 = 1,038. Close enough. Let me also consider: should I adjust for "Operating Mtm"? Mark-to-market on operating items can be volatile. For 2021, with energy prices recovering, MTM might be positive or negative. Without clear data, I'll keep it. **2021 Adjusted EBITDA = 9,984 M EUR** Actually, let me reconsider. S&P typically also adjusts for pension, leases, etc. But we don't have clear lease data. Let me check if there are lease-like obligations. Given data limitations, I'll proceed with: **Adjusted EBITDA 2021 ≈ 10,000 M EUR** (rounding) or more precisely 9,984. Let me also try alternative: use "Cash Flows From Used In Operations Before Changes In Working Capital" = 9,807, add back cash taxes 603, add back cash interest? Actually FFO = CFO before working capital changes - cash taxes paid... no, FFO is typically from EBITDA. Let me use a cleaner EBITDA: from S&P methodology for utilities, they focus on sustainable EBITDA. I'll use: **Adjusted EBITDA 2021 = 10,956 - 1,107 - 69 + 204 = 9,984 ≈ 10,000 M EUR** Or if we think "Other Income Expense From Subsidiaries" might be more operational: keep it. Then 10,956 + 204 - 69 = 11,091. Given the name "Other Income Expense From Subsidiaries Jointly Controlled Entities And Associates" - this sounds like dividends/gains, not operating. So subtract. I'll use **9,984 M EUR** for 2021. ## Step 3: Estimate 2021 FFO FFO = Adjusted EBITDA - cash_interest - cash_taxes From cash flow statement: - Income Taxes Paid Refund Classified As Operating Activities: 603 M EUR (paid, so positive number means outflow) - Interest Paid Classified As Financing Activities: 719 M EUR - Interest Received On Cash And Cash Equivalents: -52 M EUR (negative means inflow) Wait, "Interest Received On Cash And Cash Equivalents" = -52. Negative in financing means... actually let me check signs. In cash flow: "Interest Paid Classified As Financing Activities" = 719 (positive = outflow). "Interest Received On Cash And Cash Equivalents" = -52 (negative = inflow? or outflow?). Actually in standard cash flow presentation, receipts are negative (source of cash). So -52 means inflow of 52. Net cash interest = 719 - 52 = 667? But there's also "Interest Received Classified As Investing Activities" = 32. And "Finance Costs" = 2,061, "Finance Income" = 711. So net financial expense = 1,350. Cash interest paid: need to determine. From financing: 719 paid. From investing: 32 received. From cash and cash equivalents: 52 received? Actually "Interest Received On Cash And Cash Equivalents" = -52. This is likely in operating or financing. It's in financing section. Total cash interest paid (gross) = 719 + ? Total cash interest received = 32 + 52 = 84? Net cash interest = 719 - 84 = 635? Or just use 719 paid if we don't net receipts. For FFO: S&P typically uses cash interest paid minus interest received, or just cash interest expense. From income statement: Net Financial Income Loss = -1,350 (loss of 1,350). Cash interest = interest paid - interest received = 719 - 52 - 32? = 635? But wait, -52 is "Interest Received On Cash And Cash Equivalents" - this is receipt, so -52 means inflow (negative outflow). Actually let me read: "Interest Received On Cash And Cash Equivalents" = -52000000. In cash flow statement, negative typically means source of cash. So 52 received. "Interest Received Classified As Investing Activities" = 32,000,000. Positive = outflow? No wait, 32 is positive. In investing, positive usually means outflow (use of cash). But "Interest Received" should be inflow. Hmm the sign conventions are confusing. Let me assume: - Positive = outflow/expense for "Paid" items - Negative = inflow for "Received" items, or the signs might be mixed Actually looking at "Dividends Received Classified As Investing Activities" = 57 (positive). Dividends received should be inflow. So positive = inflow? But "Interest Paid Classified As Financing Activities" = 719 (positive). Interest paid is outflow. So positive = outflow for paid, but positive = inflow for received? That doesn't make sense. Let me look at "Repayment Of Borrowings And Debt" = 5,054 (positive). Repayment is outflow. So positive = outflow. "Proceeds From Borrowings" = 8,353 (positive). Proceeds are inflow. So positive = inflow? This is inconsistent. Unless the signs are all "cash used" where positive means outflow. Actually in many European presentations, the cash flow shows "Cash Flows From/(Used In)" and positive numbers are outflows, negative are inflows. But for "Proceeds From Borrowings", positive 8,353 would be inflow... Let me not get bogged down. For FFO calculation, S&P uses: FFO = Adjusted EBITDA - cash interest - cash taxes Cash taxes = 603 (from "Income Taxes Paid Refund Classified As Operating Activities" = 603, positive likely means paid/outflow) Cash interest: I'll use net financial expense adjusted for noncash items. From income: 1,350. But this includes accruals, amortization, etc. From cash flow, interest paid in financing = 719. This seems to be gross interest paid. I'll use: **Cash interest = 719 M EUR** (conservative, not netting interest received) **Cash taxes = 603 M EUR** FFO 2021 = 9,984 - 719 - 603 = **8,662 M EUR** Or if we use 10,000 - 719 - 603 = 8,678. Let me also check: "Cash Flows From Used In Operations Before Changes In Working Capital" = 9,807. This should equal FFO + some items, or roughly FFO. Actually FFO typically = Net Income + D&A + deferred taxes + other noncash - nonrecurring gains + interest expense. From cash flow: 9,807 = 3,758 + 5,484 + adjustments... This is close to my EBITDA-based FFO plus working capital and other items. Given "Cash Flows From Used In Operations Before Changes In Working Capital" = 9,807, and this includes -1,350 finance cost adjustment, +1,695 tax, etc. Actually 9,807 is before working capital changes and before interest/tax adjustments in a different way. Let me use: FFO = 9,807 - working capital change? No, 9,807 is already before working capital. Hmm, "Cash Flows From Used In Operations Before Changes In Working Capital" - this is essentially CFO before working capital = Net Income + noncash adjustments. FFO = this - working capital changes + ? Actually no, FFO is typically from operations before working capital. Standard FFO = Net Income + D&A + deferred taxes + other noncash charges - nonrecurring gains + interest expense. From 9,807, add back cash interest, subtract cash taxes? No, 9,807 already includes adjustments. Let me try: FFO = EBITDA - cash interest - cash taxes = 9,984 - 719 - 603 = 8,662. Or from 9,807: this includes +1,695 tax expense (noncash add back), -1,350 finance cost (noncash add back of net expense). So 9,807 has added back total tax expense and total finance cost, not cash amounts. To get FFO: 9,807 - 1,695 (remove noncash tax add back) + 603 (add cash tax paid) - 1,350 (remove noncash finance add back) + 719 (add cash interest paid)? = 9,807 - 1,695 + 603 - 1,350 + 719 = 8,084? This is getting messy. Let me use simpler approach. Actually for S&P, FFO from EBITDA: FFO = Adjusted EBITDA - cash interest - cash taxes. I'll use: **FFO 2021 = 9,984 - 719 - 603 = 8,662 M EUR** Or approximately **8,700 M EUR**. ## Step 4: Estimate 2021 Adjusted_Debt Adjusted_Debt = reported_debt + leases + pension_deficit + guarantees + hybrid_debt_portion + other_debt_like_items - eligible_cash From balance sheet 2022-01-01 (end of 2021): - Longterm Borrowings: 30,458 M EUR - Current Borrowings And Current Portion Of Noncurrent Borrowings: 10,590 M EUR - Total reported debt = 41,048 M EUR Other debt-like items: - Noncurrent Derivative Financial Liabilities: 24,228 M EUR - Current Derivative Financial Liabilities: 22,702 M EUR - These are derivative liabilities, likely related to hedging. S&P may include these if they're debt-like. For utilities with significant trading/derivatives, S&P makes specific adjustments. From methodology: "Where substantial seasonal working capital requirements...distort leverage measures, we adjust inventory and debt balances." Also from regulated utilities: "We deconsolidate securitized debt (and associated revenue and expense) that has been accorded specialized recovery provisions." For ENGIE, with significant derivative activities, we need to consider if derivative liabilities are debt-like. Commodity derivatives for hedging are typically not debt, but may represent working capital. Looking at derivative assets: Noncurrent 25,616 + Current 19,373 = 44,989 M EUR Derivative liabilities: Noncurrent 24,228 + Current 22,702 = 46,930 M EUR Net derivative position = -1,941 M EUR (liability) For S&P, they may net derivative assets and liabilities or exclude them if operating. From the balance sheet, there's also: - Other Noncurrent Financial Liabilities: 108 - Other Current Financial Liabilities: not explicitly stated, but "Other Current Financial Assets" = 2,495 Actually let me look at "Other Noncurrent Financial Liabilities" = 108, and "Other Noncurrent Financial Assets" = 10,949. For debt-like items, S&P also considers: - Pension deficits: not directly stated, but "Other Comprehensive Income Before Tax Gains Losses On Remeasurements Of Defined Benefit Plans" = 1,742. This suggests pension obligations exist. The actual deficit would be in provisions. From "Noncurrent Provisions" = 23,394. This likely includes pensions, decommissioning, etc. Without detailed breakdown, I'll estimate pension deficit from OCI: the remeasurement gain of 1,742 suggests some volatility, but not the deficit size. Actually, looking at equity: "Other Comprehensive Income Before Tax Gains Losses On Remeasurements Of Defined Benefit Plans" = 1,742 gain. This is OCI, not balance sheet. For pension deficit, we'd need balance sheet pension liability minus plan assets. Not directly provided. Let me use a simplified approach: **Reported debt = 41,048 M EUR** Hybrid debt: "Deeply Subordinated Perpetual Notes" in equity = 3,767 M EUR (2022-01-01). These are hybrid instruments, counted as 50% debt or equity by S&P. S&P typically treats 50% as debt for hybrid capital. So hybrid debt portion = 3,767 × 50% = 1,884 M EUR (or full if treated as equity credit, but S&P gives partial equity credit) Actually S&P treats hybrids with equity content as 50% debt, 50% equity, or other ratios depending on features. For simplicity, I'll add 50% = 1,884. Leases: not explicitly stated. May be included in debt or separate. Given IFRS 16, likely in debt. Pension deficit: unknown, estimate 0 or small. Eligible cash: "Cash And Cash Equivalents" = 13,890 M EUR. S&P typically uses 75% or 100% depending on needs. Adjusted Debt 2021 = 41,048 + 1,884 (hybrid 50%) - 13,890 (cash, 100%) = **29,042 M EUR** Or with 75% cash: 41,048 + 1,884 - 10,418 = 32,514. Let me use conservative: subtract 75% of cash = 10,418. **Adjusted Debt 2021 = 41,048 + 1,884 - 10,418 = 32,514 M EUR** Or approximately **32,500 M EUR**. Actually, let me reconsider derivatives. The net derivative liability is 1,941. If S&P includes this as working capital/debt-like, add it. Adjusted Debt 2021 with net derivatives = 32,514 + 1,941 = 34,455? Or net position already in working capital. I'll use **32,500 M EUR** as base, or with more derivative inclusion, higher. ## Step 5: Calculate 2021 Adjusted_Debt / Adjusted_EBITDA Using: Adjusted Debt = 32,514, Adjusted EBITDA = 9,984 Ratio = 32,514 / 9,984 = **3.26x** Or with rounded: 32,500 / 10,000 = 3.25x ## Step 6: Calculate 2021 FFO / Adjusted_Debt FFO = 8,662, Adjusted Debt = 32,514 Ratio = 8,662 / 32,514 = **0.266 or 26.6%** Or approximately 0.27 or 27%. ## Step 7: Estimate 2022 Adjusted_EBITDA **2022 Data:** - Revenue: 93,865 M EUR - Purchases And Operating Derivatives: 74,535 M EUR - Employee Benefits Expense: 8,078 M EUR - Depreciation Amortization And Provisions: 5,187 M EUR - Tax Expense Other Than Income Tax Expense: 3,380 M EUR - Other Income: 1,624 M EUR - Current Operating Income Including Operating Mtm: 4,309 M EUR Verify: 93,865 - 74,535 - 8,078 - 5,187 - 3,380 + 1,624 = 4,309 ✓ **Base EBITDA** = 4,309 + 5,187 = **9,496 M EUR** Or: 93,865 - 74,535 - 8,078 - 3,380 + 1,624 = 9,496 ✓ Nonrecurring items from Current Operating Income to Profit Loss From Operating Activities: - Share Of Profit Loss Of Associates: 1,059 - Impairment Loss: 2,774 (expense) - Restructuring: 230 (expense) - Other Income Expense From Subsidiaries: 91 - Other Non Recurring Items: -1,328 (gain, negative) Roll-forward: 4,309 + 1,059 - 2,774 - 230 + 91 - (-1,328)? Wait let me check. "Other Non Recurring Items" 2022 = -1,328,000,000. Negative. 4,309 + 1,059 = 5,368 5,368 - 2,774 = 2,594 2,594 - 230 = 2,364 2,364 + 91 = 2,455 2,455 - (-1,328)? Or 2,455 + (-1,328) = 1,127? But Profit Loss From Operating Activities = 1,127. Yes! So: 4,309 + 1,059 - 2,774 - 230 + 91 + (-1,328) = 1,127. Wait that's 4,309 + 1,059 = 5,368; minus 2,774 = 2,594; minus 230 = 2,364; plus 91 = 2,455; minus 1,328 = 1,127. ✓ So "Other Non Recurring Items" = -1,328 is a negative expense = gain of 1,328? No wait, the item is negative, meaning it's income/gain. Actually in the roll-forward, we add the items as they are. "Other Non Recurring Items" = -1,328, so we add -1,328 = subtract 1,328. But 2,455 - 1,328 = 1,127. And reported is 1,127. So yes, it's a gain that reduces the total (or negative expense). For Adjusted EBITDA 2022: - Base EBITDA: 9,496 - Add: Restructuring 230 (nonrecurring expense, below EBIT) - Subtract: Other nonrecurring gain 1,328 (from "Other Non Recurring Items" = -1,328, meaning gain) - Subtract: Other income from subsidiaries 91 (likely nonrecurring gain) Wait, is 91 a gain? "Other Income Expense From Subsidiaries Jointly Controlled Entities And Associates" = 91. This is positive, so income/gain. **Adjusted EBITDA 2022** = 9,496 + 230 - 1,328 - 91 = **8,307 M EUR** Or check: 9,496 + 230 (restructuring add back) - 1,328 (gain subtract) - 91 (gain subtract) = 8,307. Hmm this is significantly lower than 2021. Let me verify with cash flow. From cash flow 2022: "Cash Flows From Used In Operations Before Changes In Working Capital" = 12,415. Net Income = 390 + Net Depreciation Amortization Impairment And Provisions = 8,057 + Adjustments For Undistributed Profits = 1,059 - Adjustments For Dividend Income = -713 + Impact Of Changes In Scope = -74 (negative = gain?) - Adjustments For Gains Losses On Change In Fair Value Of Derivatives = -3,661 (large negative = large gain) + Other Adjustments = -157 + Adjustments For Income Tax Expense = -83 (negative = gain/refund?) + Adjustments For Finance Income Cost = -3,003 = 390 + 8,057 + 1,059 - 713 - 74 - 3,661 - 157 - 83 - 3,003 = 1,815? Not 12,415. Wait, let me recheck signs. "Adjustments For Finance Income Cost" = -3,003. If finance cost is expense, we add back. But -3,003 means... negative adjustment? Actually "Net Financial Income Loss" = -3,003 (loss of 3,003). So adjustment should be +3,003 to add back loss. But it's -3,003. This suggests the sign convention is: positive adjustment = add to net income. So: 390 + 8,057 + 1,059 + (-713) + (-74) + (-3,661) + (-157) + (-83) + (-3,003) = 390 + 8,057 = 8,447; +1,059 = 9,506; -713 = 8,793; -74 = 8,719; -3,661 = 5,058; -157 = 4,901; -83 = 4,818; -3,003 = 1,815. Not matching 12,415. I think I'm misreading the signs. Let me try: maybe "Adjustments For..." means the amount to adjust, and negative means reverse direction. Actually, let me look at 2021 where I had similar issue. The problem is the sign convention in the data. Let me try absolute values with logical signs: - Net Income: 390 + D&A, impairments, provisions: 8,057 (add back noncash) + Undistributed profits of equity method: 1,059 (add back, not cash) - Dividend income: -713 (subtract, this is cash inflow already in investing?) - Changes in scope and nonrecurring: -74 (negative, meaning gain, so subtract) - Gains on fair value derivatives: -3,661 (gain, subtract) - Other noncash: -157 (negative adjustment?) - Income tax expense: -83 (negative expense = refund, add?) - Finance income cost: -3,003 (net loss, add back) Hmm. Let me try: 390 + 8,057 + 1,059 - 713 + 74 + 3,661 + 157 + 83 + 3,003 = 16,771. Not 12,415. Let me try different combo: 390 + 8,057 + 1,059 - 713 - 74 - 3,661 + 157 - 83 + 3,003 = 8,135. No. Actually, looking at 2021 where I had closer match: 3,758 + 5,484 + 800 - 662 + 1,039 - 721 - 501 + 1,695 - 1,350 = 9,542 vs 9,807. Difference of 265. Maybe I need to include other items. For 2022, let me just use: 12,415 is CFO before working capital. This is a key metric. FFO should be close to this, or derived from EBITDA. Let me use EBITDA approach: **Adjusted EBITDA 2022 = 8,307 M EUR** But wait, let me reconsider. The "Impact Of Changes In Scope" = -74 (negative). In 2021 it was +1,039. Negative means... outflow or different sign convention. Actually in 2021 cash flow, "Impact Of Changes In Scope Of Consolidation And Other Non Recurring Items" = 1,039. This helped reconcile to 9,807. In 2022, it's -74. Given 12,415 is much higher than 2021's 9,807 despite lower net income, there must be significant add-backs. The large "Net Depreciation Amortization Impairment And Provisions" = 8,057 (vs 5,484 in 2021) helps. Let me recalculate 2022 CFO before WC with logical signs: Net Income 390 + 8,057 (D&A, impairments - large due to 2,774 impairment) + 1,059 (undistributed profits) - 713 (dividends received, not in net income? or subtract as cash) - 74 (scope changes - negative means?) - 3,661 (derivative gains - subtract as noncash gain) - 157 (other) - 83 (tax - negative means refund, add?) - 3,003 (finance cost - negative means add back loss) Try: 390 + 8,057 + 1,059 - 713 + 74 - 3,661 - 157 + 83 - 3,003 = 2,129. No. Try: 390 + 8,057 + 1,059 + 713 + 74 + 3,661 + 157 + 83 + 3,003 = 17,197. No. I think the data signs are not consistent with my interpretation. Let me just use 12,415 as given and work backwards. If 12,415 = 390 + 8,057 + 1,059 + other adjustments, then other adjustments = 12,415 - 9,506 = 2,909. From remaining items: -713 -74 -3,661 -157 -83 -3,003 = -7,691. Not 2,909. Hmm. Unless some items are positive: 713 + 74 + 3,661 + 157 + 83 + 3,003 = 7,691. Then 9,506 - 7,691 = 1,815. Not 12,415. Wait, I forgot: "Adjustments For Gains Losses On Change In Fair Value Of Derivatives" = -3,661. If this is negative, and we add it: 9,506 + (-3,661) = 5,845. Then other items... Actually let me try all with signs as given (positive=add, negative=subtract, regardless of economic meaning): 390 + 8,057 + 1,059 + (-713) + (-74) + (-3,661) + (-157) + (-83) + (-3,003) = 1,815. But reported is 12,415. So the signs in data must mean something else, or I need to read them differently. Perhaps "Adjustments For..." means the adjustment itself, where: - Positive = add to net income (expense add-back) - Negative = subtract from net income (gain subtraction) But then -3,661 for derivative gains means subtract 3,661 (correct for gain). -3,003 for finance cost... wait finance cost is expense, should add back, not subtract. Unless "Adjustments For Finance Income Cost" = -3,003 means the net adjustment is -3,003, i.e., subtract 3,003. But finance cost is expense, we should add it back to get to operating cash flow. Unless... "Net Financial Income Loss" = -3,003 means net loss. But in cash flow, they might show "Finance Income" separately from "Finance Cost". Actually "Finance Costs" = 3,700, "Finance Income" = 697. Net = -3,003 (loss). In cash flow adjustments, "Adjustments For Finance Income Cost" = -3,003. If this means add back the net loss, it should be +3,003. But it's negative. I think there might be an error in my understanding. Let me just use the EBITDA-based approach and accept some uncertainty. **Adjusted EBITDA 2022 = 9,496 + 230 - 1,328 - 91 = 8,307 M EUR** Or, if "Other Income Expense From Subsidiaries" 91 is not a gain but an expense (positive = expense), then it's already in EBITDA. Wait, in the roll-forward from Current Operating Income, we add 91. So it's income. Hmm but 91 is much smaller than 2021's 1,107. So 2022 has smaller gains. Let me also consider: should I adjust for the large impairment 2,774? It's below EBIT, so not in EBITDA 9,496. But it's noncash, so if we were starting from net income, we'd add back. For EBITDA-based approach, it's already excluded. Actually, S&P sometimes adds back impairments to EBIT to get "adjusted EBIT" then adds D&A. But Current Operating Income 4,309 is pre-impairment. So **Adjusted EBITDA 2022 = 8,307 M EUR** (with nonrecurring adjustments) Or if we don't adjust for the 91 and treat as operating: 8,398. I'll use **8,300 M EUR** approximately. But wait - let me check if this makes sense. Revenue grew 62%, but EBITDA fell? Purchases grew 92%, much faster than revenue. This is the energy crisis impact - input costs rose faster than output prices. Actually, let me recheck: Revenue 93,865 / 57,866 = 1.62, so 62% growth. Purchases 74,535 / 38,861 = 1.92, so 92% growth. Yes, margin compression. ## Step 8: Estimate 2022 FFO FFO = Adjusted EBITDA - cash_interest - cash_taxes From cash flow: - Income Taxes Paid Refund Classified As Operating Activities: 1,504 (positive = paid) - Interest Paid Classified As Financing Activities: 822 - Interest Received On Cash And Cash Equivalents: -194 (negative = received? or outflow?) Net cash interest paid: 822 - 194 = 628? Or gross 822. Also "Interest Received Classified As Investing Activities" = -37. Negative = received? Cash taxes: 1,504 FFO 2022 = 8,307 - 822 - 1,504 = **5,981 M EUR** Or with net interest: 8,307 - 628 - 1,504 = 6,175. I'll use gross interest for conservatism: **5,981 M EUR** or approximately **6,000 M EUR**. ## Step 9: Estimate 2022 Adjusted_Debt From balance sheet 2023-01-01 (end of 2022): - Longterm Borrowings: 28,083 M EUR - Current Borrowings And Current Portion Of Noncurrent Borrowings: 12,508 M EUR - Total reported debt = 40,591 M EUR Hybrid debt: "Deeply Subordinated Perpetual Notes" in equity = 3,393 M EUR Hybrid debt portion (50%) = 1,697 M EUR Cash: 15,570 M EUR Derivative liabilities: Noncurrent 39,417 + Current 11,859 = 51,276 M EUR Derivative assets: Noncurrent 33,134 + Current 15,252 = 48,386 M EUR Net derivative liability = 2,890 M EUR Adjusted Debt 2022 = 40,591 + 1,697 - 15,570 × 0.75 = 40,591 + 1,697 - 11,678 = **30,610 M EUR** Or with 100% cash: 40,591 + 1,697 - 15,570 = 26,718. Or including net derivatives: 30,610 + 2,890 = 33,500. I'll use **30,600 M EUR** or with derivatives **33,500 M EUR**. Let me check: debt decreased slightly from 41,048 to 40,591, while cash increased from 13,890 to 15,570. So net debt improved. ## Step 10: Calculate 2022 Adjusted_Debt / Adjusted_EBITDA Using Adjusted Debt = 30,610, Adjusted EBITDA = 8,307 Ratio = 30,610 / 8,307 = **3.68x** Or with higher debt (including derivatives): 33,500 / 8,307 = 4.03x Or with rounded: 30,600 / 8,300 = 3.69x ## Step 11: Calculate 2022 FFO / Adjusted_Debt FFO = 5,981, Adjusted Debt = 30,610 Ratio = 5,981 / 30,610 = **0.195 or 19.5%** Or approximately 0.20 or 20%. ## Step 12: Classify year-on-year credit trend **Signal 1: Leverage (Adjusted_Debt / Adjusted_EBITDA)** - 2021: 3.26x - 2022: 3.68x - Change: +0.42x Threshold: ≥ +0.2x = Deteriorating **Signal 1: Deteriorating** (0.42 > 0.2) **Signal 2: Cash-flow coverage (FFO / Adjusted_Debt)** - 2021: 0.266 or 26.6% - 2022: 0.195 or 19.5% - Change: -0.071 or -7.1 percentage points Threshold: ≤ -0.03 = Deteriorating **Signal 2: Deteriorating** (-0.071 < -0.03) Both signals agree: **Deteriorating** Let me verify my calculations are reasonable: 2021: EBITDA 10,000, Debt 32,500, FFO 8,700 → Leverage 3.25x, FFO/Debt 26.8% 2022: EBITDA 8,300, Debt 30,600, FFO 6,000 → Leverage 3.68x, FFO/Debt 19.6% The deterioration is clear: EBITDA dropped ~17%, FFO dropped ~31%, while debt only fell ~6%. This is due to margin compression from energy crisis (input costs rising faster than revenues). Even with slightly lower debt, the collapse in profitability and cash flow generation drives leverage up and coverage down. Both signals show Deteriorating, and they agree. Deteriorating