I'll work through this step-by-step following S&P methodology for Terna S.p.A.

## Step 1: Industry Identification

Terna S.p.A. is Italy's electricity transmission system operator (TSO). This is a **Regulated Utility** - specifically an electricity transmission network company. It operates under comprehensive regulation by ARERA (Italian energy regulator).

## Step 2: Estimate Adjusted EBITDA

**Start with reported EBITDA:**
- Operating Profit (EBIT) = 1,333,500,000 EUR
- D&A = 725,700,000 EUR (from income statement)
- EBITDA = 1,333,500,000 + 725,700,000 = 2,059,200,000 EUR

**S&P Adjustments:**

**Lease adjustments:** The balance sheet shows noncurrent financial liabilities (247,200,000) and current financial liabilities (44,900,000) which likely include lease liabilities. Under S&P methodology, operating lease depreciation is already in EBITDA. The lease interest portion would be added back. I'll estimate lease-related adjustments are relatively small for a utility like Terna. The total lease liabilities appear to be approximately 292,100,000 (247,200,000 + 44,900,000). Estimated lease interest ~2-3% on average balance ≈ ~7,000,000 EUR added to EBITDA.

**Hybrid bond treatment:** Terna issued 989,000,000 EUR in hybrid bonds in 2022. S&P typically assigns 50% equity credit to qualifying hybrid instruments. The coupon paid was 21,100,000 EUR. Under S&P methodology, the debt-like portion's interest would be treated as interest expense. For EBITDA, we add back the hybrid coupon if it was deducted below EBITDA (it was charged to equity, not P&L), so no EBITDA adjustment needed.

**Discontinued operations loss:** -20,300,000 EUR - this is non-recurring, so we can exclude it.

**Adjusted EBITDA ≈ 2,059,200,000 + 7,000,000 ≈ 2,066,200,000 EUR**

## Step 3: Estimate FFO

**Cash interest:**
- Interest paid (from cash flow statement) = 154,800,000 EUR
- Less: capitalized interest = 24,800,000 EUR (S&P adds back capitalized interest as cash interest)
- Actual cash interest paid = 154,800,000 EUR
- Add hybrid coupon (debt portion, 50%) = 21,100,000 × 50% = 10,550,000 EUR
- Add lease interest ≈ 7,000,000 EUR
- Total S&P cash interest ≈ 154,800,000 + 10,550,000 + 7,000,000 - 24,800,000 = 147,550,000

Wait - S&P typically uses gross interest paid. Let me reconsider. The cash flow shows interest paid of 154,800,000 which already includes capitalized interest or not. Looking at the adjustments, capitalized interest is shown separately in investing activities (24,800,000). The 154,800,000 in operating activities is the actual cash interest paid on borrowings.

S&P cash interest = 154,800,000 + 10,550,000 + 7,000,000 = 172,350,000 EUR

**Cash taxes:**
- Income taxes paid = 380,100,000 EUR

**FFO = Adjusted_EBITDA - cash_interest - cash_taxes**
FFO = 2,066,200,000 - 172,350,000 - 380,100,000 = 1,513,750,000 EUR

## Step 4: Estimate Adjusted Debt

**Reported debt:**
- Long-term borrowings: 8,416,700,000
- Short-term borrowings: 444,100,000
- Current portion of LT borrowings: 1,909,300,000
- Total reported debt = 10,770,100,000 EUR

**S&P Adjustments:**
- Lease liabilities: ~292,100,000 (noncurrent + current financial liabilities)
- Pension deficit: 48,400,000 EUR (employee benefit provisions)
- Hybrid bonds: 50% debt = 989,000,000 × 50% = 494,500,000 EUR
- Surplus cash: S&P typically deducts minimal cash for utilities. Assume no cash netting for regulated utility.

**Adjusted Debt = 10,770,100,000 + 292,100,000 + 48,400,000 + 494,500,000 = 11,605,100,000 EUR**

## Step 5: Calculate FFO / Adjusted Debt

FFO / Adjusted_Debt = 1,513,750,000 / 11,605,100,000 = 0.13044

<answer>0.1304</answer>