I'll work through this step-by-step for ENGIE. ## Step 1: Identify the relevant industry ENGIE is a large French energy company with significant operations in both regulated utilities (gas distribution networks, electricity transmission) and unregulated power and gas (renewable generation, thermal generation, energy supply/retail). Given ENGIE's diversified energy portfolio spanning regulated and unregulated activities, I'll apply a blend of the **Regulated Utilities** and **Unregulated Power and Gas** methodologies. ENGIE likely qualifies for the **medial volatility table** given its mix of regulated and contracted activities. ## Step 2: Estimate 2021 Adjusted EBITDA First, let me reconstruct EBITDA from the reported figures. **Starting point - Current Operating Income Including Operating MtM (2021):** €6,116M This is essentially EBIT-like. I need to add back depreciation, amortization, and provisions: **Depreciation, Amortization and Provisions (2021):** €4,840M **Reconstructed EBITDA (before adjustments):** EBITDA = Current Operating Income Including Operating MtM + D&A = 6,116 + 4,840 = **€10,956M** **S&P Adjustments:** 1. **Share of equity method entities:** S&P typically includes proportional EBITDA from equity-method investments. The share of profit from associates/JVs was €800M. As a rough proxy, I'll add this: +€800M 2. **Operating leases:** IFRS 16 is already applied (PP&E includes right-of-use assets), so lease adjustments are largely embedded. No major additional adjustment needed. 3. **Pension adjustments:** S&P adds back pension service costs and adjusts for cash contributions. Without specific data, I'll make a modest estimate. The remeasurement gains on defined benefit plans were €1,742M in 2021 (pre-tax), suggesting significant pension obligations. I'll assume a small net adjustment of ~€0M for simplicity. 4. **Hybrid debt treatment:** ENGIE has deeply subordinated perpetual notes (€3,767M at end-2021). S&P typically treats ~50% as debt and ~50% as equity for hybrids. The coupon on the debt portion would be added back to EBITDA (since it's in finance costs). Coupons on hybrids: ~€129M (retained earnings impact from operations on deeply subordinated perpetual notes in 2021). Add back ~€65M (50% treated as interest). 5. **Non-recurring items:** Already excluded from Current Operating Income. **Adjusted EBITDA 2021 ≈ 10,956 + 800 + 65 ≈ €11,821M** ## Step 3: Estimate 2021 FFO **FFO = Adjusted EBITDA - cash interest - cash taxes** - **Cash interest (2021):** Finance costs = €2,061M, Finance income = €711M → Net = €1,350M. Cash interest paid (from CF statement): €719M + adjustments. Using net financial cost of ~€1,350M but adjusting for non-cash items. Interest paid (financing) = €719M, interest received on cash = €52M → net cash interest ≈ €667M. But S&P uses gross interest paid adjusted: ~€719M. Including hybrid coupon debt portion (~€65M), adjusted cash interest ≈ €784M. - **Cash taxes (2021):** Income taxes paid = €603M **FFO 2021 ≈ 11,821 - 784 - 603 ≈ €10,434M** ## Step 4: Estimate 2021 Adjusted Debt **Reported debt:** - Long-term borrowings (end 2021): €30,458M - Current borrowings: €10,590M - Total reported debt = €41,048M **S&P Adjustments:** 1. **Pension deficit:** Noncurrent provisions include pensions. Total noncurrent provisions = €23,394M. A significant portion is nuclear/environmental provisions. I'll estimate pension deficit at ~€8,000M (typical for ENGIE based on historical data). 2. **Hybrid debt (50% debt treatment):** €3,767M × 50% = €1,884M (already in borrowings? No - these are in equity). Add €1,884M. 3. **Operating lease debt:** Already capitalized under IFRS 16, included in borrowings. 4. **Cash netting:** S&P typically nets surplus cash. Cash = €13,890M. S&P usually allows netting of a portion. For utilities, they might net ~75% of cash minus operating needs. Conservative estimate: net €5,000M. 5. **Other debt-like items:** Guarantees, securitization - no specific data. Assume modest. **Adjusted Debt 2021 ≈ 41,048 + 8,000 + 1,884 - 5,000 ≈ €45,932M** ## Step 5: 2021 Adjusted Debt / Adjusted EBITDA **45,932 / 11,821 = 3.89x** ## Step 6: 2021 FFO / Adjusted Debt **10,434 / 45,932 = 22.7%** ## Step 7: Estimate 2022 Adjusted EBITDA **Current Operating Income Including Operating MtM (2022):** €4,309M **D&A (2022):** €5,187M **Reconstructed EBITDA = 4,309 + 5,187 = €9,496M** However, 2022 had significant MtM losses on derivatives. The "Adjustments for gains/losses on change in fair value of derivatives" in the cash flow statement was -€3,661M (vs +€721M in 2021), meaning €3,661M was a non-cash loss included in operating income. S&P would normalize for these MtM impacts. Looking at the cash flow statement more carefully: - Cash flows from operations before working capital = €12,415M - This already adds back non-cash items including D&A (€8,057M including impairments), derivative fair value changes (€3,661M), etc. Let me use the cash flow approach for consistency: **Cash from operations before WC (2022):** €12,415M This approximates Adjusted EBITDA before interest and tax adjustments but after removing non-cash items. Actually, let me be more precise. The CF statement reconciliation: - Profit from operations: €1,127M (includes all non-recurring items) - Add back: D&A, impairment, provisions: €8,057M - Add back: MtM derivatives: €3,661M - Equity method undistributed: €1,059M (subtracted as non-cash) - Dividend income adjustment: -€713M - Other non-cash: changes in scope (-€74M), other adjustments (-€157M) - Income tax expense: -€83M (add back) - Finance costs: €3,003M (add back net) - = €12,415M before WC changes So reconstructed EBITDA from CF: Cash from ops before WC = €12,415M This includes: profit + D&A + impairments + non-cash items + interest + taxes To get EBITDA: Start with CF before WC, then subtract back the add-backs that aren't part of EBITDA: - The €12,415M effectively = EBITDA (broadly) + equity method cash dividends + some adjustments Let me use a cleaner approach: **Current Operating Income incl MtM + D&A = €9,496M** But S&P would add back impairments (€2,774M in 2022 vs €1,028M in 2021 - these are included in the line between current operating income and profit from operations). For S&P EBITDA, MtM on operating derivatives should be normalized. The Current Operating Income Including Operating MtM already includes operating MtM, and the large swing in derivatives fair value (€3,661M loss in 2022) suggests significant non-cash MtM losses. Looking at this differently - let me use the same methodology consistently: **2022 EBITDA (same basis as 2021):** - Current Operating Income incl Operating MtM: €4,309M - Add D&A: €5,187M - = €9,496M **Adjustments:** 1. Equity method: +€1,059M 2. Hybrid coupon (50%): Operations on deeply subordinated perpetual notes show €77M retained earnings impact. 50% = ~€39M 3. MtM normalization: The difference in operating MtM between years is significant. However, since "Current Operating Income Including Operating MtM" already includes this, and S&P would strip out unrealized MtM, I need to consider this. The CF statement shows €3,661M adjustment for fair value of derivatives. This suggests significant unrealized losses were in the P&L. Adding these back: +€3,661M Wait - but the Current Operating Income Including Operating MtM is stated as €4,309M. If operating MtM losses were included and they were largely unrealized, S&P would add them back. The cash flow adjustments for derivative fair value changes of €3,661M indicates that amount was non-cash. But this may include items beyond just operating MtM. Let me be conservative and add back a portion. Looking at the difference between 2021 and 2022 performance more carefully: The CF-based "Cash Flows From Used In Operations Before Changes In Working Capital" was €12,415M in 2022 vs €9,807M in 2021. This metric is closer to S&P's cash EBITDA concept. Let me use this as a proxy for Adjusted EBITDA (it includes interest and tax add-backs, so I need to subtract those): 2022: €12,415M - €3,003M (net finance cost added back) - (-€83M income tax, which was a benefit) = 12,415 - 3,003 + 83 = €9,495M Hmm, that doesn't work perfectly because the CF reconciliation adds back these items differently. Let me try yet another approach. Using the CF statement: **2022 EBITDA proxy from CF:** CF before WC changes: €12,415M This = Net income + non-cash charges + interest + taxes So EBITDA ≈ CF before WC - interest added back - tax added back = 12,415 - 3,003 - (-83) = 12,415 - 3,003 + 83 = €9,495M But wait, the CF reconciliation starts from "Profit from operations" (€1,127M) which is AFTER interest and tax. Let me re-read: Actually, looking at the CF items: - Net D&A, impairment, provisions: -€8,057M (added back, so these are negative in P&L) - Impact of scope changes: -€74M - MtM derivatives: -€3,661M (added back) - Other non-cash: -€157M - Equity method: €1,059M (subtracted since non-cash income) - Dividend income: -€713M (subtracted) - Income tax: -€83M (added back) - Finance costs: -€3,003M (added back) Starting from Profit from operations (€1,127M) + all add-backs = €12,415M So: 1,127 + 8,057 + 74 + 3,661 + 157 - 1,059 + 713 - 83 + 3,003 = Let me verify: 1,127 + 8,057 = 9,184 + 74 = 9,258 + 3,661 = 12,919 + 157 = 13,076 - 1,059 = 12,017 + 713 = 12,730 + (-83) = wait, income tax expense was -€83M (a tax benefit), and they "add back" taxes, so +(-83) = -83? No... The format shows: - "Adjustments For Income Tax Expense" 2022: -€83M (this is the income tax line from P&L, negative means benefit) - "Adjustments For Finance Income Cost" 2022: -€3,003M (net financial loss) These are adjustments TO the CF reconciliation, so they reverse these items from profit: Profit from operations (€1,127M) is already after finance and tax? No - "Profit Loss From Operating Activities" is before finance and tax. Let me reconsider. "Profit Loss From Operating Activities" (€1,127M) is BEFORE interest and tax. The CF reconciliation then: - Adds back non-cash operating items (D&A, impairments, MtM, etc.) - Then separately shows interest and tax as cash outflows So the CF before WC (€12,415M) should equal: Operating profit + non-cash add-backs (but NOT interest/tax add-backs since operating profit is before these) Wait, but the reconciliation shows "Adjustments For Income Tax Expense" and "Adjustments For Finance Income Cost" as part of the bridge to €12,415M. This is confusing. Let me just verify: 1,127 (operating profit) + 8,057 (D&A, impairment, provisions) + 74 (scope changes) + 3,661 (derivative fair value) + 157 (other non-cash) - 1,059 (equity method - non-cash portion) + 713 (dividend income added back as non-cash - will be in investing CF) + 83 (income tax - since it was a benefit of -83, adding back means +83) + 3,003 (net finance cost - adding back) = 1,127 + 8,057 + 74 + 3,661 + 157 - 1,059 + 713 + 83 + 3,003 = 1,127 + 8,057 = 9,184 + 74 = 9,258 + 3,661 = 12,919 + 157 = 13,076 - 1,059 = 12,017 + 713 = 12,730 + 83 = 12,813 + 3,003 = 15,816 That doesn't equal €12,415M. Let me recheck the signs. The CF statement items (adjustments to reconcile operating profit to operating CF): - "Adjustments For Undistributed Profits Of Investments Accounted For Using Equity Method": €1,059M → This reverses the equity method income (subtract it since it's non-cash income) - "Adjustments For Dividend Income": -€713M → This adds back dividend income that will appear in investing (negative means they're subtracting it... or re-adding?) - "Net Depreciation Amortization Impairment And Provisions": -€8,057M → The negative sign means these are expenses being added back (reversed) - "Impact Of Changes In Scope...": -€74M - "Adjustments For Gains Losses On Change In Fair Value Of Derivatives": -€3,661M → Added back (these were losses, so negative, and reversing them) - "Other Adjustments For Noncash Items": -€157M - "Adjustments For Income Tax Expense": -€83M → The tax was a -€83M benefit; this adjustment reverses it - "Adjustments For Finance Income Cost": -€3,003M → Reverses the net financial loss OK so the adjustments are presented with their own signs indicating direction of adjustment to CF: Operating Profit: 1,127 + Equity method adjustment: 1,059 (positive = subtract non-cash income) Wait no. Let me reconsider. In a standard CF reconciliation: - Non-cash expenses are ADDED back (positive adjustment) - Non-cash income is SUBTRACTED (negative adjustment) "Adjustments For Undistributed Profits": +1,059 means they're adding 1,059 to reverse the equity income (since it's non-cash). That makes sense. "Adjustments For Dividend Income": -713 means they're subtracting 713. But dividends received are cash, and they'd show up in investing. So this reversal removes dividend income from operating profit (subtract it from operating section, it'll appear in investing). Makes sense. "Net Depreciation...": -8,057. This is confusing. D&A should be ADDED back. Unless the sign convention means the D&A was -8,057 in P&L (expense) and this shows the original P&L impact, and the adjustment is the opposite... Actually, I think the values shown ARE the adjustments (i.e., the amount added to/subtracted from operating profit): 1,127 (operating profit) + 1,059 (reverse equity income) - 713 (reverse dividend income) - 8,057... That can't be right because subtracting 8,057 would make it very negative. Let me try: maybe the negative signs mean "add back" in their convention: 1,127 - (-8,057) = +8,057 - (-74) = +74 - (-3,661) = +3,661 - (-157) = +157 + 1,059 = +1,059 - (-713) = ... Actually, looking at the signs more carefully. For 2021: - Net D&A: -5,484 - MtM derivatives: +721 (this was a gain, so negative adjustment needed) - Income tax: +1,695 (this was an expense, needs to be added back) - Finance cost: -1,350 (this was an expense, needs to be added back) OK so with 2021: 6,722 (operating profit) + (-5,484)... that gives 1,238. That's going the wrong direction. I think the sign convention is that these are the amounts as they flow through: - Negative = added back to profit (because they reduced profit) - Positive = subtracted from profit (because they increased profit) 2021: 6,722 - 800 - (-662) + (-5,484) + (-1,039) + (-721) + (-501) + (-1,695) + (-1,350) = 6,722 - 800 + 662 - 5,484 - 1,039 - 721 - 501 - 1,695 - 1,350 Hmm that gives a very negative number. This isn't working. Let me just try adding all the listed items directly: 2021: Operating profit: 6,722 + Equity method: 800 + Dividend: -662 + D&A: -5,484 + Scope: -1,039 Wait, these are presented with signs that should be "as given" in the CF statement. Let me try: Wait, "Impact Of Changes In Scope Of Consolidation And Other Non Recurring Items" for 2021 is listed as: 1,039. This is positive. And for 2022 it's -74. Let me try the simplest approach - just add all the listed adjustment items to operating profit: 2021: 6,722 + 800 + (-662) + (-5,484) + 1,039 + 721 + (-501) + 1,695 + (-1,350) = 6,722 + 800 - 662 - 5,484 + 1,039 + 721 - 501 + 1,695 - 1,350 = 6,722 + 800 = 7,522 - 662 = 6,860 - 5,484 = 1,376 + 1,039 = 2,415 + 721 = 3,136 - 501 = 2,635 + 1,695 = 4,330 - 1,350 = 2,980 But the CF before WC should be 9,807. That doesn't match either. Let me try taking absolute values and standard signs: 2021 CF before WC = Operating Profit + D&A/provisions + scope items - equity undistributed + dividends reversed + MtM reversed + other non-cash + interest reversed + tax reversed = 6,722 + 5,484 - 1,039 - 800 + 662 - 721 + 501 + 1,350 + 1,695 Nope: = 6,722 + 5,484 = 12,206 - 1,039 = 11,167 - 800 = 10,367 + 662 = 11,029 - 721 = 10,308 + 501 = 10,809 + 1,350 = 12,159 + 1,695 = 13,854 Still doesn't match 9,807. OK let me try another combination for 2021: 6,722 + 5,484 + 800 - 662 - 1,039 - 721 + 501 - 1,695 + 1,350 = ? Actually, I realize I may be overthinking this. The sign conventions in the data might be inconsistent or I'm misreading them. Let me just work with the key aggregates. **For EBITDA estimation, let me use a simpler approach:** **2021:** Revenue: 57,866 - Purchases: 38,861 - Employee benefits: 7,692 - Taxes other than income: 1,479 + Other income: 1,122 = Current Operating Income (before D&A) = 57,866 - 38,861 - 7,692 - 1,479 + 1,122 = 10,956 This equals Current Operating Income Including Operating MtM + D&A = 6,116 + 4,840 = 10,956. ✓ So **2021 EBITDA = €10,956M** (before S&P adjustments) **2022:** Revenue: 93,865 - Purchases: 74,535 - Employee benefits: 8,078 - Taxes other than income: 3,380 + Other income: 1,624 = 93,865 - 74,535 - 8,078 - 3,380 + 1,624 = 9,496 **2022 EBITDA = €9,496M** (before S&P adjustments) Now, S&P adjustments for both years: **S&P Adjusted EBITDA 2021:** 1. **Equity method dividends received:** S&P would replace equity method income (€800M) with cash dividends received. Dividends received from investing = €57M + proportional share. The "Adjustments For Dividend Income" line shows €662M for 2021 (these represent dividends from equity investments). Actually, this line likely represents the cash dividends received from equity-method entities and other investments. The equity income of €800M should be removed and replaced with cash dividends. Net adjustment: -800 + 662 = -€138M 2. **Hybrid debt (50% equity credit):** ENGIE's perpetual subordinated notes of ~€3,913M (start 2021) → €3,767M (end 2021). S&P gives ~50% equity credit. The coupon attributable to the 50% debt portion should be treated as interest, not equity distribution. Total hybrid costs in 2021: €129M (from retained earnings) + €146M (from hybrid line) = €275M total. 50% treated as interest = ~€138M. This is already below EBITDA line, so no EBITDA adjustment needed. But the 50% treated as dividend (€138M) should also be below EBITDA. Since all €275M was treated as equity distribution in reported accounts, 50% (€138M) needs to be reclassified as interest expense - this doesn't change EBITDA, it changes FFO. 3. **Operating lease adjustment:** Under IFRS 16, leases are already capitalized. S&P would typically reverse IFRS 16 and add back the full lease payment as an operating expense, then add a depreciation portion back to EBITDA. However, for simplicity and given the data available, I'll assume the net impact is modest. 4. **Non-recurring items already excluded:** The "Current Operating Income" already excludes impairments, restructuring, and other non-recurring items. Good. **Adjusted EBITDA 2021 ≈ 10,956 - 138 ≈ €10,818M** Actually, for S&P, when they include equity method on a proportional basis, they often just include the equity method income as-is for EBITDA purposes and make the cash adjustment at the FFO level. Let me simplify: **Adjusted EBITDA 2021 ≈ €10,956M** (using the simpler approach, keeping equity method income in) Let me add equity method income: **Adjusted EBITDA 2021 = 10,956 + 800 = €11,756M** Wait - the Current Operating Income already includes some items but NOT equity method income. The data shows: - "Current Operating Income Including Operating MtM And Share In Net Income Of Equity Method Entities" = €6,916M in 2021 - This = €6,116 + €800M So if I use this broader measure + D&A: EBITDA including equity method = 6,916 + 4,840 = €11,756M But S&P would want to replace equity method income with dividends received. The CF statement shows dividends received (investing) = €57M. But "Adjustments For Dividend Income" = -€662M suggests €662M of dividends were received. **Adjusted EBITDA 2021 = 10,956 + 662 = €11,618M** (replacing equity income of 800 with dividends of 662) For consistency, let me use: **Adjusted EBITDA 2021 ≈ €11,618M** Hmm, but looking at this more carefully, the "Adjustments for Dividend Income" line in the CF statement may include dividends from financial investments, not just equity-method entities. The dividends from equity-method entities specifically would be shown in investing activities: "Dividends Received Classified As Investing Activities" = €57M in 2021. But that seems too low. Actually, for equity-method entities, in the CF statement, the undistributed profits (€800M) are removed. The actual dividends received would show up somewhere - potentially within operating CF (as they represent returns on investment) or in investing CF. The €57M in investing seems to be from other investments. For simplicity, and given the complexity, let me use a more straightforward approach: **2021 Adjusted EBITDA:** Start with EBITDA = €10,956M S&P typically adds share of equity method results for integrated utilities: +€800M = **€11,756M** **2022 Adjusted EBITDA:** EBITDA = €9,496M + Equity method: +€1,059M = **€10,555M** ## Step 3: Estimate 2021 FFO **FFO = Adjusted EBITDA - cash interest - cash taxes** **Cash interest 2021:** - Interest paid (financing): €719M - Interest received on cash: -€52M (offset) - Derivatives/hedges interest: €219M - Net cash interest ≈ 719 - 52 + 219 = €886M Wait, the derivatives/compensation payments are separate. Let me use: - Interest paid: €719M - Interest received: €52M - Net: €667M Add 50% of hybrid coupon treated as interest: €275M × 50% = €138M Total S&P adjusted interest: 667 + 138 = **€805M** Actually S&P interest would also include lease interest (already in finance costs under IFRS 16). Let me just use the reported net: - Finance costs: €2,061M (includes non-cash items like accretion, FX) - Finance income: €711M - Net: €1,350M But we want CASH interest. From CF: paid €719M, received €52M = net cash €667M. Plus hybrid debt portion interest: ~€138M **Cash interest ≈ €805M** **Cash taxes 2021:** €603M **FFO 2021 = 11,756 - 805 - 603 = €10,348M** ## Step 4: Estimate 2021 Adjusted Debt **Reported debt (end 2021 = start of FY2022):** - Long-term borrowings: €30,458M - Current borrowings: €10,590M - Total: €41,048M **Adjustments:** 1. **Hybrid debt (50% as debt):** Total hybrids = €3,767M. 50% = €1,884M. These are classified in equity, so add to debt. 2. **Pension/post-retirement obligations:** Noncurrent provisions = €23,394M. This includes nuclear decommissioning, environmental, and pension obligations. For ENGIE, pension obligations are typically around €6-8B. I'll estimate pension deficit at ~€7,000M (this would already be in provisions). S&P adds the net pension deficit. Since provisions are already on the balance sheet as liabilities, and S&P would adjust debt to include underfunded pension obligations, but these aren't "borrowings." S&P adds the net pension deficit to debt. Estimating ~€7,000M. Actually, the 2022 OCI shows pension remeasurement gains of €2,718M pre-tax in 2022 and €1,742M in 2021, suggesting the pension deficit was reduced significantly. The pension deficit might be around €6-8B at end-2021. Let me estimate €7,000M. 3. **Operating leases:** Already capitalized under IFRS 16 and included in borrowings/PP&E. Minimal additional adjustment. 4. **Cash netting:** Cash = €13,890M. S&P for utilities typically doesn't net all cash. They might net excess cash beyond operating needs. I'll assume S&P nets about €3,000-5,000M. Let me estimate €4,000M netted. 5. **Asset retirement/decommissioning obligations:** Part of noncurrent provisions. S&P may or may not add these. These are already liabilities on the balance sheet. For the debt calculation, S&P sometimes excludes these. Let me not double-count with provisions. Actually, let me reconsider. S&P's adjusted debt for utilities typically includes: - Reported debt (short + long term) - Hybrid debt treated as debt (50%) - Pension deficit (if not in debt already) - Surplus cash offset The pension deficit is NOT in borrowings - it's in provisions. S&P adds pension deficit to debt. **Adjusted Debt 2021:** = 41,048 + 1,884 + 7,000 - 4,000 = **€45,932M** ## Step 5: 2021 Adjusted Debt / Adjusted EBITDA **45,932 / 11,756 = 3.91x** ## Step 6: 2021 FFO / Adjusted Debt **10,348 / 45,932 = 22.5%** ## Step 7: Estimate 2022 Adjusted EBITDA **EBITDA 2022 = €9,496M** + Equity method: €1,059M = **€10,555M** ## Step 8: Estimate 2022 FFO **Cash interest 2022:** - Interest paid (financing): €822M - Interest received on cash: -€194M - Net: €628M - Plus hybrid debt portion: €77M + €374M = €451M total × 50% = €226M - **Cash interest ≈ 628 + 226 = €854M** Wait, actually for 2022, the hybrid operations show: retained earnings impact -€77M (coupon on equity portion), hybrid notes impact -€374M (redemptions/calls). The €374M likely includes principal redemption. The coupon portion for 2022 might be different. Looking at it: hybrid notes went from €3,767M to €3,393M, a decrease of €374M. The retained earnings impact of -€77M represents the after-tax coupon on the hybrids. So the actual coupon expense was ~€77M (charged against retained earnings as equity distribution) plus any amount embedded in the €374M decrease (which may be largely redemption). For S&P, the interest on the 50% debt portion would be: if total coupon is ~€77-130M, then 50% = ~€40-65M. Let me estimate ~€65M. **Cash interest 2022 ≈ 628 + 65 = €693M** Hmm, but the derivatives/hedging cash flow was €216M in 2022. This might include settlement of interest rate hedges. Let me keep it simpler and not add this. **Cash taxes 2022:** €1,504M **FFO 2022 = 10,555 - 693 - 1,504 = €8,358M** ## Step 9: Estimate 2022 Adjusted Debt **Reported debt (end 2022 = Jan 1, 2023):** - Long-term borrowings: €28,083M - Current borrowings: €12,508M - Total: €40,591M **Adjustments:** 1. **Hybrid debt (50%):** €3,393M × 50% = €1,697M 2. **Pension deficit:** With the €2,718M pre-tax remeasurement gain in 2022, the pension deficit likely decreased significantly. Estimate ~€4,500M at end-2022. 3. **Cash netting:** Cash = €15,570M. Net ~€5,000M. **Adjusted Debt 2022 = 40,591 + 1,697 + 4,500 - 5,000 = €41,788M** ## Step 10: 2022 Adjusted Debt / Adjusted EBITDA **41,788 / 10,555 = 3.96x** ## Step 11: 2022 FFO / Adjusted Debt **8,358 / 41,788 = 20.0%** ## Step 12: Classify the credit trend **Signal 1: Leverage (Adjusted Debt / EBITDA)** - 2021: 3.91x - 2022: 3.96x - Change: +0.05x - Classification: **Stable** (between -0.2x and +0.2x) **Signal 2: Cash-flow coverage (FFO / Adjusted Debt)** - 2021: 22.5% - 2022: 20.0% - Change: -2.5 percentage points = -0.025 - Classification: **Stable** (between -0.03 and +0.03) Both signals indicate **Stable**. However, let me double-check my numbers. The key concern is that 2022 showed: - Revenue up 62% (energy crisis), but operating costs rose even more - Current operating income fell from €6,116M to €4,309M - Cash taxes tripled (€603M → €1,504M) - Finance costs nearly doubled - Net income collapsed from €3,661M to €216M Yet operating cash flow actually IMPROVED (€7,313M → €8,586M), driven by higher pre-WC cash generation (€9,807M → €12,415M). This suggests the P&L was heavily distorted by non-cash items (MtM derivatives, impairments) while cash generation was actually solid. The debt also decreased modestly, and the pension deficit likely shrank due to higher discount rates. So while the headline P&L numbers look terrible, the underlying cash credit metrics were relatively stable. Both signals point to Stable, so my conclusion is: **Both signals: Stable** Stable