I'll work through this step-by-step. ## Step 1: Identify the relevant industry ACEA S.P.A. is an Italian multi-utility company based in Rome, operating in water, electricity, and gas sectors. It falls under the **Regulated Utilities** methodology. ACEA operates regulated water and electricity distribution networks, along with some unregulated activities (energy sales/generation). ## Step 2: Estimate 2021 Adjusted EBITDA From the data: - **Gross Profit (EBITDA proxy)** for 2021: €1,256,075,000 (this is labeled "Gross Profit" but from the structure — Revenue minus Operating Expenses plus equity-method income — it represents EBITDA/MOL) Let me verify: Revenue (3,972,061) - Operating Expense (2,737,035) + Other Income from Associates (21,048) = 1,256,074 ≈ 1,256,075 ✓ This "Margine Operativo Lordo" is essentially EBITDA. For S&P adjustments: - **Lease adjustments**: Right-of-use assets 2022-01-01: €53,096,000. Lease depreciation is embedded in D&A. S&P adds back operating lease expenses. The ROU asset is relatively small; I'll approximate the lease adjustment as minimal given it's already capitalized under IFRS 16. - **Pension adjustments**: Non-current employee benefits 2022-01-01: €120,150,000. The pension service cost is included in operating expenses already. **2021 Adjusted EBITDA ≈ €1,256 million** ## Step 3: Estimate 2021 FFO FFO = Adjusted EBITDA - cash interest - cash taxes - **Cash interest paid** (2021): €100,752 million (Interest Paid Classified as Financing Activities) - **Cash taxes paid** (2021): €180,117 million (Income Taxes Paid) FFO = 1,256,075 - 100,752 - 180,117 = **€975,206,000 ≈ €975 million** ## Step 4: Estimate 2021 Adjusted Debt From balance sheet at 2022-01-01 (end of FY2021): - **Non-current financial liabilities**: €4,791,979,000 - **Current financial liabilities**: €285,222,000 - **Total reported debt**: 4,791,979 + 285,222 = €5,077,201,000 - **Lease liabilities**: Already included in financial liabilities (IFRS 16 ROU assets = €53,096,000, so lease debt ~€53,096,000 — likely already in the financial liabilities) - **Pension deficit**: €120,150,000 - **Cash**: €680,820,000 (but S&P typically only nets a portion; for utilities, let's assume ~75% is surplus cash eligible). For a regulated utility, S&P might consider most cash as operational. I'll deduct a conservative amount. Let's assume S&P allows netting of surplus cash. For a utility with this scale, perhaps €200 million is operational. Eligible cash ≈ €480,820,000. Adjusted Debt = 5,077,201 + 120,150 - 480,820 = **€4,716,531,000 ≈ €4,717 million** ## Step 5: 2021 Adjusted Debt / Adjusted EBITDA 4,717 / 1,256 = **3.76x** ## Step 6: 2021 FFO / Adjusted Debt 975 / 4,717 = **20.7%** ## Step 7: Estimate 2022 Adjusted EBITDA - **Gross Profit (EBITDA)** for 2022: €1,305,021,000 **2022 Adjusted EBITDA ≈ €1,305 million** ## Step 8: Estimate 2022 FFO - **Cash interest paid** (2022): €114,121,000 - **Cash taxes paid** (2022): €178,506,000 FFO = 1,305,021 - 114,121 - 178,506 = **€1,012,394,000 ≈ €1,012 million** ## Step 9: Estimate 2022 Adjusted Debt From balance sheet at 2023-01-01 (end of FY2022): - **Non-current financial liabilities**: €4,722,263,000 - **Current financial liabilities**: €619,418,000 - **Total reported debt**: 4,722,263 + 619,418 = €5,341,681,000 - **Pension deficit**: €112,989,000 - **Cash**: €559,908,000; eligible cash ≈ €359,908,000 Adjusted Debt = 5,341,681 + 112,989 - 359,908 = **€5,094,762,000 ≈ €5,095 million** ## Step 10: 2022 Adjusted Debt / Adjusted EBITDA 5,095 / 1,305 = **3.90x** ## Step 11: 2022 FFO / Adjusted Debt 1,012 / 5,095 = **19.9%** ## Step 12: Classify the trend **Signal 1 (Leverage):** 3.90 - 3.76 = +0.14x → Between -0.2x and +0.2x → **Stable** **Signal 2 (Cash-flow coverage):** 0.199 - 0.207 = -0.008 → Between -0.03 and +0.03 → **Stable** Both signals indicate **Stable**. Stable