**Step 1: Identify the relevant industry for "ENI S.P.A."** ENI S.P.A. is a major integrated energy company involved in exploration, production, refining, and marketing of oil and gas. Based on the provided methodologies, ENI fits into the **Oil And Gas Exploration And Production** sector (specifically as an integrated major). The methodology for this sector emphasizes metrics like FOCF to debt and DCF to debt, but the prompt requires us to use the baseline formulas for Adjusted EBITDA, FFO, and Adjusted Debt, modified by industry guidelines where applicable. The Oil & Gas E&P methodology notes that for major integrated companies, we should take into account historical ratios and stability through the price cycle. It does not prescribe specific additions/subtractions to EBITDA or Debt different from the general corporate baseline for the purpose of this high-level estimation, other than noting that lease liabilities are often treated as debt-like (which is standard in the baseline formula provided). We will proceed with the baseline formulas provided in the prompt steps. **Step 2: Estimate the 2021 "Adjusted_EBITDA"** First, we need to reconstruct EBITDA for 2021 (Fiscal Year ended Dec 31, 2021, reported as 2021-01-01 to 2022-01-01). * **Profit Loss From Operating Activities (EBIT):** 12,341 million EUR * **Depreciation And Amortisation Expense:** 7,063 million EUR * **EBITDA (Reported/Reconstructed):** EBIT + D&A = 12,341 + 7,063 = 19,404 million EUR. Now, apply adjustments based on the baseline formula: `Adjusted_EBITDA = EBITDA + adjustment_leases + nonrecurring_losses - nonrecurring_gains ± pension_adjustments ± joint_venture_proportional_EBITDA ± other_normalization_adjustments` * **Adjustment Leases:** The baseline formula typically adds back lease interest/dep or treats leases as debt. In many S&P calculations for EBITDA, operating lease expenses are added back if they were deducted in EBIT. However, under IFRS 16, "Right-of-use Assets" and "Lease Liabilities" are on the balance sheet. The P&L shows "Depreciation And Amortisation" which likely includes depreciation of ROU assets, and Finance Costs include interest on leases. EBITDA usually adds back D&A. The "adjustment_leases" in the prompt's baseline formula often refers to adding back the operating lease rent expense if it was deducted, or normalizing. Given IFRS 16, EBITDA (EBIT + D&A) already includes the add-back of ROU depreciation. The interest portion is below EBIT. Standard S&P practice for Oil & Gas often treats lease liabilities as debt. For EBITDA, we generally start with reported EBITDA. Let's assume no specific large non-recurring items are explicitly identified as "nonrecurring_losses" or "gains" in the text provided that require manual adjustment without further detail. The text lists "Impairment Loss Reversal" and "Write Off". * **Impairment Loss Reversal:** 167 million EUR (Gain). This is included in Operating Profit. S&P often adjusts for significant impairments/reversals if they are non-recurring. A reversal increases income, so we subtract it to normalize. * **Write Off Of Tangible And Intangible Assets:** 387 million EUR (Loss). This is included in Operating Profit (likely in Other Operating Income/Expense or separate line). This is a non-cash loss, often added back. * **Other Operating Income Expense:** 903 million EUR. This is a net gain. Without specific breakdown, we assume it's part of core operations or recurring for an integrated major, unless specified otherwise. We will stick to the explicit impairment/write-off lines for "nonrecurring" adjustments if we must, but typically S&P is conservative. Let's look at the "Profit Loss From Operating Activities". It is 12,341. * Let's check the composition: Revenue (76,575) + Other Income (1,196) - Purchases/Costs (55,549) - Employee Benefits (2,888) - Depreciation (7,063) + Impairment Reversal (167) - Write Off (387) + Other Operating (903) ... wait, the sum of these might not equal EBIT directly due to other items. * Let's use the reported **Profit Loss From Operating Activities** (12,341) as our EBIT proxy. * Add back D&A: 7,063. * EBITDA = 19,404. * Adjustments: * Non-recurring gains: Impairment Reversal (167). Subtract 167. * Non-recurring losses: Write-offs (387). Add 387. * Net Adjustment = +220. * **Adjusted EBITDA 2021** = 19,404 + 220 = **19,624 million EUR**. *(Self-Correction/Refinement: In many simple estimations without explicit "non-recurring" tags from the analyst, one might just use Reported EBITDA. However, the prompt asks to follow the formula. Impairments and write-offs are classic adjustments. Let's stick with 19,624.)* **Step 3: Estimate the 2021 "FFO"** `FFO = Adjusted_EBITDA - cash_interest - cash_taxes` * **Cash Interest:** We need interest paid. * From Cash Flow Statement: "Interest Paid Classified As Operating Activities" = 792 million EUR. * Note: S&P often uses cash interest paid. * **Cash Taxes:** * From Cash Flow Statement: "Income Taxes Paid Refund Classified As Operating Activities" = 3,726 million EUR. * **FFO 2021** = 19,624 - 792 - 3,726 = **15,106 million EUR**. **Step 4: Estimate the 2021 "Adjusted_Debt"** `Adjusted_Debt = (reported_debt + leases + pension_deficit + guarantees + hybrid_debt_portion + other_debt_like_items) - eligible_cash` * **Reported Debt (2021-01-01 balances for FY2021 analysis? No, we use average or year-end? S&P typically uses year-end debt for ratio snapshots or average. The prompt gives balances at 2022-01-01 (which is end of 2021) and 2023-01-01 (end of 2022). We should use the debt outstanding at the end of the period for which we calculated EBITDA/FFO to be consistent, or average. Standard credit ratio calculation often uses year-end debt against full-year flow. Let's use the debt at 2022-01-01 (End of 2021).** * Short-term Borrowings: 2,299 million * Current Portion of Long-term Borrowings: 1,781 million * Long-term Borrowings: 23,714 million * **Total Reported Debt** = 2,299 + 1,781 + 23,714 = 27,794 million EUR. * **Leases:** * Current Lease Liabilities: 948 million * Noncurrent Lease Liabilities: 4,389 million * **Total Leases** = 948 + 4,389 = 5,337 million EUR. * **Pension Deficit:** * The balance sheet shows "Noncurrent Provisions For Employee Benefits" (819 million) and potentially current portions in "Other Current Liabilities" or "Trade And Other Current Payables". Without a specific "Net Pension Deficit" line, we often use the provision or assume it's included in other adjustments. S&P adjusts for underfunded pension liabilities. Let's assume the "Noncurrent Provisions For Employee Benefits" (819) and a portion of current provisions represent this. However, without explicit "Pension Deficit" data, we might omit or use the provision. Let's look for "Net Deferred Tax Assets/Liabilities". * Actually, usually, if not explicitly broken out, we might skip or use the provision. Let's assume **0** for specific pension *deficit* adjustment beyond what's in debt/leases, or include the provision if it's a deficit. Given the complexity and lack of specific "deficit" vs "asset" breakdown in the summary, we will stick to the clear Debt + Lease components. *Conservative approach:* Often provisions are not added to debt unless they are clearly underfunded pension obligations. We will leave this as 0 for now, or check if "Provisions" are debt-like. Usually, they are not. * **Hybrid Debt:** * The equity section mentions "Perpetual Subordinated Bonds". * "Decrease Through Coupon Payment On Perpetual Subordinated Bonds Equity" indicates these are treated as equity. * S&P typically treats 50% of hybrids as debt. * We need the principal amount. The change in equity shows coupon payments. We don't have the principal balance explicitly in the liability section (as they are in Equity). * However, looking at "Proceeds From Issuing Other Equity Instruments" (1,985 million in 2021) and "Payments Of Other Equity Instruments" (61 million). * Without the total balance of hybrids, we cannot accurately adjust. We will assume **0** adjustment for hybrids due to missing data, or that they are fully equity for this estimation. * **Eligible Cash:** * "Cash And Cash Equivalents" at 2022-01-01: 8,254 million EUR. * S&P allows deducting unrestricted cash. * **Eligible Cash** = 8,254 million EUR. * **Adjusted Debt 2021** = (27,794 + 5,337) - 8,254 = **24,877 million EUR**. **Step 5: Calculate 2021 "Adjusted_Debt / Adjusted_EBITDA"** * Ratio = 24,877 / 19,624 = **1.27x**. **Step 6: Calculate 2021 "FFO / Adjusted_Debt"** * Ratio = 15,106 / 24,877 = **0.607** (or 60.7%). --- **Step 7: Estimate the 2022 "Adjusted_EBITDA"** * **Profit Loss From Operating Activities (2022):** 17,510 million EUR. * **Depreciation And Amortisation Expense (2022):** 7,205 million EUR. * **EBITDA** = 17,510 + 7,205 = 24,715 million EUR. * **Adjustments:** * Impairment Loss Reversal: 1,140 million EUR (Gain). Subtract 1,140. * Write Off Of Tangible And Intangible Assets: 599 million EUR (Loss). Add 599. * Net Adjustment = -541. * **Adjusted EBITDA 2022** = 24,715 - 541 = **24,174 million EUR**. **Step 8: Estimate the 2022 "FFO"** `FFO = Adjusted_EBITDA - cash_interest - cash_taxes` * **Cash Interest:** * "Interest Paid Classified As Operating Activities" (2022): 851 million EUR. * **Cash Taxes:** * "Income Taxes Paid Refund Classified As Operating Activities" (2022): 8,488 million EUR. * **FFO 2022** = 24,174 - 851 - 8,488 = **14,835 million EUR**. **Step 9: Estimate the 2022 "Adjusted_Debt"** Use balances at 2023-01-01 (End of 2022). * **Reported Debt:** * Short-term Borrowings: 4,446 million * Current Portion of Long-term Borrowings: 3,097 million * Long-term Borrowings: 19,374 million * **Total Reported Debt** = 4,446 + 3,097 + 19,374 = 26,917 million EUR. * **Leases:** * Current Lease Liabilities: 884 million * Noncurrent Lease Liabilities: 4,067 million * **Total Leases** = 884 + 4,067 = 4,951 million EUR. * **Eligible Cash:** * "Cash And Cash Equivalents" at 2023-01-01: 10,155 million EUR. * **Adjusted Debt 2022** = (26,917 + 4,951) - 10,155 = **21,713 million EUR**. **Step 10: Calculate 2022 "Adjusted_Debt / Adjusted_EBITDA"** * Ratio = 21,713 / 24,174 = **0.90x**. **Step 11: Calculate 2022 "FFO / Adjusted_Debt"** * Ratio = 14,835 / 21,713 = **0.683** (or 68.3%). --- **Step 12: Classify the credit trend** * **Signal 1: Leverage (Adjusted Debt / Adjusted EBITDA)** * 2021: 1.27x * 2022: 0.90x * Change: 0.90 - 1.27 = **-0.37x**. * Threshold: ≤ -0.2x is Improving. * Signal 1: **Improving**. * **Signal 2: Cash-flow coverage (FFO / Adjusted Debt)** * 2021: 0.607 * 2022: 0.683 * Change: 0.683 - 0.607 = **+0.076**. * Threshold: ≥ +0.03 is Improving. * Signal 2: **Improving**. * **Combination:** * Both signals are Improving. **Conclusion:** The credit trend is Improving. Improving