**Step 1: Identify the relevant industry for "ØRSTED A/S"** Ørsted A/S is a global leader in offshore wind energy and renewable power generation. While it has historical ties to oil and gas (formerly DONG Energy), its current business model is centered on developing, constructing, and operating renewable energy assets (wind farms). * **Regulated Utilities:** Ørsted operates largely in merchant markets or via Contracts for Difference (CfDs) and Power Purchase Agreements (PPAs), rather than traditional cost-of-service regulated monopolies. Therefore, the "Regulated Utilities" methodology is not the primary fit, although some aspects of stability apply. * **Oil And Gas Exploration And Production:** Ørsted has divested its upstream oil and gas businesses. This methodology is not applicable. * **Unregulated Power And Gas:** This methodology covers "renewable generation companies" and entities that benefit from policy support, feed-in tariffs, or long-term contractual arrangements (PPAs/CfDs). Ørsted fits this description perfectly as an unregulated power generator with significant exposure to merchant markets and contracted revenues. Therefore, we apply the **Unregulated Power And Gas** industry methodology. **Step 2: Estimate the 2021 "Adjusted_EBITDA"** According to the Unregulated Power and Gas methodology, we look at EBITDA. The provided data includes "Profit Loss From Operating Activities Before Interest Taxes Depreciation And Amortisation Expense" (EBITDA). * Reported EBITDA (2021): 24,296,000,000 DKK *Adjustments:* * **Leases:** The methodology for Unregulated Power and Gas does not explicitly mandate adding back lease expenses to EBITDA in the same way the general corporate baseline might for FFO calculations, but S&P typically treats lease liabilities as debt. However, for EBITDA, we usually start with reported EBITDA. The prompt asks to use the baseline formula: `Adjusted_EBITDA = EBITDA + adjustment_leases...`. In S&P's standard corporate methodology, EBITDA is often reported before lease interest and depreciation, but operating lease rent was historically an expense. Under IFRS 16, leases are capitalized. The reported EBITDA figure usually excludes depreciation and amortization of right-of-use assets but includes the interest on lease liabilities in Finance Costs. S&P often adds back the interest portion of leases to EBITDA if it's considered a financing cost, or simply uses Reported EBITDA if it's already a standard measure. Let's look at the components. * Reported EBITDA: 24,296 million DKK. * There are no explicit "nonrecurring_losses" or "nonrecurring_gains" identified in the text that require adjustment without further qualitative analysis. We will assume Reported EBITDA is a reasonable proxy for Adjusted EBITDA for this estimation, as is common when specific adjustment details are not provided in the fact set. * *Note on Joint Ventures:* The line item "Share Of Profit Loss Of Associates And Joint Ventures..." is below EBITDA. S&P often proportionally consolidates JVs for utilities. However, without specific JV EBITDA data, we cannot adjust. We will stick to the reported consolidated EBITDA. * **Adjusted_EBITDA (2021) = 24,296,000,000 DKK** **Step 3: Estimate the 2021 "FFO"** Formula: `FFO = Adjusted_EBITDA - cash_interest - cash_taxes` * **Cash Interest:** We need to estimate cash interest paid. The statement provides "Finance Costs" (6,546 million DKK) and "Interest Paid Classified As Operating Activities" (3,985 million DKK) and potentially financing activities. S&P typically uses cash interest paid. The cash flow statement shows "Interest Paid Classified As Operating Activities" of 3,985 million DKK. There is no interest paid in financing activities listed separately (lease payments are separate). We will use the total interest paid. * Cash Interest (2021) = 3,985,000,000 DKK. * **Cash Taxes:** The cash flow statement shows "Income Taxes Paid Classified As Operating Activities" of 1,380 million DKK. * Cash Taxes (2021) = 1,380,000,000 DKK. * FFO (2021) = 24,296,000,000 - 3,985,000,000 - 1,380,000,000 * FFO (2021) = 18,931,000,000 DKK **Step 4: Estimate the 2021 "Adjusted_Debt"** Formula: `Adjusted_Debt = (reported_debt + leases + pension_deficit + guarantees + hybrid_debt_portion + other_debt_like_items) - eligible_cash` * **Reported Debt:** * Long-term Borrowings (2021 balance sheet date is 2022-01-01 for the 2021 fiscal year end? No, the labels are "2021-01-01 - 2022-01-01" for flows, but balance sheet items are dated "2022-01-01" which is the end of the 2021 fiscal year). * Wait, the data labels are: `"Longterm Borrowings" 2022-01-01: 31502000000 DKK`. This is the balance at the end of 2021. * `"Shortterm Borrowings" 2022-01-01: 19493000000 DKK`. * Total Reported Debt = 31,502 + 19,493 = 50,995 million DKK. * **Leases:** * `"Noncurrent Lease Liabilities" 2022-01-01: 6,812 million DKK`. * `"Current Lease Liabilities" 2022-01-01: 720 million DKK`. * Total Leases = 6,812 + 720 = 7,532 million DKK. * **Hybrid Capital:** S&P typically treats 100% of hybrid capital as debt for leverage ratios if it has debt-like features (perpetual, deferrable coupons). Ørsted's hybrids are perpetual subordinated capital. * `"Hybrid Capital" 2022-01-01: 17,984 million DKK`. * We include 100% as debt-like. * **Pension Deficit:** Not explicitly provided in the balance sheet lines (often in provisions or off-balance). We will assume 0 or included in provisions, but without specific "Net Pension Liability" data, we cannot add it. We will proceed with 0 adjustment. * **Eligible Cash:** * `"Cash" 2022-01-01: 8,624 million DKK`. * S&P usually deducts unrestricted cash. We assume all cash is eligible. * Adjusted_Debt (2021) = (50,995 + 7,532 + 17,984) - 8,624 * Adjusted_Debt (2021) = 76,511 - 8,624 = 67,887 million DKK. **Step 5: Calculate 2021 "Adjusted_Debt / Adjusted_EBITDA"** * Ratio (2021) = 67,887 / 24,296 ≈ **2.79x** **Step 6: Calculate 2021 "FFO / Adjusted_Debt"** * Ratio (2021) = 18,931 / 67,887 ≈ **0.279** (or 27.9%) --- **Step 7: Estimate the 2022 "Adjusted_EBITDA"** * Reported EBITDA (2022): `"Profit Loss From Operating Activities Before Interest Taxes Depreciation And Amortisation Expense" 2023-01-01` (End of 2022 fiscal year) = 32,057,000,000 DKK. * Adjustments: None specified. * **Adjusted_EBITDA (2022) = 32,057,000,000 DKK** **Step 8: Estimate the 2022 "FFO"** * **Cash Interest:** `"Interest Paid Classified As Operating Activities" 2022-01-01 - 2023-01-01` = 8,548,000,000 DKK. * **Cash Taxes:** `"Income Taxes Paid Classified As Operating Activities" 2022-01-01 - 2023-01-01` = 1,263,000,000 DKK. * FFO (2022) = 32,057,000,000 - 8,548,000,000 - 1,263,000,000 * FFO (2022) = 22,246,000,000 DKK **Step 9: Estimate the 2022 "Adjusted_Debt"** * **Reported Debt:** * `"Longterm Borrowings" 2023-01-01`: 60,451 million DKK. * `"Shortterm Borrowings" 2023-01-01`: 2,830 million DKK. * Total Reported Debt = 60,451 + 2,830 = 63,281 million DKK. * **Leases:** * `"Noncurrent Lease Liabilities" 2023-01-01`: 7,697 million DKK. * `"Current Lease Liabilities" 2023-01-01`: 569 million DKK. * Total Leases = 7,697 + 569 = 8,266 million DKK. * **Hybrid Capital:** * `"Hybrid Capital" 2023-01-01`: 19,793 million DKK. * **Eligible Cash:** * `"Cash" 2023-01-01`: 16,178 million DKK. * Adjusted_Debt (2022) = (63,281 + 8,266 + 19,793) - 16,178 * Adjusted_Debt (2022) = 91,340 - 16,178 = 75,162 million DKK. **Step 10: Calculate 2022 "Adjusted_Debt / Adjusted_EBITDA"** * Ratio (2022) = 75,162 / 32,057 ≈ **2.34x** **Step 11: Calculate 2022 "FFO / Adjusted_Debt"** * Ratio (2022) = 22,246 / 75,162 ≈ **0.296** (or 29.6%) --- **Step 12: Classify the credit trend** **Signal 1: Leverage (Adjusted_Debt / Adjusted_EBITDA)** * 2021: 2.79x * 2022: 2.34x * Change: 2.34 - 2.79 = **-0.45x** * Threshold: ≤ -0.2x is Improving. * Signal 1: **Improving** **Signal 2: Cash-flow coverage (FFO / Adjusted_Debt)** * 2021: 0.279 * 2022: 0.296 * Change: 0.296 - 0.279 = **+0.017** * Threshold: ≥ +0.03 is Improving; between -0.03 and +0.03 is Stable. * Signal 2: **Stable** (The improvement of 1.7 percentage points is less than the 3 percentage point threshold for "Improving"). **Combining the signals:** * Signal 1: Improving * Signal 2: Stable Rule: "If one is Stable and the other is Improving or Deteriorating, return the non-Stable category." Therefore, the trend is Improving. Improving