I need to calculate Net Debt / EBITDA for 2022 using S&P methodology. First, let me identify the components needed: **EBITDA for 2022:** From the data, "Profit Loss From Operating Activities Before Interest Taxes Depreciation And Amortisation Expense" for 2022-01-01 - 2023-01-01 = 499,430,000 EUR This is EBITDA. Let me verify this is correct by checking if we can reconstruct it: - Revenue: 713,840,000 - Other Income: 12,678,000 - Total income = 726,518,000 - Other Purchase Expense: 15,188,000 - Services Expense And Miscellaneous Other Operating Expense: 156,792,000 - Impairment Loss Recognised In Profit Or Loss Trade Receivables: 300,000 - Employee Benefits Expense: 54,808,000 - Total operating expenses (excluding D&A) = 227,088,000 EBITDA = 726,518,000 - 227,088,000 = 499,430,000 ✓ **Net Debt for 2022 (as of 2023-01-01, end of 2022):** Net Debt = Total Debt - Cash and Cash Equivalents I need to identify debt items. Let me look at financial liabilities: Non-current financial liabilities: - Other Noncurrent Financial Liabilities: 1,751,255,000 - Noncurrent Lease Liabilities: 150,955,000 - Noncurrent Financial Liabilities At Fair Value Through Profit Or Loss: -0.0 (essentially 0) Current financial liabilities: - Other Current Financial Liabilities: 389,716,000 - Current Financial Liabilities At Fair Value Through Profit Or Loss: 76,644,000 - Current Lease Liabilities: 6,362,000 Total Debt = 1,751,255,000 + 150,955,000 + 0 + 389,716,000 + 76,644,000 + 6,362,000 = 2,374,932,000 EUR Wait - I need to be careful about S&P methodology. S&P typically excludes lease liabilities from debt for Net Debt/EBITDA, or includes them depending on the specific approach. Let me check if there's a more standard approach. Actually, looking more carefully at S&P methodology: S&P Global typically includes financial debt (borrowings, bonds, notes) and may or may not include lease liabilities depending on the specific calculation. Let me look at what "Other Noncurrent Financial Liabilities" and "Other Current Financial Liabilities" contain. Looking at the cash flow statement: - Proceeds From Issue Of Bonds Notes And Debentures - Repayments Of Noncurrent Borrowings - Cash Flows From Used In Increase Decrease In Current Borrowings These suggest that "Other Noncurrent Financial Liabilities" and "Other Current Financial Liabilities" include borrowings. For S&P methodology, Net Debt typically includes: - Short-term borrowings/current portion of long-term debt - Long-term borrowings - May exclude operating lease liabilities (though finance leases are often included) However, looking at the structure, I need to determine what's in "Other Noncurrent Financial Liabilities" and "Other Current Financial Liabilities." From the balance sheet and cash flow items, let me consider a more precise approach. In many European annual reports, "financial liabilities" specifically refers to debt instruments. Let me check if there's a way to identify pure debt vs. other financial liabilities. The cash flow mentions: - Repayments Of Noncurrent Borrowings: 350,218,000 - Cash Flows From Used In Increase Decrease In Current Borrowings: -1,000,134,000 (negative means reduction) For S&P Net Debt, the standard formula is: Net Debt = Short-term debt + Long-term debt + Current portion of long-term debt - Cash and cash equivalents Looking at the items, I should include: - Other Noncurrent Financial Liabilities: 1,751,255,000 (this is likely primarily borrowings) - Other Current Financial Liabilities: 389,716,000 (likely includes current borrowings) But I need to be careful about what exactly is in these categories. The lease liabilities are separately identified, which suggests the "Other" categories are primarily debt. However, for a cleaner S&P approach, let me consider if I should include lease liabilities. S&P Global Ratings typically includes finance lease liabilities in debt but may treat operating leases differently. Given the right-of-use assets and lease liabilities, these appear to be IFRS 16 lease liabilities. For conservative S&P methodology (often used in credit analysis), let me include all interest-bearing debt: Total Debt = Other Noncurrent Financial Liabilities + Noncurrent Lease Liabilities + Other Current Financial Liabilities + Current Financial Liabilities At Fair Value Through Profit Or Loss + Current Lease Liabilities = 1,751,255,000 + 150,955,000 + 389,716,000 + 76,644,000 + 6,362,000 = 2,374,932,000 Less: Cash and Cash Equivalents = 392,811,000 Net Debt = 2,374,932,000 - 392,811,000 = 1,982,121,000 But wait - I should check if there are any other cash-like items. The "Current Financial Assets At Fair Value Through Profit Or Loss" (141,568,000) and "Other Current Financial Assets" (211,136,000) might include liquid investments. For S&P methodology, "Cash and cash equivalents" sometimes includes highly liquid investments. However, without more detail, I'll stick with the explicit "Cash And Cash Equivalents" figure. Let me reconsider: S&P Global typically uses "Total debt" minus "Cash and cash equivalents" where total debt includes: - Short-term borrowings - Current portion of long-term debt - Long-term borrowings - Finance lease obligations Some S&P calculations also include commercial paper, bank overdrafts, etc. Given the data, let me try a more focused approach. The "Other Noncurrent Financial Liabilities" (1,751,255,000) and "Other Current Financial Liabilities" (389,716,000) likely represent the core debt. The FVTPL items may be derivatives or other items. Actually, looking more carefully at typical S&P methodology for Net Debt/EBITDA: Net Debt = Total interest-bearing debt - Cash and cash equivalents Let me include: - Other Noncurrent Financial Liabilities: 1,751,255,000 - Other Current Financial Liabilities: 389,716,000 - Current Financial Liabilities At Fair Value Through Profit Or Loss: 76,644,000 (this could include derivatives, but may also include short-term debt) Excluding lease liabilities for a more traditional debt calculation (though this is debatable): Debt = 1,751,255,000 + 389,716,000 + 76,644,000 = 2,217,615,000 Or including leases: Debt = 2,217,615,000 + 150,955,000 + 6,362,000 = 2,374,932,000 For S&P Global Ratings methodology, they typically include lease liabilities in total debt. So let me use the higher figure. Net Debt = 2,374,932,000 - 392,811,000 = 1,982,121,000 But I want to double-check if I should include more cash-like items. "Current Financial Assets At Fair Value Through Profit Or Loss" of 141,568,000 and "Other Current Financial Assets" of 211,136,000 - these could include marketable securities or other liquid assets. However, standard S&P Net Debt typically only subtracts "Cash and cash equivalents" unless specifically noted. Some more detailed calculations use "Cash and cash equivalents + Marketable securities." Let me also check: is there any "Current Borrowings" explicitly? Looking at the cash flow, there's "Cash Flows From Used In Increase Decrease In Current Borrowings" but not an explicit line item. Actually, looking at the balance sheet structure again, I think "Other Current Financial Liabilities" likely includes current borrowings. Let me try another approach - looking at what changed year-over-year to understand the structure better. 2022 to 2023: - Other Noncurrent Financial Liabilities: 2,064,088,000 → 1,751,255,000 (decrease of 312,833,000) - Repayments Of Noncurrent Borrowings: 350,218,000 This roughly matches, suggesting "Other Noncurrent Financial Liabilities" is primarily noncurrent borrowings. - Other Current Financial Liabilities: 1,342,688,000 → 389,716,000 (decrease of 952,972,000) - Cash Flows From Used In Increase Decrease In Current Borrowings: -1,000,134,000 (negative = repayment) This also roughly matches, suggesting "Other Current Financial Liabilities" is primarily current borrowings. So my debt calculation seems reasonable. Now, for S&P methodology, there's another consideration: they sometimes use "Adjusted EBITDA" or make pro forma adjustments. But with the given data, I'll use the reported EBITDA. Let me also verify: should I include the FVTPL financial liabilities? "Current Financial Liabilities At Fair Value Through Profit Or Loss": 76,644,000 "Noncurrent Financial Liabilities At Fair Value Through Profit Or Loss": -0.0 (or 0) These are likely derivative liabilities or contingent consideration. For debt calculations, derivatives that are liabilities are typically not included in "debt" unless they represent effective borrowings. However, in some comprehensive definitions, they might be included. For a cleaner S&P Net Debt, I'll focus on the borrowings and lease liabilities: Total Debt = 1,751,255,000 + 389,716,000 + 150,955,000 + 6,362,000 + 76,644,000 = 2,374,932,000 Wait, I need to check if 76,644,000 should be included. Looking at 2022, it was 170,857,000. This decreased significantly. This could be derivative liabilities related to hedging activities (given the cash flow hedges mentioned in OCI). For S&P Global Ratings, derivative liabilities are typically excluded from "debt" unless they represent embedded derivatives in debt instruments. So let me exclude this for a more standard calculation. Revised Debt = 1,751,255,000 + 389,716,000 + 150,955,000 + 6,362,000 = 2,298,288,000 Or even more conservatively, excluding all lease liabilities: Debt = 1,751,255,000 + 389,716,000 = 2,140,971,000 Hmm, but S&P does include lease liabilities in their total debt calculations post-IFRS 16. Let me check S&P Global's specific approach. Actually, S&P Global Ratings typically defines total debt as: - Short-term debt (including current portion of long-term debt, commercial paper, bank overdrafts) - Long-term debt - Finance lease obligations - Operating lease liabilities (post-IFRS 16/ASC 842) So I should include lease liabilities. Net Debt = 2,298,288,000 - 392,811,000 = 1,905,477,000 But I want to also consider if "Other Current Financial Assets" (211,136,000) and "Current Financial Assets At Fair Value Through Profit Or Loss" (141,568,000) should be deducted as liquid assets. S&P Global sometimes uses a "Net Debt" definition that includes only cash and cash equivalents, and sometimes a broader definition. For their credit ratings, they typically use "Total debt minus cash and cash equivalents." However, for leverage ratios in equity analysis, sometimes "Net Debt" = Total Debt - Cash - Marketable Securities. Given the ambiguity, let me calculate with the standard approach and see. Actually, let me re-read the S&P methodology more carefully. S&P Global Ratings' "Total Adjusted Debt" typically includes: - Short-term debt - Long-term debt - Hybrid instruments (if treated as debt) - Asset retirement obligations (if not already in debt) - Operating lease liabilities And "Net Debt" = Total Adjusted Debt - Cash and cash equivalents - Highly liquid investments Without knowing exactly what's in "Other Current Financial Assets," I'll be conservative and only subtract Cash and Cash Equivalents. But wait - I need to check if there are any other debt-like items I missed. Looking at "Noncurrent Financial Liabilities At Fair Value Through Profit Or Loss" = -0.0 (essentially zero or slightly negative). This is strange - a negative liability? Actually, looking at the data: "Noncurrent Financial Liabilities At Fair Value Through Profit Or Loss" 2023-01-01: -0.0 EUR. This might be a rounding issue or a very small negative number. Let me proceed with my calculation: Total Debt (including leases, excluding FVTPL derivatives): = 1,751,255,000 + 389,716,000 + 150,955,000 + 6,362,000 = 2,298,288,000 Net Debt = 2,298,288,000 - 392,811,000 = 1,905,477,000 EBITDA = 499,430,000 Net Debt / EBITDA = 1,905,477,000 / 499,430,000 = 3.815 Hmm, but let me reconsider if I should include the FVTPL liability of 76,644,000. If this represents short-term debt instruments or commercial paper at FVTPL, it should be included. If it's derivatives, it shouldn't. Given the context of ERG S.p.A. being an energy/renewables company with significant hedging activities (evidenced by cash flow hedges in OCI), the FVTPL liabilities are likely derivative liabilities. I'll exclude them. But let me also consider: should I use a different EBITDA? S&P sometimes uses "Adjusted EBITDA" which might add back certain items. However, with the given data, the reported EBITDA is the best available. Let me also check if I need to annualize or if there's any pro forma adjustment. The data is for the full year 2022, so no annualization needed. Actually, I want to double-check my debt identification. Let me look at this from another angle - the cash flow from financing: Cash Flows From Used In Financing Activities Continuing Operations: -1,724,490,000 (negative = outflow) Components: - Proceeds From Issue Of Bonds Notes And Debentures: 0 - Repayments Of Noncurrent Borrowings: 350,218,000 (outflow) - Cash Flows From Used In Increase Decrease In Current Borrowings: -1,000,134,000 (negative = repayment = outflow) - Increase Decrease In Other Current Financial Liabilities Classified As Financing Activities: -194,705,000 (outflow) - Interest Paid Classified As Financing Activities: 29,146,000 (outflow) - Payments For Early Redemption Fees Classified As Financing Activities: 2,900,000 (outflow) - Dividends Paid Classified As Financing Activities: 139,050,000 (outflow) - Payments Of Lease Liabilities Classified As Financing Activities: 8,337,000 (outflow) Sum of outflows: 350,218,000 + 1,000,134,000 + 194,705,000 + 29,146,000 + 2,900,000 + 139,050,000 + 8,337,000 = 1,724,490,000 ✓ This confirms: - Noncurrent borrowings repayments: 350,218,000 - Current borrowings net decrease: 1,000,134,000 - Other current financial liabilities decrease: 194,705,000 So "Other Current Financial Liabilities" includes some financing-related items, but also possibly other things. The "Increase Decrease In Other Current Financial Liabilities Classified As Financing Activities" suggests part of this is financing-related. Actually, looking more carefully: "Cash Flows From Used In Increase Decrease In Current Borrowings" and "Increase Decrease In Other Current Financial Liabilities Classified As Financing Activities" are separate lines. This suggests "Other Current Financial Liabilities" may include both borrowings and other items, with only part classified as financing. But for balance sheet purposes, I need to include the total. Let me reconsider: perhaps "Other Noncurrent Financial Liabilities" and "Other Current Financial Liabilities" are comprehensive categories that include all financial debt. The separate cash flow lines might be trying to break this down. Given the complexity, let me try a simpler approach. What if I look at total liabilities and try to identify debt? Total Liabilities = 3,171,703,000 Non-debt liabilities likely include: - Deferred Tax Liabilities: 197,262,000 - Non Current Provisions For Discontinued Operations: 84,691,000 - Longterm Provision For Decommissioning Restoration And Rehabilitation Costs: 92,613,000 - Longterm Miscellaneous Other Provisions: 24,401,000 - Shortterm Miscellaneous Other Provisions: 38,730,000 - Trade And Other Current Payables To Trade Suppliers: 123,002,000 - Other Current Nonfinancial Liabilities: 59,628,000 - Current Tax Liabilities Current: 52,311,000 - Liabilities Included In Disposal Groups Classified As Held For Sale: 89,421,000 Sum of non-debt liabilities = 197,262,000 + 84,691,000 + 92,613,000 + 24,401,000 + 38,730,000 + 123,002,000 + 59,628,000 + 52,311,000 + 89,421,000 = 762,059,000 Remaining liabilities (likely debt-related) = 3,171,703,000 - 762,059,000 = 2,409,644,000 This is close to my debt calculation of 2,298,288,000 (excluding FVTPL) or 2,374,932,000 (including FVTPL). The difference might be due to some items I classified differently, or the FVTPL liabilities, or other items. Actually, let me check: I didn't include "Noncurrent Financial Liabilities At Fair Value Through Profit Or Loss" (-0.0) and "Other Noncurrent Nonfinancial Liabilities" (30,989,000) in my debt calculation. If I add "Other Noncurrent Nonfinancial Liabilities" to non-debt: 762,059,000 + 30,989,000 = 793,048,000 Then debt-like = 3,171,703,000 - 793,048,000 = 2,378,655,000 This is very close to my 2,374,932,000 (including FVTPL). The small difference might be rounding or classification. So my debt calculation including FVTPL seems approximately correct for total debt-like liabilities. But for S&P "Total Debt," they typically focus on interest-bearing obligations. Provisions, payables, and tax liabilities are not debt. Let me be more precise. S&P Total Debt typically includes: 1. Short-term debt (bank loans, commercial paper, current portion of long-term debt) 2. Long-term debt (bonds, notes, bank loans) 3. Lease liabilities (finance and operating) 4. Sometimes: pension obligations, AROs, etc. From the balance sheet, items that are clearly NOT debt: - Trade payables: 123,002,000 - Tax liabilities: 52,311,000 + 32,998,000 (current tax assets, so net) - Provisions: various - Deferred tax: 197,262,000 Items that ARE debt or debt-like: - Other Noncurrent Financial Liabilities: 1,751,255,000 - Other Current Financial Liabilities: 389,716,000 - Lease liabilities: 150,955,000 + 6,362,000 = 157,317,000 - FVTPL liabilities: 76,644,000 + ~0 = 76,644,000 Total = 2,374,932,000 This matches my earlier calculation. Now, should I subtract more than just "Cash and Cash Equivalents"? Looking at current assets: - Cash And Cash Equivalents: 392,811,000 - Current Financial Assets At Fair Value Through Profit Or Loss: 141,568,000 - Other Current Financial Assets: 211,136,000 If "Other Current Financial Assets" includes things like short-term deposits, loans receivable, or marketable securities, some of these might be subtracted in a broader "Net Debt" calculation. However, for standard S&P Global Ratings "Net Debt" = Total Debt - Cash and Cash Equivalents. Some practitioners use "Net Debt" = Total Debt - Cash - Marketable Securities - Short-term Investments. Without more detail on the composition of "Other Current Financial Assets," I'll use the conservative approach of only subtracting Cash and Cash Equivalents. But actually, let me look at this from a practical standpoint. In 2022, "Other Current Financial Assets" was 424,282,000 and decreased to 211,136,000 in 2023. This large decrease suggests these might have been used to repay debt (consistent with the deleveraging shown in financing cash flows). If these are liquid financial assets, they could potentially be used to repay debt. For a more comprehensive "Net Debt" calculation, I might consider including them. However, S&P Global specifically uses "Cash and cash equivalents" in their standard definition. Let me stick with that. Net Debt = 2,374,932,000 - 392,811,000 = 1,982,121,000 Or if I exclude FVTPL derivatives: Net Debt = 2,298,288,000 - 392,811,000 = 1,905,477,000 Let me check which is more appropriate. The FVTPL current liability of 76,644,000 - is this a derivative or debt? Given that ERG has significant cash flow hedges (OCI shows 360,828,000 before tax on cash flow hedges), and the FVTPL liabilities may include derivatives used for hedging. These are typically not considered "debt" in the traditional sense. However, if the FVTPL liability represents a short-term debt instrument that the company chose to measure at FVTPL, it would be debt. Given the magnitude and the context, I'll exclude FVTPL liabilities from debt for a cleaner calculation, but note this is a judgment call. Net Debt = 2,298,288,000 - 392,811,000 = 1,905,477,000 EBITDA = 499,430,000 Net Debt / EBITDA = 1,905,477,000 / 499,430,000 = 3.815 Let me round this: approximately 3.8x But wait - I want to double check if there are any other adjustments S&P might make. S&P sometimes adjusts EBITDA for non-recurring items, but I don't have that detail. Also, I should verify my period. The balance sheet is as of 2023-01-01 (end of 2022), and the income statement is for 2022-01-01 to 2023-01-01. This is correct - using year-end debt and full-year EBITDA. Let me also consider: should I use average debt rather than year-end debt? S&P typically uses year-end or latest available for leverage ratios, not averages. Actually, I want to reconsider one thing. Looking at the balance sheet dates: - 2023-01-01 represents end of 2022 - 2022-01-01 represents end of 2021 And the income statement periods: - 2022-01-01 - 2023-01-01 represents 2022 - 2021-01-01 - 2022-01-01 represents 2021 So my calculation uses the correct periods. Let me also verify EBITDA one more time. The line item says "Profit Loss From Operating Activities Before Interest Taxes Depreciation And Amortisation Expense" = 499,430,000. This is explicitly EBITDA. Let me verify by checking if it equals Operating Profit + D&A + Impairment reversal. Operating Profit (Profit Loss From Operating Activities) = 220,814,000 + Depreciation = 176,689,000 + Amortisation = 58,741,000 - Impairment reversal = 43,185,000 (this is a positive item, so subtracting it) Wait, impairment reversal is a positive item that increases operating profit. So to get from operating profit to pre-impairment EBITDA: Actually, let me think about this more carefully. The line "Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss Intangible Assets And Property Plant And Equipment" = 43,185,000. This is a reversal, so it's income (positive). It's included in operating profit. EBITDA = Operating Profit + D&A - Impairment Reversal (because reversal is not part of normal operations? No, actually...) Actually, looking at the standard formula: EBITDA is Earnings Before Interest, Taxes, Depreciation, and Amortization. If Operating Profit already includes the impairment reversal, then: EBITDA = Operating Profit + Depreciation + Amortization - Impairment Reversal? No wait. Let me think again. Operating Profit = Revenue - Costs + Other Income - Operating Expenses + Impairment Reversal. The impairment reversal is a non-cash item that increased operating profit. D&A are non-cash items that reduced operating profit. So: EBITDA = Operating Profit + D&A - Impairment Reversal (since reversal is already in operating profit and we want to exclude it for "before" adjustments?) Actually no - EBITDA typically includes impairment reversals as part of operating performance. The "before depreciation and amortization" means we add back D&A, but we don't typically adjust for impairment reversals. Wait, let me check: "Profit Loss From Operating Activities Before Interest Taxes Depreciation And Amortisation Expense" - this explicitly says BEFORE depreciation and amortization. It doesn't say anything about impairment. So if Operating Profit = 220,814,000 includes the impairment reversal of 43,185,000 and includes the impact of D&A, then: EBITDA = Operating Profit + D&A = 220,814,000 + 176,689,000 + 58,741,000 = 456,244,000 But this doesn't equal 499,430,000. There's a difference of 43,186,000. 499,430,000 - 456,244,000 = 43,186,000 ≈ 43,185,000 (the impairment reversal) So it appears that the reported "EBITDA" of 499,430,000 = Operating Profit + D&A + Impairment Reversal (or rather, it includes the impairment reversal in the base). Actually, let me think about this differently. If we start from Revenue and subtract cash operating costs: Revenue: 713,840,000 Other Income: 12,678,000 Total: 726,518,000 Less operating costs (cash and non-D&A non-cash): - Other Purchase Expense: 15,188,000 - Services Expense: 156,792,000 - Impairment Loss Trade Receivables: 300,000 - Employee Benefits: 54,808,000 Total costs: 227,088,000 EBITDA = 726,518,000 - 227,088,000 = 499,430,000 ✓ This matches! So the 499,430,000 is correct as EBITDA. The impairment reversal of 43,185,000 is NOT included in this calculation as a separate adjustment because it's already... wait, actually it's not in the costs I listed. Hmm, let me check: is the impairment reversal included in "Other Income" or is it a separate line? Looking at the data, I don't see it in the revenue/cost items I used. Let me re-examine. Actually, looking at typical income statement structure, impairment reversal might be included in "Other Income" or shown separately. In my calculation, I used: - Revenue - Other Income - Various expenses The impairment reversal of 43,185,000 might be part of "Other Income" or might be below operating profit. Looking at the data structure, "Profit Loss From Operating Activities" = 220,814,000, and the impairment reversal is listed separately before that. Actually, re-reading: "Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss Intangible Assets And Property Plant And Equipment" - this is likely included IN operating profit. So my calculation: EBITDA = Operating Profit + D&A = 220,814,000 + 176,689,000 + 58,741,000 = 456,244,000 doesn't match 499,430,000. The difference is 43,186,000, which equals the impairment reversal. This suggests that the reported "EBITDA" of 499,430,000 includes the impairment reversal, or that the impairment reversal is treated differently. Wait, let me re-check. Maybe the impairment reversal is NOT included in operating profit? Let me see: If Operating Profit = Revenue + Other Income - All Expenses + Impairment Reversal Then: 220,814,000 = 713,840,000 + 12,678,000 - 15,188,000 - 156,792,000 - 0.3 - 54,808,000 - 176,689,000 - 58,741,000 + 43,185,000 + ? Let me calculate: 713,840,000 + 12,678,000 = 726,518,000 Less: 15,188,000 + 156,792,000 + 300,000 + 54,808,000 + 176,689,000 + 58,741,000 = 462,518,000 Plus: 43,185,000 = 726,518,000 - 462,518,000 + 43,185,000 = 307,185,000 This doesn't equal 220,814,000. So there are missing items. Actually, I think I need to include "Other Purchase Expense" and other items more carefully. And there might be other income/expense items not listed. Let me try: EBITDA = 499,430,000 Less D&A = 176,689,000 + 58,741,000 = 235,430,000 Less Impairment Reversal = 43,185,000 = Operating Profit? 499,430,000 - 235,430,000 - 43,185,000 = 220,815,000 ≈ 220,814,000 ✓ Yes! So Operating Profit = EBITDA - D&A - Impairment Reversal (because reversal is income, so subtracting it gives lower profit) Wait, that doesn't make sense. If impairment reversal is positive income, then: Operating Profit = EBITDA - D&A + Impairment Reversal? Let me think: EBITDA is earnings BEFORE depreciation, amortization, and impairment. So if there's an impairment REVERSAL (positive), it's not part of EBITDA? Or is it? Actually, in standard accounting, impairment reversals are often included in EBITDA because they're part of operating performance. But looking at this calculation: If EBITDA = 499,430,000 And Operating Profit = 220,814,000 And D&A = 235,430,000 Then: 499,430,000 - 235,430,000 = 264,000,000 But Operating Profit = 220,814,000 Difference = 264,000,000 - 220,814,000 = 43,186,000 ≈ Impairment Reversal So: Operating Profit = EBITDA - D&A - Impairment Reversal This implies that the impairment reversal is ADDED in EBITDA but then we need to subtract it to get to operating profit? That doesn't make sense. Actually, I think I have the sign wrong. Let me reconsider. If impairment reversal is a positive item (income), then: - It increases operating profit - EBITDA is "before" certain items, but if the reversal is already included in the starting point... Let me think about this more carefully with a standard income statement: Revenue - COGS = Gross Profit - Operating expenses (including D&A, impairment) + Other operating income = Operating Profit If there's an impairment REVERSAL, it's typically shown as: - Negative impairment expense (i.e., income) Or separately as other operating income. In either case, if we define EBITDA as Operating Profit + D&A + Impairment Expense (not reversal), then: EBITDA = Operating Profit + D&A - Impairment Reversal (because reversal is negative impairment) Wait, that's what I had: 220,814,000 + 235,430,000 - 43,185,000 = 413,059,000 ≠ 499,430,000 Hmm, this doesn't match. Let me try: EBITDA = Operating Profit + D&A + Impairment Reversal = 220,814,000 + 235,430,000 + 43,185,000 = 499,429,000 ≈ 499,430,000 ✓ Yes! So the reported EBITDA includes the impairment reversal. This means the reversal is treated as part of "operating earnings" before D&A. But wait, this is unusual. Typically impairment reversals are not included in EBITDA because they're non-recurring. However, the company has explicitly defined "Profit Loss From Operating Activities Before Interest Taxes Depreciation And Amortisation Expense" as 499,430,000, so this is their reported EBITDA. For S&P methodology, they might adjust this for non-recurring items. But without specific guidance, I'll use the reported figure. Actually, let me verify: is the impairment reversal truly non-recurring? In 2021, there was also an impairment reversal of 22,016,000. So this seems to happen regularly, perhaps due to revaluation of assets. Given this, using reported EBITDA of 499,430,000 seems reasonable. Now, back to my main calculation: Net Debt / EBITDA = ? With Total Debt = 2,298,288,000 (excluding FVTPL derivatives) or 2,374,932,000 (including them) Cash = 392,811,000 Net Debt = 1,905,477,000 or 1,982,121,000 Let me check if there's a standard S&P approach to FVTPL liabilities. In S&P Global Ratings' methodology, derivatives that are liabilities are generally excluded from "debt" unless they represent the market value of debt instruments. However, for companies with significant trading or hedging activities, derivative liabilities might be included in "adjusted debt" if they're viewed as part of the capital structure. Given ERG's business (renewable energy with hedging), the FVTPL liabilities are likely hedging derivatives. I'll exclude them for a more standard calculation. Net Debt = 2,298,288,000 - 392,811,000 = 1,905,477,000 But actually, I want to reconsider one more thing. Should I include "Other Current Financial Assets" as part of "cash-like" items to subtract? In some Net Debt calculations, particularly in European practice, "Net Debt" = Gross Debt - Cash - Current Financial Assets. If I include "Other Current Financial Assets" (211,136,000) and "Current Financial Assets At Fair Value Through Profit Or Loss" (141,568,000): Liquid Assets = 392,811,000 + 211,136,000 + 141,568,000 = 745,515,000 Net Debt = 2,298,288,000 - 745,515,000 = 1,552,773,000 Net Debt / EBITDA = 1,552,773,000 / 499,430,000 = 3.109 This is significantly different. Which is correct for S&P? S&P Global Ratings' standard definition: "We define net debt as total debt minus the sum of cash and cash equivalents." They do NOT typically include other financial assets unless specified as "readily marketable securities" in certain contexts. However, some practitioners use a broader definition. For consistency with S&P methodology, I'll stick with Cash and Cash Equivalents only. But let me also consider: should I use "Cash And Cash Equivalents" at year-end, or is there a need to adjust for restricted cash? Without additional information, I'll assume the reported figure is available cash. Final calculation: Net Debt = 2,298,288,000 - 392,811,000 = 1,905,477,000 EBITDA = 499,430,000 Ratio = 1,905,477,000 / 499,430,000 = 3.8153... Rounding to reasonable precision: 3.82 or 3.8 Actually, let me reconsider if I should include the FVTPL liability. Looking at it again: 76,644,000. If this is a derivative liability from hedging, it's not debt. But if it's a short-term debt instrument measured at FVTPL, it is debt. Given that in 2021 it was 170,857,000 and in 2023 it's 76,644,000, and the company has been reducing debt, this could be short-term debt. But the cash flow statement doesn't show specific proceeds from this category. Actually, looking at the cash flow: "Increase Decrease In Other Current Financial Liabilities Classified As Financing Activities" = -194,705,000. This suggests part of "Other Current Financial Liabilities" is financing-related. But "Current Financial Liabilities At Fair Value Through Profit Or Loss" is a separate line item from "Other Current Financial Liabilities." So the FVTPL is separate. Given the context and typical classification, FVTPL financial liabilities are often derivatives. I'll exclude them. But to be thorough, let me also calculate with them included: Net Debt = 2,374,932,000 - 392,811,000 = 1,982,121,000 Ratio = 1,982,121,000 / 499,430,000 = 3.9687... This is approximately 3.97 or about 4.0x. Which is more appropriate? Let me think about S&P's typical treatment. S&P Global Ratings includes in total debt: - All borrowings (short-term and long-term) - Capital lease obligations / finance lease obligations - Operating lease liabilities (post-IFRS 16) - Sometimes: hybrid instruments, preferred stock, etc. They typically exclude: - Trade payables - Tax liabilities - Derivative liabilities (unless embedded in debt) - Provisions So my calculation excluding FVTPL derivatives seems more consistent with S&P methodology. Net Debt / EBITDA = 3.82 However, I want to do one more verification. Let me check if "Other Noncurrent Financial Liabilities" might include non-debt items. Looking at the decrease from 2022 to 2023: 2,064,088,000 → 1,751,255,000 = decrease of 312,833,000 Repayments of noncurrent borrowings: 350,218,000 These don't match exactly. The difference could be due to foreign exchange changes, new borrowings, or other items. Similarly, "Other Current Financial Liabilities": 1,342,688,000 → 389,716,000 = decrease of 952,972,000 Current borrowings decrease: 1,000,134,000 Other current fin liab decrease (financing): 194,705,000 These also don't match exactly, suggesting "Other Current Financial Liabilities" includes both financing and operating items. For a more precise debt calculation, I might want to use the cash flow information. But without more detail, I'll use the balance sheet figures. Given all this analysis, my best estimate for S&P Net Debt / EBITDA is: Net Debt = 2,298,288,000 - 392,811,000 = 1,905,477,000 EBITDA = 499,430,000 Ratio = 3.82 Let me also consider if S&P would make any adjustments to EBITDA. For example, they might adjust for the discontinued operations. Looking at the data: "Profit Loss From Discontinued Operations" = 294,131,000 in 2022. This is significant! Wait, this is important. If there are discontinued operations, should EBITDA include or exclude them? The reported EBITDA of 499,430,000 is for continuing operations or total? Looking at the line: "Profit Loss From Operating Activities Before Interest Taxes Depreciation And Amortisation Expense" - this doesn't specify continuing or discontinued. But looking at the structure, there's separate reporting for: - "Cash Flows From Used In Operating Activities Continuing Operations" - "Cash Flows From Used In Operating Activities Discontinued Operations" And similarly for investing and financing. However, the EBITDA line doesn't specify. Let me check if it's for total or continuing. Typically, if not specified, it might be for total operations. But given that "Profit Loss From Operating Activities" = 220,814,000 and "Profit Loss From Continuing Operations" = 88,966,000, and "Profit Loss From Discontinued Operations" = 294,131,000... Wait, "Profit Loss From Operating Activities" is 220,814,000, but "Profit Loss From Continuing Operations" is 88,966,000. The difference is not explained by discontinued operations alone, because discontinued operations profit of 294,131,000 is higher. Actually, "Profit Loss From Continuing Operations" = 88,966,000 includes finance costs and taxes. Let me trace: Profit Loss From Operating Activities = 220,814,000 + Finance Income = 75,622,000 - Finance Costs = 112,195,000 + Share Of Profit Loss Of Investments = 2,294,000 = Profit Loss Before Tax = 186,535,000 ✓ (220,814 + 75,622 - 112,195 + 2,294 = 186,535) Then: 186,535,000 - Income Tax 97,569,000 = 88,966,000 = Profit Loss From Continuing Operations ✓ And: 88,966,000 + 294,131,000 = 383,097,000 ≈ 383,098,000 = Profit Loss ✓ So the EBITDA of 499,430,000 is for the total company (or at least the operating activities include all operations). But wait - is there separate EBITDA for discontinued operations? Looking at the data, I don't see a separate EBITDA line for discontinued operations. For S&P methodology, if discontinued operations are being sold, they might exclude them from EBITDA for leverage ratios. However, if the disposal hasn't occurred yet, they might include them. Looking at the balance sheet: "Noncurrent Assets Or Disposal Groups Classified As Held For Sale" = 226,086,000 in 2023 and 776,220,000 in 2022. This suggests that in 2022, there were significant assets held for sale (776,220,000), and by 2023, this decreased to 226,086,000, suggesting some disposals occurred. The cash flow shows: "Cash Flows From Losing Control Of Subsidiaries Or Other Businesses Classified As Investing Activities" = 1,264,826,000 in 2022. This is a large inflow from disposals. So in 2022, ERG sold some businesses. The discontinued operations profit of 294,131,000 likely includes gains on disposal. For S&P leverage ratios, they typically want to reflect the ongoing capital structure. If significant disposals occurred during the year, they might pro-forma adjust the balance sheet. However, without specific guidance on what was sold and when, I'll use the reported figures. The year-end debt reflects the post-disposal position (to some extent), while the EBITDA includes the full-year including pre-disposal operations. Actually, this is a good point. If disposals occurred during 2022, the year-end debt is lower than the average debt during the year. Using year-end debt with full-year EBITDA might understate leverage. For S&P methodology, they sometimes use "latest available" or "pro forma" debt. But with the given data, I'll use year-end. Given all these considerations, my final answer is: Net Debt = 1,905,477,000 EUR EBITDA = 499,430,000 EUR Net Debt / EBITDA = 3.82 Let me do a final verification of the arithmetic: 1,905,477,000 / 499,430,000 = 3.8153... Rounded to two decimal places: 3.82 Or if we use the broader debt definition including FVTPL: 1,982,121,000 / 499,430,000 = 3.9687... ≈ 3.97 Given S&P's typical conservatism in debt definitions, they might include more rather than less. However, excluding derivatives is more standard. I'll go with 3.82, but let me also present 3.97 as an alternative if FVTPL is included. Actually, rethinking one more time: S&P Global Ratings specifically includes "derivative liabilities that are economic hedges of debt" in their total debt calculation if those derivatives are in a liability position. But this is a nuanced determination. For a simpler, more standard approach, I'll exclude FVTPL derivatives. Final answer: 3.82 Wait, I want to check one more thing. Should I include "Noncurrent Financial Liabilities At Fair Value Through Profit Or Loss" which is -0.0? This is essentially zero or slightly negative. A negative liability is an asset, so this would reduce debt. But it's essentially zero. And "Current Financial Liabilities At Fair Value Through Profit Or Loss" = 76,644,000. If I include this, Net Debt = 1,982,121,000, Ratio = 3.97. Hmm, let me think about what S&P would most likely do. Given that this is a relatively small amount (76.6 million out of 2.3 billion total debt, or about 3%), and it's unclear what it represents, S&P analysts might include it to be conservative, or they might exclude it if they determine it's not debt-like. For my best estimate, I'll use the more standard approach excluding FVTPL derivatives, but note that including them would give ~3.97. Actually, I realize I should also check if there are any "debt-like" items in the provisions. S&P sometimes includes: - Pension liabilities (if underfunded) - Asset retirement obligations - Environmental liabilities Looking at the provisions: - Noncurrent Provisions For Employee Benefits: 3,723,000 (this is likely pension/employee benefits) - Longterm Provision For Decommissioning Restoration And Rehabilitation Costs: 92,613,000 (ARO) - Longterm Miscellaneous Other Provisions: 24,401,000 - Shortterm Miscellaneous Other Provisions: 38,730,000 - Non Current Provisions For Discontinued Operations: 84,691,000 S&P Global Ratings sometimes includes underfunded pension obligations and AROs in "total adjusted debt." However, this depends on the specific methodology and the nature of these obligations. For a standard Net Debt/EBITDA calculation, these are typically excluded. But for "Total Adjusted Debt" used in credit analysis, they might be included. Given the question asks for "Net Debt / EBITDA ratio for 2022, based on the S&P methodology," I think the standard approach is: Net Debt = Interest-bearing debt - Cash and cash equivalents Where interest-bearing debt includes borrowings and leases. So my calculation of 3.82 seems most appropriate. However, I want to do one final check. Let me see if I can find any additional clues in the data about what S&P might specifically do. Looking at the equity section, there's detailed information about reserves and equity movements. This doesn't directly help with debt calculation. Looking at the comprehensive income and cash flow hedges, this confirms significant hedging activity, supporting the view that FVTPL liabilities are likely derivatives. Given all this analysis, I'll finalize with: Net Debt = 2,298,288,000 - 392,811,000 = 1,905,477,000 EBITDA = 499,430,000 Ratio = 3.8153... ≈ 3.82 But actually, let me reconsider one more time whether to use 2,298,288,000 or 2,374,932,000 for debt. The item "Current Financial Liabilities At Fair Value Through Profit Or Loss" = 76,644,000. In IFRS, financial liabilities at FVTPL can include: 1. Derivatives that are liabilities 2. Financial liabilities designated at FVTPL (the "fair value option") 3. Financial liabilities that are held for trading For companies with significant hedging, category 1 (derivatives) is most common. But some companies also use the fair value option for certain debt instruments. Given that ERG has significant cash flow hedges (as evidenced by OCI), and the FVTPL liability is relatively small, I think it's most likely derivatives. I'll exclude it. Final answer: 3.82 Actually, I want to round more carefully. 3.8153... rounds to 3.82 if rounding to two decimal places. But maybe I should present more precision or less? For leverage ratios, one decimal place is often sufficient (3.8x), or two decimal places (3.82x). Given the precision of the inputs, two decimal places seems reasonable. Let me do the exact division: 1,905,477,000 / 499,430,000 = 3.815303... Or if I use more exact figures: Debt = 1,751,255,000 + 389,716,000 + 150,955,000 + 6,362,000 = 2,298,288,000 Cash = 392,811,000 Net Debt = 1,905,477,000 1,905,477,000 / 499,430,000 = 3.815303... Rounded: 3.82 I'll provide this as my final answer. 3.82