I need to estimate the FFO (Funds From Operations) / Net Debt ratio for 2022 based on S&P methodology. ## Understanding S&P Methodology for FFO S&P Global Ratings defines FFO as: - **FFO = Net Income + Depreciation & Amortization + Deferred Income Taxes + Other Non-Cash Items** Or more practically for utilities: - **FFO = Cash Flow from Operations - Working Capital Changes ± Exceptional Items** A more standard S&P approach for FFO: - Start with **Cash Flow from Operating Activities** - Subtract **Change in Working Capital** (or add back if it was a source of cash) - Adjust for **interest paid** (since S&P FFO is pre-interest, or we need to be consistent with net debt) Actually, let me use the more common S&P formula: - **FFO = Net Income + D&A + Deferred Taxes + Other non-cash items - Gain/Loss on asset sales** Or from cash flow perspective: - **FFO = CFO + Increase in Receivables + Decrease in Payables - Increase in Inventory - Other working capital changes that are temporary** Let me look at what's available and use a practical approach. ## Step 1: Calculate FFO From the data, I'll use the approach: **FFO = Cash Flow from Operating Activities + Working capital adjustments (to normalize) - Interest paid (if in operating CF)** Actually, S&P typically calculates FFO as: - **FFO = Net Income + Depreciation & Amortization + Deferred Income Tax + Other non-cash expenses** Let me try another common S&P utility approach: - **FFO = EBITDA - Interest Paid - Cash Taxes - Dividends from associates ± Working capital adjustments** Or more standard: - **FFO = Funds from operations = Net income + D&A + deferred taxes + other non-cash items** From the cash flow statement, I can work with: - Cash Flows From Used In Operating Activities: **10,443,000,000 EUR** (2022) But I need to adjust this to get S&P-style FFO. S&P FFO typically: - Adds back working capital changes (since they're temporary) - Excludes interest paid (if we want FFO before interest) - Excludes dividends received (or includes them depending on definition) Let me use a cleaner approach based on the income statement: From the P&L: - Profit Loss From Operating Activities (EBIT): **7,984,000,000 EUR** - Depreciation Amortisation And Impairment: **4,774,000,000 EUR** - So EBITDA = 7,984,000,000 + 4,774,000,000 = **12,758,000,000 EUR** (close to reported EBITDA of 13,228,000,000) Wait, let me check: "Beneficio Bruto De Explotacion Ebitda" = 13,228,000,000 EUR S&P FFO formula typically: **FFO = Net Income + D&A + Deferred Income Taxes + Other non-cash items** Or: **FFO = EBITDA - Cash Interest - Cash Taxes** From the cash flow: - Cash Flows From Operating Activities: 10,443,000,000 EUR - Interest Paid (in investing): 189,000,000 EUR - Income Taxes Paid: 1,055,000,000 EUR But I need to think about what S&P does. S&P FFO is usually: - **FFO = Net income from continuing operations + D&A + deferred income taxes + other non-cash items** Let me calculate from net income: - Profit Loss From Continuing Operations: 5,131,000,000 EUR - Add: Depreciation Amortisation And Impairment: 4,774,000,000 EUR - Add: Deferred tax changes? Need to check From balance sheet: - Deferred Tax Assets 2022: 6,321,000,000; 2021: 5,917,000,000 → Increase of 404,000,000 - Deferred Tax Liabilities 2022: 11,682,000,000; 2021: 11,364,000,000 → Increase of 318,000,000 Net deferred tax change = 404 - 318 = 86,000,000 (asset increase - liability increase) Actually, looking at cash flow approach might be better. S&P Global Ratings typically defines FFO for utilities as: **FFO = Funds from operations = Net income + depreciation & amortization + deferred income taxes + other non-cash items** Let me use the more practical S&P formula for utilities: **FFO = EBITDA - Cash Interest - Cash Taxes ± Working capital adjustments** Or from the cash flow statement, S&P often uses: **FFO = CFO + Interest Paid - Working capital changes (if temporary)** Actually, the most standard S&P FFO calculation is: - Start with **Net Income**: 5,131,000,000 (continuing) or 5,060,000,000 (total) - Add **D&A**: 4,774,000,000 - Add **Deferred taxes**: need to calculate from change in deferred tax balance Change in Deferred Tax Assets: 6,321 - 5,917 = 404 increase (use of cash, so subtract) Change in Deferred Tax Liabilities: 11,682 - 11,364 = 318 increase (source of cash, so add) Net deferred tax benefit = -404 + 318 = -86, or looking at it as expense/benefit... Actually, the income tax expense was 1,161,000,000 but cash taxes paid were 1,055,000,000. The difference includes deferred tax movement. Let me try a different approach. S&P also calculates FFO as: **FFO = Cash Flow from Operations - Changes in Working Capital** From the data: - Cash Flows From Operating Activities: 10,443,000,000 - Adjustments For Decrease Increase In Trade And Other Receivables: -1,701,000,000 (negative means increase in receivables, use of cash) - Adjustments For Decrease Increase In Inventories: 521,000,000 (positive means decrease, source of cash) - Adjustments For Increase Decrease In Trade And Other Payables: 44,000,000 (positive means increase, source of cash) Working capital changes in CFO = -1,701 + 521 + 44 = -1,136,000,000 (net use) So if we add back working capital changes to normalize: FFO ≈ 10,443,000,000 + 1,701,000,000 - 521,000,000 - 44,000,000 = 11,579,000,000 Or more simply: FFO = 10,443,000,000 + 1,136,000,000 = 11,579,000,000 But wait, I need to check if there are other items in CFO that should be adjusted. Looking at CFO components from the adjustments: - Profit Loss From Operating Activities: 7,984,000,000 - Correccion Valorativa De Deudores: -470,000,000 - Depreciation Amortisation: 4,774,000,000 - Share Of Other Comprehensive Income: 146,000,000 - Finance Income: -1,204,000,000 - Finance Costs: 3,042,000,000 - Other items... Let me try: FFO = EBIT + D&A - Cash taxes (approximate) Or use the standard utility FFO formula: **FFO = Net Income + D&A + Deferred Tax + Other non-cash - Gain on sales** = 5,131,000,000 + 4,774,000,000 + (need deferred tax expense component) From P&L: Income Tax Expense Continuing Operations = 1,161,000,000 From cash flow: Income Taxes Paid = 1,055,000,000 Deferred tax portion = 1,161 - 1,055 = 106,000,000 (approx, though this is simplified) Actually, let me look at this more carefully. The cash flow shows adjustments that sum to CFO. Let me trace through: From "Profit Loss From Operating Activities" (7,984,000,000) Add back D&A (4,774,000,000) → 12,758,000,000 Add back other non-cash, subtract working capital changes, etc. to get to CFO 10,443,000,000 For S&P FFO, a common approach is: **FFO = Net Income + D&A + Deferred Income Taxes + Other non-cash expenses** Let me use: **FFO = CFO + Interest Paid + Working capital changes (if normalized)** Actually, the most widely accepted S&P FFO for utilities: - **FFO = Net income + Depreciation & amortization + Deferred income taxes + Other non-cash items** Let me calculate: - Net Income (continuing operations): 5,131,000,000 - D&A: 4,774,000,000 - Deferred tax change: Need to estimate From balance sheet changes and tax reconciliation... this gets complex. Alternative: Use **FFO = EBITDA - Cash Interest - Cash Taxes** - EBITDA: 13,228,000,000 - Cash Interest: Need to estimate total interest paid From cash flow statement: - Interest Paid Classified As Investing Activities: 189,000,000 - But there's also "Intereses Pagados Excluidos Intereses Capitalizados" in financing: 1,495,000,000 (debt) + 61,000,000 (leases) = 1,556,000,000 - And "Intereses Pagados De Obligaciones Perpetuas Subordinadas": 169,000,000 Total interest paid = 189 + 1,495 + 61 + 169 = 1,914,000,000? Wait, let me check: The 189M in investing might be capitalized interest. The financing section shows interest on debt and leases. Actually, looking more carefully: - "Interest Paid Classified As Investing Activities" = 189,000,000 (likely capitalized interest on assets under construction) - "Intereses Pagados Excluidos Intereses Capitalizados De Deudas..." = 1,495,000,000 (expensed interest) - "Intereses Pagados Excluidos Intereses Capitalizados De Pasivos Financieros Por Arrendamiento" = 61,000,000 - "Intereses Pagados De Obligaciones Perpetuas Subordinadas" = 169,000,000 Total cash interest = 1,495 + 61 + 169 = 1,725,000,000 (expensed) + 189,000,000 (capitalized) = 1,914,000,000 But for FFO, we usually want pre-interest or we need to be consistent. Let me try yet another approach. S&P sometimes calculates: **FFO = Cash flow from operations before working capital changes - Interest paid** Or: **FFO = CFO - Working capital changes + Interest paid (if interest is not in CFO)** Actually, in many European utilities, interest paid is in operating activities or financing. Let me assume the CFO of 10,443,000,000 already includes interest paid or not. Looking at the adjustments to get CFO, I see "Adjustments For Finance Income Cost" = 1,842,000,000. This is adding back net finance cost to get to CFO. So the 10,443,000,000 is after adding back finance costs (i.e., before interest in the cash generation sense). Wait, "Adjustments For Finance Income Cost" of 1,842,000,000 is positive, meaning we're adding it back. This suggests the starting point (operating profit) excludes finance costs, and we add them back? That doesn't make sense unless it's for the indirect method. Actually, in indirect method: - Start with Profit Before Tax: 6,292,000,000 - Add back D&A: 4,774,000,000 - Add back finance costs: 3,042,000,000 - Subtract finance income: -1,204,000,000 - Working capital changes, etc. But we have "Profit Loss From Operating Activities" = 7,984,000,000 which is EBIT. Let me try to build CFO from EBIT: - EBIT: 7,984,000,000 - Add D&A: 4,774,000,000 (already in EBIT, so no) - Wait, EBIT already excludes D&A? No, EBIT is before interest and taxes, but D&A is already deducted to get EBIT. Actually: EBITDA = 13,228,000,000 Less D&A = 4,774,000,000 = EBIT = 8,454,000,000? But reported is 7,984,000,000. Difference is 470,000,000 (the "Correccion Valorativa"). So: EBITDA 13,228 - D&A 4,774 - Correccion 470 = EBIT 7,984. Yes! Now to get from EBIT to CFO: - EBIT: 7,984,000,000 - Add D&A: 4,774,000,000 → back to EBITDA: 13,228,000,000? No wait, we need to go to cash basis. Actually for indirect method from Net Income: - Net Income: 5,131,000,000 (continuing) - Add D&A: 4,774,000,000 - Add finance costs: 3,042,000,000 - Less finance income: -1,204,000,000 - Working capital changes: -1,701 + 521 + 44 = -1,136,000,000 - Other items: 146,000,000 (equity method) + ... Let me check: 5,131 + 4,774 + 3,042 - 1,204 - 1,136 + 146 + ... = need to see what else = 5,131 + 4,774 + 3,042 - 1,204 - 1,136 + 146 = 10,753. Close to 10,443. Difference of 310. Other items: -304 (subvenciones) + 670 (dividends) - 512 (provisions) - 1,055 (taxes paid?) Actually the 1,055 is taxes paid, but we need to reconcile from tax expense, not cash. Let me just use the reported CFO and adjust for S&P FFO. **S&P FFO = CFO + Working capital changes (to normalize) + After-tax interest (if FFO before interest)** Or more commonly for utilities, S&P uses: **FFO = Net Income + D&A + Deferred Taxes + Other non-cash** Let me calculate this way: - Net Income (total): 5,060,000,000 - Add D&A: 4,774,000,000 - Add Deferred Tax expense (non-cash portion): From P&L: Income Tax Expense = 1,161,000,000 Cash taxes paid = 1,055,000,000 Deferred tax movement = 1,161 - 1,055 = 106,000,000 (approximate, though not exact due to timing) But also from balance sheet, deferred tax assets increased by 404,000,000 and liabilities increased by 318,000,000. The net deferred tax expense would be related to these changes. Actually, the increase in DTA of 404 would be a debit to DTA and credit to tax expense (benefit), while increase in DTL of 318 would be debit to tax expense and credit to DTL. Net effect = -404 + 318 = -86,000,000 benefit? Hmm, this is getting complicated. Let me use a simpler approach. **Standard S&P FFO for utilities:** FFO = Cash Flow from Operations + Increase in Receivables (use of cash, add back) - Decrease in Payables (source of cash, subtract... wait) Actually, to normalize working capital: If receivables increased by 1,701,000,000 (use of cash), this is temporary, so add back to CFO. If inventories decreased by 521,000,000 (source of cash), this is somewhat temporary, but utilities often normalize this too. If payables increased by 44,000,000 (source of cash), add back the normalization. S&P typically adds back all working capital changes to get "Funds From Operations" as they represent timing differences. So: **FFO = 10,443,000,000 + 1,701,000,000 - 521,000,000 - 44,000,000 = 11,579,000,000** Wait, I need to check signs. In the cash flow: - "Adjustments For Decrease Increase In Trade And Other Receivables" = -1,701,000,000 This means receivables increased (negative adjustment to get to CFO). So to normalize, add back +1,701,000,000. - "Adjustments For Decrease Increase In Inventories" = +521,000,000 This means inventories decreased (positive adjustment). To normalize, subtract -521,000,000 (reverse the benefit). - "Adjustments For Increase Decrease In Trade And Other Payables" = +44,000,000 Payables increased. To normalize, subtract -44,000,000. So normalized FFO = 10,443 + 1,701 - 521 - 44 = 11,579,000,000 But wait, I should also consider if dividends received should be in FFO. S&P sometimes excludes dividends received from investments, but for utilities, it's often included if from operating activities. Actually, looking more carefully at S&P methodology, they also sometimes define: **FFO = EBITDA - Cash Interest - Cash Taxes** Let me try this: - EBITDA: 13,228,000,000 - Cash Interest: ~1,725,000,000 (expensed) or total 1,914,000,000 - Cash Taxes: 1,055,000,000 FFO = 13,228 - 1,725 - 1,055 = 10,448,000,000 (close to CFO!) Or with total interest: 13,228 - 1,914 - 1,055 = 10,259,000,000 Hmm, this is close to CFO of 10,443,000,000. The difference might be working capital and other items. Actually, a very common S&P approach is simply: **FFO = Net Income + D&A + Deferred Income Tax + Other non-cash items** Let me try to be more precise. From the cash flow, I can identify: - D&A: 4,774,000,000 - Other non-cash: Correccion Valorativa 470,000,000, Share of OCI of associates 146,000,000, etc. But for simplicity, let me use: **FFO = CFO + Net Working Capital Changes + After-tax interest (if not in CFO)** Actually, I realize I need to check if interest is already in CFO. Looking at the adjustments, there's "Adjustments For Finance Income Cost" = 1,842,000,000. This is added back in the indirect method, meaning finance costs were deducted to get to net income but are added back for CFO. This suggests **CFO is before interest expense**. Wait, that doesn't make sense. In indirect method, we start with profit before tax or net income and add back non-cash items and financing items to get to operating cash flow. Actually, "Profit Loss From Operating Activities" = EBIT = 7,984,000,000. This is before interest and taxes. To get from EBIT to CFO, we would: - Add back D&A (already deducted to get EBIT): 4,774,000,000? No wait, EBIT is after D&A. Let me re-read: "Profit Loss From Operating Activities" is EBIT, which is Earnings Before Interest and Taxes. It's after D&A. So: EBITDA = 13,228,000,000 Less D&A = 4,774,000,000 Less Correccion Valorativa = 470,000,000 = EBIT = 7,984,000,000? 13,228 - 4,774 - 470 = 7,984. Yes, correct. Now from EBIT to CFO (indirect method elements): - EBIT: 7,984,000,000 - Less taxes paid: 1,055,000,000 - Working capital changes: -1,136,000,000 net - Other items: dividends received 67,000,000, provisions paid -512,000,000, etc. 7,984 - 1,055 - 1,136 + 67 - 512 + ... = need to check all items Actually, the cash flow statement starts from a different point. Let me look at the adjustments listed: - Amortizaciones Provisiones... = 5,491,000,000 (this includes D&A and other items) - Adjustments For Undistributed Profits = -146,000,000 - Subvenciones = -304,000,000 - Adjustments For Finance Income Cost = 1,842,000,000 - Adjustments For Decrease Increase In Trade And Other Receivables = -1,701,000,000 - Adjustments For Decrease Increase In Inventories = 521,000,000 - Adjustments For Increase Decrease In Trade And Other Payables = 44,000,000 - Pagos De Provisiones = -512,000,000 - Income Taxes Paid = 1,055,000,000 (wait, this is shown as positive but is a use of cash?) Actually, looking at the signs: "Income Taxes Paid Classified As Operating Activities" = 1,055,000,000. In many XBRL filings, this might be shown as positive when it's a deduction. But in the list, it's shown as positive 1,055,000,000. Hmm, but "Cash Flows From Used In Operating Activities" = 10,443,000,000 is positive, meaning cash generated. Let me sum the adjustments to see if I can reconcile: 5,491 - 146 - 304 + 1,842 - 1,701 + 521 + 44 - 512 + 1,055 + 67 = ? = 5,491 - 146 = 5,345 - 304 = 5,041 + 1,842 = 6,883 - 1,701 = 5,182 + 521 = 5,703 + 44 = 5,747 - 512 = 5,235 + 1,055 = 6,290 + 67 = 6,357 This doesn't equal 10,443. So I must be missing items or the starting point is different. Actually, the starting point might be "Profit Loss" = 5,060,000,000 or "Profit Loss From Continuing Operations" = 5,131,000,000. 5,131 + 6,357 = 11,488. Still not 10,443. Let me check if "Income Taxes Paid" should be negative: 5,131 + 5,302 = 10,433. Close to 10,443! Or with 5,060 + 6,357 - 2*1,055 = ... no. Actually, I think "Income Taxes Paid" of 1,055,000,000 might need to be subtracted, not added. If I subtract it: 6,357 - 1,055 = 5,302. Then 5,131 + 5,302 = 10,433. Close but not exact. There might be other items I'm missing. Let me just accept CFO = 10,443,000,000 as given. ## Step 2: Calculate Net Debt Net Debt = Total Debt - Cash and Cash Equivalents Total Debt includes: - Noncurrent Financial Liabilities: 44,216,000,000 - Current Financial Liabilities: 25,079,000,000 - Less: Current Financial Assets (that are not operating): need to identify - Less: Cash and Cash Equivalents: 4,608,000,000 For S&P methodology, debt typically includes: - All interest-bearing liabilities - Less cash and cash equivalents - Less liquid investments From the balance sheet: **Noncurrent Financial Liabilities:** - Deudas Con Entidades De Credito YObligaciones: 36,129,000,000 - Instrumentos De Capital Con Caracteristicas De Pasivo: 576,000,000 - Noncurrent Derivative Financial Liabilities: 3,690,000,000 - Noncurrent Lease Liabilities: 2,287,000,000 - Other Noncurrent Financial Liabilities: 1,534,000,000 Total Noncurrent Financial Liabilities: 44,216,000,000 **Current Financial Liabilities:** - Deudas Con Entidades De Credito... Corrientes: 10,458,000,000 - Instrumentos De Capital... Corriente: 87,000,000 - Current Derivative Financial Liabilities: 3,398,000,000 - Current Lease Liabilities: 151,000,000 - Trade And Other Payables To Trade Suppliers: 5,927,000,000 (this is trade payables, not debt) - Other Current Financial Liabilities: 5,058,000,000 - Other Current Nonfinancial Liabilities: 2,811,000,000 (not debt) - Current Tax Liabilities: 156,000,000 - Current Payables On Social Security: 1,262,000,000 (not debt) - Other Current Liabilities: 1,393,000,000 For "debt" we want interest-bearing obligations: - Deudas (debt to credit entities and bonds): 10,458,000,000 - Capital instruments with debt characteristics: 87,000,000 - Derivative liabilities: these might or might not be included depending on methodology - Lease liabilities: 151,000,000 - Other current financial liabilities: 5,058,000,000 Actually, S&P typically includes in gross debt: - Short-term and long-term borrowings - Bonds and notes - Lease liabilities - Derivative liabilities (if negative fair value) - Pension liabilities (sometimes) - Less cash and equivalents Let me calculate more carefully. S&P Global Ratings typically defines gross debt as: - Long-term debt (including current portion) - Short-term debt - Lease liabilities - Derivative liabilities (negative fair value) - Less: cash and cash equivalents - Less: liquid financial assets From the data, let me identify debt-like items: **Long-term debt:** - Deudas Con Entidades De Credito YObligaciones (non-current): 36,129,000,000 - Instrumentos De Capital Con Caracteristicas De Pasivo (non-current): 576,000,000 **Short-term debt:** - Deudas Con Entidades De Credito... Corrientes: 10,458,000,000 - Instrumentos De Capital... Corriente: 87,000,000 **Lease liabilities:** - Noncurrent: 2,287,000,000 - Current: 151,000,000 **Derivative liabilities:** - Noncurrent: 3,690,000,000 - Current: 3,398,000,000 **Other financial liabilities:** - Other Noncurrent Financial Liabilities: 1,534,000,000 - Other Current Financial Liabilities: 5,058,000,000 Total gross debt (very broad) = 36,129 + 576 + 10,458 + 87 + 2,287 + 151 + 3,690 + 3,398 + 1,534 + 5,058 = 63,368,000,000 Less: Cash and Cash Equivalents: 4,608,000,000 Net Debt = 63,368 - 4,608 = 58,760,000,000 But this might include too much. Let me think about what S&P typically excludes. Trade payables (5,927,000,000) are operating liabilities, not debt. Tax and social security payables are operating liabilities. For derivatives: S&P sometimes includes negative fair value of derivatives in debt, sometimes not. It depends on whether they're hedging or speculative. For "Other financial liabilities" - need to check if these are debt-like. Actually, looking at standard utility practice, let me use a more common definition: **Gross Debt = Long-term borrowings + Short-term borrowings + Lease liabilities + Derivatives (negative FV)** = 36,129 + 576 + 10,458 + 87 + 2,287 + 151 + 3,690 + 3,398 = 56,776,000,000 Less: Cash = 4,608,000,000 Net Debt = 52,168,000,000 But I should also consider if "Other financial liabilities" are debt-like or not. The non-current other financial liabilities of 1,534,000,000 and current of 5,058,000,000 might include items like accrued interest, dividends payable, or other non-debt items. Let me try a narrower definition excluding derivatives: **Debt = 36,129 + 576 + 10,458 + 87 + 2,287 + 151 = 49,688,000,000** Net Debt = 49,688 - 4,608 = 45,080,000,000 Or including other financial liabilities: = 49,688 + 1,534 + 5,058 = 56,280,000,000 Net Debt = 56,280 - 4,608 = 51,672,000,000 Hmm, this is getting wide ranges. Let me look for clues in the data. Actually, I can calculate total liabilities and equity = 154,667,000,000 Equity = 58,114,000,000 Total Liabilities = 154,667 - 58,114 = 96,553,000,000 Noncurrent Liabilities = 67,714,000,000 Current Liabilities = 28,839,000,000 Total = 96,553,000,000 ✓ For S&P net debt, typically: - All interest-bearing debt - Less cash and equivalents - Less liquid financial investments From financial liabilities: Noncurrent Financial Liabilities = 44,216,000,000 Current Financial Liabilities = 25,079,000,000 Total Financial Liabilities = 69,295,000,000 But this includes trade payables? No, "Trade And Other Payables To Trade Suppliers" = 5,927,000,000 is listed separately in current liabilities, not in "Current Financial Liabilities." Wait, let me check: Current Financial Liabilities = 25,079,000,000. What's in this? - Deudas... Corrientes: 10,458 - Instrumentos... Corriente: 87 - Current Derivative: 3,398 - Current Lease: 151 - Trade And Other Payables: 5,927 - Other Current Financial: 5,058 Sum: 10,458 + 87 + 3,398 + 151 + 5,927 + 5,058 = 25,079. ✓ But "Trade And Other Payables To Trade Suppliers" of 5,927,000,000 is typically NOT debt. It's operating payables. Similarly, "Other Current Nonfinancial Liabilities" = 2,811,000,000 and "Current Tax Liabilities" = 156,000,000 and "Current Payables On Social Security" = 1,262,000,000 and "Other Current Liabilities" = 1,393,000,000 are operating liabilities. So for debt calculation, from Current Financial Liabilities, exclude: - Trade payables: 5,927,000,000 Debt portion of Current Financial Liabilities = 25,079 - 5,927 = 19,152,000,000 From Noncurrent Financial Liabilities = 44,216,000,000, are there operating items? - Deudas: 36,129 - Capital instruments: 576 - Derivatives: 3,690 - Lease: 2,287 - Other noncurrent financial: 1,534 All of these seem debt-like or derivative/lease obligations. But wait, "Other Noncurrent Financial Liabilities" of 1,534,000,000 might include things like accrued interest, deferred income, etc. Let me assume it's debt-like for now. Total interest-bearing debt = 44,216 + 19,152 = 63,368,000,000 Less: Cash and equivalents: 4,608,000,000 Net Debt = 58,760,000,000 But should I also subtract other liquid financial assets? Current Financial Assets = 4,813,000,000 - Other Current Financial Assets: 2,964,000,000 - Current Derivative Financial Assets: 1,849,000,000 Noncurrent Financial Assets = 10,508,000,000 - Investments in associates: 857,000,000 - Cartera De Valores: 32,000,000 - Other Noncurrent Financial Assets: 5,958,000,000 - Noncurrent Derivative Financial Assets: 3,661,000,000 For "liquid financial assets" to subtract from gross debt, S&P typically looks at cash, short-term investments, and readily marketable securities. Cash = 4,608,000,000 Other Current Financial Assets = 2,964,000,000 (might include short-term investments) Current Derivatives = 1,849,000,000 (these are hedging assets, not typically subtracted as "cash") Noncurrent items are less liquid. If I subtract "Other Current Financial Assets" as liquid investments: Net Debt = 58,760 - 2,964 = 55,796,000,000 Or more conservatively, just subtract cash: Net Debt = 58,760 - 4,608 = 54,152,000,000? No wait, I already did that. Gross debt 63,368 - cash 4,608 = 58,760. If also subtract other liquid assets 2,964 = 55,796. Actually, let me re-check: some methodologies subtract all "financial assets" from financial liabilities to get net debt. Financial Liabilities (total) = 69,295,000,000 Financial Assets (total) = 10,508 + 4,813 = 15,321,000,000 Net Financial Liabilities = 69,295 - 15,321 = 53,974,000,000 But this includes trade payables in financial liabilities, which is wrong. Let me try: Interest-bearing debt - cash - liquid assets = 63,368 - 4,608 - 2,964 = 55,796,000,000 Or if we include derivatives in debt and also subtract derivative assets: = (63,368 + 3,690 + 3,398 - 3,661 - 1,849) - 4,608 - 2,964? This is getting messy with derivatives. Let me try a cleaner approach. **Standard S&P Net Debt for utilities:** - Short-term borrowings + Current portion of long-term debt + Long-term debt + Capitalized lease obligations / lease liabilities + Derivative liabilities (negative fair value, if significant) - Cash and cash equivalents - Short-term liquid investments From data, let me identify: - Short-term borrowings + current portion: 10,458 + 87 = 10,545,000,000 - Long-term debt: 36,129 + 576 = 36,705,000,000 - Lease liabilities: 2,287 + 151 = 2,438,000,000 - Derivative liabilities: 3,690 + 3,398 = 7,088,000,000 Gross debt = 10,545 + 36,705 + 2,438 + 7,088 = 56,776,000,000 Less: Cash = 4,608,000,000 Net Debt = 52,168,000,000 Should I include "Other financial liabilities"? - Other noncurrent: 1,534,000,000 - Other current: 5,058,000,000 These might include items like: - Accrued interest (debt-like) - Dividends payable (not debt) - Deferred income (not debt) - Other payables (depends) If I include these as debt-like: Gross debt = 56,776 + 1,534 + 5,058 = 63,368,000,000 Net Debt = 63,368 - 4,608 = 58,760,000,000 This matches my earlier broad calculation. For a reasonable estimate, let me use **Net Debt ≈ 55,000,000,000 to 59,000,000,000** range, or pick a specific value. Actually, let me check if there's a standard way to calculate from the given data. Looking at "Noncurrent Financial Liabilities" and "Current Financial Liabilities", these are clearly defined categories. If I take total financial liabilities (69,295) and subtract trade payables (5,927), I get 63,368 for interest-bearing obligations. For S&P, they might also subtract "Other Current Nonfinancial Liabilities" etc. if they're not debt, but those aren't in financial liabilities anyway. Let me use **Net Debt = 55,000,000,000** as a round number, or be more precise. Actually, I want to be more careful. Let me look at what typical utility net debt calculations include. For Iberdrola specifically, as a large utility, S&P would likely include: - All bank debt and bonds - Lease liabilities (IFRS 16) - Derivatives (negative fair value) - Hybrid instruments (those with equity characteristics but treated as debt by rating agencies) The "Instrumentos De Capital Con Caracteristicas De Pasivo" (capital instruments with debt characteristics) of 576 + 87 = 663,000,000 are hybrid instruments. S&P might treat these as equity or debt depending on their features. Often they're treated as 50% equity or 100% equity for rating purposes. But for Net Debt/FFO ratio, S&P typically uses their own adjusted debt figure. Let me proceed with a practical calculation: **Gross Debt = 36,129 + 10,458 + 576 + 87 + 2,287 + 151 + 3,690 + 3,398 + 1,534 + 5,058 = 63,368** Wait, I think I'm double counting. Let me re-read the categories. Noncurrent Financial Liabilities (44,216) includes: - Deudas: 36,129 - Instrumentos: 576 - Derivatives: 3,690 - Lease: 2,287 - Other: 1,534 Current Financial Liabilities (25,079) includes: - Deudas: 10,458 - Instrumentos: 87 - Derivatives: 3,398 - Lease: 151 - Trade payables: 5,927 - Other: 5,058 So total financial liabilities = 44,216 + 25,079 = 69,295 For debt, excluding trade payables (5,927) and maybe other non-debt items: Interest-bearing = 69,295 - 5,927 = 63,368 Less cash (4,608) = **Net Debt = 58,760** Or if we also exclude "Other Current Financial Liabilities" if not debt-like: = 63,368 - 5,058 = 58,310 gross, less cash = 53,702 And if exclude "Other Noncurrent Financial Liabilities": = 58,310 - 1,534 = 56,776 gross, less cash = **52,168** This last one (52,168) is the most common "debt" definition excluding "other" categories that might not be pure debt. Let me use **Net Debt = 55,000,000,000** as a middle estimate, or try to be more precise with 52,168 or 58,760. Actually, for comparability with S&P ratings, let me check what they typically report for Iberdrola. S&P usually reports "adjusted debt" which includes hybrids at equity content. But since I don't have that detail, let me use: **Net Debt ≈ 53,000,000,000 to 58,000,000,000** Let me pick **Net Debt = 55,796,000,000** if I include other financial liabilities but subtract other current financial assets as liquid, or **58,760,000,000** for broad debt minus cash. Hmm, let me try yet another approach. The standard formula for Net Debt in many European utilities: Net Debt = (Long-term debt + Current portion + Short-term debt + Lease liabilities) - Cash = (36,129 + 576 + 10,458 + 87 + 2,287 + 151) - 4,608 = 49,688 - 4,608 = **45,080,000,000** This excludes derivatives and "other" financial liabilities. Or with derivatives: = 49,688 + 3,690 + 3,398 - 4,608 = **56,168,000,000** I think for S&P methodology, including derivatives is common, so let me use **Net Debt ≈ 56,000,000,000**. ## Step 3: Calculate FFO / Net Debt Using my FFO estimate of **11,579,000,000** (CFO normalized for working capital) or **10,443,000,000** (raw CFO). For S&P FFO, they typically use FFO before working capital changes. Let me recalculate more carefully. Actually, S&P Global Ratings defines FFO for utilities as: **FFO = Net income + Depreciation & amortization + Deferred income taxes + Other non-cash items** Or from cash flows: **FFO = Cash flow from operations before changes in working capital - Cash interest paid - Cash taxes paid + Cash interest received** Wait, that's getting complicated. Let me use the simpler: **FFO = EBITDA - Cash Interest - Cash Taxes ± Other items** From earlier: - EBITDA: 13,228,000,000 - Cash Interest: ~1,725,000,000 (expensed portion, or 1,914,000,000 total) - Cash Taxes: 1,055,000,000 FFO = 13,228 - 1,725 - 1,055 = 10,448,000,000 ≈ **10,448,000,000** This is very close to reported CFO of 10,443,000,000! The difference is just 5 million. Actually, this makes sense: CFO ≈ EBITDA - Cash Interest - Cash Taxes + Working capital changes and other items. So if working capital changes net to about zero or are included in other items, CFO ≈ FFO. But S&P FFO typically excludes working capital changes. So if working capital was a use of 1,136,000,000, then: FFO = CFO + Working capital use = 10,443 + 1,136 = 11,579,000,000 Or: FFO = EBITDA - Cash Interest - Cash Taxes = 13,228 - 1,725 - 1,055 = 10,448 These give different results (11,579 vs 10,448). The difference is whether we normalize working capital or not. For S&P, FFO is typically **before** working capital changes, so the 11,579 figure is more appropriate. But wait, let me check: is "CFO before working capital changes" the same as "EBITDA - Cash Interest - Cash Taxes"? CFO before WC changes = EBIT + D&A - Cash Interest - Cash Taxes (approximately) = 7,984 + 4,774 - 1,725 - 1,055 = 9,978 Hmm, that's not 10,448. Let me check: 7,984 + 4,774 = 12,758, not 13,228. I forgot the Correccion Valorativa. EBITDA = 13,228 Less: Correccion = 470 Less: D&A = 4,774 = EBIT = 7,984 So EBIT + D&A = 7,984 + 4,774 = 12,758, but EBITDA = 13,228. Difference = 470 = Correccion. So CFO before WC = EBITDA - Correccion - Cash Interest - Cash Taxes = 13,228 - 470 - 1,725 - 1,055 = 9,978 But reported CFO is 10,443, and WC changes were -1,136, so CFO before WC = 10,443 + 1,136 = 11,579? Wait, 9,978 ≠ 11,579. There's a difference of 1,601. Let me check what else is in CFO. Looking at adjustments: - Amortizaciones... = 5,491 (this is more than just D&A of 4,774) - Adjustments For Undistributed Profits = -146 - Subvenciones = -304 - Adjustments For Finance Income Cost = 1,842 - And working capital items The "Amortizaciones Provisiones..." of 5,491 includes D&A plus other items like provisions. So starting from Profit Loss From Operating Activities (7,984): + 5,491 (add back non-cash including D&A and more) + other adjustments = before WC changes Actually, let me just accept that S&P FFO for this company is approximately **11,000,000,000 to 12,000,000,000**. Using **FFO = 11,579,000,000** (CFO + working capital changes reversed) And **Net Debt = 55,000,000,000 to 58,000,000,000** Let me use specific numbers: - FFO = 11,579,000,000 - Net Debt = 56,168,000,000 (including derivatives) or 52,168,000,000 (excluding other financial liabilities) FFO/Net Debt: - 11,579 / 56,168 = 0.206 or 20.6% - 11,579 / 52,168 = 0.222 or 22.2% Or using FFO = 10,448 (EBITDA - cash interest - cash taxes): - 10,448 / 56,168 = 0.186 or 18.6% - 10,448 / 52,168 = 0.200 or 20.0% Hmm, these seem low for FFO/Net Debt. Usually this ratio is expressed as FFO/Net Debt in percentage or as a multiple (Net Debt/FFO). Wait! I need to re-read the question. It asks for **FFO / Net debt ratio**. In S&P methodology, this is typically expressed as **FFO to Debt** or **FFO/Net Debt** as a percentage, or sometimes as a multiple with Net Debt/FFO. The ratio "FFO / Net debt" could mean: - FFO divided by Net Debt (as a percentage or decimal) - Or Net Debt divided by FFO (as a multiple) In S&P terminology, "FFO to debt" or "FFO/net debt" usually means **FFO / Net Debt** as a percentage or ratio. But sometimes people say "debt/FFO" or "FFO coverage of debt." Let me check typical S&P metrics: - "FFO to debt" = FFO / Total Debt (as %) - "Debt to FFO" = Debt / FFO (as multiple) - "FFO interest coverage" = FFO / Gross Interest For "FFO / Net debt ratio", I think they want FFO divided by Net Debt. But looking at typical utility credit metrics, S&P often reports: - FFO/Debt: 20-30% for BBB, 30-40% for A, etc. - Or Debt/FFO: 3-5x for various ratings For Iberdrola, which is typically rated BBB+ to A-, I'd expect FFO/Net Debt around 20-30% or Net Debt/FFO around 3.5-5x. Let me recalculate with what I think are reasonable numbers. Actually, I realize I should use a more standard S&P FFO calculation. Let me look up typical S&P FFO formula for European utilities: **FFO = Funds from operations = Net income before extraordinary items + Depreciation & amortization + Deferred income taxes + Other non-cash items** From the data: - Net income (total): 5,060,000,000 - D&A: 4,774,000,000 - Deferred taxes: need to estimate From the cash flow, the difference between tax expense and cash taxes: Tax expense (continuing): 1,161,000,000 Cash taxes: 1,055,000,000 Difference: 106,000,000 (this includes deferred tax movement and other timing differences) But also from balance sheet: Deferred tax assets increased by 404,000,000 Deferred tax liabilities increased by 318,000,000 The net deferred tax "expense" benefit is complex. If DTA increased by 404, that's a debit to DTA and credit to tax expense (reducing tax expense). If DTL increased by 318, that's debit to tax expense and credit to DTL (increasing tax expense). Net effect on tax expense = -404 + 318 = -86,000,000 benefit. But this doesn't match the 106 difference. There are other items affecting the reconciliation. For simplicity, let me use **Deferred tax add-back = 106,000,000** (difference between tax expense and cash taxes). Other non-cash items from cash flow adjustments: - Correccion Valorativa: 470,000,000 (impairment/reversal) - Share of undistributed profits of equity method: -146,000,000 (this is a negative, meaning we subtract it? Actually, it's income not received in cash) - Subvenciones: -304,000,000 (deferred income?) - Finance cost adjustment: 1,842,000,000 (this adds back non-cash finance costs or accrued interest) Actually, the "Adjustments For Finance Income Cost" of 1,842,000,000 is interesting. This suggests that finance costs in P&L include non-cash items of about 1,842M. Net finance cost in P&L = 3,042 - 1,204 = 1,838,000,000. Close to 1,842M. So this adjustment is essentially adding back all finance costs and subtracting all finance income to get to pre-finance cash flow. For FFO, S&P typically includes finance costs (i.e., FFO is before interest), so we don't need to adjust for this. Let me try a different FFO formula that S&P sometimes uses: **FFO = Cash Flow from Operations + Interest Paid - Working Capital Changes** = 10,443,000,000 + 1,725,000,000 - (-1,136,000,000)? Wait, working capital changes in CFO were a net use of 1,136,000,000 (based on my earlier calc: -1,701 + 521 + 44 = -1,136). So to get FFO before WC changes, we add back this use: +1,136. FFO = 10,443 + 1,136 = 11,579,000,000 And this is before interest? No, CFO already includes interest paid or not? Actually, in the indirect method starting from EBIT or net income, we need to see where interest is. From EBIT (7,984), to get to CFO: - We don't add back finance costs (they're below EBIT) - We subtract cash taxes - Working capital changes - Other items So CFO from EBIT = 7,984 - taxes + WC changes + other = ? Actually, let me trace from Net Income: Net Income = 5,060 + Finance costs (non-cash portion?) = ? + D&A = 4,774 + Other non-cash = ? - Working capital use = -1,136 = CFO = 10,443 5,060 + 4,774 = 9,834. Need 10,443 - 9,834 = 609 more. From adjustments: -146 (undistributed profits) - 304 (subvenciones) + 1,842 (finance) - 1,701 (receivables) + 521 (inventories) + 44 (payables) - 512 (provisions) - 1,055 (taxes) + 67 (dividends) = ? = -146 - 304 + 1,842 - 1,701 + 521 + 44 - 512 - 1,055 + 67 = -1,244 Wait, that's not right. 9,834 - 1,244 = 8,590, not 10,443. Hmm, I think the issue is that "Income Taxes Paid" of 1,055 is shown as positive but should be negative in the cash flow. Or the starting point is different. Let me try starting from "Profit Loss Before Tax" = 6,292,000,000: 6,292 + 5,491 - 146 - 304 + 1,842 - 1,701 + 521 + 44 - 512 - 1,055 + 67 = ? = 6,292 + 5,491 = 11,783 - 146 = 11,637 - 304 = 11,333 + 1,842 = 13,175 - 1,701 = 11,474 + 521 = 11,995 + 44 = 12,039 - 512 = 11,527 - 1,055 = 10,472 + 67 = 10,539 Close to 10,443! Difference of 96, maybe rounding or other small items. So starting from PBT (6,292), adding adjustments, we get to CFO ≈ 10,443. Now for FFO, S&P typically starts from **Net Income** (or PBT) and adds back: - D&A - Deferred taxes - Other non-cash items - But **not working capital changes** From the adjustments, non-cash and non-operating items include: - Amortizaciones... (5,491) - this includes D&A and provisions - Undistributed profits (-146) - equity income not received - Subvenciones (-304) - deferred grants income - Finance income cost (1,842) - non-cash finance items - Provisions paid (-512) - this is cash, not non-cash Actually, "Pagos De Provisiones" of -512 is cash paid for provisions, so it's a use of cash. To get FFO, we'd add this back (since FFO is before discretionary cash uses like provision payments? No, provisions are operating items). Hmm, S&P FFO treatment of provisions is complex. Let me use a simpler approach. **Simple S&P FFO = Net Income + D&A + Deferred Taxes** = 5,060 + 4,774 + 106 = 9,940,000,000 Or from continuing operations: = 5,131 + 4,774 + 106 = 10,011,000,000 Add other non-cash items (impairment/reversal): + 470 (Correccion Valorativa) = 10,481,000,000 This is close to the "EBITDA - Cash Interest - Cash Taxes" figure of 10,448. So **FFO ≈ 10,400,000,000 to 10,500,000,000** seems reasonable. Using **FFO = 10,448,000,000** (from EBITDA - cash interest - cash taxes) And **Net Debt = 56,168,000,000** (including derivatives, excluding other financial liabilities that might not be pure debt, and excluding trade payables) FFO / Net Debt = 10,448 / 56,168 = 0.1859 or **18.6%** Or if Net Debt = 52,168 (excluding "other" financial liabilities): FFO / Net Debt = 10,448 / 52,168 = 0.2003 or **20.0%** Or if I use the higher FFO = 11,579: 11,579 / 56,168 = 0.206 or **20.6%** 11,579 / 52,168 = 0.222 or **22.2%** For a reasonable single estimate, let me use: - FFO = 11,000,000,000 (midpoint of sorts) - Net Debt = 54,000,000,000 (midpoint) FFO/Net Debt = 11,000 / 54,000 = 0.204 or **20.4%** Or more precisely, let me try to match S&P's typical calculation for Iberdrola. Actually, I recall that S&P typically reports "Funds from operations (FFO)" and "Debt" separately. For European utilities, FFO/Debt is often around 20-25%. Let me use a calculation closer to S&P's published methodology: From S&P Global Ratings criteria for utilities: **FFO = Net income + D&A + deferred income taxes + other non-cash items** Using: - Net income: 5,060,000,000 - D&A: 4,774,000,000 - Deferred taxes: ~200,000,000 (estimated from changes) - Other non-cash: 470,000,000 (impairment/reversal) + other items FFO ≈ 5,060 + 4,774 + 200 + 470 = 10,504,000,000 For **Net Debt**, S&P typically uses: - Short-term debt + Long-term debt + Lease liabilities + Hybrid debt (at equity content) - Cash If we treat hybrids as 50% equity: Hybrid equity content = 663 / 2 = 331,500,000 Hybrid debt portion = 331,500,000 Debt = 36,129 + 10,458 + 331 + 2,438 + 3,690 + 3,398 + 1,534 + 5,058 = 63,036? Actually let me be simpler. Gross debt excluding hybrids at equity content, including derivatives and other financial liabilities: = 36,129 + 10,458 + 2,287 + 151 + 3,690 + 3,398 + 1,534 + 5,058 + 331 (half of hybrids) = 63,036 Less cash = 4,608 Net Debt = 58,428 FFO/Net Debt = 10,504 / 58,428 = 0.180 or 18.0% Or if we include all hybrids as debt: = 58,428 + 332 = 58,760 FFO/Net Debt = 10,504 / 58,760 = 0.179 or 17.9% Hmm, this seems a bit low. Let me check if my FFO is too low. Actually, looking at the cash flow again, "Cash Flows From Used In Operating Activities" = 10,443,000,000. This is already quite high. If S&P FFO is roughly CFO plus working capital changes minus after-tax interest (or similar), and working capital was a use of 1,136, then: FFO = 10,443 + 1,136 = 11,579 (before working capital normalization) But this 11,579 includes no interest paid (since CFO from indirect method starts after interest). Wait, no - in the indirect method from net income, we add back finance costs. Actually, I need to check: does CFO include interest paid or not? Under IFRS, interest paid can be classified as operating or financing. Looking at the cash flow, there's "Interest Paid Classified As Investing Activities" = 189,000,000 and financing section has more interest. But in the operating activities, is interest included? The adjustment "Adjustments For Finance Income Cost" = 1,842,000,000 suggests we're adjusting from profit to cash flow. If net income already deducted finance costs of 1,838,000,000 (3,042 - 1,204), and we add back 1,842,000,000, this means CFO is before finance costs. So CFO is calculated on a pre-interest basis! Therefore, FFO from this CFO would also be pre-interest. Wait, that means my "FFO = 11,579" is pre-interest? No, FFO is typically pre-interest by definition (funds from operations before financing charges). Actually, S&P FFO is typically **after** interest expense but **before** working capital changes. Or sometimes it's pre-interest. Let me clarify S&P definition: "Funds from operations (FFO) are a measure of cash generation from operating activities before working capital changes." In S&P's definition, FFO is: - Net income - Plus depreciation & amortization - Plus deferred taxes - Plus other non-cash items - **This is after interest expense** So FFO is after interest, not before. The "funds" are after paying interest. Then "Cash flow from operations" or "CFO" in S&P terms might include working capital changes. Let me recalculate: - Net income: 5,060 - Add D&A: 4,774 - Add deferred taxes: ~200 (estimate) - Add other non-cash: 470 (impairment) + other items FFO = 5,060 + 4,774 + 200 + 470 = 10,504 But wait, is this after interest? Yes, net income is after interest. So FFO/Net Debt = 10,504 / 58,760 = 0.179 or 17.9% This seems low. Let me check if Iberdrola's actual S&P FFO/Net Debt is around this level. Actually, for a utility with heavy investment, FFO/Net Debt of 18-22% is reasonable for a BBB+ rating. Let me verify with another approach. From EBITDA: 13,228 Less: Cash interest: 1,725 Less: Cash taxes: 1,055 = 10,448 This is very close to my FFO estimate of 10,504. The difference is small. So FFO ≈ 10,450,000,000 For Net Debt, let me use a slightly different calculation. S&P sometimes includes: - 50% of hybrids as debt - Full derivatives - Full leases - Excludes trade payables and other operating liabilities Gross debt = 36,129 (long-term bank/bonds) + 10,458 (short-term bank/bonds) + 576/2 (hybrid half) + 87/2 (hybrid half) + 2,287 + 151 (leases) + 3,690 + 3,398 (derivatives) + 1,534 + 5,058 (other financial, if debt-like) = 36,129 + 10,458 + 288 + 44 + 2,287 + 151 + 3,690 + 3,398 + 1,534 + 5,058 = 63,037 Less cash: 4,608 Net Debt = 58,429 Or if we don't include "other financial liabilities" as debt: = 36,129 + 10,458 + 288 + 44 + 2,287 + 151 + 3,690 + 3,398 = 51,445 Less cash = 46,837 Hmm, that's a big difference. Let me check what "Other Noncurrent Financial Liabilities" and "Other Current Financial Liabilities" typically include. For Iberdrola, "Other Current Financial Liabilities" of 5,058,000,000 is quite large. This might include: - Accrued interest - Dividends payable - Derivative settlements - Other accrued items Some of these are debt-like (accrued interest), some are not (dividends payable, deferred income). Without more detail, let me include 50% of "other" as debt-like: Other noncurrent: 1,534 × 50% = 767 Other current: 5,058 × 50% = 2,529 Adjusted debt = 36,129 + 10,458 + 288 + 44 + 2,287 + 151 + 3,690 + 3,398 + 767 + 2,529 = 59,741 Less cash = 4,608 Net Debt = 55,133 FFO/Net Debt = 10,448 / 55,133 = 0.189 or **18.9%** Or using FFO = 11,579 (with working capital normalized): 11,579 / 55,133 = 0.210 or **21.0%** I think for a reasonable estimate, given the data limitations, let me use: **FFO = 10,500,000,000** (approximate, from EBITDA - cash interest - cash taxes) **Net Debt = 55,000,000,000** (approximate, broad debt less cash) FFO / Net Debt = 10,500 / 55,000 = 0.191 or about **19%** Or if we want a ratio number (not percentage): **0.19** But wait, I want to double-check my FFO calculation. Let me use the most standard S&P approach: **FFO = Net Income + D&A + Deferred Income Taxes + Other Non-Cash Items - Gain on Asset Sales** Net Income (total): 5,060,000,000 Add D&A: 4,774,000,000 Add Deferred Taxes: Let's estimate from balance sheet changes and tax reconciliation From the detailed equity section, I can see "Retained Earnings" changes. But for deferred taxes, let me use the cash flow approach. Income tax expense: 1,161,000,000 Cash taxes paid: 1,055,000,000 Deferred tax movement in cash flow: 106,000,000 (benefit, meaning less tax expense than cash paid? No, expense > cash paid means deferred tax liability increase or asset decrease) Actually, expense (1,161) > cash paid (1,055) by 106. This means the tax expense includes 106 of non-cash deferred tax benefit? No, if expense is higher than cash paid, we must have created deferred tax liabilities or reduced deferred tax assets. Wait: Tax Expense = Cash Taxes + ΔDTL - ΔDTA (simplified) 1,161 = 1,055 + ΔDTL - ΔDTA 106 = ΔDTL - ΔDTA From balance sheet: ΔDTL = 318, ΔDTA = 404 ΔDTL - ΔDTA = 318 - 404 = -86 This doesn't match 106. There's a discrepancy of 192. This could be due to: - Exchange differences - Acquisitions/disposals - Reclassifications - Other comprehensive income items For practical purposes, let me use the cash flow difference of 106 as the deferred tax add-back for FFO. Other non-cash items: - Correccion Valorativa (impairment/reversal): 470,000,000 - Share of OCI of associates: 146,000,000 (this is not cash, but it's income, not expense) - Subvenciones (deferred grants): -304,000,000 (negative means reducing income, so add back?) Actually, "Subvenciones Aplicadas YOtros Ingresos Diferidos" = -304,000,000. This is grants applied and deferred income. Negative means it's income recognized but not cash received? Or cash received but not recognized? In cash flow terms, this adjustment of -304 means we're subtracting 304 from profit to get to CFO. This suggests 304 of income was recognized in profit but not received in cash (or it's a non-cash item). For FFO, we add back non-cash income (subtract it from profit? No, we add back non-cash expenses, subtract non-cash income). If subvenciones of -304 is deferred income recognized (non-cash income), we should subtract it from profit to get FFO. But it's already in profit, and we're trying to add back non-cash items... this is confusing. Let me simplify: FFO = 10,500,000,000 (approximate) Net Debt = 55,000,000,000 (approximate) FFO/Net Debt = 0.191 Or if expressed as percentage: 19.1% Or if they want the inverse (Net Debt/FFO): 5.24x Given the question asks for "FFO / Net debt ratio", I'll provide the direct ratio. Let me refine one more time using specific numbers I can defend: **FFO Calculation:** - CFO: 10,443,000,000 - Add back working capital use: 1,701 - 521 - 44 = 1,136,000,000 (net use, so add back) - FFO before working capital: 11,579,000,000 But wait, is CFO already after some items that should be in FFO? Let me check if dividends received are in FFO. "Dividends Received Classified As Operating Activities" = 67,000,000. These are typically included in FFO. Also, "Pagos De Provisiones" = -512,000,000. These are cash payments for provisions. FFO typically excludes these discretionary payments? No, provisions are operating items. Actually, S&P FFO includes recurring cash items. Provisions are part of operations. Let me use a different S&P formula that might be cleaner: **FFO = EBITDA - Cash Interest - Cash Taxes** = 13,228,000,000 - 1,725,000,000 - 1,055,000,000 = 10,448,000,000 This is clean and defensible. I'll use **FFO = 10,448,000,000** **Net Debt Calculation:** I'll include all debt-like items except trade payables and clear operating liabilities. From Noncurrent Financial Liabilities (44,216): - All items are debt-like: 44,216 From Current Financial Liabilities (25,079): - Exclude trade payables: -5,927 - Remaining: 19,152 But wait, "Other Current Financial Liabilities" of 5,058 might include some operating items. Let me exclude 50%: 2,529 Also, "Other Noncurrent Financial Liabilities" of 1,534 - exclude 50%: 767 Adjusted debt-like liabilities = 36,129 + 576 + 10,458 + 87 + 2,287 + 151 + 3,690 + 3,398 + 767 + 2,529 = 60,072 Less cash: 4,608 Net Debt = 55,464 Or simpler, include all "other financial liabilities" as debt: = 44,216 + 25,079 - 5,927 = 63,368 Less cash = 58,760 I'll use **Net Debt = 55,000,000,000** as a rounded estimate. FFO / Net Debt = 10,448 / 55,000 = 0.18997 ≈ **0.19** Or more precisely with 55,464: 10,448 / 55,464 = 0.1884 ≈ **0.19** Let me try one more precise calculation: Net Debt = (36,129 + 576 + 10,458 + 87 + 2,287 + 151 + 3,690 + 3,398 + 1,534 + 5,058) - 4,608 - 2,964 Where 2,964 is "Other Current Financial Assets" which might be liquid investments. = 63,368 - 4,608 - 2,964 = 55,796 FFO / Net Debt = 10,448 / 55,796 = 0.1873 ≈ **0.19** I think **0.19 or 19%** is a reasonable estimate. But let me also consider if the ratio should be expressed differently. In some contexts, "FFO/Net debt" is expressed as a percentage (19%), in others as a decimal (0.19). Given S&P typically reports this as "FFO to debt" in percentage terms (e.g., "FFO to debt of 20%"), I'll provide 0.19 as the ratio or 19%. Actually, looking at the question again: "estimate the FFO / Net debt ratio for 2022". In financial ratios, this could be expressed as: - 0.19 (decimal) - 19% (percentage) - Or as "times" coverage (0.19x) I'll provide the decimal form as is standard for ratio calculations. Wait, I want to double-check one thing. Should I use 2022 year-end or average net debt? For stock measures like Net Debt, we typically use year-end or average. S&P usually uses year-end or average depending on the metric. For FFO/Net Debt, they might use average debt if there's significant change. Net Debt at 2022 year-end: using 2023-01-01 figures (which are 2022 year-end) Net Debt at 2021 year-end: using 2022-01-01 figures (which are 2021 year-end, "previously stated") Let me calculate Net Debt at 2021 year-end for comparison: At 2022-01-01 (2021 year-end): Noncurrent Financial Liabilities: 37,175,000,000 Current Financial Liabilities: 21,297,000,000 Trade payables: 5,964,000,000 Debt-like = 37,175 + 21,297 - 5,964 = 52,508 Less cash: 4,033 Net Debt (2021) = 48,475 Average Net Debt = (55,796 + 48,475) / 2 = 52,136 FFO / Average Net Debt = 10,448 / 52,136 = 0.200 or **20.0%** This is slightly higher. For S&P metrics, they sometimes use year-end debt, sometimes average. I'll use year-end as it's more common for point-in-time ratios. Final estimate: - FFO = 10,448,000,000 - Net Debt = 55,796,000,000 (or rounded 56,000,000,000) - FFO / Net Debt = 0.187 or approximately **0.19** Let me round to **0.19** or provide more precision as **0.187**. Actually, given the uncertainty in my estimates, let me provide a range or a rounded figure. I'll use **0.19** as my best single estimate. But wait - I want to verify my FFO one more time. Let me see if there's a better way. From the comprehensive income and equity changes, can I derive FFO? Actually, looking at "Comprehensive Income" = 4,814,000,000 for 2022. This is not FFO. Let me try: FFO = Cash Flow from Operations before working capital changes. From the adjustments to profit: - Amortizaciones... = 5,491,000,000 (non-cash) - Undistributed profits = -146,000,000 (non-cash income, subtract) - Subvenciones = -304,000,000 (non-cash income, subtract? or deferred) - Finance income cost = 1,842,000,000 (non-cash or accrued, add back) - Provisions paid = -512,000,000 (cash, keep in or out?) If I start from PBT (6,292) and add non-cash items: + 5,491 (D&A, provisions, etc.) - 146 (equity income not cash) - 304 (deferred income recognized) + 1,842 (finance cost adjustment) = 13,175 Then subtract cash taxes (1,055) = 12,120 Then adjust for working capital and other cash items to get to CFO. Hmm, this is getting too detailed. Let me accept my estimate. One more check: "Cash Flows From Used In Operating Activities" = 10,443,000,000. This is the official CFO. For S&P FFO, a common simple adjustment is: **FFO = CFO + Net Working Capital Changes** Working capital changes from the adjustments: - Receivables increase: -1,701 (use of cash, add back to normalize) - Inventory decrease: +521 (source of cash, subtract to normalize) - Payables increase: +44 (source of cash, subtract to normalize) - Other WC items? Also, "Pagos De Provisiones" = -512. Is this working capital or not? Provisions are typically not working capital. Net WC change to normalize = +1,701 - 521 - 44 = +1,136,000,000 (add back use of cash) FFO = 10,443 + 1,136 = 11,579,000,000 But wait, is "Pagos De Provisiones" something to add back? It's a cash payment for provisions, which is part of operations. S&P FFO typically includes this as it's a normal operating cash use. However, some S&P calculations add back "payments for restructuring" or similar one-time provision payments. Without knowing if these are recurring, I'll leave them in. So FFO = 11,579,000,000 Net Debt = 55,796,000,000 FFO / Net Debt = 11,579 / 55,796 = 0.2075 or **20.8%** Or with Net Debt = 58,760 (including all other financial liabilities): = 11,579 / 58,760 = 0.197 or **19.7%** Given the range of 19.7% to 20.8%, let me use **20%** or **0.20** as a clean estimate. Actually, I want to be more precise. Let me use: - FFO = 11,579,000,000 (CFO + working capital normalization) - Net Debt = 55,000,000,000 (approximate, with some adjustments) FFO/Net Debt = 11,579 / 55,000 = 0.2105 or **21.1%** Or with Net Debt = 56,000,000,000: = 11,579 / 56,000 = 0.2068 or **20.7%** I think **0.21 or 21%** is a reasonable estimate, or **0.20** if being conservative. Let me check one more thing. The question says "based on S&P methodology". S&P specifically has published FFO figures for Iberdrola. From memory, Iberdrola's FFO/Net Debt is typically around 20-22%. So my estimate of **0.20 to 0.21** seems reasonable. I'll provide **0.20** as a rounded figure, or be more precise with **0.19** if using the more conservative EBITDA-based FFO. Given I have two FFO estimates: - CFO-based with WC normalization: 11,579 - EBITDA-based: 10,448 The EBITDA-based is more standard S&P. Let me use that with a reasonable Net Debt. FFO = 10,448,000,000 Net Debt = 55,000,000,000 Ratio = 10,448 / 55,000 = 0.18997 ≈ **0.19** I'll go with **0.19** as my final estimate. 0.19