I need to calculate Net Debt / EBITDA for 2022 and 2023 to determine the leverage trend. First, let me identify the relevant data from the annual report (note: the dates are balance sheet dates, so 2023-01-01 means end of 2022, and 2022-01-01 means end of 2021). **For 2022 (year ending 2023-01-01):** Net Debt = Total Debt - Cash and Cash Equivalents Total Debt components: - Longterm Borrowings: 19,006,000,000 EUR - Shortterm Borrowings: 709,000,000 EUR - Current Bank Overdrafts: 0 EUR - Other Noncurrent Financial Liabilities: 185,000,000 EUR (need to check if this is debt-like) - Other Current Financial Liabilities: 550,000,000 EUR (need to check if this is debt-like) - Noncurrent Lease Liabilities: 574,000,000 EUR - Current Lease Liabilities: 155,000,000 EUR Let me focus on standard definition: borrowings + lease liabilities (typically included in adjusted leverage) Debt = Longterm Borrowings + Shortterm Borrowings + Current Bank Overdrafts + Lease Liabilities Debt = 19,006,000,000 + 709,000,000 + 0 + 574,000,000 + 155,000,000 = 20,444,000,000 EUR Cash and Cash Equivalents: 6,547,000,000 EUR Net Debt = 20,444,000,000 - 6,547,000,000 = 13,897,000,000 EUR For EBITDA, I need to work from the income statement. We have: - Profit Loss From Operating Activities: -976,000,000 EUR - Depreciation And Amortisation Expense: 1,233,000,000 EUR Operating Profit (EBIT) = Profit Loss From Operating Activities = -976,000,000 EUR (this already seems to be operating profit) Wait, let me check: "Profit Loss From Operating Activities" is typically EBIT. So: EBIT = -976,000,000 EUR EBITDA = EBIT + Depreciation and Amortization = -976,000,000 + 1,233,000,000 = 257,000,000 EUR But this seems very low. Let me reconsider - actually "Profit Loss From Operating Activities" might already include depreciation. Let me check if there's a better approach. Actually, looking more carefully: Operating Expense includes depreciation. Let me verify: Revenue: 8,299,000,000 Operating Expense: 9,395,000,000 Share Of Profit Loss Of Associates And Joint Ventures: 120,000,000 Profit Loss From Operating Activities = Revenue - Operating Expense + Share of profit of associates? = 8,299,000,000 - 9,395,000,000 + 120,000,000 = -976,000,000 ✓ So EBIT = -976,000,000 EBITDA = EBIT + Depreciation and Amortization = -976,000,000 + 1,233,000,000 = 257,000,000 EUR This gives a very high leverage ratio. Let me check if S&P typically uses Funds From Operations (FFO) or if there's a different EBITDA calculation. Actually, for utilities, S&P often makes adjustments. But based on standard calculation: Net Debt / EBITDA (2022) = 13,897,000,000 / 257,000,000 = 54.1x This seems extremely high. Let me reconsider if EBITDA should be calculated differently. Wait - I need to re-examine. "Profit Loss From Operating Activities" might be after adding back share of profits. Let me check if we need to add back more items. Actually, looking at standard utility calculations, S&P typically adjusts for regulatory items. But with the data given, let me also check if "Operating Expense" includes all operating costs, and whether we should use a different approach. For 2021 (year ending 2022-01-01): Debt = Longterm Borrowings + Shortterm Borrowings + Current Bank Overdrafts + Lease Liabilities = 12,366,000,000 + 1,339,000,000 + 64,000,000 + 235,000,000 + 169,000,000 = 14,173,000,000 EUR Cash and Cash Equivalents: 3,204,000,000 EUR Net Debt = 14,173,000,000 - 3,204,000,000 = 10,969,000,000 EUR EBIT = Profit Loss From Operating Activities = -275,000,000 EUR EBITDA = -275,000,000 + 1,165,000,000 = 890,000,000 EUR Net Debt / EBITDA (2021) = 10,969,000,000 / 890,000,000 = 12.3x Hmm, these EBITDA figures seem problematic. Let me reconsider if "Profit Loss From Operating Activities" is actually operating profit before associates. Actually, re-reading: "Profit Loss From Operating Activities" typically equals EBIT in IFRS terminology. But for EBITDA, we need to check if depreciation is already deducted. Given the massive jump in revenue (8.3B vs 5.5B) due to energy transmission charges, and the operating loss, this seems like a period of high pass-through costs. Let me try a different approach - perhaps S&P uses "Adjusted EBITDA" that excludes certain items. But with the data given, let me also consider if we should include the EEG working capital or other adjustments. Actually, I realize I may need to look at this more carefully. The problem mentions "S&P's adjusted leverage" - S&P typically adjusts EBITDA for non-recurring items, and may capitalize operating leases differently. But let me check if there's a simpler interpretation. Perhaps I should use FFO (Funds From Operations) or a different metric. Wait - let me re-read the data more carefully. The "Operating Expense" of 9,395,000,000 seems to include depreciation. Let me verify by checking if the components add up: Employee Benefits Expense: 285,000,000 Depreciation And Amortisation Expense: 1,233,000,000 Miscellaneous Other Operating Expense: 322,000,000 Other Gains Losses: -38,000,000 These don't sum to 9,395,000,000. So Operating Expense must include other items like cost of energy transmission charges (7,517,000,000). So: Energy Transmission Charges (7,517,000,000) + Employee Benefits (285,000,000) + Depreciation (1,233,000,000) + Miscellaneous (322,000,000) + Other Gains/Losses (-38,000,000) = 9,319,000,000 Close to 9,395,000,000 but not exact. The difference might be other operating expenses. For EBITDA, a common approach is: EBITDA = Revenue - Operating Expenses (excluding depreciation) + Other income Or: EBITDA = EBIT + Depreciation + Interest + Taxes We have EBIT = -976,000,000 So EBITDA = -976,000,000 + 1,233,000,000 = 257,000,000 This is correct based on standard definition, but seems very low. Actually, I wonder if S&P would adjust this significantly. For regulated utilities with pass-through costs, S&P often adjusts EBITDA to exclude the pass-through revenue and costs, focusing on the "regulated asset base" return. But given the data, let me also consider: is "Profit Loss From Operating Activities" actually the same as EBIT? In some presentations, it might be before certain items. Let me try another approach: perhaps calculate EBITDA from the cash flow or use a different starting point. Actually, looking more carefully at the cash flow statement approach: Cash Flows From Used In Operations Excluding Eeg Working Capital: 596,000,000 + Income Taxes Paid: 231,000,000 + Interest Paid (operating): ? This gets complicated. Let me try to use a simpler approach and see if the ratios make sense year-over-year. Actually, I think the key insight is that with such low/negative EBITDA, the standard ratio becomes meaningless or extremely high. In such cases, S&P might use "adjusted" EBITDA that adds back certain items or uses a normalized figure. But let me check if perhaps I misread the dates. The data says "2022-01-01 - 2023-01-01" for the 2022 fiscal year performance. And "2023-01-01" for the balance sheet at end of 2022. Wait - I need to re-check. The balance sheet dates are: - 2023-01-01: this is January 1, 2023, which is end of fiscal year 2022 - 2022-01-01: this is January 1, 2022, which is end of fiscal year 2021 So my interpretation is correct. Let me try calculating with a broader debt definition to see if that changes things significantly: Including Other Noncurrent Financial Liabilities (185M) and Other Current Financial Liabilities (550M): Debt 2022 = 19,006 + 709 + 0 + 574 + 155 + 185 + 550 = 21,179,000,000 Net Debt 2022 = 21,179 - 6,547 = 14,632,000,000 Debt 2021 = 12,366 + 1,339 + 64 + 235 + 169 + 183 + 281 = 14,637,000,000 Net Debt 2021 = 14,637 - 3,204 = 11,433,000,000 Net Debt / EBITDA 2022 = 14,632 / 257 = 56.9x Net Debt / EBITDA 2021 = 11,433 / 890 = 12.8x Difference = 56.9 - 12.8 = 44.1x, which is Deteriorating. But this seems too extreme. Let me reconsider if EBITDA calculation is correct. Actually, I think I need to re-examine what "Profit Loss From Operating Activities" means. In IFRS, this is typically the same as "Operating Profit" or "EBIT". But let me check if it includes or excludes certain items. Looking at the income statement structure: Revenue - Operating Expense = Profit Loss From Operating Activities (before share of associates?) + Share Of Profit Loss Of Associates And Joint Ventures = ? Actually, the standard format is: Revenue - Operating expenses = Operating profit (EBIT) + Share of profit of associates (this is sometimes shown after operating profit) But in this data, "Profit Loss From Operating Activities" = -976,000,000 and then there's a separate line for "Share Of Profit Loss Of Associates" = 120,000,000. So EBIT might be -976,000,000 + 120,000,000 = -856,000,000? Or is "Profit Loss From Operating Activities" already including the share of associates? The term "From Operating Activities" suggests it's the operating result, which typically excludes financing and tax but may include or exclude associates. In many IFRS statements, "Operating Profit" includes share of associates. Let me assume "Profit Loss From Operating Activities" = EBIT = -976,000,000 (which includes associates). Then EBITDA = -976,000,000 + 1,233,000,000 = 257,000,000. Given this is a regulated utility with huge pass-through costs causing negative margins, perhaps S&P would calculate "adjusted EBITDA" differently. But based on standard definitions with the given data, the leverage has deteriorated massively. However, let me also check if perhaps we should use a 2-year average or if there's some other S&P-specific adjustment. Actually, I realize I should also consider whether the problem expects us to use "Net Debt" as simply total borrowings minus cash, or if we should include other items. Let me try with just borrowings: Borrowings 2022 = 19,006 + 709 + 0 = 19,715,000,000 Net Debt 2022 = 19,715 - 6,547 = 13,168,000,000 Borrowings 2021 = 12,366 + 1,339 + 64 = 13,769,000,000 Net Debt 2021 = 13,769 - 3,204 = 10,565,000,000 Net Debt / EBITDA 2022 = 13,168 / 257 = 51.2x Net Debt / EBITDA 2021 = 10,565 / 890 = 11.9x Still a huge increase. Given the massive increase in net debt (from ~11B to ~14B) and collapse in EBITDA (from 890M to 257M), the leverage ratio has clearly deteriorated significantly. The difference is roughly 40x, which is far beyond the ±0.3x threshold for "Stable". Therefore, the trend is **Deteriorating**. Let me double-check by also considering if EBITDA might be calculated differently. Some analysts use "Adjusted EBITDA" for utilities that adds back certain regulatory adjustments. But even if we used a more generous EBITDA, the direction is clear: - Net debt increased significantly (by ~3-4B EUR) - Operating profitability collapsed due to energy crisis/pass-through effects - The ratio went from ~12x to ~50x+ This is clearly deteriorating. One more check: could "2022" and "2023" in the question refer to fiscal years, where my calculations are correct? Yes, 2022 fiscal year = 2022-01-01 to 2023-01-01, and 2021 fiscal year = 2021-01-01 to 2022-01-01. Final verification of numbers: - Net Debt 2022: ~13.9B to 14.6B depending on definition - Net Debt 2021: ~11.0B to 11.4B depending on definition - EBITDA 2022: 257M - EBITDA 2021: 890M Ratio 2022: 54x to 57x Ratio 2021: 12x to 13x Change: +41x to +45x, massively above 0.3x threshold. Deteriorating