# FFO / Net Debt Ratio Estimation (S&P Methodology)

## Step 1: Calculate FFO (Funds From Operations)

Under S&P methodology, FFO is essentially:
**FFO = Net Income + Depreciation & Amortization + Impairments + Other non-cash items - Gains on asset sales + Adjustments for hybrid instruments**

Let me work through this:

**Starting from Operating Cash Flow approach:**

S&P FFO = Cash flows from operations + net interest paid + taxes paid - working capital changes

From the cash flow statement (2022-01-01 to 2023-01-01):
- Cash flows from operating activities: -7,425M EUR
- This already includes working capital changes

Working capital change: -8,301M EUR (negative means it consumed cash)

So operating cash flow before WC = -7,425 - (-8,301) = 876M EUR

Wait, let me reconsider. The cash flow statement shows:
- Net cash flow from operations before financial expenses and taxes: -5,140M
- Net financial expenses disbursed: -1,003M (outflow)
- Income taxes paid/refund: -1,282M (outflow)
- Cash flows from operating activities: -7,425M

**S&P FFO approach:**
FFO ≈ Cash from operations - working capital changes

Cash from operations = -7,425M
Working capital change (increase/decrease) = -8,301M

FFO = -7,425 - (-8,301) = 876M

But S&P also adjusts for:
- Add back: payments on perpetual subordinated bonds (treated as equity): +606M (these are treated as equity dividends, not interest)
- The perpetual subordinated bond payments of 606M would have been deducted in the cash flow; S&P treats hybrids with equity credit, so we add back the coupon payments

**Adjusted FFO = 876 + 606 = 1,482M EUR**

## Step 2: Calculate Net Debt (S&P Methodology)

S&P Net Debt includes:
- Total borrowings (financial liabilities)
- Less: Cash and cash equivalents
- Less: Surplus cash/readily marketable securities
- Plus: Operating lease adjustments
- Plus/minus: hybrid adjustments (partial equity credit)

**Financial liabilities:**
- Other noncurrent financial liabilities: 71,058M
- Other current financial liabilities: 71,844M
- Total gross debt: 142,902M

**S&P adjustments for hybrids:** S&P typically gives 50% equity credit to perpetual subordinated bonds. The perpetual subordinated bonds are embedded in the financial liabilities. From the equity statement, issuance/redemption of perpetual subordinated bonds shows -1,025M in equity changes, and proceeds of 994M in cash flow. These are likely already netted. Let me estimate hybrid debt at roughly the level implied by coupon payments. With ~606M in payments, this suggests significant hybrid issuance. However, without exact hybrid balance, I'll estimate conservatively.

**Cash and equivalents:** 10,948M

**Net Debt (simplified):**
= 142,902 - 10,948 = 131,954M

But S&P would also adjust for:
- Pension obligations (underfunded): Noncurrent provisions for employee benefits = 16,231M (S&P may add some portion)
- Operating leases (likely embedded in PP&E under IFRS 16)

Let me also consider that S&P would give ~50% equity credit on hybrids. Estimating hybrid balance at ~10-12B EUR based on typical EDF hybrid outstanding, equity credit ~50% would reduce debt by ~5-6B.

**Approximate S&P adjusted net debt:** 
≈ 131,954 - 5,000 (hybrid equity credit) + ~8,000 (portion of pension deficit) ≈ 135,000M

## Step 3: FFO / Net Debt

Using simpler estimates:
- FFO ≈ 1,482M
- Net Debt ≈ ~131,954M (without full S&P adjustments) to ~135,000M

**FFO/Net Debt ≈ 1,482 / 131,954 ≈ 1.1%**

Given the massive losses and negative operating cash flows in 2022, this ratio is extremely low.

Refining: ~1,482 / 135,000 ≈ 1.1%

<answer>0.011</answer>