To estimate the FFO / Net Debt ratio for VINCI in 2022 based on S&P methodology, we need to calculate Funds From Operations (FFO) and Net Debt. **1. Calculate Funds From Operations (FFO)** According to S&P Global Ratings criteria for infrastructure and utilities, FFO is generally calculated as: FFO = Net Income + Depreciation & Amortization + Deferred Taxes + Other Non-Cash Items (excluding changes in working capital). Alternatively, a common proxy starting from Operating Cash Flow is: FFO = Cash Flow from Operations (CFO) - Changes in Working Capital. However, the most standard S&P definition for industrial/corporate ratings is: FFO = Net Income + Depreciation & Amortization + Deferred Income Taxes + Other Non-Cash Charges/Credits. Let's look at the provided data: * **Profit Loss (Net Income)**: 4,417,000,000 EUR * **Adjustments for Depreciation and Amortisation Expense**: 3,613,000,000 EUR * **Deferred Tax Assets/Liabilities Change**: We can derive the deferred tax expense or use the adjustment if available. The report lists "Income Tax Expense Continuing Operations" as 1,737,000,000 EUR. It does not explicitly list "Deferred Tax Expense" as a single line item in the P&L adjustments, but we can look at the balance sheet changes or cash flow adjustments. * Deferred Tax Assets increased from 767M to 883M (Change: +116M, which is a use of cash/reduction in tax expense relative to cash paid? No, an increase in DTA is a non-cash charge added back to net income if it reduced tax expense, or subtracted if it didn't. Let's look at the Cash Flow statement approach which is often cleaner if "Changes in Working Capital" is defined consistently). * Let's check the Cash Flow from Operations provided: **9,387,000,000 EUR**. * S&P often defines FFO as CFO before changes in working capital. * The report provides: **Cash Flows From Used In Operations Before Changes In Working Capital**: 10,215,000,000 EUR. * Let's verify this number: * Profit from Ordinary Operating Activities: 6,824,000,000 * Adjustments: * Depreciation/Amortization: +3,613,000,000 * Share-based payments: +162,000,000 (Note: Expense was 356M, adjustment 162M? The adjustment line might be net of tax or specific components. Let's stick to the provided subtotal). * Losses/Gains on disposal: -68,000,000 * Fair Value gains/losses: -236,000,000 * Undistributed profits of equity method investments: +42,000,000 * Net Finance Costs: +614,000,000 * Income Tax Expense: +1,737,000,000 * Other adjustments (Provisions, etc.): 0 * Sum: 6,824 + 3,613 + 0.162 - 0.068 - 0.236 + 0.042 + 0.614 + 1.737 = 12,688? This doesn't match 10,215. * Let's look at "Profit Loss From Operating Activities": 6,489,000,000. * Let's use the explicit line item provided in the Cash Flow section: **Cash Flows From Used In Operations Before Changes In Working Capital** = **10,215,000,000 EUR**. * S&P typically defines FFO as cash flow from operations *before* changes in working capital. This metric captures the recurring cash generation capability. * Therefore, **FFO = 10,215,000,000 EUR**. * *Self-Correction/Refinement*: Sometimes S&P subtracts maintenance capex or adds back interest. However, the standard "FFO" ratio denominator is Net Debt, and the numerator is FFO. S&P's definition of FFO for non-financial corporations is essentially EBITDA - Taxes Paid + Interest Paid? No, it's usually Net Income + D&A + Deferred Taxes. * Let's try calculating FFO via the Net Income approach to see if it aligns with the "Before Working Capital" figure, adjusting for interest and taxes. * Net Income: 4,417 M * + Depreciation & Amortization: 3,613 M * + Deferred Taxes: We need the deferred portion. Total Tax Expense is 1,737 M. Cash Taxes Paid is 1,603 M. The difference is roughly 134 M. Also, DTA changed by +116 M and DTL changed by +937 M (4162 - 3225). Net Deferred Tax Liability increase = 937 - 116 = 821 M. An increase in DTL is a source of cash (added back to Net Income). An increase in DTA is a use (subtracted). So net add-back for deferred taxes is approx 821 M? * Let's check: Net Income (4,417) + D&A (3,613) + Net Deferred Tax (approx 800-900?) + Interest (Net Finance Costs 614)? * S&P FFO usually includes interest expense. * Let's look at the provided "Cash Flows From Used In Operations Before Changes In Working Capital" (10,215 M). This figure typically starts from Operating Profit, adds back D&A, and adjusts for non-cash items, but *before* working capital changes. It usually *includes* interest and taxes paid/accrued in the operating flow. * Standard S&P FFO = CFO (before working capital changes). * So, **FFO = 10,215,000,000 EUR**. **2. Calculate Net Debt** Net Debt = Total Debt - Cash and Cash Equivalents. S&P may also adjust for "Cash and Cash Equivalents If Different From Statement Of Financial Position" or exclude restricted cash. The report provides a specific line: "Cash And Cash Equivalents If Different From Statement Of Financial Position". For 2022-01-01 (Start of 2022, i.e., End of 2021): * Cash per Balance Sheet: 11,065,000,000 EUR * Cash per "Different from SOP": 10,188,000,000 EUR For 2023-01-01 (End of 2022): * Cash per Balance Sheet: 12,578,000,000 EUR * Cash per "Different from SOP": 11,495,000,000 EUR S&P typically uses the year-end balance sheet figures for the ratio denominator (or average, but year-end is common for simple estimation unless specified). We will use the ending balances for 2022 (dated 2023-01-01 in the report). **Debt Components (as of 2023-01-01):** * Noncurrent Portion Of Noncurrent Bonds Issued: 20,425,000,000 EUR * Noncurrent Portion Of Other Noncurrent Borrowings: 3,205,000,000 EUR * Shortterm Borrowings: 6,368,000,000 EUR * Current Lease Liabilities: 522,000,000 EUR * Noncurrent Lease Liabilities: 1,580,000,000 EUR * Current Derivative Financial Liabilities: 440,000,000 EUR (Usually excluded from Debt unless hedging debt, but often included in Gross Debt for conservative measures. S&P often excludes derivatives from Debt for Net Debt calculations unless they are deeply in the money or part of the debt structure. However, "Debt" usually refers to interest-bearing borrowings. Let's stick to Bonds, Borrowings, and Leases). * Noncurrent Derivative Financial Liabilities: 1,939,000,000 EUR (Same logic). Standard S&P Debt definition includes: * Short-term borrowings * Long-term debt (current and non-current portions) * Capitalized leases (IFRS 16 lease liabilities) Let's sum the interest-bearing debt: 1. **Bonds**: 20,425 M 2. **Other Borrowings (Non-current)**: 3,205 M 3. **Short-term Borrowings**: 6,368 M 4. **Lease Liabilities (Current + Non-current)**: 522 M + 1,580 M = 2,102 M Total Gross Debt = 20,425 + 3,205 + 6,368 + 2,102 = **32,100,000,000 EUR**. *Note on Derivatives*: S&P generally excludes derivative liabilities from the debt calculation unless they are synthetic debt. We will exclude them. *Note on "Other Current/Noncurrent Liabilities"*: These are typically operational (payables, provisions) and not debt. **Cash and Cash Equivalents:** S&P often deducts "Cash and Cash Equivalents" but may adjust for restricted cash. The line "Cash And Cash Equivalents If Different From Statement Of Financial Position" suggests an adjustment. The value is **11,495,000,000 EUR**. This is likely the unencumbered cash available to service debt. We will use this figure for the cash deduction. **Net Debt Calculation:** Net Debt = Gross Debt - Adjusted Cash Net Debt = 32,100,000,000 - 11,495,000,000 Net Debt = **20,605,000,000 EUR**. **3. Calculate FFO / Net Debt Ratio** FFO = 10,215,000,000 EUR Net Debt = 20,605,000,000 EUR Ratio = 10,215 / 20,605 Ratio ≈ 0.4957 Let's double check if "Cash Flows From Used In Operations Before Changes In Working Capital" is the correct FFO proxy. S&P Global Ratings Criteria: "Funds from operations (FFO) is net income plus depreciation, amortization, deferred taxes, and other noncash items." Let's try to reconstruct FFO from Net Income to be precise. Net Income: 4,417 M + Depreciation & Amortization: 3,613 M + Deferred Taxes: DTL End: 4,162 M, Start: 3,225 M -> Increase 937 M (Source, Add) DTA End: 883 M, Start: 767 M -> Increase 116 M (Use, Subtract) Net Deferred Tax Add-back: 937 - 116 = 821 M. + Non-cash Interest/Other? Share-based payment expense: 356 M. (Add back non-cash expense). Share of profit of associates (Equity Method): 22 M. (Subtract non-cash income included in Net Income? Or add back if it was deducted? It's income, so it increased Net Income but didn't provide cash. Subtract 22 M). Gains/Losses on disposal: -9 M (Recurring) + 8 M (Non-recurring) = -1 M net income impact? The cash flow adjustment was -68 M. Let's trust the Cash Flow statement adjustments more. Let's look at the Cash Flow from Operations (CFO) = 9,387 M. CFO = FFO - Change in Working Capital? The report says "Increase Decrease In Working Capital" = -392 M. If CFO (9,387) = FFO - Change in WC (-392), then FFO = 9,387 - 392 = 8,995? Or is it CFO = FFO + Change in WC? Usually, CFO = Net Income + D&A + ... + Change in WC. The report lists "Cash Flows From Used In Operations Before Changes In Working Capital" as 10,215 M. Then "Increase Decrease In Working Capital" is -392 M. 10,215 + (-392) = 9,823 M. But the reported "Cash Flows From Used In Operating Activities" is 9,387 M. The difference is 9,823 - 9,387 = 436 M. This difference is likely due to "Income Taxes Paid" (1,603 M) vs "Adjustments For Income Tax Expense" (1,737 M) and "Interest Paid" classifications. The line "Cash Flows From Used In Operations Before Changes In Working Capital" usually represents EBITDA - Taxes Paid (cash) + Interest Paid (cash)? Or EBITDA - Cash Taxes? Actually, S&P defines FFO as **CFO before changes in working capital**. So, FFO = 10,215 M. Let's re-verify the Debt. Is there any other debt? "Other Noncurrent Financial Assets" are assets. "Noncurrent Derivative Financial Liabilities": 1,939 M. "Current Derivative Financial Liabilities": 440 M. If these are hedges, they might not be debt. What about "Current Cash Management Financial Assets"? These are likely short-term investments, netted against cash or treated as cash equivalents. The "Cash ... If Different" line likely accounts for this. Let's check if Lease Liabilities are fully included in S&P Debt. Yes, S&P includes lease liabilities in debt for most industrial companies. Gross Debt = 20,425 (Bonds) + 3,205 (Other Non-current) + 6,368 (Short-term) + 2,102 (Leases) = 32,100 M. Cash = 11,495 M. Net Debt = 20,605 M. FFO = 10,215 M. Ratio = 10,215 / 20,605 = 0.49575... Let's consider if "Other Revenue" or "Concession" specifics change FFO. VINCI is a concession/construction group. S&P has specific criteria for concessions. For concessions, FFO might be adjusted for the amortization of concession assets (which is included in D&A). The D&A figure (3,613 M) includes amortization of service concession rights. Service Concession Rights amortization is a non-cash charge in the P&L (though it represents the consumption of the asset). In standard FFO, D&A is added back. So this is correct. Is there any preferred dividend? No mention. Minority interests? Net Income is consolidated. FFO is usually consolidated. Let's check if the "Cash Flows From Used In Operations Before Changes In Working Capital" includes interest and taxes. Yes, it is derived from Operating Profit, adds back D&A, and adjusts for other non-cash. It effectively represents EBITDA - Cash Taxes - Cash Interest? Wait. Operating Profit (Recurring): 6,481 M. + D&A: 3,613 M. = EBITDA (Recurring): ~10,094 M. The "Before WC" flow is 10,215 M. This is very close to EBITDA. The difference (10,215 - 10,094 = 121 M) could be due to share-based payments, equity income adjustments, etc. S&P FFO is generally **EBITDA - Cash Interest - Cash Taxes + Changes in other non-cash items**? No, S&P FFO is closer to **CFO before WC changes**. If we use 10,215 M as FFO, we are assuming that interest and taxes paid are *not* subtracted to arrive at FFO? Actually, CFO *includes* the cash outflow for interest and taxes. So "CFO before WC changes" = Operating Cash Flow before WC = (EBITDA - Cash Interest - Cash Taxes). Let's verify: EBITDA ~ 10,100 M. Cash Interest: Net Finance Costs 614 M. But Cash Interest Paid? "Interest Paid And Interest Received Classified As Operating Activities": 563 M (Net?). "Gross Finance Costs": 750 M. "Interest Income": 136 M. Net 614 M. If Interest Paid is ~600 M and Tax Paid is ~1,600 M. EBITDA (10,100) - Interest (600) - Tax (1,600) = ~7,900 M. This is far from 10,215 M. Let's re-read the Cash Flow structure. "Cash Flows From Used In Operations Before Changes In Working Capital" = 10,215 M. "Income Taxes Paid Classified As Operating Activities" = 1,603 M. "Interest Paid And Interest Received Classified As Operating Activities" = 563 M. "Dividends Received..." = 92 M. "Other Inflows..." = 854 M. If 10,215 is *before* WC changes, does it include tax and interest payments? Usually, the indirect method starts with Net Income. Net Income: 4,417. + Tax Expense: 1,737. + Interest Expense (Net): 614. + D&A: 3,613. + Other Adjustments (Share based, etc.): ~100-200. Sum: 4,417 + 1,737 + 614 + 3,613 = 10,381 M. This is very close to 10,215 M. So, "Cash Flows From Used In Operations Before Changes In Working Capital" is effectively **EBIT + D&A + Non-cash adjustments** (which is roughly EBITDA adjusted for non-cash items like equity income). Crucially, this figure **has not yet subtracted cash taxes or cash interest**. Wait. If it starts with Net Income, it has *already* subtracted tax and interest expenses (accrual). Then it adds them back? Yes, the adjustments "Adjustments For Net Finance Costs" (614) and "Adjustments For Income Tax Expense" (1,737) are **added back**. So, 10,215 M is a pre-interest, pre-tax cash flow measure (similar to EBITDA but with non-cash adjustments). **S&P FFO definition**: FFO = Net Income + D&A + Deferred Taxes. It does **not** add back cash interest or cash taxes. Therefore, the line "Cash Flows From Used In Operations Before Changes In Working Capital" (10,215 M) is **NOT** FFO. It is closer to EBITDA. FFO should be lower because it must account for the cash cost of interest and taxes (or at least the accrual expense if we stick to the Net Income + D&A + Def Tax formula). Let's calculate FFO using the standard formula: **FFO = Net Income + Depreciation & Amortization + Deferred Taxes** 1. **Net Income**: 4,417,000,000 EUR 2. **Depreciation & Amortization**: 3,613,000,000 EUR 3. **Deferred Taxes**: * Change in Deferred Tax Liabilities: 4,162 - 3,225 = +937,000,000 EUR (Add) * Change in Deferred Tax Assets: 883 - 767 = +116,000,000 EUR (Subtract, as increase in asset is a use of cash/non-benefit) * Net Deferred Tax Adjustment: 937 - 116 = **+821,000,000 EUR** **FFO** = 4,417 + 3,613 + 821 = **8,851,000,000 EUR**. Let's check if there are other non-cash items S&P adds back. * Share-based payment expense: 356 M. This is a non-cash expense included in Net Income. S&P typically adds this back. * Share of profit of associates: 22 M. This is non-cash income. S&P typically subtracts this. * Gains/Losses on disposal: Net loss/gain? "Adjustments For Losses Gains On Disposal" is -68 M. This means a gain of 68 M was included in income. Subtract 68 M. * Fair Value Gains/Losses: Adjustment -236 M. This means a gain of 236 M was included. Subtract 236 M. Revised FFO: Base: 8,851 M + Share-based payments: 356 M - Share of Associates: 22 M - Gain on Disposal: 68 M - Fair Value Gain: 236 M **Adjusted FFO** = 8,851 + 356 - 22 - 68 - 236 = **8,881,000,000 EUR**. Let's compare this to the "CFO before WC" number. CFO before WC (10,215) includes the add-back of Interest (614) and Tax (1,737). FFO (8,881) does NOT add back Interest and Tax expenses (it uses Net Income which has them deducted). Difference: 10,215 - 8,881 = 1,334 M. Interest (614) + Tax (1,737) = 2,351 M. The difference isn't exact due to other adjustments (like the -68, -236, etc. and the specific composition of the "Before WC" line which might handle working capital components of tax/interest differently). However, **8,881 M** is a robust estimate for FFO based on the standard definition. **Recalculate Ratio:** FFO = 8,881,000,000 EUR Net Debt = 20,605,000,000 EUR Ratio = 8,881 / 20,605 ≈ **0.431** Let's double check Net Debt. Does S&P deduct "Cash and Cash Equivalents" or "Cash and Short Term Investments"? S&P deducts cash and cash equivalents. Cash used: 11,495 M. Debt used: 32,100 M. Net Debt: 20,605 M. Is there any "Minority Interest" adjustment in FFO? S&P FFO is attributable to the parent? No, usually consolidated. Net Income is consolidated (4,417 M includes 157 M for non-controlling). FFO is typically calculated on a consolidated basis. Let's consider if "Lease Liabilities" should be fully included. S&P includes 100% of lease liabilities in debt for most sectors. Let's consider if "Shortterm Borrowings" includes bank overdrafts. "Cash And Cash Equivalents If Different From Statement Of Financial Position" is 11,495 M vs Balance Sheet 12,578 M. The difference is 1,083 M. Short-term borrowings are 6,368 M. Often, overdrafts are netted against cash in the balance sheet but grossed up for debt. If the "Different from SOP" cash figure already nets out overdrafts, we should use Gross Debt including overdrafts and the adjusted cash. The "Shortterm Borrowings" line likely includes overdrafts. The adjusted cash (11,495) is lower than BS cash (12,578). This suggests some cash is restricted or reclassified. We will stick with: Gross Debt = 32,100 M. Cash = 11,495 M. Net Debt = 20,605 M. FFO = 8,881 M. Ratio = 8,881 / 20,605 = 0.4310... Let's try one alternative FFO calculation: S&P sometimes uses "FFO" as "CFO - Change in WC". CFO = 9,387 M. Change in WC = -392 M. If CFO = FFO + Change in WC, then FFO = CFO - Change in WC = 9,387 - (-392) = 9,779 M? Or is Change in WC defined as an increase being a use? "Increase Decrease In Working Capital" = -392 M. If WC decreased, it's a source of cash. So CFO (9,387) includes a +392 benefit from WC. FFO (excluding WC) would be 9,387 - 392 = 8,995 M. This is very close to our calculated 8,881 M. The difference (114 M) is likely due to the specific non-cash adjustments (like deferred taxes vs cash taxes, etc.). Given S&P's preference for the Net Income + D&A + Def Tax method, 8,881 M is theoretically sounder. However, the CFO-derived FFO (8,995 M) is also a strong candidate. Let's average or pick the more standard one. Standard S&P: Net Income + D&A + Deferred Taxes. We calculated 8,851 M (base) + adjustments. If we ignore the minor adjustments (share based, gains), we get 8,851 M. Ratio = 8,851 / 20,605 = 0.429. If we use the CFO-derived FFO of ~8,995 M: Ratio = 8,995 / 20,605 = 0.436. The values are close. 0.43 is a safe estimate. Let's check if "Net Debt" should include "Derivative Liabilities". If we add Derivatives (1,939 + 440 = 2,379 M) to Debt: Gross Debt = 34,479 M. Net Debt = 34,479 - 11,495 = 22,984 M. Ratio (using 8,881 FFO) = 8,881 / 22,984 = 0.386. S&P generally excludes derivatives from debt unless they are "debt-like". For a construction/concession company, they are likely hedges. We will exclude them. Final check on FFO. Some definitions of FFO for S&P include "Minority Interest" add-back if calculating for the parent? No, FFO is a group metric. Is "Profit Loss Attributable To Noncontrolling Interests" subtracted? Net Income (Consolidated) = 4,417. If we want FFO attributable to parent, we might subtract minority share. But Debt is consolidated. So FFO should be consolidated. I will use **FFO = 8,881,000,000** and **Net Debt = 20,605,000,000**. Ratio = 0.431. 0.43