# S&P Adjusted Debt-to-EBITDA Analysis for ENI S.P.A. (2022) ## Step 1: Industry Identification ENI S.P.A. is an integrated energy company with operations across: - **Oil and Gas Exploration & Production (E&P)** - primary business - **Downstream operations** (refining, retail) - **Power generation and trading** (unregulated) - **Other energy-related activities** The company is classified as an **integrated oil and gas company with diversified operations**. However, given that E&P is the dominant business, I will apply the **Oil and Gas E&P methodology** as the primary lens, with adjustments for integrated operations. For an integrated oil and gas company like ENI, S&P's methodology emphasizes: - Debt and lease adjustments similar to other industrial companies - EBITDA adjustments for non-recurring items and equity-accounted investments - Treatment of lease obligations (IFRS 16) --- ## Step 2: Adjusted Debt Calculation ### Components of Adjusted Debt: **A. Reported Debt:** - Short-term borrowings: EUR 2,299 million (2022-01-01) - Current portion of long-term borrowings: EUR 1,781 million (2022-01-01) - Long-term borrowings: EUR 23,714 million (2022-01-01) Total reported debt = 2,299 + 1,781 + 23,714 = **EUR 27,794 million** **B. Lease Obligations (IFRS 16):** Under S&P methodology, operating leases (right-of-use assets) should be added back to debt. - Current lease liabilities: EUR 948 million (2022-01-01) - Noncurrent lease liabilities: EUR 4,389 million (2022-01-01) Total lease liabilities = 948 + 4,389 = **EUR 5,337 million** **C. Pension Adjustments:** The data shows "Noncurrent Provisions For Employee Benefits" of EUR 819 million (2022-01-01). S&P typically adjusts for unfunded pension liabilities. Given the lack of detailed information about funded/unfunded status, I will use the reported amount as a conservative proxy. Pension adjustment = **EUR 819 million** **D. Eligible Cash:** S&P's methodology allows for deduction of "readily available" cash. Following S&P guidelines: - Cash and cash equivalents: EUR 8,254 million (2022-01-01) - Less: related party cash (restricted): EUR 2 million Eligible cash = 8,254 - 2 = **EUR 8,252 million** However, S&P typically allows only a portion of cash in volatile businesses. For oil & gas, I will use 100% of cash as a reasonable adjustment given regulatory requirements and operational needs. **Adjusted Debt Calculation:** Adjusted_Debt = 27,794 + 5,337 + 819 - 8,252 Adjusted_Debt = **EUR 25,698 million** --- ## Step 3: Adjusted EBITDA Calculation (2022) ### A. Base EBITDA Reconstruction: From the P&L for 2021-01-01 to 2022-01-01: **Starting with Operating Profit:** - Profit/Loss from Operating Activities: EUR 12,341 million **Add back non-cash charges:** - Depreciation and Amortization: EUR 7,063 million - Impairment Loss (net): EUR 167 million - Write-off of Tangible and Intangible Assets: EUR 387 million Base EBITDA = 12,341 + 7,063 + 167 + 387 = **EUR 19,958 million** ### B. Adjustments for Non-Recurring/Non-Operating Items: **Other Operating Income/Expense (2021-01-01 to 2022-01-01):** - Other Operating Income/Expense: EUR 903 million This appears to be recurring operational adjustments. I will not adjust this as it's part of normalized operations. **Finance Income/Costs:** - Finance Income: EUR 3,723 million - Finance Costs: EUR 4,216 million - Net finance cost: EUR 493 million (already excluded from EBITDA) **Share of profit/loss of equity-accounted investments:** - Equity-accounted investment loss: EUR -1,091 million Per S&P E&P methodology, we should add back the proportional EBITDA of equity-accounted investments where appropriate. However, since this is already in the P&L as a loss, and we're calculating consolidated EBITDA, this requires careful treatment. For conservatism, I will not add this back as we don't have detailed breakdowns of the equity investments' EBITDA. **Other Income/Expense from Investments:** - Investment gains: EUR 223 million This is non-recurring and should be excluded from normalized EBITDA. Adjustment for non-recurring gains = **-EUR 223 million** ### C. Lease Adjustments: For E&P and integrated companies, S&P does not typically add back lease EBITDA equivalents beyond what's already captured in the cash flow statement, as operating leases are now reflected on the balance sheet. However, for comparability purposes across companies with different lease accounting treatments, we may adjust. Given IFRS 16 adoption, the lease expense is already flowing through EBITDA, so no separate adjustment is required. Lease adjustment = **EUR 0 million** (already in EBITDA) ### D. Other Normalization Adjustments: Looking at the cash flow statement for non-recurring items: - The operations show stable performance - No major restructuring charges are evident Adjusted EBITDA = 19,958 + 0 - 223 + 0 Adjusted EBITDA = **EUR 19,735 million** --- ## Step 4: Calculate Adjusted Debt-to-EBITDA Ratio Adjusted Debt / Adjusted EBITDA = 25,698 / 19,735 = **1.30 times** --- ### Verification of Reasonableness: For a major integrated oil & gas company: - 2022 was a year of exceptional commodity prices (oil and gas) - EBITDA benefited significantly from elevated prices - Leverage ratio of 1.30x is reasonable for the sector in a strong cycle year - This compares favorably to historical leverage and reflects a strong cash generation year 1.30