I'll work through this step-by-step for TenneT Holding B.V. ## Step 1: Identify the Relevant Industry TenneT Holding B.V. is described as a "transmission system operator" in the Netherlands. This is a **regulated utility** - specifically an electricity transmission/network utility. The company is subject to comprehensive regulation as a natural monopoly providing essential infrastructure service. Key indicators: - Transmission system operator (TSO) for electricity - Owned by the Dutch State - Regulated revenue through energy transmission charges - Heavy infrastructure investment in property, plant and equipment ## Step 2: Estimate Adjusted_Debt For regulated utilities, I need to apply the baseline formula with appropriate adjustments: **Reported Debt Components (from balance sheet as of 2023-01-01, which is end of 2022):** | Component | Amount (EUR) | |-----------|-------------| | Long-term Borrowings | 19,006,000,000 | | Short-term Borrowings | 709,000,000 | | Current Bank Overdrafts | 0 | | **Total Reported Debt** | **19,715,000,000** | **Leases:** | Component | Amount (EUR) | |-----------|-------------| | Noncurrent Lease Liabilities | 574,000,000 | | Current Lease Liabilities | 155,000,000 | | **Total Lease Liabilities** | **729,000,000** | Note: Right-of-use assets are 748,000,000 EUR, close to lease liabilities. **Pension Deficit:** - Noncurrent Recognised Liabilities Defined Benefit Plan: 174,000,000 EUR - Deferred Tax Assets related to pensions: need to check if net position Looking at the defined benefit plan: The liability is 174,000,000 EUR (2023-01-01). This is a net liability position (no corresponding asset listed separately that's clearly pension-related). The 711,000,000 deferred tax assets may include some pension-related items, but I'll use the net pension liability as reported. Actually, looking more carefully: "Noncurrent Recognised Liabilities Defined Benefit Plan" of 174,000,000 EUR. This is a liability, so it's a deficit. **Hybrid Debt Portion:** - Hybrid Capital: 2,125,000,000 EUR For S&P purposes, hybrid capital is typically treated as 50% debt and 50% equity (or some portion as debt). Standard S&P treatment is to include 50% of hybrid capital as debt-like. Hybrid debt portion = 2,125,000,000 × 50% = **1,062,500,000 EUR** **Other Debt-like Items:** - Other Noncurrent Financial Liabilities: 185,000,000 EUR - Other Current Financial Liabilities: 550,000,000 EUR These appear to be debt-like. Let me check if they should be included. "Other Noncurrent Financial Liabilities" and "Other Current Financial Liabilities" are typically debt-like items. However, I need to be careful not to double count. Let me check what's in these: - Other Noncurrent Financial Liabilities: 185,000,000 - Other Current Financial Liabilities: 550,000,000 These could include derivatives, deposits, or other items. For conservative approach, I'll include them. But wait - I should check if these are already part of borrowings or truly separate. The line items suggest they're separate from "Borrowings." **Cash and Eligible Cash:** - Cash and Cash Equivalents: 6,547,000,000 EUR For regulated utilities with seasonal working capital, S&P may allow netting some cash against seasonal working capital needs. However, TenneT's cash position seems large and not obviously seasonal. I'll treat all cash as eligible for deduction unless there's clear evidence of restricted cash. Actually, looking at the cash flow statement: "Cash And Cash Equivalents If Different From Statement Of Financial Position" shows 6,547,000,000 for 2023-01-01, same as balance sheet. The 2022-01-01 shows 3,140,000,000 vs 3,204,000,000 in balance sheet - slight difference of 64,000,000 (bank overdrafts). Let me use 6,547,000,000 as eligible cash, but I should consider if this is truly excess cash. For a utility with heavy capex needs, some cash may be needed for operations. **Calculation of Adjusted Debt:** | Item | Amount (EUR) | |------|-------------| | Long-term Borrowings | 19,006,000,000 | | Short-term Borrowings | 709,000,000 | | Current Bank Overdrafts | 0 | | **Subtotal: Reported Debt** | **19,715,000,000** | | Lease Liabilities | 729,000,000 | | Pension Deficit (Net Liability) | 174,000,000 | | Hybrid Debt Portion (50%) | 1,062,500,000 | | Other Noncurrent Financial Liabilities | 185,000,000 | | Other Current Financial Liabilities | 550,000,000 | | **Subtotal: Debt-like Items** | **2,700,500,000** | | **Gross Adjusted Debt** | **22,415,500,000** | | Less: Cash and Cash Equivalents | (6,547,000,000) | | **Adjusted_Debt** | **15,868,500,000** | Wait - I need to reconsider the "Other Current Financial Liabilities." Let me check if this includes items that are truly debt-like or if they include trade payables or other operating liabilities. The line item is separate from "Trade And Other Current Payables" (7,489,000,000), so it's likely financial in nature. However, I want to be more precise. Let me also check if there are guarantees or other items. Looking at the data again, I don't see explicit guarantees disclosed. I'll proceed with what I have. Let me also reconsider: should I include the full Other Financial Liabilities or are these already captured? The 550,000,000 "Other Current Financial Liabilities" and 185,000,000 "Other Noncurrent Financial Liabilities" seem to be separate debt-like items. Actually, let me be more conservative and check if these might include derivative liabilities or other items that are already effectively in debt. Without more detail, I'll include them as they appear to be financial liabilities. **Revised Adjusted_Debt calculation:** Adjusted_Debt = 19,715,000,000 + 729,000,000 + 174,000,000 + 1,062,500,000 + 185,000,000 + 550,000,000 - 6,547,000,000 = 19,715,000,000 + 2,700,500,000 - 6,547,000,000 = 22,415,500,000 - 6,547,000,000 = **15,868,500,000 EUR** ## Step 3: Estimate Adjusted_EBITDA First, I need to reconstruct EBITDA from the income statement data. From the 2022 fiscal year (2022-01-01 to 2023-01-01): | Item | Amount (EUR) | |------|-------------| | Revenue | 8,299,000,000 | | Energy Transmission Charges (cost?) | 7,517,000,000 | | 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) | | **Operating Expense** | **(9,395,000,000)** | | Share Of Profit Loss Of Associates And JVs | 120,000,000 | | **Profit Loss From Operating Activities** | **(976,000,000)** | Wait, let me verify: Revenue - Operating Expense + Share of profit = Profit from operating activities? 8,299,000,000 - 9,395,000,000 + 120,000,000 = -976,000,000 ✓ Now, to reconstruct EBITDA: EBITDA = Profit from operating activities + Depreciation and Amortization - Share of profit of associates/JVs (equity method) Actually, standard approach: EBITDA = Operating profit before equity method + D&A Or: EBITDA = Revenue - Cash operating costs (excluding D&A) From the data: - Revenue: 8,299,000,000 - Energy Transmission Charges: 7,517,000,000 (this appears to be a cost, not revenue - despite the name, it's likely passthrough costs) - Employee Benefits: 285,000,000 - Misc Other Operating Expense: 322,000,000 - Other Gains Losses: -38,000,000 (loss) Let me check: "Energy Transmission Charges" of 7,517,000,000 - this is likely the cost of purchasing transmission capacity or similar. Given the revenue is 8,299,000,000 and "Energy Transmission Charges" is 7,517,000,000, this seems like a major cost item. Actually, looking more carefully at the naming: "Energy Transmission Charges" appears under revenue items in the original data structure? No, looking at the pattern, it seems to be an expense item. Let me recalculate EBITDA: EBITDA = Profit Loss From Operating Activities + Depreciation And Amortisation Expense + Other Gains Losses (if non-recurring) - Share Of Profit Of Associates/JVs Wait, the standard formula is: EBITDA = EBIT + D&A Where EBIT = Profit from operating activities before financing and taxes, but after equity method. Actually, "Profit Loss From Operating Activities" of -976,000,000 includes the equity method income of 120,000,000. So: EBIT (excluding equity method) = -976,000,000 - 120,000,000 = -1,096,000,000 Then EBITDA = EBIT + D&A = -1,096,000,000 + 1,233,000,000 = 137,000,000 Hmm, that seems very low. Let me verify another way. Alternative: EBITDA = Revenue - Cash Operating Costs Cash operating costs = Employee Benefits + Energy Transmission Charges + Misc Other Operating Expense + Other Gains Losses (if loss) = 285,000,000 + 7,517,000,000 + 322,000,000 + 38,000,000 = 8,162,000,000 EBITDA = 8,299,000,000 - 8,162,000,000 = 137,000,000 Same result. But this seems very low for a utility with 26.8B of PP&E. Wait - I need to reconsider. Is "Energy Transmission Charges" really an expense? Let me look at the naming again. The item is listed as "Energy Transmission Charges" with values 7,517,000,000 for 2022 and 4,102,000,000 for 2021. Actually, looking at typical TSO structure: TenneT is a transmission system operator. They collect transmission charges from customers (which is their revenue) and they may also have costs related to energy transmission. But the revenue line is separate at 8,299,000,000. Hmm, let me re-read: "Energy Transmission Charges" - could this actually be revenue? In some jurisdictions, TSOs report their main revenue as "transmission charges." But we already have "Revenue" at 8,299,000,000. Looking at the pattern in the data: "Revenue" and "Energy Transmission Charges" are listed separately. If both were revenue, they'd likely be combined or one would be a subcomponent. Actually, I think "Energy Transmission Charges" might be the cost of purchasing transmission services from other TSOs or similar passthrough costs. Or it could be the main revenue item mislabeled. Let me check the 2021 vs 2022: Revenue went from 5,524,000,000 to 8,299,000,000 (up 50%), while Energy Transmission Charges went from 4,102,000,000 to 7,517,000,000 (up 83%). This suggests these move somewhat together but not perfectly. Actually, for a TSO, the main activity is transmitting electricity. The "Energy Transmission Charges" might indeed be the revenue. But then what is "Revenue"? Looking at this more carefully - in some European reporting, TSOs may have "revenue" that includes various items, and "energy transmission charges" could be the regulated revenue component. Given the structure, let me assume "Revenue" of 8,299,000,000 is the total revenue, and work with that. But EBITDA of 137M on 8.3B revenue seems extremely low (1.7% margin). For a regulated utility, we'd expect higher margins. Let me check if I'm missing something. The operating loss is -976M. With D&A of 1,233M, this implies the asset base is generating very little cash - possible for a heavily regulated TSO that's allowed cost-plus recovery but currently investing heavily. Actually, looking at cash flows: "Cash Flows From Used In Operations Excluding Eeg Working Capital" is 596,000,000. This is positive but modest. And "Cash Flows From Used In Operating Activities" is 1,196,000,000 - positive. Let me recalculate using the cash flow approach to verify EBITDA: From cash flow statement (indirect method reconstruction): - Profit Loss: -879,000,000 - Add back D&A: 1,233,000,000 - Add back Other Gains/Losses on disposal: 38,000,000 - Add back undistributed profits of JVs: 120,000,000 - Adjustments for provisions: 104,000,000 - Other adjustments for noncash items: 1,347,000,000 - Working capital changes: various Hmm, the "Other Adjustments For Noncash Items" of 1,347,000,000 is large. What is this? For EBITDA purposes, we want recurring operating cash flow before working capital changes. Let me try: EBITDA = Revenue - Operating Expenses + D&A (since D&A is in operating expenses) From the P&L structure: Operating Expense = 9,395,000,000 But this includes D&A of 1,233,000,000? Let me check if "Operating Expense" is total or if D&A is separate. Looking at: "Operating Expense" 2022-01-01 - 2023-01-01: 9,395,000,000 EUR And the components listed: - 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 Sum: 285 + 1,233 + 322 - 38 = 1,802,000,000 But Operating Expense is 9,395,000,000. So there are missing components - likely including Energy Transmission Charges of 7,517,000,000. 1,802 + 7,517 = 9,319,000,000 ≈ 9,395,000,000 (close but not exact, difference of 76M) Actually: 285 + 1,233 + 322 + 38 = 1,878,000,000 (treating Other Gains Losses as absolute loss) 1,878 + 7,517 = 9,395,000,000 ✓ So Operating Expense = Employee Benefits + D&A + Misc Other Operating Expense + Other Gains Losses (as positive loss) + Energy Transmission Charges = 285 + 1,233 + 322 + 38 + 7,517 = 9,395 ✓ Now, EBIT = Revenue - Operating Expense + Share of profit of JVs = 8,299 - 9,395 + 120 = -976 ✓ Or EBIT before equity method = 8,299 - 9,395 = -1,096 EBITDA = EBIT before equity method + D&A = -1,096 + 1,233 = 137 Or EBITDA including equity method = -976 + 1,233 = 257 Standard S&P approach is usually to include equity method income in EBITDA (as EBITDA is pre-equity method or after? Actually, EBITDA typically excludes equity method income - it's an operating profit measure for the company's own operations). Actually, let me check: S&P typically calculates EBITDA as: - EBIT (which includes equity method) + D&A, OR - Operating profit before equity method + D&A + equity method income There's variation. Let me use the more common: EBITDA = Operating profit + D&A, where operating profit is before equity method. Actually, looking at S&P methodology: they typically use "EBITDA" as earnings before interest, taxes, depreciation and amortization, and usually BEFORE equity method income (i.e., from core operations). But for regulated utilities with JVs, they may include proportional EBITDA. Let me use: EBITDA = Revenue - Cash operating costs = 8,299 - (9,395 - 1,233) = 8,299 - 8,162 = 137 Or with equity method: 137 + 120 = 257 Hmm, but 137M seems very low. Let me reconsider if "Energy Transmission Charges" might actually be revenue. Actually, re-reading: "Energy Transmission Charges" - in many European TSO annual reports, this IS the revenue line. The "Revenue" line might include other items like ancillary services, congestion income, etc. If Energy Transmission Charges = 7,517,000,000 is the main revenue, and Revenue = 8,299,000,000 is total revenue, then the core regulated revenue is 7,517M. But for EBITDA calculation, we use total revenue. Let me proceed with EBITDA = 137,000,000 (from core operations) or 257,000,000 (including equity method). This seems very low, but the company did report an operating loss. Wait - I need to check if there are non-recurring items. "Other Gains Losses" of -38,000,000 could be non-recurring. If I add this back: EBITDA = 137 + 38 = 175 (core) or 257 + 38 = 295 (with equity) Also, I should check "Miscellaneous Other Operating Expense" of 322M - is this recurring? Likely yes. Let me look at the cash flow to verify: "Adjustments For Losses Gains On Disposal Of Noncurrent Assets" = 38,000,000. This confirms the 38M is disposal losses, which are non-recurring. Also: "Other Adjustments For Noncash Items" = 1,347,000,000. This is large! What could this be? For a regulated utility, this might include: - Regulatory account adjustments - Accretion expenses - Other non-cash items If these are non-recurring or non-cash items that should be added back, they could significantly affect EBITDA. But standard EBITDA only adds back D&A, not all non-cash items. The 1,347M might include things like impairment, write-downs, etc. Actually, let me look at whether this is already captured. The cash flow shows: - Profit Loss: -879,000,000 - D&A: 1,233,000,000 - Losses on disposal: 38,000,000 - Undistributed profits of JVs: 120,000,000 - Provisions: 104,000,000 - Other noncash items: 1,347,000,000 Sum of adjustments: 1,233 + 38 + 120 + 104 + 1,347 = 2,842,000,000 Then working capital: -1,026 - 49 - 33 + 103 + 269 = -736 (excluding EEG) Cash from operations excl EEG: 596,000,000 Check: -879 + 2,842 - 736 = 1,227... not matching 596. Hmm, let me recalculate. Actually: "Increase Decrease In Working Capital Excluding Eeg Working Capital" = 736,000,000 (positive means cash inflow? Or is it a use?) Looking at signs: "Adjustments For Decrease Increase In Trade And Other Receivables" = -1,026,000,000. This means receivables increased, so cash outflow. The total "Increase Decrease In Working Capital Excluding Eeg Working Capital" = 736,000,000. If positive, this seems to be a source of cash (or the sign convention is confusing). Actually in cash flow statements, "Increase Decrease In Working Capital" as a positive number typically means decrease in working capital (cash inflow). But the item is labeled "Increase Decrease" which is ambiguous. Let me check: -879 + 1,233 + 38 + 120 + 104 + 1,347 + (-1,026) + (-49) + (-33) + 103 + 269 = ? = -879 + 2,842 - 1,026 - 49 - 33 + 103 + 269 = -879 + 2,842 - 736 = 1,227 But "Cash Flows From Used In Operations Excluding Eeg Working Capital" = 596,000,000 Difference: 1,227 - 596 = 631. Hmm, not matching. I must be missing something or the signs are different. Actually, I think "Increase Decrease In Working Capital Excluding Eeg Working Capital" = 736,000,000 is the NET figure, already incorporating all the components. So: -879 + 2,842 + 736 = 2,699? No, that's not 596 either. Wait, let me re-read: The individual working capital items are labeled "Adjustments For..." which suggests they're already in the cash flow calculation. Let me try: -879 (profit) + 1,233 (D&A) + 38 (disposal) + 120 (JV) + 104 (provisions) + 1,347 (other noncash) + 736 (working capital) = ? = -879 + 2,842 + 736 = 2,699? Still not 596. Hmm, I think the issue is sign conventions. Let me look more carefully. "Cash Flows From Used In Operations Excluding Eeg Working Capital" = 596,000,000. The word "From" vs "Used In" suggests this is net cash generated. Individual items with "Adjustments For": - Decrease Increase In Trade And Other Receivables: -1,026,000,000 - Decrease Increase In Inventories: -49,000,000 - Increase Decrease In Trade And Other Payables: -33,000,000 - Increase Decrease In Contract Liabilities: 103,000,000 - Increase Decrease In Current Financial Liabilities: 269,000,000 Sum: -1,026 - 49 - 33 + 103 + 269 = -736,000,000 So working capital change is -736,000,000 (cash outflow). Then: -879 + 1,233 + 38 + 120 + 104 + 1,347 - 736 = -879 + 2,842 - 736 = 1,227 Still not 596. Missing 631. Wait - I need to check if "Other Comprehensive Income" or other items are in there. Or perhaps the 1,347 "Other Adjustments For Noncash Items" includes some items that are not truly non-cash operating adjustments. Actually, I think I found it: "Adjustments For Undistributed Profits Of Investments Accounted For Using Equity Method" = 120,000,000. But in the P&L, "Share Of Profit Loss Of Associates And Joint Ventures" = 120,000,000. This is already included in profit. So adding it back would be double counting if we're starting from profit before equity method. Actually no - if starting from Profit Loss of -879, the 120M JV profit is already included in that -879. So to get operating cash flow before working capital, we add back non-cash and non-operating items. Let me recalculate from scratch using the indirect method properly: Starting point: Profit Loss = -879,000,000 Add back: D&A = 1,233,000,000 Add back: Losses on disposal = 38,000,000 Less/Add: Undistributed profits of JVs = 120,000,000 (this is already in profit, but if we want to exclude it, we subtract; if we want to include it as cash, we need to check if dividends were received) Actually, "Dividends Received Classified As Operating Activities" = 92,000,000. So only 92M was received as cash, not the full 120M equity income. For EBITDA, we typically exclude equity method income entirely and don't adjust for dividends (which are financing/investing). Let me try a different approach: Reconstruct EBITDA from the income statement more carefully. Revenue: 8,299,000,000 Less: Energy Transmission Charges (operating expense): 7,517,000,000 Less: Employee Benefits: 285,000,000 Less: Miscellaneous Other Operating Expense: 322,000,000 Less: Other Gains Losses (loss): 38,000,000 Equals: Operating loss before D&A and equity method: 8,299 - 7,517 - 285 - 322 - 38 = 137,000,000 Then EBITDA = this + D&A = 137 + 1,233 = 1,370,000,000 Wait! I made a math error earlier. Let me recalculate: 8,299 - 7,517 = 782 782 - 285 = 497 497 - 322 = 175 175 - 38 = 137 Yes, 137M operating profit before D&A and equity method. Then EBITDA = 137 + 1,233 = 1,370,000,000 Ah! I had 137M before, but I said EBITDA = 137 + 1,233 = 1,370. Let me check: 137 + 1,233 = 1,370. Yes! Earlier I said EBITDA = 137, but that was wrong - I forgot to add D&A. The correct is: - Operating profit before D&A = 137M - EBITDA = 137M + 1,233M = 1,370M Or if we include equity method: 137 + 120 + 1,233 = 1,490M Let me verify with another approach: EBITDA = Revenue - Cash operating costs Cash operating costs = Energy Transmission + Employee Benefits + Misc Other Operating + Other Gains Losses (loss) = 7,517 + 285 + 322 + 38 = 8,162 Revenue - Cash operating costs = 8,299 - 8,162 = 137 (this is EBIT before equity method and before D&A? No, this is actually EBITDA before equity method) Wait, no. This is: Revenue - all operating expenses except D&A = operating profit before D&A. Then EBITDA = Operating profit before D&A + D&A = 137 + 1,233 = 1,370. Actually, I need to be more careful. "Operating profit before D&A" is not a standard term. Let me clarify: - Operating profit (EBIT) = Revenue - Operating expenses (including D&A) - EBITDA = EBIT + D&A = Revenue - Operating expenses + D&A = Revenue - (Operating expenses - D&A) Operating expenses excluding D&A = 9,395 - 1,233 = 8,162 EBITDA = 8,299 - 8,162 = 1,137? No wait: 8,299 - 8,162 = 137? No, 8,299 - 8,162 = 1,137! Let me recalculate: 8,299 - 8,162 = 1,137. Yes! 8,299 - 8,000 = 299, minus 162 = 137? No, 299 - 162 = 137. Hmm, that's wrong too. 8,299 - 8,162: 8,299 - 8,000 = 299 299 - 162 = 137 Yes, 137. So EBITDA = 137? No, I keep confusing myself. Let me be very clear: - Total operating expenses = 9,395 (includes D&A of 1,233) - Operating expenses excluding D&A = 9,395 - 1,233 = 8,162 - EBIT = Revenue - Total operating expenses + Equity method = 8,299 - 9,395 + 120 = -976 - EBIT before equity method = 8,299 - 9,395 = -1,096 - EBITDA = EBIT before equity method + D&A = -1,096 + 1,233 = 137 Or: EBITDA = Revenue - Operating expenses excluding D&A = 8,299 - 8,162 = 137 Yes! EBITDA = 137,000,000 before equity method, or 257,000,000 including equity method. But wait, I calculated 8,299 - 8,162 = 137 earlier and said it was 137. Then I said EBITDA = 137 + 1,233 = 1,370. That was wrong because I was adding D&A to a figure that already excluded D&A. Let me verify: "Operating expenses excluding D&A" means cash costs only. Then: EBITDA = Revenue - Cash costs = 8,299 - 8,162 = 137 This 137 IS the EBITDA (before equity method). It's already before D&A because we excluded D&A from costs. Then if we want EBITDA including equity method: 137 + 120 = 257. Or if we calculate as EBIT + D&A: EBIT (before equity method) = 8,299 - 9,395 = -1,096 EBITDA = -1,096 + 1,233 = 137 ✓ Yes, confirmed. EBITDA = 137,000,000 before equity method, or 257,000,000 with equity method. This is still very low. Let me check if "Other Gains Losses" of -38M should be excluded as non-recurring. If we exclude this loss (add it back as non-recurring): EBITDA adjusted for non-recurring = 137 + 38 = 175 (before equity) or 295 (with equity) Also, I should check if there are other non-recurring items in "Miscellaneous Other Operating Expense" or "Other Adjustments For Noncash Items." Looking at cash flow: "Other Adjustments For Noncash Items" = 1,347,000,000. This is huge! If this includes items like regulatory account adjustments, accretion, or other non-cash items that should be in EBITDA, it would change things significantly. But standard EBITDA doesn't add back all non-cash items - only D&A. The 1,347M might include: - Impairment losses - Provisions (but provisions are separately 104M) - Fair value changes - Regulatory adjustments For a regulated utility, S&P may consider some of these as part of normal operations or as non-recurring. Actually, looking more carefully at the cash flow: "Adjustments For Provisions" = 104,000,000. This is separate from "Other Adjustments For Noncash Items" = 1,347,000,000. The large 1,347M is suspicious. Let me think about what this could be for a TSO: - It could be the change in regulatory assets/liabilities - It could be accretion expense on provisions - It could be non-cash pension costs Actually, for regulated utilities, "regulatory accounting" can create large non-cash items. Under IFRS, TenneT may not use regulatory accounting, but under Dutch GAAP or specific regulatory frameworks, there could be timing differences. Given the complexity, let me also consider if "Energy Transmission Charges" might actually be reported as negative revenue or if there's a gross vs net presentation issue. Actually, I think I need to re-examine. For many TSOs, the revenue is the transmission tariff, and "energy transmission charges" might be the cost of purchasing transmission capacity from other TSOs (like TenneT TSO GmbH in Germany or from other national TSOs). But 7,517M cost on 8,299M revenue gives a gross margin of only 9.4%, which is very low for a regulated TSO. Typically TSOs have higher margins. Unless... "Revenue" includes only non-regulated or ancillary services, and "Energy Transmission Charges" is the passthrough of regulated revenue? No, that doesn't make sense. Let me try another interpretation: Maybe "Revenue" is total revenue including energy transmission charges, and "Energy Transmission Charges" is a subcomponent? But they're listed at the same level. Actually, looking at the data structure, "Revenue" and "Energy Transmission Charges" appear to be sibling items. In typical IFRS reporting for TSOs: - Revenue = total revenue - Energy transmission charges = could be "cost of sales" or "purchased power" But the naming "Energy Transmission Charges" without "expense" or "cost" is ambiguous. Let me look at the German/Dutch TSO reporting conventions. TenneT operates in both Netherlands and Germany. In Germany, TSOs often report "revenue from grid fees" or similar. Actually, I think "Energy Transmission Charges" might indeed be REVENUE, not expense. The term "charges" often means what customers are charged, i.e., revenue. If Energy Transmission Charges = 7,517M is revenue, then what is "Revenue" = 8,299M? Perhaps "Revenue" includes other items like congestion income, balancing services, etc. Total revenue would then be 8,299 + 7,517 = 15,816M? That seems high. Or: "Revenue" is the total, and "Energy Transmission Charges" is the main component. But then why list separately? Let me check the 2021 figures: Revenue = 5,524M, Energy Transmission Charges = 4,102M. Ratio: 4,102/5,524 = 74%. In 2022: 7,517/8,299 = 90.6%. This suggests Energy Transmission Charges is becoming a larger portion of total revenue. Actually, this could make sense if "Energy Transmission Charges" is the regulated grid revenue, and "Revenue" includes other items. But they're not additive in the P&L structure. I think the most likely interpretation is: - "Revenue" = total revenue (which includes energy transmission charges and other items) - "Energy Transmission Charges" = a separate line item, possibly an expense But let me try yet another interpretation: In some TSO financials, "revenue" is shown net of certain charges, and "energy transmission charges" is the gross amount before deductions. Given the confusion, let me work with what gives more reasonable economics. If EBITDA is 137M or 257M on 8.3B revenue, that's a 1.7-3.1% margin, which is extremely low. With 26.8B of PP&E and 1.2B of D&A, we'd expect much higher EBITDA for a regulated utility. Alternative: If "Energy Transmission Charges" is revenue, and we should use that as the main revenue figure, then: Revenue = 7,517M (energy transmission charges) + other revenue of (8,299 - 7,517 = 782M)? No, that doesn't work either. Or: Total revenue is 8,299M, and "Energy Transmission Charges" of 7,517M is an expense, but the naming is confusing. This gives EBITDA of 137-257M. Actually, I just realized - for regulated utilities, S&P sometimes uses "adjusted EBITDA" that includes regulatory adjustments. The 1,347M "Other Adjustments For Noncash Items" might need to be analyzed. But more importantly, I think I should check if TenneT's financials reflect the typical TSO structure where they're passing through large amounts (like EEG surcharges in Germany, or similar mechanisms). Looking at the cash flow statement, there's extensive mention of "Eeg Working Capital" - this refers to German Renewable Energy Act (EEG) surcharge mechanisms. This is a key clue! TenneT TSO GmbH in Germany collects EEG surcharges and passes them through. This creates large working capital swings but doesn't affect net income much. The "Energy Transmission Charges" might include these pass-through amounts, or the revenue might be reported net. Given the EEG working capital is separately identified, and the "Energy Transmission Charges" is large, I think this supports that Energy Transmission Charges is likely an expense or a pass-through item that creates minimal margin. Let me accept that EBITDA is around 137-257M and see if this makes sense with the cash flow. From cash flow: "Cash Flows From Used In Operations Excluding Eeg Working Capital" = 596M. This is after working capital changes and taxes. If EBITDA = 137M, and we add back non-cash items and subtract cash items: 137 + 38 (disposal) + 120 (JV, but only 92 received) + 104 (provisions) + 1,347 (other noncash) - 231 (taxes paid) - working capital = ? This gets complicated. Let me just accept the accounting-based EBITDA and proceed, but I'll use the higher figure that includes equity method and add back non-recurring losses. **Adjusted EBITDA calculation:** Base EBITDA (including equity method): 257,000,000 EUR Adjustments for S&P purposes: 1. **Nonrecurring losses**: Other Gains Losses = -38,000,000 (loss). Add back: +38,000,000 - This is a loss on disposal or similar, likely non-recurring 2. **Lease adjustments**: For operating leases now capitalized under IFRS 16, S&P typically adds back the lease expense or makes no adjustment since leases are already in debt. Actually, with IFRS 16, the lease depreciation is in D&A and interest is in finance costs. EBITDA already includes the "lease depreciation" as part of D&A? No, under IFRS 16, the operating lease expense is replaced by depreciation of right-of-use asset and interest on lease liability. Wait - under IFRS 16, there is NO lease expense in operating costs. Instead: - D&A includes depreciation of right-of-use assets - Finance costs include interest on lease liabilities So EBITDA already includes the full benefit of lease capitalization (no lease expense deducted). But for comparability, S&P sometimes adjusts to add back the lease expense equivalent. Actually, looking at the data: Right-of-use assets are 748M, and lease liabilities are 729M. D&A of 1,233M likely includes some ROU asset depreciation. For S&P-adjusted EBITDA with leases: typically add back the lease expense (as if operating lease) or use proportional adjustment. But with IFRS 16 already applied, the "EBITDA" is already inflated compared to old operating lease treatment. Standard S&P approach for IFRS 16 leases: - Include lease liabilities in debt (done above) - For EBITDA, add back the lease-related depreciation and interest, or use a "lease expense" approximation Actually, S&P's standard approach post-IFRS 16 is: - Add full lease liabilities to debt - For EBITDA, make no special adjustment to reported EBITDA, as the lease depreciation is already in D&A and interest in finance costs... but wait, that makes EBITDA higher than under old treatment. Hmm, I need to think about this more carefully. Under old IAS 17: - Operating lease expense was deducted before EBITDA (i.e., in operating costs) - EBITDA was lower Under IFRS 16: - No operating lease expense - Instead: D&A of ROU asset (in operating costs... no wait, in D&A) and interest (in finance costs) - So EBITDA is HIGHER because the "lease expense" is now below EBITDA line (as D&A and interest) For comparability, S&P might want to reduce EBITDA by an estimated lease expense, or they might accept the higher EBITDA and correspondingly higher debt. Actually, I think S&P's typical approach is: - Add lease liabilities to debt - For EBITDA, either (a) no adjustment, accepting the IFRS 16 treatment, or (b) add back the lease-related amounts to make it comparable Looking at S&P's general methodology: They typically add back lease expense to EBIT to get an "adjusted EBITDAR" or similar, then subtract the lease expense to get a lease-adjusted EBITDA. Actually, let me check S&P's standard formula from the prompt: Adjusted_EBITDA = EBITDA (reported or reconstructed) + adjustment_leases (if any) + nonrecurring_losses - nonrecurring_gains ± pension_adjustments ± joint_venture_proportional_EBITDA ± other_normalization_adjustments So "adjustment_leases" is explicitly mentioned. For IFRS 16, the typical S&P adjustment is to add back the lease expense (as if operating lease) because the D&A and interest treatment distorts comparability. Estimated lease expense: Looking at lease liabilities of 729M and ROU assets of 748M, with straight-line depreciation, the annual "lease expense" under old treatment would be roughly the sum of ROU depreciation plus lease liability interest... no wait, under old treatment it was just the operating lease payment. From cash flow: "Payments Of Lease Liabilities Classified As Financing Activities" = 221,000,000. This is the principal repayment. The total lease payment would include interest portion too. From balance sheet: Lease liabilities increased from 404M (235+169) to 729M (574+155), increase of 325M. With payments of 221M, new leases of roughly 325+221 = 546M. The annual lease expense under old treatment would be approximately the total payments, maybe around 250-300M (including interest). Actually, a simpler approach: The "lease adjustment" in S&P methodology typically means adding back the operating lease expense to EBITDA. Under IFRS 16, we can estimate this as: - Depreciation of ROU assets: roughly 748M / average lease term. If average term is 8-10 years, that's 75-94M per year. - Plus interest on lease liabilities: roughly 729M × 4% = 29M - Total "lease expense" under IFRS 16: ~100-120M But this is much less than the old operating lease expense would have been. Actually, under IFRS 16, the total expense in early years is higher than old operating lease expense due to front-loaded interest. For S&P comparability, they might want to use the "straight-line lease expense" approximation. This is complex. Let me use a simpler approach: Many practitioners use a multiplier. The lease liability is 729M. If we assume a 5x multiple (typical for capitalizing operating leases: debt = 5× annual lease expense), then annual lease expense = 729/5 = 146M. Or if we use the right-of-use asset depreciation plus interest as proxy for "lease expense": Looking at D&A total: 1,233M. ROU assets are 748M. If average lease life is 10 years, ROU depreciation is ~75M. Interest on 729M at say 3% is ~22M. Total ~97M. But the cash payment was 221M (principal) + interest. If interest is ~22M, total payment ~243M. This suggests my estimates are off, or there are short-term leases included. Actually, the 221M is "Payments Of Lease Liabilities Classified As Financing Activities" - this is principal repayment. The interest portion would be in "Finance Costs" or "Interest Paid Classified As Financing Activities." Looking at finance costs: 300M total. This includes interest on borrowings and leases. This is getting too detailed. Let me use a practical approach: For S&P adjusted EBITDA with IFRS 16 leases, a common simplification is to add back the full lease liability × assumed cost of debt, or to use a standard multiple. Actually, I recall that S&P's standard approach for IFRS 16 is: - Debt: add full lease liabilities - EBITDA: add back the lease depreciation (portion of D&A related to leases) and lease interest (portion of finance costs) This gives a "lease-adjusted EBITDA" that's comparable to pre-IFRS 16. Estimated lease depreciation: ROU assets 748M, average life say 10 years = 75M Estimated lease interest: part of 300M finance costs. If lease liabilities are 729M at 3% = 22M. Total add-back: 97M. But wait - if I add back 97M to EBITDA of 137M, I get 234M before equity method, or 354M with equity method. This seems more reasonable. Actually, I think I'm overcomplicating this. Let me look for a simpler interpretation. Let me try: Reported EBITDA under IFRS 16 = 137M (before equity). This includes D&A of 1,233M which includes ~75M of lease depreciation. If we add back lease depreciation and lease interest: - Add back lease depreciation: +75M - Add back lease interest: +22M (estimated) - Subtotal: +97M But then we'd also need to subtract the "lease expense" to get back to old treatment? No, S&P's approach is to add the lease liability to debt and adjust EBITDA to be comparable. Actually, I think the standard S&P adjustment is simpler: they just add the lease liability to debt and don't adjust EBITDA, OR they add back 1/3 of lease expense or similar. Let me look at this from a different angle. The prompt says: Adjusted_EBITDA = EBITDA (reported or reconstructed) + adjustment_leases (if any) + nonrecurring_losses - nonrecurring_gains ± pension_adjustments ± joint_venture_proportional_EBITDA ± other_normalization_adjustments For "adjustment_leases (if any)": In S&P methodology, this typically means adding back the operating lease expense that was capitalized. Under IFRS 16, since there's no operating lease expense in EBITDA, the "adjustment" would be to add back an estimated lease expense to make it comparable to pre-IFRS 16, OR to add back the lease-related D&A and interest. Actually, I think the most common current practice is: - For debt: add lease liabilities - For EBITDA: no adjustment (accept the IFRS 16 benefit), OR add back lease depreciation and interest to get "EBITDAR-like" metric Given the complexity, let me use a simplified approach and note that I'll include lease adjustments in debt but keep EBITDA as reported with only non-recurring adjustments. This is conservative for leverage (higher ratio). **Base EBITDA calculation:** From P&L for 2022: - Revenue: 8,299,000,000 - Energy Transmission Charges (expense): 7,517,000,000 - Employee Benefits: 285,000,000 - Miscellaneous Other Operating Expense: 322,000,000 - Other Gains Losses (loss): 38,000,000 - D&A: 1,233,000,000 EBITDA before equity method and before non-recurring adjustments: = Revenue - (Employee Benefits + Misc Other Operating + Energy Transmission + Other Gains Losses) = 8,299 - (285 + 322 + 7,517 + 38) = 8,299 - 8,162 = 137,000,000 Or using EBIT + D&A: EBIT (before equity method) = 8,299 - 9,395 = -1,096,000,000 EBITDA = -1,096 + 1,233 = 137,000,000 Add equity method income: 120,000,000 EBITDA with equity method = 257,000,000 Add back non-recurring loss (Other Gains Losses): +38,000,000 Adjusted EBITDA = 257 + 38 = 295,000,000 But wait - is the equity method income appropriate to add? The standard EBITDA includes it if we define EBITDA as operating profit + D&A, where operating profit includes equity method. But some definitions exclude it. For S&P regulated utilities, they typically look at EBITDA that includes proportional JV/associate EBITDA, not just the equity method income. The prompt mentions "± joint_venture_proportional_EBITDA." If we have equity method income of 120M, and we want proportional EBITDA, we'd need the JVs' full EBITDA. We don't have this directly, but we can estimate or use the equity income as proxy. Actually, the prompt says "± joint_venture_proportional_EBITDA" which suggests replacing equity method income with proportional EBITDA. Since we don't have JV financials, I'll use the equity method income as a proxy (conservative, since proportional EBITDA would typically be higher). Let me also consider pension adjustments. The pension liability changed from 351M to 174M, a decrease of 177M. This could indicate: - Contributions made - Actuarial gains - Service cost changes The "Other Comprehensive Income Before Tax Gains Losses On Remeasurements Of Defined Benefit Plans" = 217M (gain). This is a non-cash actuarial gain. For EBITDA, pension service cost is typically included in operating expenses (in Employee Benefits). The interest on pension liabilities is part of finance costs. The actuarial gains/losses are in OCI. For S&P adjustments, they sometimes adjust for pension deficits but the EBITDA impact is usually small. I'll assume no major EBITDA adjustment needed for pensions (the service cost is already in operating expenses and appropriate for EBITDA). **Final Adjusted EBITDA estimate:** I'll use several approaches and average: Approach 1: Conservative - Base EBITDA (including equity method): 257M - Add non-recurring loss: +38M - No lease adjustment - = 295M Approach 2: With lease adjustment - Base: 257M - Add non-recurring: +38M - Add estimated lease depreciation and interest: +97M (rough estimate) - = 352M Approach 3: Using cash flow proxy - "Cash Flows From Used In Operations Excluding Eeg Working Capital" = 596M - This is after working capital and taxes, so not directly EBITDA - Add back taxes paid: +231M = 827M - Add back working capital changes (excluding EEG): +736M (if outflow) or -736M? Actually, if working capital was a use of 736M, then pre-working capital cash flow = 827 + 736 = 1,563M? No, signs are confusing. Let me stick with the accounting-based approach. Given the very low EBITDA, I want to double-check by looking at the 2021 figures: - Revenue: 5,524M - Energy Transmission Charges: 4,102M - Employee Benefits: 287M - D&A: 1,165M - Misc Other Operating: 303M - Other Gains Losses: -4M EBITDA 2021 = 5,524 - (287 + 303 + 4,102 + 4) = 5,524 - 4,696 = 828M? No wait: 5,524 - 4,102 = 1,422 1,422 - 287 = 1,135 1,135 - 303 = 832 832 - 4 = 828 Plus equity method 62M = 890M Plus D&A 1,165M? No, I already excluded D&A. Wait, let me recalculate: The formula is Revenue - cash costs = EBITDA. Cash costs = total operating expenses - D&A = (5,861M from "Operating Expense") - 1,165M = 4,696M EBITDA = 5,524 - 4,696 = 828M Or: EBIT (before equity) = 5,524 - 5,861 = -1,337M EBITDA = -1,337 + 1,165 = -172M? That can't be right. Hmm, let me check 2021 Operating Expense: 5,861,000,000 Components: 287 + 1,165 + 303 + (-4) + 4,102 = 5,853? Not quite 5,861. Missing 8M. Actually: 287 + 1,165 + 303 - 4 + 4,102 = 5,853. Close to 5,861. EBITDA = 5,524 - (5,861 - 1,165) = 5,524 - 4,696 = 828. Yes. But EBIT = 5,524 - 5,861 = -1,337 EBITDA = EBIT + D&A = -1,337 + 1,165 = -172? Wait, that's wrong: 5,524 - 5,861 = -1,337. Then -1,337 + 1,165 = -172. But I calculated EBITDA as 828 above. There's a 1,000M discrepancy! Oh I see the error: "Operating Expense" of 5,861M includes everything. But "Energy Transmission Charges" of 4,102M - is this included in Operating Expense or separate? If Operating Expense = 5,861M and Energy Transmission Charges = 4,102M are SEPARATE, then total costs = 5,861 + 4,102 = 9,963M, which exceeds revenue. That can't be. So Energy Transmission Charges must be INCLUDED in Operating Expense. Let me verify with 2022: Operating Expense = 9,395M. Components sum to roughly 9,395M (with Energy Transmission included). For 2021: If Operating Expense = 5,861M, and components are 287 + 1,165 + 303 + (-4) + 4,102 = 5,853M, that's close to 5,861M. So EBITDA = Revenue - (Operating Expense - D&A) = 5,524 - (5,861 - 1,165) = 5,524 - 4,696 = 828M. And EBIT = Revenue - Operating Expense = 5,524 - 5,861 = -1,337M. EBITDA = EBIT + D&A = -1,337 + 1,165 = -172M. These don't match! 828 ≠ -172. The difference is 1,000M. Wait: 5,861 - 1,165 = 4,696. And 5,524 - 4,696 = 828. Correct. But 5,524 - 5,861 = -1,337. And -1,337 + 1,165 = -172. Correct. The issue: 828 ≠ -172. But mathematically: Revenue - (OpEx - D&A) = Revenue - OpEx + D&A = EBIT + D&A = EBITDA So 5,524 - 4,696 should equal -1,337 + 1,165. 5,524 - 4,696 = 828 -1,337 + 1,165 = -172 828 ≠ -172! There's a 1,000 difference. Where is it? Oh! I see: 5,524 - 5,861 = -1,337. But 5,524 - 4,696 = 1,828, not 828! Let me recalculate: 5,524 - 4,696. 5,524 - 4,000 = 1,524 1,524 - 696 = 828? No, 1,524 - 700 = 824, plus 4 = 828. Yes, 828. But -1,337 + 1,165: -1,337 + 1,000 = -337 -337 + 165 = -172 Hmm, 828 ≠ -172. But algebra says they should be equal. Let me check the algebra: Revenue - (OpEx - D&A) = Revenue - OpEx + D&A Is (OpEx - D&A) correct? OpEx includes D&A. So OpEx - D&A = cash costs. Revenue - cash costs = EBITDA. And Revenue - OpEx = EBIT. EBIT + D&A = EBITDA. So Revenue - OpEx + D&A = EBIT + D&A = EBITDA. Numerically: 5,524 - 5,861 + 1,165 = -1,337 + 1,165 = -172. But 5,524 - (5,861 - 1,165) = 5,524 - 4,696 = 828? Wait: 5,861 - 1,165 = 4,696. Is this correct? 5,861 - 1,000 = 4,861 4,861 - 165 = 4,696. Yes. And 5,524 - 4,696 = 828? 5,524 - 4,696: 5,524 - 4,500 = 1,024. 1,024 - 196 = 828. Yes. But 5,524 - 5,861 + 1,165 should equal 5,524 - (5,861 - 1,165) = 5,524 - 4,696 = 828. And -1,337 + 1,165 = -172. So 5,524 - 5,861 + 1,165 = -172, not 828. But 5,524 - 5,861 = -1,337, not -1,337 + something. Wait, I need to recalculate 5,524 - 5,861: 5,524 - 5,000 = 524 524 - 861 = -337 So 5,524 - 5,861 = -337, not -1,337! I was off by 1,000! Yes! 5,524 - 5,861 = -337. Then -337 + 1,165 = 828. ✓ And 5,524 - 4,696 = 828. ✓ Great, so my 2021 EBITDA is 828M (before equity method) or 890M (with equity). For 2022: Revenue 8,299 - Operating Expense 9,395 = -1,096. Then -1,096 + 1,233 = 137. Let me verify: 8,299 - 9,395: 8,299 - 8,000 = 299 299 - 1,395 = -1,096. Yes. -1,096 + 1,233 = 137. Yes. So 2022 EBITDA = 137M before equity, 257M with equity. 2021 EBITDA = 828M before equity, 890M with equity. The drop from 828M to 137M (or 890M to 257M) is massive - about 83% decline. This is consistent with the operating loss increasing from -275M to -976M. Given this is a regulated utility with cost-pass-through mechanisms, the low EBITDA might reflect timing of cost recovery or specific regulatory adjustments. For S&P purposes, I should consider if this is sustainable or if there are normalization adjustments. The "Other Adjustments For Noncash Items" of 1,347M in cash flow suggests large non-cash items that might affect comparability. Let me try to normalize: If the 1,347M "Other Adjustments For Noncash Items" includes items that should be added back to get to "cash-like" EBITDA, then: Reported EBITDA: 137M (before equity) or 257M (with equity) Plus: non-recurring loss 38M Plus: part of other noncash items? But what is the 1,347M? Looking at the cash flow, it bridges from profit to operating cash flow. If it's truly non-cash and operating-related, it might be added back for "adjusted EBITDA." However, standard EBITDA already excludes non-cash items except D&A. The 1,347M might include: - Impairments (already excluded from EBITDA if below operating line, or included if in operating expenses) - Fair value changes - Provisions (but 104M is separate) - Regulatory account adjustments For a regulated utility, some of these might be recurring in nature (like regulatory true-ups). Given the uncertainty, let me use a range and also consider if S&P would use a normalized or reported figure. For regulated utilities, S&P often focuses on "regulatory EBITDA" or sustainable cash flow. The 137M reported EBITDA seems very low and might not reflect the utility's earning power. Let me try another approach: Use FFO (Funds From Operations) as proxy for sustainable cash generation. From cash flow: "Cash Flows From Used In Operations Excluding Eeg Working Capital" = 596M. This is a cash-based measure excluding the volatile EEG working capital. FFO typically approximates: Net income + D&A + deferred taxes + other non-cash items - working capital changes. Or more simply for utilities: EBITDA - cash interest - taxes - working capital changes. If cash from operations excl EEG working capital is 596M, and we add back taxes paid of 231M, we get 827M. This is closer to a "sustainable operating cash flow" before working capital and taxes. But this includes working capital changes (non-EEG). The non-EEG working capital change was -736M (use). So pre-working capital cash flow = 827 + 736 = 1,563M? Or is it 827 - 736? Signs are confusing. Let me try: If working capital was a use of 736M, then before working capital, cash flow would be higher by 736M. So 596 + 736 = 1,332M. Then add taxes 231M = 1,563M. This would be like EBITDA + non-cash items. Actually, this is getting too convoluted. Let me use a simpler FFO approximation: Net income: -879M Add D&A: 1,233M Add other non-cash (provisions, etc.): 104M + 1,347M = 1,451M FFO ≈ -879 + 1,233 + 1,451 = 1,805M? That seems high. But this includes the 1,347M "other noncash" which might not be sustainable. Let me try: FFO = Net income + D&A + deferred taxes + equity income - equity dividends + other non-cash = -879 + 1,233 + ? + 120 - 92 + ... Actually, I think for this exercise, I should stick closer to the standard formula and use reported EBITDA with minimal adjustments, as S&P would do for a first-cut analysis. **Final Adjusted EBITDA:** - Base EBITDA (including equity method): 257,000,000 - Add non-recurring loss (Other Gains Losses): 38,000,000 - Add lease adjustment (estimated): I'll use a practical estimate. With lease liabilities of 729M and payments of 221M, the "lease expense" under old treatment might be around 150-200M. But since IFRS 16 already gives us higher EBITDA, and S&P adds lease liabilities to debt, I'll add back a conservative lease adjustment to make it comparable: roughly the interest component of ~25M plus depreciation of ~75M = 100M, OR just use the cash payment as proxy for old operating lease expense. Actually, the most common S&P approach I've seen is: - Debt: add full lease liabilities - EBITDA: add back 1/3 of lease expense or use EBITDAR Let me use a simplified lease adjustment: multiply lease liability by cost of debt (say 3%) and add back as "lease interest" plus ROU depreciation. But this is circular. I'll use: Add back estimated lease expense of 150M (roughly 221M payment minus estimated principal reduction of ~71M = interest ~150M? No, that doesn't work either). Let me just use the cash flow information: Payments of 221M were made. Under old operating lease, this would be the lease expense. Under IFRS 16, the total lease-related expense is D&A of ROU + interest. If we want to approximate old treatment, we'd add back these and subtract 221M. But for simplicity, I'll use: Lease adjustment = +75M (ROU depreciation) + 25M (estimated interest) = 100M, to get back to a "clean" EBITDA. Actually, I realize I should check if the 1,233M D&A includes ROU depreciation. It likely does. So EBITDA already includes the benefit. For conservative S&P analysis, I'll use NO lease adjustment to EBITDA (accepting the IFRS 16 benefit) but include leases in debt. This is slightly conservative for leverage. **Final Adjusted EBITDA = 257M + 38M = 295,000,000 EUR** Wait, I want to reconsider. The 257M includes equity method income of 120M. Should I instead use proportional EBITDA of JVs? Looking at JVs: Investments in JVs = 630M, Associates = 36M. Equity income = 120M. This is a 18% return on investment, which seems high. The 120M might include dividends or one-time items. If I use proportional EBITDA, I'd need the JVs' revenue or EBITDA. Not available. I'll stick with equity income. But actually, for S&P, they often replace equity income with proportional EBITDA when data is available. When not available, they might use equity income as proxy or exclude it. Let me use EBITDA excluding equity method: 137M + 38M = 175M. This is more conservative. Or include it: 295M. Given the regulated utility context and S&P's typical approach, I'll use 295M as it includes the JV contribution which is part of ongoing operations. Actually, let me reconsider one more time. The equity method income of 120M is already in "Profit Loss From Operating Activities" of -976M. So: Revenue 8,299 - Costs (9,395) + Equity income 120 = -976 operating profit EBITDA = Operating profit + D&A = -976 + 1,233 = 257 (this includes equity method) Or if we define EBITDA as before equity method: = (Revenue - Costs) + D&A = (-1,096) + 1,233 = 137 S&P typically uses EBITDA that includes equity method income (as it's part of operating activities). So 257M is appropriate. Add non-recurring loss: 257 + 38 = 295M. ## Step 4: Calculate Adjusted_Debt / Adjusted_EBITDA Adjusted_Debt = 15,868,500,000 EUR Adjusted_EBITDA = 295,000,000 EUR Ratio = 15,868,500,000 / 295,000,000 = 53.79 This is extremely high! Let me double-check. 15,868.5 / 295 = ? 15,000 / 300 = 50 868.5 / 295 ≈ 2.94 Total ≈ 52.94 More precisely: 15,868,500,000 / 295,000,000 = 53.7915... This seems very high for any company. Did I make an error? Let me check: If EBITDA is only 295M and debt is 15.9B, that's a 54x ratio. For a regulated utility with massive capex program, this might be temporarily high, but it's extreme. Possible issues: 1. EBITDA might be too low 2. Debt might be too high 3. Both Let me reconsider EBITDA. The 295M seems very low. Is there a normalization issue? Looking at 2021: EBITDA was ~890M with equity. The drop to 257M in 2022 is due to: - Revenue up 50% (5,524 to 8,299) - But costs up more (5,861 to 9,395) - Energy Transmission Charges up 83% (4,102 to 7,517) The cost growth outpaced revenue growth. For a regulated utility with cost-pass-through, this should eventually be recovered, but there's a timing lag. If S&P uses a "normalized" or "regulatory" EBITDA, they might adjust for this timing difference. But without specific regulatory account details, it's hard to do. Alternatively, if I use FFO or cash flow based measures: - Cash from operations excl EEG working capital: 596M - This is after taxes and some working capital, but closer to sustainable cash flow If I use 596M as proxy for "sustainable EBITDA-like cash flow": Ratio = 15,868 / 596 = 26.6 Still high, but more reasonable. Or if I use 1,370M (my earlier mistaken EBITDA calculation): Ratio = 15,868 / 1,370 = 11.6 Hmm, let me recheck that 1,370. Where did I get it? I said "operating profit before D&A = 137, then EBITDA = 137 + 1,233 = 1,370." But that was wrong because 137 was already EBITDA, not operating profit before D&A. Wait, let me re-examine. I said: "Operating profit before D&A = 137M" - this is wrong terminology. What I calculated was: Revenue - cash costs = 8,299 - 8,162 = 137. And I said this is "operating profit before D&A." But actually, this IS EBITDA (before equity method). Then I said EBITDA = 137 + 1,233 = 1,370. That was double-counting D&A. So 137M is correct for EBITDA before equity method. But wait - let me verify with 2021. I calculated 2021 EBITDA as 828M before equity. Let me check: Revenue 5,524 - cash costs 4,696 = 828. Yes. With equity: 828 + 62 = 890. For 2022: Revenue 8,299 - cash costs 8,162 = 137. With equity: 137 + 120 = 257. The cash costs grew much faster than revenue. Why? Energy Transmission Charges: 4,102 to 7,517 = +83% Revenue: 5,524 to 8,299 = +50% This suggests TenneT is paying much more for energy transmission (perhaps purchasing transmission rights or paying other TSOs) while their own revenue hasn't kept pace. For a TSO, this could reflect: - Higher purchased transmission costs - Regulatory lag in passing through costs - Growth in the business with temporary margin compression Given this is a regulated utility, S&P might use a "regulatory EBITDA" that normalizes for cost recovery timing. But without specific information, I'll proceed with reported figures. However, let me also consider if I should use average or year-end debt. S&P typically uses average debt for ratios, but the prompt asks for 2022 ratio using year-end 2022 data. I'll use year-end as provided. Actually, looking at the data format: The 2023-01-01 figures are year-end 2022. The 2022-01-01 figures are year-end 2021. For 2022 fiscal year performance, I use the income statement for 2022-01-01 to 2023-01-01. For balance sheet, I should use average of beginning and end, or just year-end? S&P typically uses average debt for leverage ratios to match with flow measures like EBITDA. But sometimes they use year-end for simplicity. Let me calculate with average debt: Debt at 2022-01-01 (start of 2022): - Long-term Borrowings: 12,366M - Short-term Borrowings: 1,339M - Current Bank Overdrafts: 64M - Total: 13,769M Lease liabilities at 2022-01-01: 235 + 169 = 404M Pension liability: 351M Hybrid: 2,125M (50% = 1,062.5M) Other financial liabilities: 183 + 281 = 464M Cash: 3,204M Adjusted debt at start: 13,769 + 404 + 351 + 1,062.5 + 464 - 3,204 = 12,846.5M Average adjusted debt: (15,868.5 + 12,846.5) / 2 = 14,357.5M Ratio with average debt: 14,357.5 / 295 = 48.67 Still very high. With year-end debt and "normalized" EBITDA of say 600M (rough average of 2021 and 2022): 15,868.5 / 600 = 26.4 Given the uncertainty, let me also try using EBITDA that includes the large non-cash adjustment. If the 1,347M "Other Adjustments For Noncash Items" is added back (assuming it's non-recurring or normalization item): Adjusted EBITDA = 257 + 38 + 1,347 = 1,642M Ratio = 15,868.5 / 1,642 = 9.66 This is more reasonable for a regulated utility. But is this appropriate? The 1,347M is labeled "Other Adjustments For Noncash Items" in the cash flow statement. For a utility, this could include: - Regulatory asset/liability changes - Fair value adjustments - Other accounting adjustments If these are truly non-cash and non-recurring (or normalizing items), S&P might add them back. But they're not typical "non-recurring" items like restructuring. Actually, looking at the pattern: 2021 had "Other Adjustments For Noncash Items" of 1,101M. So this is consistently large. This suggests it's a recurring accounting adjustment, not a one-time item. For a regulated utility with "regulatory accounting" under IFRS or local GAAP, these could be timing differences that will reverse. S&P might normalize for these. But without knowing the exact composition, adding back the full 1,347M is aggressive. Let me try a middle ground: add back half as normalization: 673.5M Adjusted EBITDA = 257 + 38 + 673.5 = 968.5M Ratio = 15,868.5 / 968.5 = 16.38 Still high but more plausible. Actually, I want to revisit my debt calculation. Did I double-count something? Reported debt: - Long-term Borrowings: 19,006M - Short-term Borrowings: 709M - Total: 19,715M Less cash: 6,547M Net reported debt: 13,168M Plus leases: 729M Plus pension: 174M Plus hybrid (50%): 1,062.5M Plus other financial liabilities: 735M Total adjustments: 2,700.5M Adjusted debt: 13,168 + 2,700.5 = 15,868.5M Is "Other Current Financial Liabilities" of 550M truly debt-like? It could include: - Derivative liabilities - Deposits received - Other items If these are operating liabilities (not debt-like), I should exclude them. But the name "financial liabilities" suggests they're debt-like. Similarly, "Other Noncurrent Financial Liabilities" of 185M. Let me check if these are significant enough to matter. If I exclude them: Adjusted debt = 15,868.5 - 735 = 15,133.5M Ratio = 15,133.5 / 295 = 51.3 Still very high. What if I exclude hybrid debt? Some might argue hybrid capital is 100% equity for a government-owned utility with strong state support. Without hybrid: 15,868.5 - 1,062.5 = 14,806M Ratio = 14,806 / 295 = 50.2 Not much difference. What if cash is not fully deductible? S&P sometimes excludes restricted cash or minimum operating cash. If only 50% of cash is eligible: 6,547 / 2 = 3,273.5M deduction Additional debt: 3,273.5M Adjusted debt = 15,868.5 + 3,273.5 = 19,142M Ratio = 64.9 Worse. I think the fundamental issue is that EBITDA is very low in 2022. Let me verify this is correct by checking if there's an error in my revenue/cost matching. Revenue: 8,299M Energy Transmission Charges: 7,517M (expense) Employee Benefits: 285M Misc Other Operating: 322M Other Gains Losses: -38M (loss, so +38 expense) Total costs I identified: 7,517 + 285 + 322 + 38 = 8,162M Revenue - these costs = 137M But Operating Expense is 9,395M. Difference: 9,395 - 8,162 = 1,233M = D&A. So yes, my calculation is correct. The other costs sum to 8,162M, plus D&A 1,233M = 9,395M total operating expense. And Revenue 8,299 - Operating Expense 9,395 = -1,096 EBIT before equity. The issue is simply that in 2022, TenneT's costs exceeded their revenue by a large margin, even before D&A. For a regulated utility, this should be temporary (costs will be recovered in future rates). But for 2022 reported financials, the EBITDA is indeed very low. Given this, I think S&P would either: 1. Use reported figures and get a very high ratio 2. Normalize EBITDA based on regulatory cost recovery mechanism 3. Use a multi-year average For this exercise, I'll use reported figures with minimal adjustments, as that's the most objective approach. **Final calculation:** Adjusted_Debt = 15,868,500,000 EUR Adjusted_EBITDA = 295,000,000 EUR Ratio = 15,868,500,000 / 295,000,000 = 53.791525... Rounded to two decimal places: 53.79 But wait - I want to double-check my EBITDA one more time. Is 295M reasonable? Let me verify with the cash flow statement: "Cash Flows From Used In Operations Excluding Eeg Working Capital" = 596M This is after: - Taxes paid: 231M - Working capital changes (non-EEG): let's say use of 736M or source? If I work backwards from 596M: - Add taxes: +231M = 827M - Adjust for working capital: if working capital was source of 736M, subtract; if use, add - The "Increase Decrease In Working Capital Excluding Eeg Working Capital" = 736,000,000 In standard cash flow presentation, if working capital decreased (source of cash), this is positive. If increased (use of cash), it's negative. Looking at components: - Receivables increased: -1,026M (use) - Inventories increased: -49M (use) - Payables decreased: -33M (use) [wait, "Increase Decrease In Trade And Other Payables" = -33M. If payables decreased, that's negative for cash] - Contract liabilities increased: +103M (source) - Current financial liabilities increased: +269M (source) Sum: -1,026 - 49 - 33 + 103 + 269 = -736M So working capital was a USE of 736M (negative for cash flow). Therefore, pre-working capital cash flow = 596 + 736 = 1,332M (adding back the use) Plus taxes = 1,332 + 231 = 1,563M This 1,563M is roughly: EBITDA + non-cash items - interest - other adjustments. If EBITDA = 257M, and non-cash items (excluding D&A) = 38 + 120 + 104 + 1,347 = 1,609M Then 257 + 1,609 = 1,866M. Minus interest paid (202M) = 1,664M. Close to 1,563M with some other items. Actually, this suggests the 1,347M non-cash adjustment is real and significant. If we consider "sustainable" EBITDA before these accounting adjustments, it might be much higher. But for standard S&P EBITDA, I'll stick with 295M. However, I realize I should check one more thing: is "Profit Loss From Operating Activities" the same as EBIT? In IFRS, "Operating profit" or "Profit from operating activities" typically includes operating items and excludes financing and taxes. It may or may not include equity method. For TenneT: "Profit Loss From Operating Activities" = -976M, which includes equity method income of 120M. Then "Finance Income Cost" = -257M (net finance cost) "Profit Loss Before Tax" = -976 + (-257)? No, -976 - 257 = -1,233, but reported is -1,233. Wait: -976 + (-257) doesn't equal -1,233. Actually: -976 + (-257) = -1,233? -976 - 257 = -1,233. Yes! -976 - 257 = -1,233. Wait, no: -976 + (-257) = -1,233. But -976 - 257 = -1,233. Same thing. But -976 - 257 = -1,233. Let me check: 976 + 257 = 1,233. Yes. So Profit from operating activities -976 plus Finance income cost -257 = Profit before tax -1,233. This checks out. Now, is "Finance Income Cost" the same as net finance cost? Yes, 43 - 300 = -257. So the structure is: - Operating activities: -976 - Financing: -257 - Before tax: -1,233 - Tax: -354 (credit, so benefit) - Profit: -879 All checks out. Given this validation, my EBITDA of 257M (with equity) or 137M (without) is correct. For final S&P adjusted EBITDA, I'll use: - Base: 257M (including equity method, as S&P typically does for utilities) - Add non-recurring loss: +38M - Total: 295M But I want to add one more consideration: S&P for regulated utilities often uses "FFO to debt" as preferred measure, not "Debt to EBITDA." The FFO would be higher than EBITDA due to add-backs. However, the prompt asks specifically for debt-to-EBITDA, so I'll provide that. Final answer: 15,868.5 / 295 = 53.79 Actually, let me recalculate with more precision: 15,868,500,000 / 295,000,000 = 53.7915254237... Rounded: 53.79 But I want to sanity check this against industry norms. For regulated utilities, S&P typically sees debt/EBITDA of 3-6x as investment grade. 54x is deep distress territory. Is TenneT in distress? It's government-owned, so likely not. The low EBITDA is probably a temporary accounting phenomenon. If I use a "normalized" EBITDA assuming cost recovery: Suppose the 7,517M Energy Transmission Charges should be fully pass-through with zero margin, but TenneT earns a regulated return on its asset base. Regulated asset base: PP&E 26,823M + other regulated assets. Say 27B total. Allowed return: say 4% = 1,080M Plus depreciation: 1,233M Regulated EBITDA ≈ 1,080 + 1,233 = 2,313M? No, that's not right either. Actually, for a cost-of-service regulated utility: Revenue = Allowed costs + Allowed return on equity Or: Revenue = O&M + D&A + Interest + Taxes + Return on Equity If Revenue = 8,299M and costs = 9,395M (including D&A), the utility is under-recovering by 1,096M before financing. This suggests regulatory lag or specific cost disallowances. Given the complexity and uncertainty, I'll provide my calculated answer but note that it's extremely sensitive to EBITDA normalization. One final check: should I use the 2021 or 2022 EBITDA, or average? The prompt asks for 2022 ratio, so 2022 EBITDA is appropriate. But if 2022 is anomalous, S&P might use a normalized figure. For conservatism and objectivity, I'll use reported 2022 figures. 53.79