I'll work through this step-by-step, identifying the relevant industry methodology and calculating the S&P-adjusted FFO-to-debt ratio for ENEL - SPA. ## Step 1: Identify the Relevant Industry ENEL - SPA is a major Italian multinational energy company. Based on the provided methodologies, ENEL operates in multiple segments: - Regulated utilities (electricity distribution, transmission) - Unregulated power and gas (generation, retail, trading) - Renewable generation Given ENEL's diversified operations with significant regulated and unregulated activities, I'll apply the **general corporate baseline** formulas as the primary approach, while incorporating relevant industry-specific considerations where applicable. ENEL is a large integrated utility with both regulated network activities and unregulated generation/supply businesses. ## Step 2: Estimate Adjusted_EBITDA First, let me reconstruct EBITDA from the income statement data: **Revenue (2022):** €140,517,000,000 **Operating Expense (2022):** €131,689,000,000 **Profit Loss From Operating Activities (EBIT/Operating Profit):** €11,193,000,000 **Depreciation Amortisation And Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss:** €7,447,000,000 **EBITDA = Operating Profit + Depreciation & Amortization** EBITDA = €11,193,000,000 + €7,447,000,000 = €18,640,000,000 Let me verify this another way: - Revenue: €140,517,000,000 - Operating expenses before D&A: We need to back this out From the components: - Raw Materials And Consumables Used: €96,896,000,000 - Services And Other Materials: €20,228,000,000 - Employee Benefits Expense: €4,570,000,000 - Other Expense By Nature: €4,685,000,000 - Less: Other Work Performed By Entity And Capitalised: -€3,415,000,000 - Less: Impairment Loss Reversal: -€1,278,000,000 - Less: Net Results From Commodity Contracts: -€2,365,000,000 Total operating expenses (excluding D&A) = €96,896M + €20,228M + €4,570M + €4,685M - €3,415M - €1,278M - €2,365M = €119,421M EBITDA = Revenue - Operating expenses (excl D&A) + Other Income = €140,517M - €119,421M = €21,096M? Wait, let me recalculate more carefully. The "Operating Expense" line is €131,689M which includes D&A. Operating Expense = €131,689M includes: - Raw Materials: €96,896M - Services: €20,228M - Employee Benefits: €4,570M - Other Expense: €4,685M - Less: Capitalised work: -€3,415M - Less: Impairment reversal: -€1,278M? No, this is typically separate Actually, let me use the direct approach: EBITDA = Operating Profit + D&A = €11,193M + €7,447M = €18,640M Or from cash flow: "Adjustments For Depreciation And Amortisation Expense And Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss" = €8,809M This cash flow adjustment includes impairment losses. Let me check: - D&A in P&L: €7,447M - Impairment reversal: €1,278M (trade receivables) - Other impairment? The cash flow adjustment is €8,809M, which is higher than €7,447M. This suggests there are additional impairments or D&A items. For S&P purposes, I'll use: **Reported EBITDA = €11,193M + €7,447M = €18,640M** Now for adjustments: **Nonrecurring items:** Looking at the data, I need to identify nonrecurring gains/losses. The "Profit Loss From Discontinued Operations" is -€2,298M for 2022. This is a significant nonrecurring loss. However, for EBITDA, discontinued operations are typically below operating profit. Let me check if there are nonrecurring items in operating profit. The "Net Results From Commodity Contracts" of €2,365M could include mark-to-market gains/losses. For S&P, commodity contract results that are non-cash or nonrecurring may need adjustment. Also, "Other Income" of €4,864M - need to check if nonrecurring. Looking at the methodology for unregulated power and gas: we should normalize for nonrecurring items. Let me use a pragmatic approach. The "Profit Loss From Discontinued Operations" of -€2,298M is clearly nonrecurring. But this is below EBIT. For EBITDA adjustments, I need to look at items affecting operating profit. The "Gains Losses On Net Monetary Position" of €290M is in the non-operating section. Let me check if there are asset disposal gains in operating profit: "Adjustments For Losses Gains On Disposal Of Noncurrent Assets" in cash flow is -€355M (i.e., gain of €355M). This suggests there was a gain on disposal. For S&P adjustments, I'll make these normalizations: - Remove gains on disposal: -€355M (subtract gain) - The "Other Work Performed By Entity And Capitalised" of €3,415M is already capitalized, not in EBITDA Actually, let me reconsider. S&P typically starts with reported EBITDA and makes specific adjustments. For utilities with commodity exposure, they may adjust for nonrecurring commodity gains/losses. Looking more carefully at ENEL's structure: they have significant commodity contract results. The "Net Results From Commodity Contracts" of €2,365M is included in revenue/operating profit. For a conservative S&P approach, let me use: **Base EBITDA = €18,640M** Adjustments: - Nonrecurring losses: The discontinued operations loss of €2,298M is below EBIT, so doesn't affect EBITDA - Gains on disposal: €355M (to subtract as nonrecurring gain) But wait - the gain on disposal is likely already in operating profit. Let me verify: "Adjustments For Losses Gains On Disposal Of Noncurrent Assets" is -€355M in cash flow, meaning a gain of €355M was deducted to get to operating cash flow. This suggests the gain was in profit. So: **Adjusted_EBITDA = €18,640M - €355M = €18,285M** Let me also consider if we need to add back any other items. The "Gains Losses On Net Monetary Position" of €290M is below operating profit (in financial items). Actually, re-reading the cash flow: "Adjustments For Losses Gains On Disposal Of Noncurrent Assets" = -€355M means we subtract a gain. So the gain was €355M included in profit, and we subtract it to get cash flow. For EBITDA, if the gain was in operating profit, we should subtract it. If it was below EBIT, we don't adjust EBITDA. Looking at the P&L structure, gains on disposal are typically in operating profit or financial income. Given it's in operating cash flow adjustments, it was likely in operating profit. Let me be more conservative and use: **Adjusted_EBITDA = €18,640M - €355M = €18,285M** However, I want to check if there are lease adjustments. Looking at the balance sheet, I don't see explicit lease liabilities disclosed separately. Under IFRS 16, leases are typically in "Other Noncurrent Liabilities" or specific lease lines. Looking at the liabilities: "Other Noncurrent Liabilities" = €4,246M and "Other Current Liabilities" = €11,713M. These may include leases. Actually, for ENEL as a utility, lease obligations may not be material. Let me check if there are specific lease disclosures. I don't see explicit finance lease liabilities. Let me proceed with **Adjusted_EBITDA = €18,285M** (after removing €355M gain on disposal). Wait - I need to reconsider. The S&P methodology says "nonrecurring_losses - nonrecurring_gains". So if there's a gain, we subtract it. But I need to check: is the €355M really nonrecurring? S&P typically looks at material, one-time items. Also, I should check if the "Net Results From Commodity Contracts" includes nonrecurring items. For a utility with trading operations, this may be recurring. Let me also consider the "Other Income" of €4,864M. This includes €389M from related parties. Is this recurring? Likely yes (government grants, insurance, etc.). I'll stick with **Adjusted_EBITDA = €18,285M** as my best estimate, but let me also consider an alternative without the disposal adjustment if it's not material enough. Actually, let me recalculate EBITDA more carefully from the cash flow statement to ensure accuracy. From cash flow: "Cash Flows From Used In Operating Activities" = €8,674M This is after working capital changes and other adjustments. Let me work backwards: Cash from operations before working capital: = Net profit + D&A + other non-cash items - working capital changes Net profit = €2,920M (from "Profit Loss") + D&A adjustment = €8,809M + Impairment reversal (trade receivables) = €1,288M? + Finance income/cost adjustment = -€2,499M + Undistributed profits of equity method = €23M + Income tax expense = €3,470M + Other non-cash items = -€927M + Gains on disposal = -€355M = €2,920M + €8,809M + €1,288M - €2,499M + €23M + €3,470M - €927M - €355M = €12,729M Then working capital changes = €3,961M + Finance income received = €2,622M - Finance costs paid = €5,016M - Income taxes paid = €1,934M = €3,961M + €2,622M - €5,016M - €1,934M = -€367M Total operating cash flow = €12,729M - €367M = €12,362M? But reported is €8,674M. Hmm, discrepancy. Wait, I need to include discontinued operations. "Cash Flows From Used In Operating Activities Discontinued Operations" = -€391M. And the "Increase Decrease In Working Capital" of €3,961M already includes various components. Let me try a different approach. The cash flow statement shows: - "Adjustments For Depreciation And Amortisation Expense And Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss" = €8,809M This is the key D&A figure for cash flow purposes, higher than the P&L figure of €7,447M because it includes impairments and other items. For S&P EBITDA, we typically use P&L-based EBITDA, not cash flow based. Let me recalculate: EBIT = €11,193M (from "Profit Loss From Operating Activities") + D&A from P&L = €7,447M = EBITDA = €18,640M Now, the "Depreciation Amortisation And Impairment Loss Reversal" in P&L is €7,447M. But "Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss Trade Receivables" is €1,278M. Is the €7,447M figure net of this reversal? Or does it include the reversal? Typically, "Depreciation Amortisation And Impairment" is a separate line that includes impairment losses (not reversals). The reversal of €1,278M is shown separately as a positive item (reducing expenses). So total D&A + impairments (net) = €7,447M - €1,278M? Or is €7,447M already net? Looking at standard IFRS presentation: "Depreciation, amortisation and impairment losses" typically includes impairment losses, while "reversal of impairment losses" is shown separately as a credit. So EBITDA = EBIT + D&A (gross) - impairment reversals? No, that's wrong. Actually: Operating profit = Revenue - Operating expenses + Other income If "Depreciation Amortisation And Impairment Loss" is €7,447M expense, and "Impairment Loss Reversal" is €1,278M income (credit), then: Total D&A and impairment (net) = €7,447M - €1,278M = €6,169M? But wait - the €7,447M might already be net of reversals, or the €1,278M might be included in revenue/other income. Looking at typical ENEL reporting, the "Depreciation Amortisation And Impairment Loss" line usually includes all impairment losses and reversals on a net basis, or they're shown separately. Given the cash flow adjustment is €8,809M, which is higher than €7,447M, this suggests the cash flow adds back more (including the reversal and other items). For conservative S&P analysis, let me use: **EBITDA = €11,193M + €7,447M = €18,640M** (standard definition) Or if we use the cash flow D&A figure: €11,193M + €8,809M = €20,002M? But this would double-count if €8,809M includes items already in operating profit. Actually, the cash flow starts from "Profit Loss" of €2,920M, not operating profit. So the €8,809M is added back to net profit, not operating profit. For S&P EBITDA from operating profit: €18,640M is correct. Now for lease adjustments: Under S&P methodology, we add back operating lease expense or capitalize finance leases. For IFRS 16, leases are already on balance sheet. Looking at ENEL's balance sheet, I don't see explicit "Right-of-use assets" or "Lease liabilities" broken out. This suggests leases may be immaterial or embedded in other lines. Let me check: "Other Noncurrent Assets" = €2,486M, "Other Noncurrent Liabilities" = €4,246M. These could include leases. Given the lack of explicit lease disclosure, I'll assume **no material lease adjustment** is needed, or IFRS 16 is already applied with minimal impact. **Final Adjusted_EBITDA estimate: €18,285M** (after €355M nonrecurring gain adjustment) Actually, let me reconsider. The €355M gain - is it material enough to adjust? S&P typically adjusts for material nonrecurring items. For a company with €18.6B EBITDA, €355M is about 2% - arguably material. But I want to also check: are there other nonrecurring items? The "Other Comprehensive Income" items, "Monetary Revaluation IAS29" of €726M - this is an accounting adjustment for hyperinflation, likely in Argentina operations. This is below net income (in OCI), so doesn't affect EBITDA. Let me also consider if "Net Results From Commodity Contracts" includes nonrecurring items. For ENEL, commodity contracts are part of normal operations (trading/hedging). I'll use **Adjusted_EBITDA = €18,640M** (no adjustment for gain, as it may be part of normal asset management) or **€18,285M** (with adjustment). Given S&P's conservative approach, let me use the unadjusted figure as base and note the adjustment: **Adjusted_EBITDA = €18,640M** (with €355M gain to consider). Actually, re-reading S&P methodology more carefully: they typically DO adjust for material gains/losses on disposal. So: **Adjusted_EBITDA = €18,640M - €355M = €18,285M** ## Step 3: Estimate FFO **FFO = Adjusted_EBITDA - cash_interest - cash_taxes** From the cash flow statement: - "Finance Costs Paid Classified As Operating Activities" = €5,016M - "Finance Income Received Classified As Operating Activities" = €2,622M - "Income Taxes Paid Refund Classified As Operating Activities" = €1,934M Net cash interest = €5,016M - €2,622M = €2,394M However, S&P typically uses gross cash interest paid (not net of interest received), or a specific definition. Let me check the methodology. For FFO: "Adjusted_EBITDA - cash_interest - cash_taxes" Cash interest typically means interest paid, not net. But sometimes it's interest expense on a cash basis. From cash flow: Finance costs paid = €5,016M (includes related party €34M) Finance income received = €2,622M (includes related party €154M) For S&P FFO, we typically subtract cash interest paid (gross), not net interest. But wait - the formula says "cash_interest" not "net cash interest". Let me use interest paid: €5,016M. However, some S&P methodologies use "cash interest" as the interest expense from the P&L on a cash basis, or interest paid. From P&L: "Finance Costs" = €5,880M, "Finance Income" = €3,430M. Net financial expense = €2,450M. Cash interest paid = €5,016M per cash flow. Cash taxes = €1,934M. **FFO = €18,285M - €5,016M - €1,934M = €11,335M** Or if we use unadjusted EBITDA: €18,640M - €5,016M - €1,934M = €11,690M Let me also consider: should we use net interest? Some S&P definitions use "cash interest" as interest paid minus interest received. But the standard formula is typically gross interest paid. Actually, re-reading: "FFO = Adjusted_EBITDA - cash_interest - cash_taxes" In S&P methodology, "cash interest" usually means cash interest paid on debt, not net of interest received. Interest received is typically part of FFO if it's operating-related, or excluded if it's financial. But for utilities, interest received may be part of operations (customer deposits, etc.). Let me check: "Finance Income Received Classified As Operating Activities" - this is operating cash flow, so it's part of operations. But in FFO calculation, do we net it against interest? Standard S&P FFO for corporates: FFO = Funds from operations, typically calculated as: Net income + D&A + deferred taxes + other non-cash items - working capital changes... Actually, the EBITDA-based formula is a shortcut. Let me use the more standard S&P definition: FFO = Net income from continuing operations + D&A + deferred taxes + other non-cash charges - working capital changes (sometimes)... Or from EBITDA: FFO = EBITDA - cash interest - cash taxes ± other items Given the formula provided: FFO = Adjusted_EBITDA - cash_interest - cash_taxes I'll use cash interest paid = €5,016M (gross), as this is conservative and standard. But wait - I need to check if the €5,016M includes capitalized interest or other items. For S&P, we typically want the interest expense on an accrual basis, or cash interest paid. Actually, let me recalculate using the alternative FFO definition from cash flow to cross-check: From cash flow: "Cash Flows From Used In Operating Activities" = €8,674M This includes: - Working capital changes - Interest and taxes paid - Other items To get FFO (before working capital), we add back working capital changes: €8,674M + €3,961M (working capital decrease, but wait - the sign is "Increase Decrease" = €3,961M positive, meaning working capital provided cash) Actually, "Increase Decrease In Working Capital" = €3,961M. If this is positive, it means working capital decreased (source of cash). FFO before working capital = Operating cash flow - working capital changes = €8,674M - €3,961M = €4,713M? That seems too low. Wait, I need to be careful with signs. In cash flow statements: - "Increase Decrease In Working Capital" as a positive number typically means decrease in working capital (positive for cash flow) But in the direct format, it's shown as an adjustment. Let me look at the components: - Inventories increase: -€2,166M - Trade receivables increase: -€2,783M - €242M = -€3,025M - Trade payables increase: €1,333M - €1,272M = €61M? Wait, related party is -€1,272M Actually, looking at the detailed working capital: - Adjustments For Decrease Increase In Inventories: -€2,166M (increase, negative for cash) - Adjustments For Decrease Increase In Trade Account Receivable: -€2,783M - €242M = -€3,025M (increase, negative) - Adjustments For Increase Decrease In Trade Account Payable: €1,333M - €1,272M = €61M? No, total is €1,333M with related party -€1,272M... wait, that's confusing. Actually: "Adjustments For Increase Decrease In Trade Account Payable" total = €1,333M, with related party member = -€1,272M. This suggests non-related party was €1,333M and related party was -€1,272M, or the total includes both. Hmm, the "Related Parties Member" might be a breakdown. So total trade payables change = €1,333M (which includes the related party portion of -€1,272M)? That would mean non-related party was €2,605M. This is getting complex. Let me just use the total "Increase Decrease In Working Capital" = €3,961M. If working capital provided €3,961M of cash, then FFO before working capital = Operating cash flow - working capital benefit = €8,674M - €3,961M = €4,713M? That seems wrong because we should add back if working capital was a use. Actually, standard formula: Operating cash flow = FFO - Working capital increase (or + working capital decrease). So if working capital decreased (positive €3,961M), then: €8,674M = FFO + €3,961M FFO = €8,674M - €3,961M = €4,713M? But this seems too low compared to EBITDA of €18,640M. What's wrong? Ah, I think I misread. The "Increase Decrease In Working Capital" of €3,961M - is this the adjustment or the cash effect? In indirect method, we adjust net income for working capital changes. Let me recalculate from net income: Net income = €2,920M + D&A = €8,809M + Other adjustments = various - Working capital changes = ? Actually, the cash flow statement shows all adjustments to get from net income to operating cash flow. Let me sum them: Starting from "Profit Loss": €2,920M + "Adjustments For Depreciation And Amortisation..." = €8,809M + "Adjustments For Impairment Loss Reversal..." = €1,288M - "Adjustments For Finance Income Cost" = -€2,499M? (negative adjustment) + "Adjustments For Undistributed Profits..." = €23M + "Adjustments For Income Tax Expense" = €3,470M + "Increase Decrease In Working Capital" = €3,961M + "Adjustments For Accruals To Provisions" = €803M - "Adjustments For Utilization From Provisions" = -€1,521M + "Finance Income Received..." = €2,622M - "Finance Costs Paid..." = -€5,016M - "Other Adjustments For Noncash Items" = -€927M - "Income Taxes Paid..." = -€1,934M - "Adjustments For Losses Gains On Disposal Of Noncurrent Assets" = -€355M Wait, this is confusing because some items are already in the "Adjustments For Finance Income Cost" and then separately shown as cash flows. Let me look at the structure more carefully. The cash flow statement seems to use a mixed format. Actually, looking at typical IFRS cash flow statements, the operating section often shows: - Profit before tax - Adjustments for non-cash items - Changes in working capital - Interest paid/received - Taxes paid For ENEL, the items seem to be listed as adjustments. Let me try: Sum of all adjustments listed before working capital: €8,809M + €1,288M - €2,499M + €23M + €3,470M = €11,091M Plus working capital: €3,961M Plus provisions: €803M - €1,521M = -€718M Plus interest/tax items: €2,622M - €5,016M - €1,934M - €927M - €355M = -€5,610M Total adjustments: €11,091M + €3,961M - €718M - €5,610M = €8,724M Plus net income €2,920M = €11,644M? But operating cash flow is €8,674M. Discrepancy of €2,970M. Hmm, I think "Finance Income Received" and "Finance Costs Paid" might be part of the operating cash flow but the "Adjustments For Finance Income Cost" of -€2,499M is the non-cash accrual adjustment. Actually, let me try: Net income €2,920M + Total non-cash and other adjustments (excluding working capital, interest, tax) = €8,809M + €1,288M - €2,499M + €23M + €3,470M - €927M - €355M = €9,809M Subtotal: €12,729M + Working capital changes €3,961M + Provisions net -€718M = €15,972M - Interest paid €5,016M + Interest received €2,622M - Taxes paid €1,934M = €11,644M? Still not €8,674M. I think I'm double-counting or misinterpreting signs. Let me just accept the reported operating cash flow of €8,674M and work with the EBITDA-based FFO formula as given. **FFO = Adjusted_EBITDA - cash_interest - cash_taxes** Using: - Adjusted_EBITDA = €18,285M (with gain adjustment) or €18,640M (without) - Cash interest paid = €5,016M - Cash taxes = €1,934M FFO = €18,285M - €5,016M - €1,934M = **€11,335M** Or with unadjusted EBITDA: €18,640M - €5,016M - €1,934M = **€11,690M** I'll use **FFO = €11,335M** with the conservative adjusted EBITDA. Actually, I want to reconsider the cash interest. Should I use net interest paid (after interest received)? In some S&P methodologies, "cash interest" means interest paid minus interest received if the interest received is operating-related. For utilities, interest received on customer deposits might be operating. But standard corporate methodology uses gross interest paid. Let me check if there's specific utility guidance. For regulated utilities: "Our financial analysis focuses on the economics and actual cash flow generation." And for the formula given: "FFO = Adjusted_EBITDA - cash_interest - cash_taxes" I'll interpret "cash_interest" as cash interest paid, gross. But wait - I should also consider if capitalized interest is included. The cash flow shows "Finance Costs Paid" which should be actual cash paid, not capitalized. Let me also check: is there interest in investing or financing activities? Typically no, interest paid is operating under IFRS. Final FFO: **€11,335M** (with €355M adjustment) or **€11,690M** (without). Given the formula and typical S&P conservatism, I'll use **FFO = €11,335M**. ## Step 4: Estimate Adjusted_Debt **Adjusted_Debt = (reported_debt + leases + pension_deficit + guarantees + hybrid_debt_portion + other_debt_like_items) - eligible_cash** First, reported debt from balance sheet: - "Longterm Borrowings" = €68,191M - "Shortterm Borrowings" = €18,392M - "Current Portion Of Longterm Borrowings" = €2,835M Total reported debt = €68,191M + €18,392M + €2,835M = **€89,418M** Let me verify with 2022 year-end (2023-01-01): - Long-term borrowings: €68,191M - Short-term borrowings: €18,392M - Current portion of long-term: €2,835M Total = €89,418M Now for adjustments: **Leases:** Need to estimate finance lease obligations. Under IFRS 16, these are in debt already. Looking at the liabilities, I don't see explicit lease liabilities. Let me assume minimal additional lease adjustment, or that they're included in "Other Noncurrent Liabilities" and "Other Current Liabilities." Actually, checking: "Other Noncurrent Financial Liabilities" = €0 (was €120M in 2022). "Other Current Financial Liabilities" = €853M. These could include lease liabilities. But without explicit disclosure, I'll assume **€0 lease adjustment** (already in reported debt if material). **Pension deficit:** "Noncurrent Provisions For Employee Benefits" = €2,202M. This includes pension obligations. For S&P, we typically add pension deficit (funded status) if underfunded. The balance sheet shows "Noncurrent Provisions For Employee Benefits" of €2,202M and "Other Longterm Provisions" of €6,055M. The pension deficit would be the underfunded portion. Without explicit pension asset/liability split, I'll use the employee benefits provision as a proxy: **€2,202M** (conservative, assuming underfunded). But wait - "Deferred Tax Assets" = €10,925M and "Deferred Tax Liabilities" = €9,542M. Net deferred tax = €1,383M asset. Pension deficits are often offset against deferred tax assets. But for S&P debt adjustments, we typically add the gross pension deficit. Let me use **€2,202M** as pension-related adjustment. **Hybrid debt portion:** Looking at equity, "Equity Instruments Perpetual Hybrid Bonds Member" = €5,567M. For S&P, hybrid bonds are typically treated as 50% debt or 100% debt depending on features. Perpetual hybrids with equity-like features may get 50% equity credit. The methodology mentions "Equity Instruments Perpetual Hybrid Bonds" - these are perpetual, so likely get some equity credit. S&P typically assigns 50% equity credit to perpetual hybrids. So hybrid debt portion = 50% of €5,567M = **€2,784M** (or €5,567M if 100% debt). Actually, for S&P credit analysis, the standard treatment is: - Perpetual non-cumulative hybrids: 50% equity credit - Perpetual cumulative hybrids: less equity credit Given these are "Equity Instruments" per ENEL's classification, they likely have equity-like features. Let me use **€2,784M** (50% treated as debt). But wait - the methodology says "hybrid_debt_portion" in the formula. This suggests we add the portion that's treated as debt. So if 50% equity credit, we add 50% as debt-like: **€2,784M**. Actually, re-reading: "hybrid_debt_portion" - this is the portion treated as debt. So yes, €2,784M. **Guarantees and other debt-like items:** Not explicitly disclosed. Let me assume **€0** for lack of information. **Eligible cash:** "Cash And Cash Equivalents" = €11,041M. For S&P, we typically subtract a portion of cash, not all, unless it's truly excess. Standard practice is to subtract most or all cash, depending on working capital needs. "Cash And Cash Equivalents Of Continuing Operations" = €11,041M "Shortterm Investments Classified As Cash Equivalents" = €78M Total liquid funds = €11,119M. For S&P, eligible cash is typically cash and short-term investments minus any restricted cash. Assuming no restricted cash: **€11,041M** or **€11,119M**. I'll use **€11,041M** as eligible cash (conservative, using main cash figure). Now calculate Adjusted_Debt: = €89,418M + €0 (leases) + €2,202M (pension) + €0 (guarantees) + €2,784M (hybrid) + €0 (other) - €11,041M (cash) = €89,418M + €2,202M + €2,784M - €11,041M = **€83,363M** Wait - I need to reconsider the hybrid treatment. If the hybrids are already in equity, not debt, then we're adding the debt-like portion to debt. So yes, +€2,784M. But actually, looking at ENEL's equity: "Equity Instruments Perpetual Hybrid Bonds Member" = €5,567M is in equity. For S&P adjusted debt, we reclassify 50% as debt: +€2,784M. Let me also check if there are other debt-like items: - "Noncurrent Derivative Financial Liabilities" = €5,895M - "Current Derivative Financial Liabilities" = €16,141M These are derivative liabilities, not debt. S&P typically does not include derivative liabilities in debt (they're mark-to-market, not principal obligations). - "Noncurrent Contract Liabilities" = €5,747M - these are deferred revenue, not debt - "Current Contract Liabilities" = €1,775M - deferred revenue - "Trade And Other Payables" = €17,641M - trade payables, not debt So total debt-like items seem well-captured. One more item: "Liabilities Included In Disposal Groups Classified As Held For Sale" = €3,360M. These include debt of discontinued operations. Should we include? For S&P, if the disposal is pending and likely to close, we might exclude. But conservative approach includes until actually disposed. However, the debt figure I used (€89,418M) is from the main liability sections, not including held-for-sale. Let me check if held-for-sale includes debt. "Noncurrent Assets Or Disposal Groups Classified As Held For Sale" = €6,149M assets, with €3,360M liabilities. The liabilities likely include some debt. For conservative S&P analysis, I'll include debt of held-for-sale operations until disposed. But I don't have the split of the €3,360M liabilities into debt vs. other liabilities. Actually, looking at the liability structure: the €89,418M debt is from continuing operations. The €3,360M held-for-sale liabilities likely include some debt. Without explicit breakdown, I'll use **€89,418M + estimated debt in held-for-sale**. If we assume similar debt ratio as overall group: Total liabilities = €177,536M Debt = €89,418M Debt ratio = 50.4% Held-for-sale liabilities €3,360M × 50.4% = €1,693M estimated debt Total reported debt with held-for-sale = €89,418M + €1,693M = €91,111M But this is rough. Let me stick with €89,418M for continuing operations, as the held-for-sale may not close. Actually, for FFO, I used continuing operations EBITDA. So debt should match. Let me use continuing operations debt: **€89,418M**. Recalculating Adjusted_Debt: = €89,418M + €2,202M + €2,784M - €11,041M = **€83,363M** Let me also consider: should I use 2022 average debt or year-end? S&P typically uses year-end or average. For ratios, they often use average debt for flow ratios, but point-in-time for stock ratios. FFO/debt is a flow/stock ratio. S&P typically uses average debt for the denominator when comparing to flow measures like FFO. But sometimes they use year-end. Given the formula provided doesn't specify, I'll use **year-end 2022 debt** (which is 2023-01-01 in the data, i.e., December 31, 2022). Wait - I need to check the dates. The data shows: - "Longterm Borrowings" 2023-01-01: €68,191M - "Longterm Borrowings" 2022-01-01: €54,500M So 2023-01-01 is the 2022 year-end. 2022-01-01 is 2021 year-end. For 2022 fiscal year, I should use 2022 year-end (2023-01-01) or average. Let me calculate average debt: 2021 year-end: €54,500M + €13,306M + €4,031M = €71,837M 2022 year-end: €68,191M + €18,392M + €2,835M = €89,418M Average = (€71,837M + €89,418M) / 2 = €80,628M Using average debt for the denominator is more standard for S&P flow ratios. So Adjusted_Debt with average: = €80,628M + €2,202M (pension, using year-end) + €2,784M (hybrid, year-end) - €11,041M (cash, year-end) Hmm, but pension and hybrid also change. Let me approximate with year-end figures for adjustments, or use averages where material. Actually, for simplicity and following the formula literally, let me use **year-end 2022 figures** throughout, as the formula suggests "reported_debt" without specifying average. Adjusted_Debt (year-end 2022) = **€83,363M** Or with average debt: €80,628M + €2,202M + €2,784M - €11,041M = €74,573M I think S&P typically uses **average debt** for FFO/debt and similar ratios. Let me use: Average reported debt = €80,628M Pension (year-end) = €2,202M Hybrid (year-end, 50%) = €2,784M Cash (year-end) = €11,041M Adjusted_Debt = €80,628M + €2,202M + €2,784M - €11,041M = **€74,573M** But this mixes averages and year-ends. For cleaner approach, let me use **year-end throughout**: €83,363M. Actually, looking at S&P practice more carefully: they do use average debt for FFO/debt. Let me check if I can calculate average pension and hybrid. 2021 year-end equity shows "Equity Instruments Perpetual Hybrid Bonds Member" = €5,567M? Let me check: "Equity" "Equity Instruments Perpetual Hybrid Bonds Member" 2022-01-01: €5,567M "Equity" "Equity Instruments Perpetual Hybrid Bonds Member" 2021-01-01: €2,386M So hybrid bonds increased. Average hybrid = (€5,567M + €2,386M) / 2 = €3,977M 50% debt portion average = €1,988M 2021 year-end "Noncurrent Provisions For Employee Benefits": need to check. Looking through data... I see "Noncurrent Provisions For Employee Benefits" 2022-01-01: €2,724M? Let me check: "Noncurrent Provisions For Employee Benefits" 2023-01-01: €2,202M "Noncurrent Provisions For Employee Benefits" 2022-01-01: €2,724M So 2021 year-end = €2,724M, 2022 year-end = €2,202M Average = €2,463M Cash 2021 year-end: €8,858M (from "Cash And Cash Equivalents" 2022-01-01) Cash 2022 year-end: €11,041M Average cash = €9,950M Average reported debt = €80,628M (calculated above) Adjusted_Debt (average basis) = €80,628M + €2,463M + €1,988M - €9,950M = **€75,129M** This is getting complex. For practical purposes, let me use **year-end 2022** figures as the most conservative and straightforward: Adjusted_Debt = €83,363M Or if we want to be more accurate with averages: €75,129M I'll provide both calculations and use the year-end as primary (more conservative for credit analysis). ## Step 5: Calculate FFO / Adjusted_Debt Using year-end figures: - FFO = €11,335M (with €355M gain adjustment) - Adjusted_Debt = €83,363M FFO / Adjusted_Debt = €11,335M / €83,363M = **0.1360** Using unadjusted EBITDA (€18,640M): - FFO = €11,690M - Ratio = €11,690M / €83,363M = **0.1402** Using average debt with adjusted FFO: - FFO = €11,335M - Adjusted_Debt = €75,129M - Ratio = €11,335M / €75,129M = **0.1509** Or with average debt and unadjusted FFO: - FFO = €11,690M - Adjusted_Debt = €75,129M - Ratio = **0.1556** Given the range, I need to determine the most appropriate S&P-standard calculation. Let me reconsider: S&P typically uses **year-end debt** for published ratios, or **average debt** for their internal analysis. For published credit ratios in reports, they often use year-end. Also, for the EBITDA adjustment: the €355M gain - is it truly nonrecurring? S&P would likely adjust for this if it's material and one-time. But let me check: ENEL's 2022 results included significant disposals (e.g., the Russian operations exit). The gain/loss on disposal could relate to this. Looking at "Profit Loss From Discontinued Operations" = -€2,298M (loss). This is separate from the €355M gain which is in continuing operations. The €355M gain is likely from asset sales in continuing operations. For S&P, they do adjust for material gains/losses on asset sales. Let me use the **conservative adjusted figures**: - Adjusted_EBITDA = €18,285M - FFO = €11,335M - Adjusted_Debt = €83,363M (year-end) **FFO / Adjusted_Debt = 0.1360** Or if we use a slightly different interpretation where "cash_interest" is net interest paid (€5,016M - €2,622M = €2,394M): - FFO = €18,285M - €2,394M - €1,934M = €13,957M - Ratio = €13,957M / €83,363M = **0.1674** This is quite different. Let me think about which is correct. In S&P's standard corporate methodology, "cash interest" typically refers to **gross interest paid**, not net. This is because interest received is often non-operating or not sustainable. However, for utilities with customer deposits or working capital interest, some interest received may be operating. Given the formula "FFO = Adjusted_EBITDA - cash_interest - cash_taxes" and typical S&P practice, I'll use **gross interest paid**: €5,016M. Final calculation: - Adjusted_EBITDA = €18,640M - €355M = €18,285M - Cash interest = €5,016M - Cash taxes = €1,934M - FFO = €18,285M - €5,016M - €1,934M = €11,335M - Reported debt = €89,418M - Pension deficit = €2,202M - Hybrid debt portion (50%) = €2,784M - Eligible cash = €11,041M - Adjusted_Debt = €89,418M + €2,202M + €2,784M - €11,041M = €83,363M **FFO / Adjusted_Debt = 11,335 / 83,363 = 0.1360** Let me also verify with a slightly different approach: if we don't adjust for the €355M gain (deeming it immaterial or not clearly nonrecurring): FFO = €18,640M - €5,016M - €1,934M = €13,690M? Wait, that's wrong. €18,640M - €5,016M - €1,934M = €11,690M Ratio = €11,690M / €83,363M = **0.1402** Given the ambiguity, and that S&P would likely make the adjustment, I'll use **0.1360** as my primary estimate. However, I want to double-check one thing: the "Finance Costs Paid Classified As Operating Activities" of €5,016M - does this include capitalized interest? Typically not, as it's cash paid. And "Finance Income Received" of €2,622M - is this operating or investing? In the cash flow, it's "Classified As Operating Activities", so it's operating. For S&P's FFO, they sometimes define it as: FFO = Net income + D&A + deferred taxes + other non-cash items - gain on sale + other adjustments - working capital changes But the EBITDA-based shortcut is: EBITDA - cash interest - cash taxes. I think my calculation is reasonable. Let me finalize with **0.1360**. Wait - I want to recheck the debt calculation. Let me verify the 2022 year-end debt: From balance sheet 2023-01-01 (2022 year-end): - Longterm Borrowings: €68,191M - Shortterm Borrowings: €18,392M - Current Portion Of Longterm Borrowings: €2,835M Total = €89,418M ✓ And 2021 year-end (2022-01-01): - Longterm Borrowings: €54,500M - Shortterm Borrowings: €13,306M - Current Portion Of Longterm Borrowings: €4,031M Total = €71,837M ✓ Average = €80,628M ✓ For S&P published ratios, they often use **year-end debt**. Let me check if there's a specific convention. In S&P's "Ratios And Adjustments" methodology, they typically specify: - For income statement / cash flow ratios: use average balance sheet items if the flow is measured over a period - For point-in-time ratios: use year-end FFO is measured over a period (annual), so average debt is theoretically more appropriate. But in practice, S&P often uses year-end for simplicity in published reports. Given this ambiguity, and that the problem asks for "2022" ratio, I'll provide the year-end calculation as primary: **0.1360**. But let me also note the average debt variant: **0.1509** or with unadjusted EBITDA: **0.1556**. Actually, I realize I should check one more thing: are the hybrid bonds already included in debt? Looking at the equity section, "Equity Instruments Perpetual Hybrid Bonds Member" is in equity, not debt. So my treatment is correct - we add the debt-like portion to adjusted debt. Also, I should verify: is the €5,567M hybrid at year-end 2022, or is there a different amount? "Equity" "Equity Instruments Perpetual Hybrid Bonds Member" 2023-01-01: €5,567M "Equity" "Equity Instruments Perpetual Hybrid Bonds Member" 2022-01-01: €5,567M Wait, it's the same? Let me check: 2022-01-01 shows €5,567M and 2023-01-01 shows €5,567M. But earlier I saw 2021-01-01 was €2,386M. Actually, looking more carefully: - "Equity" "Equity Instruments Perpetual Hybrid Bonds Member" 2022-01-01: €5,567M - "Equity" "Equity Instruments Perpetual Hybrid Bonds Member" 2021-01-01: €2,386M And 2023-01-01: €5,567M? Let me check: "Equity" "Equity Instruments Perpetual Hybrid Bonds Member" 2023-01-01: €5,567M Hmm, but in the detailed equity section, I see: "Equity" "Equity Instruments Perpetual Hybrid Bonds Member" 2022-01-01: €5,567M And in the changes section: "Hybrid Bonds Issued" 2021-01-01 - 2022-01-01: €3,181M From €2,386M to €5,567M is an increase of €3,181M. Yes! So 2021 year-end = €2,386M, 2022 year-end = €5,567M. Wait, but I also see "Equity" "Equity Instruments Perpetual Hybrid Bonds Member" 2023-01-01: €5,567M? Let me search... Actually, looking at the data again, I see: "Equity" "Equity Instruments Perpetual Hybrid Bonds Member" 2022-01-01: €5,567M And in the 2023-01-01 equity section: "Equity" "Equity Instruments Perpetual Hybrid Bonds Member" 2023-01-01: €5,567M So no change in 2022? But the changes section shows "Hybrid Bonds Issued" 2022-01-01 - 2023-01-01: €0. And 2021-01-01 - 2022-01-01: €3,181M issued. So: 2021 year-end = €2,386M, 2022 year-end = €5,567M, 2023 year-end = €5,567M. For 2022 fiscal year, average hybrid = (€2,386M + €5,567M) / 2 = €3,977M, 50% = €1,988M. But I was using year-end 2022 for my primary calculation, so €5,567M × 50% = €2,784M is correct for year-end approach. Let me finalize with year-end figures throughout for consistency: **Final Answer: FFO / Adjusted_Debt = 0.1360** But I want to do one more sanity check. Let me see if this aligns with S&P's published ratings for ENEL. ENEL is typically rated BBB or BBB+ by S&P. For utilities, FFO/debt of 13-15% would be typical for BBB category. Actually, looking at S&P's utility methodology, the medial volatility table thresholds: - For 'bbb' category: FFO/debt around 12-15% might be typical My estimate of 13.6% seems reasonable for a BBB-rated utility with ENEL's profile. However, I want to also consider: should I use EBITDA before the €355M adjustment? If the gain is truly nonrecurring, S&P would adjust. But if it's part of normal asset recycling, maybe not. Let me also check if there are other nonrecurring items I missed. The "Net Results From Commodity Contracts" of €2,365M - in 2022, energy prices were very volatile. This could include significant mark-to-market gains or losses. For S&P, they often normalize commodity-related earnings to a "through the cycle" level. But without specific guidance on what's normal, I'll leave this as is. Another consideration: the "Other Income" of €4,864M. This includes €389M from related parties. Is this recurring? Likely includes government grants, insurance recoveries, etc. Some may be nonrecurring. But without detailed breakdown, I'll assume it's recurring. Final calculation with all considerations: **Adjusted_EBITDA = €18,640M** (no adjustment, as €355M gain may be part of normal operations) **FFO = €18,640M - €5,016M - €1,934M = €11,690M** **Adjusted_Debt = €83,363M** **Ratio = 0.1402** Or with adjustment: **FFO = €11,335M** **Ratio = 0.1360** Given the ambiguity, and that S&P typically does adjust for material gains on disposal, I'll use **0.1360** as my best estimate. Actually, let me reconsider one more time. The formula says "nonrecurring_losses - nonrecurring_gains". The €355M is a gain, so we subtract it. But is it nonrecurring? "Adjustments For Losses Gains On Disposal Of Noncurrent Assets" = -€355M. This is in the cash flow statement, indicating a gain of €355M was deducted to reconcile profit to cash flow. This confirms it's a gain on disposal. For S&P, gains on disposal of noncurrent assets are typically considered nonrecurring (unless the company is in the business of selling assets, like a PE firm). For a utility like ENEL, asset sales are part of portfolio management but not the core business. The €355M gain is likely nonrecurring. I'll use the adjusted figure: **0.1360** Let me also verify my debt calculation one more time: Reported debt: - Long-term: €68,191M - Short-term: €18,392M - Current portion of long-term: €2,835M = €89,418M Plus: - Pension deficit (employee benefits provision): €2,202M - Hybrid bonds (50% equity credit, so 50% debt): €2,784M Less: - Cash and equivalents: €11,041M = €89,418M + €2,202M + €2,784M - €11,041M = €83,363M ✓ Wait, I should double-check: is the "Current Portion Of Longterm Borrowings" already included in "Longterm Borrowings" or separate? Typically, "Longterm Borrowings" is non-current, and "Current Portion Of Longterm Borrowings" is the amount due within one year reclassified to current. So they're separate. Total debt = €68,191M + €18,392M + €2,835M = €89,418M ✓ One final check: are there any other debt items? "Other Current Financial Liabilities" = €853M. Could this include bank overdrafts or other debt-like items? "Other Current Financial Liabilities" 2023-01-01: €853M (with related party €1M) "Other Current Financial Liabilities" 2022-01-01: €625M These could include bank overdrafts, accrued interest, or other debt-like items. For S&P, bank overdrafts are typically included in debt. But without knowing the composition, and given the relatively small amount, I'll leave it out (conservative, as it might not be debt). Similarly, "Other Noncurrent Financial Liabilities" = €0 at 2023-01-01 (was €120M at 2022-01-01). So my debt figure seems reasonable. Final answer: **0.1360** Actually, I want to do one more variant: what if we use average debt but year-end adjustments? Average reported debt = €80,628M Year-end pension = €2,202M Year-end hybrid = €2,784M Year-end cash = €11,041M Adjusted_Debt = €80,628M + €2,202M + €2,784M - €11,041M = €74,573M FFO with adjusted EBITDA = €11,335M Ratio = €11,335M / €74,573M = **0.1520** This is quite different. Which is more standard? I think for S&P credit ratios published in rating reports, they typically use **year-end debt** for simplicity, even though average is theoretically better for flow ratios. I'll stick with **0.1360** as my primary estimate. But actually, re-reading the problem: it asks for "S&P-adjusted FFO-to-debt ratio" for 2022. This suggests a specific S&P calculation methodology. Given all the ambiguity, and that different reasonable assumptions give 0.1360 to 0.1520, let me provide the most defensible single estimate. My best estimate using: - Year-end 2022 figures - EBITDA adjusted for €355M gain on disposal - Gross cash interest - Standard S&P debt adjustments **FFO / Adjusted_Debt = 0.1360** Rounding to four decimal places: **0.1360** 0.1360