I'll work through this step-by-step following the S&P methodology. ## Step 1: Identify the relevant industry ERG S.p.A. is an Italian renewable energy company operating primarily in wind and solar power generation across Europe. Based on the description, ERG fits the **Unregulated Power and Gas** sector, as it's a renewable generation company that doesn't benefit from protective rate regulation but may benefit from feed-in tariffs and long-term contractual arrangements. ## Step 2: Estimate Adjusted EBITDA **Reported EBITDA (continuing operations):** The reported EBITDA from continuing operations = 499,430,000 EUR **Lease adjustments:** S&P typically adds back lease-related depreciation and reclassifies lease payments. Under S&P methodology, operating lease costs are added back to EBITDA (since IFRS 16 already capitalizes leases, the reported EBITDA already excludes lease expense). S&P would add the lease depreciation component already included. However, since IFRS 16 is applied, EBITDA already reflects the add-back. S&P typically treats lease liabilities as debt and adds lease depreciation to EBITDA. The right-of-use depreciation is already excluded from EBITDA (it's in D&A below EBITDA), so EBITDA already captures this. **Discontinued operations adjustment:** ERG had significant discontinued operations (profit of 294,131,000 EUR). This appears to relate to the sale of hydroelectric/thermoelectric assets. Since these are discontinued and sold, S&P would focus on continuing operations EBITDA for forward-looking analysis. However, for the fiscal year 2022, we should consider whether discontinued operations generated operating cash flow during the year. The cash flow from discontinued operations was 43,594,000 EUR (operating). For the FFO calculation, I'll focus on continuing operations as the primary basis. **Non-recurring items:** - Impairment losses on PP&E and intangibles: 43,185,000 EUR (non-recurring, add back) - Impairment on trade receivables: 300,000 EUR (relatively small) **Adjusted EBITDA:** Starting with reported EBITDA from continuing operations: 499,430,000 - This already includes the impact of lease adjustments under IFRS 16 - Add back impairment on non-current assets (already excluded from EBITDA since it's below EBITDA line): already excluded - The EBITDA of 499,430,000 is before D&A and impairments For S&P, I'll use the EBITDA as reported: **499,430,000 EUR** Adding lease depreciation explicitly isn't needed since IFRS 16 treatment already excludes it from EBITDA. Adjusted_EBITDA ≈ **499,430,000 EUR** ## Step 3: Estimate FFO **Cash interest:** Interest paid (financing activities): 29,146,000 EUR However, S&P also includes lease interest. Total lease liabilities = 150,955,000 + 6,362,000 = 157,317,000. Estimated lease interest at ~3-4% ≈ ~5,500,000 EUR. Net finance costs reported: 36,573,000 EUR. But cash interest paid = 29,146,000 EUR. S&P would use cash interest. Adding lease interest: approximately 29,146,000 + 5,500,000 ≈ 34,646,000 EUR. **Cash taxes:** Income taxes paid: 91,854,000 EUR **FFO calculation:** FFO = Adjusted_EBITDA - cash_interest - cash_taxes FFO = 499,430,000 - 34,646,000 - 91,854,000 = **372,930,000 EUR** ## Step 4: Estimate Adjusted Debt **Reported debt:** - Non-current financial liabilities: 1,751,255,000 EUR - Current financial liabilities (other): 389,716,000 EUR - Non-current financial liabilities at FV: 0 EUR - Current financial liabilities at FV: 76,644,000 EUR (derivative liabilities, exclude) Total reported debt ≈ 1,751,255,000 + 389,716,000 = 2,140,971,000 EUR **Lease liabilities:** 150,955,000 + 6,362,000 = 157,317,000 EUR **Pension deficit:** 3,723,000 EUR **Surplus cash deduction:** S&P might not deduct much cash. Accessible cash: 392,811,000. S&P typically does not net all cash; for unregulated utilities, minimal netting. I'll assume no significant cash netting. **Adjusted Debt:** = 2,140,971,000 + 157,317,000 + 3,723,000 = **2,302,011,000 EUR** ## Step 5: Calculate FFO / Adjusted Debt FFO / Adjusted_Debt = 372,930,000 / 2,302,011,000 = **0.1620** 0.1620