**Step 1: Identify the relevant industry for "Fortum Oyj"** Fortum Oyj is a Finnish energy company. Its operations include power generation (nuclear, hydro, wind, solar, thermal), heat production, and energy solutions (retail and B2B). * **Regulated Utilities:** While Fortum has some regulated network operations (distribution), a significant portion of its business involves generation and retail supply, which are largely unregulated or merchant-exposed, especially in the Nordic power market. The provided facts show significant volatility in earnings and large "Items Affecting Comparability" and derivative positions, characteristic of merchant power and trading activities. * **Unregulated Power And Gas:** This sector covers companies involved in generation and supply without full cost-of-service regulation. Fortum fits this description well, particularly given its exposure to electricity prices, hedging activities (derivatives), and the volatility seen in its financials. The methodology notes that for unregulated power and gas, we assess competitive advantage based on market structure, earnings stability, and asset mix. Fortum's profile (mix of nuclear/hydro base load and merchant exposure) aligns with this sector. * **Oil And Gas E&P:** Fortum is not an E&P company. * **Transportation Infrastructure:** Not applicable. Therefore, the **Unregulated Power And Gas** methodology is the most appropriate. However, the prompt asks to estimate specific metrics (Adjusted EBITDA, FFO, Adjusted Debt) using baseline formulas modified by industry guidelines. The Unregulated Power and Gas section does not prescribe specific *add-backs* for EBITDA different from the general corporate baseline, but it does highlight the importance of volatility and hedging. The general baseline formula is: `Adjusted_EBITDA = EBITDA + adjustment_leases + nonrecurring_losses - nonrecurring_gains ...` For Fortum, "Comparable Operating Profit" is a key management metric. However, S&P typically starts with reported EBITDA or reconstructs it. Let's look at the data. Reported "Operating Profit Before Depreciations Ebitda" is provided directly in the facts. 2021 EBITDA: 4,913,000,000 EUR 2022 EBITDA: 1,842,000,000 EUR The facts also provide "Comparable Ebitda": 2021 Comparable EBITDA: 2,016,000,000 EUR 2022 Comparable EBITDA: 2,436,000,000 EUR S&P adjustments usually aim to normalize earnings. The difference between Reported EBITDA and Comparable EBITDA is driven by "Items Affecting Comparability" and other adjustments. In 2021, Reported EBITDA (4,913m) is much higher than Comparable (2,016m). The "Items Affecting Comparability" were +2,897m. This suggests the reported figure includes significant one-off gains or fair value movements that S&P would likely strip out to get to a sustainable run-rate. S&P generally excludes non-recurring gains and includes non-recurring losses if they are truly non-recurring, but for utilities/power, volatile mark-to-market gains/losses on derivatives are often excluded from core operating performance if they don't reflect cash flow or long-term value. The "Comparable" metric provided by management is a strong proxy for S&P's "Adjusted" view, as it removes volatility from hedging and one-offs. However, the prompt asks to use the baseline formula: `Adjusted_EBITDA = EBITDA ... + nonrecurring_losses - nonrecurring_gains`. Let's analyze the components. 2021 Reported EBITDA: 4,913m. 2021 Items Affecting Comparability: +2,897m (Gain). If we treat these as non-recurring gains to be subtracted: 4,913 - 2,897 = 2,016m. This matches the "Comparable EBITDA". 2022 Reported EBITDA: 1,842m. 2022 Items Affecting Comparability: -593m (Loss). If we treat these as non-recurring losses to be added back: 1,842 + 593 = 2,435m. This closely matches the "Comparable EBITDA" of 2,436m (difference of 1m due to rounding or minor other items). Thus, for the purpose of this estimation, we will use the **Comparable EBITDA** as the **Adjusted EBITDA**, as it represents the normalized operating performance excluding volatile/non-recurring items, which aligns with S&P's goal of assessing sustainable cash flow generation. **Adjusted EBITDA 2021**: 2,016,000,000 EUR **Adjusted EBITDA 2022**: 2,436,000,000 EUR **Step 2 & 7: Estimate Adjusted EBITDA** As derived above: 2021 Adjusted EBITDA = 2,016,000,000 EUR 2022 Adjusted EBITDA = 2,436,000,000 EUR **Step 3 & 8: Estimate FFO** Formula: `FFO = Adjusted_EBITDA - cash_interest - cash_taxes` We need Cash Interest and Cash Taxes. The facts provide: "Interest Paid Classified As Operating Activities" (Cash Interest): 2021: 147,000,000 EUR 2022: 201,000,000 EUR "Income Taxes Paid Refund Classified As Operating Activities" (Cash Taxes): 2021: 279,000,000 EUR 2022: 167,000,000 EUR *Note: The formula subtracts cash taxes paid. If it's a refund, it would be negative paid (i.e., add back). Here, the values are positive, indicating outflows.* **2021 FFO Calculation:** FFO = 2,016,000,000 - 147,000,000 - 279,000,000 FFO = 1,590,000,000 EUR **2022 FFO Calculation:** FFO = 2,436,000,000 - 201,000,000 - 167,000,000 FFO = 2,068,000,000 EUR **Step 4 & 9: Estimate Adjusted Debt** Formula: `Adjusted_Debt = (reported_debt + leases + pension_deficit + guarantees + hybrid_debt_portion + other_debt_like_items) - eligible_cash` We need to identify Reported Debt and Eligible Cash. The balance sheet items provided are: "Other Noncurrent Financial Liabilities" "Noncurrent Derivative Financial Liabilities" "Other Current Financial Liabilities" "Current Derivative Financial Liabilities" "Margin Liabilities" Standard S&P debt definition includes interest-bearing debt. Derivatives are generally excluded from debt unless they are debt-like (e.g., structured notes), but here they are likely hedging instruments. Margin liabilities are related to trading/hedging collateral. Let's look for explicit debt figures. The facts don't have a line item "Total Debt". We must reconstruct it from financial liabilities. Typically, `Financial Liabilities` = `Noncurrent Financial Liabilities` + `Current Financial Liabilities`. However, we must be careful with Derivatives and Margin items. S&P usually excludes derivative liabilities from gross debt unless they are embedded derivatives in debt instruments. Given the volatility in Fortum's derivatives (huge swings in asset/liability values), these are likely mark-to-market hedging positions, not debt. Let's assume "Other Noncurrent Financial Liabilities" and "Other Current Financial Liabilities" represent the core borrowings (bonds, loans). 2021: Noncurrent Other Financial Liabilities: 8,701,000,000 Current Other Financial Liabilities: 8,519,000,000 Total Core Debt ≈ 8,701 + 8,519 = 17,220,000,000 EUR. Are there other debt-like items? "Margin Liabilities": 985,000,000 (2021). These are collateral calls, effectively short-term funding needs due to hedging. S&P might treat these as debt if they are persistent, but often they are netted against margin receivables or treated as working capital. Given the "Unregulated Power" context and trading nature, netting might be appropriate, or treating them as debt. Let's look at Cash. "Liquid Funds" (Cash): 7,592,000,000 (2021). "Margin Receivables": 9,163,000,000 (2021). S&P often nets cash against debt. "Eligible Cash" is usually unrestricted cash. If we treat Margin Receivables and Liabilities as part of working capital/trading book, we might exclude them from Debt and Cash, or net them. Let's stick to the core financial liabilities for Debt and Liquid Funds for Cash, as this is the standard conservative approach unless specific netting rules for utilities apply. However, for trading companies, S&P sometimes adjusts for "trading working capital". Let's calculate Adjusted Debt using Core Financial Liabilities minus Cash. **2021 Adjusted Debt:** Reported Debt (Other Noncurrent + Other Current Financial Liabs): 8,701 + 8,519 = 17,220,000,000 EUR. Less Eligible Cash (Liquid Funds): 7,592,000,000 EUR. Adjusted Debt = 17,220 - 7,592 = 9,628,000,000 EUR. *Self-Correction/Refinement:* Does "Other Financial Liabilities" include leases? The facts don't specify lease liabilities separately. We assume they are included or immaterial relative to the scale. What about Derivatives? 2021 Current Derivative Liabilities: 71,947,000,000. This is massive. It reflects the energy crisis volatility. These are not debt. They are collateral obligations. The corresponding assets are 65,392,000,000. The net position is an asset. Including these in debt would distort the ratio significantly. S&P excludes derivative liabilities from debt. So, Debt = 17,220m. Cash = 7,592m. Net Debt = 9,628m. **2022 Adjusted Debt:** Noncurrent Other Financial Liabilities: 3,658,000,000 Current Other Financial Liabilities: 4,127,000,000 Total Core Debt = 3,658 + 4,127 = 7,785,000,000 EUR. Less Eligible Cash (Liquid Funds): 3,919,000,000 EUR. Adjusted Debt = 7,785 - 3,919 = 3,866,000,000 EUR. *Observation:* Fortum significantly reduced its debt burden in 2022. This is consistent with the "Proceeds From Divestment" (1,156m) and "Repayments Of Non Current Borrowings" (5,888m) seen in the cash flow statement. **Step 5: Calculate 2021 Adjusted Debt / Adjusted EBITDA** Adjusted Debt 2021: 9,628,000,000 EUR Adjusted EBITDA 2021: 2,016,000,000 EUR Ratio = 9,628 / 2,016 ≈ 4.78x **Step 6: Calculate 2021 FFO / Adjusted Debt** FFO 2021: 1,590,000,000 EUR Adjusted Debt 2021: 9,628,000,000 EUR Ratio = 1,590 / 9,628 ≈ 0.1651 or 16.51% **Step 10: Calculate 2022 Adjusted Debt / Adjusted EBITDA** Adjusted Debt 2022: 3,866,000,000 EUR Adjusted EBITDA 2022: 2,436,000,000 EUR Ratio = 3,866 / 2,436 ≈ 1.59x **Step 11: Calculate 2022 FFO / Adjusted Debt** FFO 2022: 2,068,000,000 EUR Adjusted Debt 2022: 3,866,000,000 EUR Ratio = 2,068 / 3,866 ≈ 0.5349 or 53.49% **Step 12: Classify the credit trend** **Signal 1: Leverage (Adjusted Debt / Adjusted EBITDA)** 2021: 4.78x 2022: 1.59x Change = 1.59 - 4.78 = -3.19x Threshold: ≤ -0.2x is Improving. -3.19x is significantly less than -0.2x. **Signal 1: Improving** **Signal 2: Cash-flow coverage (FFO / Adjusted Debt)** 2021: 0.1651 2022: 0.5349 Change = 0.5349 - 0.1651 = +0.3698 Threshold: ≥ +0.03 is Improving. +0.37 is significantly greater than +0.03. **Signal 2: Improving** **Combination:** Both signals are Improving. **Conclusion:** The credit trend is Improving. The company drastically reduced its net debt (from ~9.6bn to ~3.9bn) while increasing its normalized EBITDA (from ~2.0bn to ~2.4bn). This resulted in a massive improvement in leverage (from 4.8x to 1.6x) and coverage (from 16.5% to 53.5%). Improving