## 1. Relevant industry

REN – Redes Energéticas Nacionais, SGPS, S.A. is Portugal’s national electricity and gas transmission/network infrastructure group. Its activities are predominantly regulated energy networks, with stable concession/intangible-asset accounting and tariff-based revenues.

**Relevant S&P methodology:** **Regulated Utilities**.

Given the information provided, no detailed S&P-specific adjustments are available for leases, guarantees, hybrid equity treatment, proportional JV EBITDA, or regulatory-accounting reclassifications. I therefore use the baseline formulas with reasonable approximations from the reported financial statements.

---

## 2. Estimate 2021 Adjusted EBITDA

For 2021, reconstruct EBITDA from operating profit plus depreciation and amortisation:

- Profit from operating activities 2021: **€218.863m**
- Depreciation and amortisation 2021: **€241.940m**

\[
EBITDA_{2021} = 218.863 + 241.940 = 460.803
\]

No additional lease, pension, nonrecurring, JV proportional EBITDA, or other normalization adjustments are separately provided.

**2021 Adjusted EBITDA ≈ €460.803m**

---

## 3. Estimate 2021 FFO

Baseline:

\[
FFO = Adjusted\ EBITDA - cash\ interest - cash\ taxes
\]

Use cash interest paid and cash taxes paid:

- Adjusted EBITDA 2021: **€460.803m**
- Interest paid 2021: **€39.725m**
- Income taxes paid 2021: **€74.253m**

\[
FFO_{2021} = 460.803 - 39.725 - 74.253 = 346.825
\]

**2021 FFO ≈ €346.825m**

---

## 4. Estimate 2021 Adjusted Debt

Reported debt at 2021 year-end / 2022 opening balance:

- Long-term borrowings at 2022-01-01: **€2,390.852m**
- Current borrowings and current portion of noncurrent borrowings at 2022-01-01: **€375.221m**

\[
Reported\ Debt_{2021} = 2,390.852 + 375.221 = 2,766.073
\]

Eligible cash approximation:

- Cash and cash equivalents at 2022-01-01: **€398.759m**

\[
Adjusted\ Debt_{2021} = 2,766.073 - 398.759 = 2,367.314
\]

No lease, pension deficit, guarantee, hybrid, or other debt-like item adjustment is possible from the supplied data. Employee benefit provisions exist, but a net S&P pension deficit calculation is not provided, so I do not add it to adjusted debt.

**2021 Adjusted Debt ≈ €2,367.314m**

---

## 5. 2021 Adjusted Debt / Adjusted EBITDA

\[
Debt/EBITDA_{2021} = \frac{2,367.314}{460.803} = 5.14x
\]

**2021 Adjusted Debt / Adjusted EBITDA ≈ 5.14x**

---

## 6. 2021 FFO / Adjusted Debt

\[
FFO/Debt_{2021} = \frac{346.825}{2,367.314} = 0.1465
\]

**2021 FFO / Adjusted Debt ≈ 14.7%**

---

## 7. Estimate 2022 Adjusted EBITDA

For 2022:

- Profit from operating activities 2022: **€239.721m**
- Depreciation and amortisation 2022: **€249.276m**

\[
EBITDA_{2022} = 239.721 + 249.276 = 488.997
\]

No additional S&P adjustment data is provided.

**2022 Adjusted EBITDA ≈ €488.997m**

---

## 8. Estimate 2022 FFO

Use cash interest paid and cash taxes paid:

- Adjusted EBITDA 2022: **€488.997m**
- Interest paid 2022: **€40.545m**
- Income taxes paid 2022: **€77.970m**

\[
FFO_{2022} = 488.997 - 40.545 - 77.970 = 370.482
\]

**2022 FFO ≈ €370.482m**

---

## 9. Estimate 2022 Adjusted Debt

Reported debt at 2022 year-end / 2023 opening balance:

- Long-term borrowings at 2023-01-01: **€1,695.362m**
- Current borrowings and current portion of noncurrent borrowings at 2023-01-01: **€638.944m**

\[
Reported\ Debt_{2022} = 1,695.362 + 638.944 = 2,334.306
\]

Eligible cash approximation:

- Cash and cash equivalents at 2023-01-01: **€365.292m**

\[
Adjusted\ Debt_{2022} = 2,334.306 - 365.292 = 1,969.014
\]

Important contextual note: 2022 includes a large **€1.0bn asset and matching €1.0bn liability** related to the Transitional Gas Price Stabilization Regime. Because it is a matched pass-through/regulatory mechanism and not shown as financial borrowings, I do **not** include it in adjusted debt for this simplified S&P-style estimate.

**2022 Adjusted Debt ≈ €1,969.014m**

---

## 10. 2022 Adjusted Debt / Adjusted EBITDA

\[
Debt/EBITDA_{2022} = \frac{1,969.014}{488.997} = 4.03x
\]

**2022 Adjusted Debt / Adjusted EBITDA ≈ 4.03x**

---

## 11. 2022 FFO / Adjusted Debt

\[
FFO/Debt_{2022} = \frac{370.482}{1,969.014} = 0.1882
\]

**2022 FFO / Adjusted Debt ≈ 18.8%**

---

## 12. Year-on-year credit trend classification

### Signal 1: Leverage

\[
Change = Debt/EBITDA_{2022} - Debt/EBITDA_{2021}
\]

\[
Change = 4.03x - 5.14x = -1.11x
\]

Thresholds:

- ≤ -0.2x = Improving
- between -0.2x and +0.2x = Stable
- ≥ +0.2x = Deteriorating

The leverage ratio improved materially, by about **1.11x**, well beyond the 0.2x improvement threshold.

**Signal 1: Improving**

---

### Signal 2: Cash-flow coverage

\[
Change = FFO/Debt_{2022} - FFO/Debt_{2021}
\]

\[
Change = 0.1882 - 0.1465 = 0.0417
\]

This is an improvement of about **4.2 percentage points**.

Thresholds:

- ≥ +0.03 = Improving
- between -0.03 and +0.03 = Stable
- ≤ -0.03 = Deteriorating

The improvement exceeds the +0.03 threshold.

**Signal 2: Improving**

---

### Combined conclusion

Both key S&P-style financial risk signals point in the same direction:

- Adjusted Debt / Adjusted EBITDA: **Improving**
- FFO / Adjusted Debt: **Improving**

Therefore, the estimated credit trend from 2021 to 2022 is:

<answer>Improving</answer>