Step 1 — Relevant industry

A2A Energia S.p.A. / A2A S.p.A. is an Italian multi-utility operating in electricity, gas, energy services, networks, and related utility activities. Based on the provided methodologies, the closest fit is Regulated Utilities / Multi-utilities, although A2A also has exposure to unregulated power and gas activities. For the ratio calculations below, I apply the baseline S&P-style corporate formulas, with no additional sector-specific adjustments because the facts provided do not give enough detail to quantify items such as purchased-power obligations, regulatory deferrals, lease capitalization, pension deficits, or proportional JV EBITDA.

Step 2 — 2021 Adjusted EBITDA

Reported EBITDA 2021:

- Gross Operating Income EBITDA = EUR 1,428 million

Adjustments:

- No lease adjustment disclosed
- No pension EBITDA adjustment disclosed
- No JV proportional EBITDA adjustment disclosed
- No quantified other normalization adjustment disclosed
- Nonrecurring result in 2021 = EUR 0 million

Therefore:

Adjusted EBITDA 2021 = 1,428 + 0 = EUR 1,428 million

Step 3 — 2021 FFO

Formula:

FFO = Adjusted EBITDA − cash interest − cash taxes

Inputs:

- Adjusted EBITDA 2021 = EUR 1,428 million
- Cash interest: use “Interest Paid Classified As Operating Activities” = EUR 80 million
- Cash taxes: use “Income Taxes Paid Refund Classified As Operating Activities” = EUR 165 million

Calculation:

FFO 2021 = 1,428 − 80 − 165 = EUR 1,183 million

Step 4 — 2021 Adjusted Debt

Use reported financial liabilities, less eligible cash.

Reported debt proxy at Jan. 1, 2022:

- Other noncurrent financial liabilities = EUR 4,322 million
- Other current financial liabilities = EUR 746 million

Reported gross debt = 4,322 + 746 = EUR 5,068 million

Eligible cash:

- Cash and cash equivalents = EUR 964 million

No other debt-like adjustments are quantified.

Adjusted Debt 2021 = 5,068 − 964 = EUR 4,104 million

Step 5 — 2021 Adjusted Debt / Adjusted EBITDA

Adjusted Debt / Adjusted EBITDA 2021 = 4,104 / 1,428 = 2.87x

Step 6 — 2021 FFO / Adjusted Debt

FFO / Adjusted Debt 2021 = 1,183 / 4,104 = 0.288, or 28.8%

Step 7 — 2022 Adjusted EBITDA

Reported EBITDA 2022:

- Gross Operating Income EBITDA = EUR 1,505 million

Nonrecurring item:

- Result from nonrecurring transactions = EUR 157 million

Because this is a positive nonrecurring gain/result, it should be deducted from adjusted EBITDA to normalize recurring operating performance.

Calculation:

Adjusted EBITDA 2022 = 1,505 − 157 = EUR 1,348 million

Step 8 — 2022 FFO

Inputs:

- Adjusted EBITDA 2022 = EUR 1,348 million
- Cash interest: use “Interest Paid Classified As Operating Activities” = EUR 75 million
- Cash taxes: use “Income Taxes Paid Refund Classified As Operating Activities” = EUR 201 million

Calculation:

FFO 2022 = 1,348 − 75 − 201 = EUR 1,072 million

Step 9 — 2022 Adjusted Debt

Reported debt proxy at Jan. 1, 2023:

- Other noncurrent financial liabilities = EUR 5,867 million
- Other current financial liabilities = EUR 1,022 million

Reported gross debt = 5,867 + 1,022 = EUR 6,889 million

Eligible cash:

- Cash and cash equivalents = EUR 2,584 million

Adjusted Debt 2022 = 6,889 − 2,584 = EUR 4,305 million

Step 10 — 2022 Adjusted Debt / Adjusted EBITDA

Adjusted Debt / Adjusted EBITDA 2022 = 4,305 / 1,348 = 3.19x

Step 11 — 2022 FFO / Adjusted Debt

FFO / Adjusted Debt 2022 = 1,072 / 4,305 = 0.249, or 24.9%

Step 12 — Credit trend classification

Signal 1 — Leverage

- 2021 Adjusted Debt / EBITDA = 2.87x
- 2022 Adjusted Debt / EBITDA = 3.19x

Change = 3.19x − 2.87x = +0.32x

Threshold:

- ≥ +0.2x = Deteriorating

Leverage signal: Deteriorating

Signal 2 — Cash-flow coverage

- 2021 FFO / Adjusted Debt = 0.288
- 2022 FFO / Adjusted Debt = 0.249

Change = 0.249 − 0.288 = -0.039

Threshold:

- ≤ -0.03 = Deteriorating

Cash-flow coverage signal: Deteriorating

Both signals indicate deterioration. The deterioration is driven by higher adjusted net debt, lower normalized EBITDA after removing the 2022 nonrecurring gain, and weaker FFO coverage despite large reported revenue growth and positive free cash flow.

<answer>Deteriorating</answer>