Step 1 — Relevant industry HERA S.p.A. is a multi-utility group. Based on the facts provided and the methodology categories, the most relevant industry is Regulated Utilities, with some exposure to energy supply/commodity-driven activities. For the ratio calculations, I apply the regulated-utility financial-risk approach using reconstructed EBITDA, FFO, and adjusted debt. No detailed S&P-specific adjustments for regulatory assets, securitizations, hybrids, guarantees, or proportional JVs are available, so I use the baseline formulas with available data. Step 2 — Estimate 2021 Adjusted EBITDA Reported operating profit / EBIT 2021: - Profit from operating activities = €611.7m Add back depreciation, amortisation and provisions: - Amortisation, depreciation and provisions = €612.1m Reconstructed EBITDA proxy: - EBITDA = €611.7m + €612.1m = €1,223.8m Additional adjustments: - Lease adjustment: not added separately because lease liabilities are included in debt, but no lease expense split is provided. - Nonrecurring gains/losses: not identified. - Pension/JV/other normalization: insufficient detail; no adjustment made. 2021 Adjusted EBITDA = €1,223.8m Step 3 — Estimate 2021 FFO Baseline formula: FFO = Adjusted EBITDA − cash interest − cash taxes 2021 cash interest: - Finance costs paid classified as operating activities = €96.2m 2021 cash taxes: - Income taxes paid classified as operating activities = €156.3m FFO: - €1,223.8m − €96.2m − €156.3m = €971.3m 2021 FFO = €971.3m Step 4 — Estimate 2021 Adjusted Debt Reported financial debt at 2021 year-end / 2022-01-01: - Noncurrent financial liabilities = €3,716.0m - Current financial liabilities = €499.7m - Noncurrent lease liabilities = €53.2m - Current lease liabilities = €43.4m Gross debt including leases: - €3,716.0m + €499.7m + €53.2m + €43.4m = €4,312.3m Eligible cash: - Cash and cash equivalents = €885.6m Adjusted debt proxy: - €4,312.3m − €885.6m = €3,426.7m No additional pension deficit, guarantees, hybrid debt portion, or other debt-like items are quantified. 2021 Adjusted Debt = €3,426.7m Step 5 — 2021 Adjusted Debt / Adjusted EBITDA - €3,426.7m / €1,223.8m = 2.80x 2021 Adjusted Debt / Adjusted EBITDA = 2.80x Step 6 — 2021 FFO / Adjusted Debt - €971.3m / €3,426.7m = 0.284 2021 FFO / Adjusted Debt = 28.4% Step 7 — Estimate 2022 Adjusted EBITDA Reported operating profit / EBIT 2022: - Profit from operating activities = €533.8m Add back depreciation, amortisation and provisions: - Amortisation, depreciation and provisions = €667.1m Reconstructed EBITDA proxy: - EBITDA = €533.8m + €667.1m = €1,200.9m Additional adjustments: - Lease adjustment: not added separately because lease liabilities are included in debt, but no lease expense split is provided. - Nonrecurring gains/losses: not identified. - Pension/JV/other normalization: insufficient detail; no adjustment made. 2022 Adjusted EBITDA = €1,200.9m Step 8 — Estimate 2022 FFO Baseline formula: FFO = Adjusted EBITDA − cash interest − cash taxes 2022 cash interest: - Finance costs paid classified as operating activities = €128.0m 2022 cash taxes: - Income taxes paid classified as operating activities = €165.9m FFO: - €1,200.9m − €128.0m − €165.9m = €907.0m 2022 FFO = €907.0m Step 9 — Estimate 2022 Adjusted Debt Reported financial debt at 2022 year-end / 2023-01-01: - Noncurrent financial liabilities = €5,689.9m - Current financial liabilities = €650.1m - Noncurrent lease liabilities = €55.1m - Current lease liabilities = €21.3m Gross debt including leases: - €5,689.9m + €650.1m + €55.1m + €21.3m = €6,416.4m Eligible cash: - Cash and cash equivalents = €1,942.4m Adjusted debt proxy: - €6,416.4m − €1,942.4m = €4,474.0m No additional pension deficit, guarantees, hybrid debt portion, or other debt-like items are quantified. 2022 Adjusted Debt = €4,474.0m Step 10 — 2022 Adjusted Debt / Adjusted EBITDA - €4,474.0m / €1,200.9m = 3.73x 2022 Adjusted Debt / Adjusted EBITDA = 3.73x Step 11 — 2022 FFO / Adjusted Debt - €907.0m / €4,474.0m = 0.203 2022 FFO / Adjusted Debt = 20.3% Step 12 — Credit trend classification Signal 1: Leverage - 2021 Adjusted Debt / EBITDA = 2.80x - 2022 Adjusted Debt / EBITDA = 3.73x - Change = 3.73x − 2.80x = +0.93x Threshold interpretation: - A change of ≥ +0.2x is Deteriorating. - +0.93x is materially above the deterioration threshold. Signal 1 = Deteriorating Signal 2: Cash-flow coverage - 2021 FFO / Adjusted Debt = 0.284 - 2022 FFO / Adjusted Debt = 0.203 - Change = 0.203 − 0.284 = −0.081 Threshold interpretation: - A change of ≤ −0.03 is Deteriorating. - −0.081, or about −8.1 percentage points, is materially below the deterioration threshold. Signal 2 = Deteriorating Both signals agree. The company’s leverage rose significantly because adjusted debt increased materially, while EBITDA was broadly flat to slightly lower. FFO coverage also weakened sharply due to lower FFO and higher adjusted debt. Therefore, the year-on-year credit trend from 2021 to 2022 is Deteriorating. Deteriorating