**Step 1: Industry Identification** ERG S.p.A. is an Italian company primarily engaged in renewable energy generation (wind, solar). Based on the revenue breakdown, business description ("principalmente in Italia, Francia, Germania, Regno Unito, Polonia, Romania, Bulgaria e Spagna"), and the nature of its assets (Service Concession Rights, Property Plant And Equipment for generation), it operates as an **Unregulated Power And Gas** company. Its revenues benefit from policy support and contractual arrangements. **Step 2: Estimate 2021 Adjusted_EBITDA** From the data: - "Profit Loss From Operating Activities Before Interest Taxes Depreciation And Amortisation Expense" 2021: 396,680,000 EUR. - We need to add adjustments. - "Impairment Loss Recognised In Profit Or Loss Trade Receivables" 2021: 8,420,000 EUR (nonrecurring loss, add back). - "Other Adjustments For Noncash Items" 2021: -91,936,000 EUR (this line item often contains non-cash items, but also gains/losses. Without detailed breakdown, we assume EBITDA is the starting point and adjust for specific nonrecurring items). - Given the available data, we take EBITDA as reported = 396.68M. Add back impairment on trade receivables (8.42M). - Also, note "Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss Intangible Assets And Property Plant And Equipment" 2021: 22,016,000 EUR. This is an impairment loss, so we add it back to EBITDA. - Adjusted_EBITDA (2021) = 396.68 + 8.42 + 22.016 = 427.116M EUR. Wait, the methodology says: `Adjusted_EBITDA = EBITDA (reported or reconstructed) + adjustment_leases (if any) + nonrecurring_losses - nonrecurring_gains ± pension_adjustments ± other_normalization_adjustments` From Cash Flow Statement: "Adjustments For Depreciation And Amortisation Expense And Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss Non Current Assets" 2021: 228,310,000. "Adjustments For Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss Current Assets" 2021: 8,442,000. "Other Adjustments For Noncash Items" 2021: -91,936,000. EBITDA Reported: 396,680,000. Add back Impairment Loss on Trade Receivables: 8,420,000. Add back Impairment on Non Current Assets: 22,016,000. Adjusted EBITDA 2021 = 396.68 + 8.42 + 22.016 = 427.116M. **Step 3: Estimate 2021 FFO** Formula: `FFO = Adjusted_EBITDA - cash_interest - cash_taxes` Cash Interest: "Interest Paid Classified As Financing Activities" 2021: 32,399,000 EUR. Cash Taxes: "Income Taxes Paid Classified As Operating Activities" 2021: 38,010,000 EUR. FFO 2021 = 427.116 - 32.399 - 38.010 = 356.707M EUR. **Step 4: Estimate 2021 Adjusted_Debt** Formula: `Adjusted_Debt = (reported_debt + leases + pension_deficit + guarantees + hybrid_debt_portion + other_debt_like_items) - eligible_cash` - Reported Debt: "Other Noncurrent Financial Liabilities" 2022-01-01 (2021 end): 2,064,088,000. "Current Financial Liabilities At Fair Value Through Profit Or Loss" 2022-01-01: 170,857,000. "Other Current Financial Liabilities" 2022-01-01: 1,342,688,000. Total Debt = 2,064.088 + 170.857 + 1,342.688 = 3,577.633M EUR. - Leases: "Noncurrent Lease Liabilities" 2022-01-01: 122,663,000. "Current Lease Liabilities" 2022-01-01: 6,282,000. Total Leases = 128.945M EUR. - Pension Deficit: "Noncurrent Provisions For Employee Benefits" 2022-01-01: 4,289,000. - Cash: "Cash And Cash Equivalents" 2022-01-01: 860,352,000. We subtract surplus cash. Adjusted Debt 2021 = 3,577.633 + 128.945 + 4.289 - 860.352 = 2,850.515M EUR. **Step 5: Calculate 2021 Ratios** Adjusted_Debt / Adjusted_EBITDA = 2,850.515 / 427.116 = 6.67x FFO / Adjusted_Debt = 356.707 / 2,850.515 = 0.125 (12.5%) **Step 6: Estimate 2022 Adjusted_EBITDA** EBITDA Reported 2022: 499,430,000. "Impairment Loss Recognised In Profit Or Loss Trade Receivables" 2022: 300,000. "Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss Intangible Assets And Property Plant And Equipment" 2022: 43,185,000. Adjusted EBITDA 2022 = 499.43 + 0.3 + 43.185 = 542.915M EUR. **Step 7: Estimate 2022 FFO** Cash Interest: "Interest Paid Classified As Financing Activities" 2022: 29,146,000. Cash Taxes: "Income Taxes Paid Classified As Operating Activities" 2022: 91,854,000. FFO 2022 = 542.915 - 29.146 - 91.854 = 421.915M EUR. **Step 8: Estimate 2022 Adjusted_Debt** - Reported Debt: "Other Noncurrent Financial Liabilities" 2023-01-01: 1,751,255,000. "Current Financial Liabilities At Fair Value Through Profit Or Loss" 2023-01-01: 76,644,000. "Other Current Financial Liabilities" 2023-01-01: 389,716,000. Total Debt = 1,751.255 + 76.644 + 389.716 = 2,217.615M EUR. - Leases: "Noncurrent Lease Liabilities" 2023-01-01: 150,955,000. "Current Lease Liabilities" 2023-01-01: 6,362,000. Total Leases = 157.317M EUR. - Pension Deficit: "Noncurrent Provisions For Employee Benefits" 2023-01-01: 3,723,000. - Cash: "Cash And Cash Equivalents" 2023-01-01: 392,811,000. Adjusted Debt 2022 = 2,217.615 + 157.317 + 3.723 - 392.811 = 1,985.844M EUR. **Step 9: Calculate 2022 Ratios** Adjusted_Debt / Adjusted_EBITDA = 1,985.844 / 542.915 = 3.66x FFO / Adjusted_Debt = 421.915 / 1,985.844 = 0.212 (21.2%) **Step 10: Classify Year-on-Year Trend** **Signal 1: Leverage** 2021: 6.67x 2022: 3.66x Change: 3.66 - 6.67 = -3.01x Threshold: ≤ -0.2x is Improving. Result: **Improving**. **Signal 2: Cash-flow coverage** 2021: 0.125 2022: 0.212 Change: 0.212 - 0.125 = +0.087 (+8.7 percentage points). Threshold: ≥ +0.03 is Improving. Result: **Improving**. Both signals agree. Improving