1. **Identify the relevant industry for "VEOLIA ENVIRONNEMENT".** Veolia Environnement is a global leader in optimized resource management, providing water, waste, and energy management services. Based on the provided S&P methodologies, this entity fits best into the **Unregulated Power And Gas** sector (which covers environmental services, energy, and water companies) and, for some of its concession-based operations, it could also be seen through the lens of **Regulated Utilities** or **Transportation Infrastructure**. However, the "Unregulated Power And Gas" methodology is the most appropriate for a diversified environmental services group that includes competitive operations and long-term contracts, though we must adapt it. Given the data, I will apply the **general corporate baseline** adjustments described in the workflow, as the provided patterns (like concessions and goodwill) suggest a mix that doesn't fit perfectly into a single "pure" regulated framework but leans heavily on standard corporate adjustments for M&A-heavy, service-based companies. 2. **Estimate the 2021 "Adjusted_EBITDA".** - **Reported EBITDA (2021):** "Operating Income Before Share Of Net Income Loss Of Equity Accounted Entities" = 1,212,700,000 EUR "Operating Depreciation Amortization Provisions And Impairment Losses" = 2,117,200,000 EUR EBITDA = 1,212,700,000 + 2,117,200,000 = 3,329,900,000 EUR - **Lease Adjustments:** "Financial Amortization And Impairment Losses" includes 3,800,000 EUR, which is likely finance lease amortization, already added back? No, "Operating Depreciation" already includes right-of-use depreciation. We need to account for the lease payments as an operating cost, not split. Standard S&P adjustment for IFRS 16: EBITDA is typically unaffected, but we add back the full operating lease expense if it was below the line. Usually, under IFRS 16, EBITDA is inflated as lease depreciation is not in EBITDA and interest is below. Veolia leases. I will assume the reported operating income is after depreciation of right-of-use assets. To get Adjusted EBITDA, we don't need a lease cash payment adjustment here, it's already embedded in operating income/depreciation. So, baseline EBITDA = 3,329,900,000 EUR. - **Joint Venture/Associate EBITDA:** "Share of net income loss of Core Equity Accounted Entities" = 104,800,000 EUR. This is post-tax and post-interest profit from JVs/Associates. We need to add back their interest, tax, and depreciation to get proportional EBITDA. Without a detailed breakdown, a standard approach is to use the share of net income as a proxy, but it underestimates EBITDA. I will not make an arbitrary add-back here and stick with the given contribution. Any distortion should be small relative to the total. - **Non-recurring items:** "Other Operating Income Expense" = -496,900,000 EUR. This is often treated as non-recurring. We add it back. Adjusted Operating Income = 1,212,700,000 + 496,900,000 = 1,709,600,000 EUR. - **Adjusted EBITDA (2021):** Adjusted EBITDA = Adjusted Operating Income + Depreciation + Share of JV Income Adjusted EBITDA = 1,709,600,000 + 2,117,200,000 + 104,800,000 = 3,931,600,000 EUR. 3. **Estimate the 2021 "FFO".** - FFO = Adjusted EBITDA - Net Finance Costs - Income Tax Expense. - "Net Finance Costs" = -342,600,000 EUR (income statement). - "Other Finance Income Cost" = -74,200,000 EUR. - Total Finance Costs = -416,800,000 EUR. - "Income Tax Expense Continuing Operations" = -345,800,000 EUR. - FFO = 3,931,600,000 - 416,800,000 - 345,800,000 = 3,169,000,000 EUR. 4. **Estimate the 2021 "Adjusted_Debt".** - **Reported Debt:** Non-current financial liabilities (excl. lease/concession) = 10,462,500,000 EUR Current financial liabilities (excl. lease/concession) = 8,624,300,000 EUR Total Reported Debt = 19,086,800,000 EUR - **Leases:** Non-current lease liabilities = 1,298,100,000 EUR Current lease liabilities = 410,600,000 EUR Total Leases = 1,708,700,000 EUR - **Concession Liabilities:** 1,588,400,000 + 169,400,000 = 1,757,800,000 EUR. These are debt-like. - **Hybrid Debt (50% equity, 50% debt treatment):** "Titres Super Subordonnes ADuree Indeterminee" = 2,460,700,000 EUR. 50% treated as debt = 1,230,350,000 EUR. - **Pension Deficit/Provisions:** "Noncurrent Provisions" = 1,876,600,000 EUR. We add this. "Current Provisions" = 538,500,000 EUR. We add this. Total Provisions = 2,415,100,000 EUR. - **Gross Debt:** Gross Debt = 19,086,800,000 + 1,708,700,000 + 1,757,800,000 + 1,230,350,000 + 2,415,100,000 = 26,198,750,000 EUR. - **Eligible Cash:** "Cash and Cash Equivalents" = 10,518,700,000 EUR. No surplus cash deduction noted? Standard is to deduct cash up to a cap, but I will deduct all reported cash here. Adjusted Debt = 26,198,750,000 - 10,518,700,000 = 15,680,050,000 EUR. 5. **Calculate the 2021 "Adjusted_Debt / Adjusted_EBITDA".** Ratio = 15,680,050,000 / 3,931,600,000 = 3.99x. 6. **Calculate the 2021 "FFO / Adjusted_Debt".** Ratio = 3,169,000,000 / 15,680,050,000 = 0.202 (20.2%). 7. **Estimate the 2022 "Adjusted_EBITDA".** - **Reported EBITDA (2022):** "Operating Income Before Share Of Net Income Loss Of Equity Accounted Entities" = 2,206,300,000 "Operating Depreciation Amortization Provisions And Impairment Losses" = 3,178,600,000 EBITDA = 2,206,300,000 + 3,178,600,000 = 5,384,900,000 EUR. - **Non-recurring items:** "Other Operating Income Expense" = -769,200,000 EUR. Adjusted Operating Income = 2,206,300,000 + 769,200,000 = 2,975,500,000 EUR. - **Share of JV/Associates:** "Share of Net Income Loss of Core Equity Accounted Entities" = 127,000,000 EUR. - **Adjusted EBITDA (2022):** Adjusted EBITDA = 2,975,500,000 + 3,178,600,000 + 127,000,000 = 6,281,100,000 EUR. 8. **Estimate the 2022 "FFO".** - "Net Finance Costs" = -632,700,000 EUR. - "Other Finance Income Cost" = -204,600,000 EUR. - Total Finance Costs = -837,300,000 EUR. - "Income Tax Expense Continuing Operations" = -419,800,000 EUR. - FFO = 6,281,100,000 - 837,300,000 - 419,800,000 = 5,024,000,000 EUR. 9. **Estimate the 2022 "Adjusted_Debt".** - **Reported Debt:** Non-current financial liabilities (excl. lease/concession) = 19,692,100,000 EUR Current financial liabilities (excl. lease/concession) = 6,521,400,000 EUR Total Reported Debt = 26,213,500,000 EUR - **Leases:** Non-current = 1,656,200,000 EUR Current = 496,500,000 EUR Total Leases = 2,152,700,000 EUR - **Concession Liabilities:** 1,680,500,000 + 243,200,000 = 1,923,700,000 EUR. - **Hybrid Debt (50%):** "Titres Super Subordonnes ADuree Indeterminee" = 3,496,300,000 EUR. 50% = 1,748,150,000 EUR. - **Provisions:** Non-current = 2,844,400,000 EUR Current = 1,015,300,000 EUR Total Provisions = 3,859,700,000 EUR. - **Gross Debt:** Gross Debt = 26,213,500,000 + 2,152,700,000 + 1,923,700,000 + 1,748,150,000 + 3,859,700,000 = 35,897,750,000 EUR. - **Eligible Cash:** "Cash and Cash Equivalents" = 9,012,200,000 EUR. Adjusted Debt = 35,897,750,000 - 9,012,200,000 = 26,885,550,000 EUR. 10. **Calculate the 2022 "Adjusted_Debt / Adjusted_EBITDA".** Ratio = 26,885,550,000 / 6,281,100,000 = 4.28x. 11. **Calculate the 2022 "FFO / Adjusted_Debt".** Ratio = 5,024,000,000 / 26,885,550,000 = 0.187 (18.7%). 12. **Classify the year-on-year credit trend.** - **Signal 1: Leverage (Adjusted Debt / EBITDA).** 2021: 3.99x 2022: 4.28x Change = 4.28 - 3.99 = +0.29x. This is ≥ +0.2x, so the trend is **Deteriorating**. - **Signal 2: Cash-flow coverage (FFO / Debt).** 2021: 20.2% 2022: 18.7% Change = 0.187 - 0.202 = -0.015 (i.e., -1.5 percentage points). This is between -0.03 and +0.03, so the trend is **Stable**. - **Combining the two signals:** Signal 1 is Deteriorating, Signal 2 is Stable. According to the rules, if one is Stable and the other is Improving or Deteriorating, return the non-Stable category. Therefore, the combined result is **Deteriorating**. Deteriorating