I need to calculate Net Debt / EBITDA for 2022 and 2021 to determine the trend. First, let me identify the relevant data from the annual report. **EBITDA Calculation:** EBITDA is typically calculated as Profit Loss From Operating Activities + Depreciation and Amortization + Impairment losses (or more directly from Gross Profit - other operating costs before depreciation). From the data: - Gross Profit 2022: 1,305,021,000 EUR - Gross Profit 2021: 1,256,075,000 EUR Wait, let me use a more standard approach. EBITDA can be approximated as: - Profit Loss From Operating Activities + Ammortamenti EAccantonamenti (Depreciation and Amortization) + Impairment Losses For 2022 (period 2022-01-01 to 2023-01-01): - Profit Loss From Operating Activities: 565,851,000 EUR - Ammortamenti EAccantonamenti: 625,799,000 EUR - Impairment Loss IFRS9: 113,370,000 EUR EBITDA 2022 = 565,851,000 + 625,799,000 + 113,370,000 = 1,305,020,000 EUR Wait, that equals the Gross Profit. Let me verify: Gross Profit was 1,305,021,000 EUR. So actually, Gross Profit appears to already be before depreciation, or this is just a coincidence. Actually, let me reconsider. In many European financial statements, "Gross Profit" (Margine Operativo Lordo) is actually EBITDA or close to it. Let me check: - Gross Profit 2022: 1,305,021,000 EUR - This is also called "Margine Operativo Lordo" which in Italian typically means Gross Operating Margin, often equivalent to EBITDA. But let me also calculate EBITDA the standard way: EBITDA = Operating Profit + Depreciation + Amortization + Impairment For 2022: - Profit Loss From Operating Activities (EBIT): 565,851,000 - Ammortamenti EAccantonamenti: 625,799,000 - Impairment: 113,370,000 EBITDA = 565,851,000 + 625,799,000 + 113,370,000 = 1,305,020,000 EUR This matches Gross Profit! So Gross Profit = EBITDA in this reporting. For 2021: - Profit Loss From Operating Activities: 581,101,000 - Ammortamenti EAccantonamenti: 588,768,000 - Impairment: 86,207,000 EBITDA 2021 = 581,101,000 + 588,768,000 + 86,207,000 = 1,256,076,000 EUR This matches Gross Profit 2021 of 1,256,075,000 EUR (small rounding difference). So EBITDA: - 2022: 1,305,021,000 EUR - 2021: 1,256,075,000 EUR **Net Debt Calculation:** Net Debt = Total Debt - Cash and Cash Equivalents From the balance sheet (point-in-time values at year-end): For 2023-01-01 (end of 2022): - Other Noncurrent Financial Liabilities: 4,722,263,000 EUR - Other Current Financial Liabilities: 619,418,000 EUR - Total Debt = 4,722,263,000 + 619,418,000 = 5,341,681,000 EUR - Cash and Cash Equivalents: 559,908,000 EUR - Net Debt 2022 = 5,341,681,000 - 559,908,000 = 4,781,773,000 EUR For 2022-01-01 (end of 2021): - Other Noncurrent Financial Liabilities: 4,791,979,000 EUR - Other Current Financial Liabilities: 285,222,000 EUR - Total Debt = 4,791,979,000 + 285,222,000 = 5,077,201,000 EUR - Cash and Cash Equivalents: 680,820,000 EUR - Net Debt 2021 = 5,077,201,000 - 680,820,000 = 4,396,381,000 EUR Wait, I need to check if there are other financial liabilities. Let me look more carefully. Looking at current liabilities: - Other Current Financial Liabilities: 619,418,000 (2023-01-01) and 285,222,000 (2022-01-01) Noncurrent: - Other Noncurrent Financial Liabilities: 4,722,263,000 (2023-01-01) and 4,791,979,000 (2022-01-01) Are there "Noncurrent Contract Liabilities"? These are typically operating liabilities, not financial debt. Let me check if these are debt-like. Actually, looking more carefully at the structure, I should also check if there are other items that constitute debt. Let me look at what S&P typically includes. Actually, I need to be more careful. Let me look for all debt-like items: For 2023-01-01: - Other Noncurrent Financial Liabilities: 4,722,263,000 - Other Current Financial Liabilities: 619,418,000 For 2022-01-01: - Other Noncurrent Financial Liabilities: 4,791,979,000 - Other Current Financial Liabilities: 285,222,000 Also, I should check if there are lease liabilities included in these or separately. The Right-of-use assets suggest there are leases, but these are typically included in financial liabilities. Actually, looking at the cash flow statement, I see: - Repayments of Borrowings: 73,287,000 (2022) - Proceeds from Borrowings: 250,000,000 (2022) This suggests the financial liabilities above include borrowings. Let me also check if there are any other items. Looking at the balance sheet structure again... The "Noncurrent Contract Liabilities" of 5,452,905,000 and 5,514,512,000 are likely deferred revenue or regulatory liabilities, not financial debt. So my debt calculation seems reasonable. **Net Debt / EBITDA Ratios:** For 2022 (using 2023-01-01 balance sheet and 2022 income statement): - Net Debt: 4,781,773,000 EUR - EBITDA: 1,305,021,000 EUR - Net Debt / EBITDA = 4,781,773,000 / 1,305,021,000 = 3.664x For 2021 (using 2022-01-01 balance sheet and 2021 income statement): - Net Debt: 4,396,381,000 EUR - EBITDA: 1,256,075,000 EUR - Net Debt / EBITDA = 4,396,381,000 / 1,256,075,000 = 3.500x **Change in ratio:** 2022 ratio: 3.664x 2021 ratio: 3.500x Difference: 3.664 - 3.500 = 0.164x Wait, I need to re-check. The question asks about "2022" trend, comparing 2022 vs 2021. But I need to be careful about which is the current year and which is the previous year. Actually, looking at the data format: - "2022-01-01 - 2023-01-01" represents the year 2022 (fiscal year ending Jan 1, 2023) - "2021-01-01 - 2022-01-01" represents the year 2021 (fiscal year ending Jan 1, 2022) So for "2022" we use: - Income statement: 2022-01-01 - 2023-01-01 - Balance sheet: 2023-01-01 (end of 2022) For "2021" we use: - Income statement: 2021-01-01 - 2022-01-01 - Balance sheet: 2022-01-01 (end of 2021) So my calculations are correct. Net Debt / EBITDA 2022 = 3.664x Net Debt / EBITDA 2021 = 3.500x Difference = +0.164x (increase in ratio, meaning deterioration) Since 0.164x < 0.3x, this would be classified as "Stable" according to the definition. Wait, let me re-read the definition: "the gap of the ratio Net Debt / EBITDA calculated for the years 2022 and 2023 is among ± 0.3x and ± 0.3x year on year." Actually, I think the definition means: if the absolute difference is less than 0.3x, it's Stable. If the difference is negative (ratio decreases) by more than 0.3x, it's Improving. If the difference is positive (ratio increases) by more than 0.3x, it's Deteriorating. Let me re-read: "Consequently if the gap of the ratio Net Debt / EBITDA year on year is lower than 0.3x is improving. If higher is Deteriorating." Hmm, this wording is a bit confusing. Let me parse it: - "the gap of the ratio... is among ± 0.3x and ± 0.3x year on year" = Stable - "if the gap... is lower than 0.3x is improving" - this seems to mean if the gap is less than -0.3x (i.e., ratio decreased by more than 0.3x) - "If higher is Deteriorating" - if the gap is greater than +0.3x Actually, re-reading: "if the gap... is lower than 0.3x is improving" - this is ambiguous. It could mean: - If the gap is negative and its absolute value is > 0.3x, it's improving (ratio went down by more than 0.3x) - Or it could mean if the gap is < 0.3x in absolute terms... but that contradicts the Stable definition Let me re-interpret: The "gap" is calculated as (Year 2 ratio - Year 1 ratio). - If gap is between -0.3x and +0.3x: Stable - If gap < -0.3x (i.e., more negative than -0.3, meaning ratio improved by more than 0.3x): Improving - If gap > +0.3x (ratio worsened by more than 0.3x): Deteriorating In my calculation: - Gap = 3.664 - 3.500 = +0.164x Since +0.164x is between -0.3x and +0.3x, this is **Stable**. But wait, I want to double-check my EBITDA and Net Debt calculations, as these are critical. Let me recheck EBITDA. Actually, I realize I should verify if "Gross Profit" here is truly EBITDA or if I need to add back more items. Looking at the P&L structure: - Revenue: 5,138,245,000 - Operating Expense: 3,861,121,000 - Gross Profit: 1,305,021,000 Wait, Revenue - Operating Expense = 5,138,245,000 - 3,861,121,000 = 1,277,124,000, not 1,305,021,000. So Gross Profit is not simply Revenue - Operating Expense. Let me look more carefully. Actually, looking at the items: - "Ricavi Da Vendita EPrestazioni" (Revenue from sales and services): 4,957,179,000 - "Other Income": 181,066,000 - "Revenue": 5,138,245,000 So Revenue = 4,957,179,000 + 181,066,000 = 5,138,245,000 ✓ For costs: - "Employee Benefits Expense": 305,066,000 - "Costi Esterni" (External costs): 3,556,055,000 - "Operating Expense": 3,861,121,000 So Operating Expense = 305,066,000 + 3,556,055,000 = 3,861,121,000 ✓ But then Gross Profit = Revenue - some costs, but not all operating expenses? That doesn't make sense unless "Gross Profit" (Margine Operativo Lordo) is actually a different metric. In Italian accounting, "Margine Operativo Lordo" (Gross Operating Margin) is typically: Revenue - Costs of materials/services - Other operating costs (but before personnel costs, depreciation, etc.) Actually, let me check: Margine Operativo Lordo = Ricavi - Costi operativi variabili (typically external costs, materials, services) - sometimes personnel is included or not. Hmm, but we also have "Profit Loss From Operating Activities" which is EBIT. Let me verify: EBIT = EBITDA - Depreciation - Amortization - Impairment If EBITDA = Gross Profit = 1,305,021,000 Then EBIT should be = 1,305,021,000 - 625,799,000 - 113,370,000 = 565,852,000 And indeed, Profit Loss From Operating Activities = 565,851,000. ✓ So yes, Gross Profit (Margine Operativo Lordo) = EBITDA in this case. Now let me recheck Net Debt more carefully. I need to identify all interest-bearing debt. Let me look at the balance sheet items more carefully. For 2023-01-01: - Other Noncurrent Financial Liabilities: 4,722,263,000 - Other Current Financial Liabilities: 619,418,000 Is there any other debt? Let me check "Noncurrent Contract Liabilities" - this is 5,452,905,000. These are typically not financial liabilities but rather deferred revenue or regulatory liabilities. Actually, I should check if "Contract Liabilities" in the context of IFRS 15 are operating liabilities (deferred revenue) or if they include some debt-like elements. Typically, contract liabilities are operating liabilities (customer advances, deferred revenue). Let me also check if there are lease liabilities. The Right-of-use assets are 90,397,000 and 53,096,000. Under IFRS 16, lease liabilities should be included in financial liabilities. But looking at the balance sheet, I don't see a separate line for lease liabilities. They might be included in "Other Noncurrent Financial Liabilities" and "Other Current Financial Liabilities". Actually, looking more carefully at the cash flow, I see interest paid and received, which suggests there is debt. Let me also consider: should I include "Trade And Other Current Payables"? Typically no, these are operating liabilities. What about "Other Current Liabilities" and "Other Noncurrent Liabilities"? These are typically operating or provision-type liabilities. Let me check if there are any other items that might be debt-like in the current liabilities: - Trade And Other Current Payables: 1,849,980,000 - operating - Current Tax Liabilities: 26,810,000 - operating - Other Current Liabilities: 632,259,000 - likely operating So my debt calculation seems correct: 4,722,263,000 + 619,418,000 = 5,341,681,000 for 2022. Wait, I want to double-check by looking at the cash flow from financing activities. The repayments and proceeds from borrowings should relate to changes in debt. Debt change from 2021 to 2022: - 2021 debt: 4,791,979,000 + 285,222,000 = 5,077,201,000 - 2022 debt: 4,722,263,000 + 619,418,000 = 5,341,681,000 - Change: +264,480,000 (increase in debt) From cash flow: - Proceeds from borrowings: 250,000,000 - Repayments: 73,287,000 (but this is shown as positive, which might mean inflow? No wait, let me check) Actually, looking at the cash flow statement: - "Repayments Of Borrowings Classified As Financing Activities" 2022: 73,287,000 - this is typically an outflow, so should be negative - "Proceeds From Borrowings Classified As Financing Activities" 2022: 250,000,000 - this is an inflow But in the data, these are shown as positive numbers. This might mean the sign convention is different, or these are absolute values with the sign implied by the activity type. Actually, looking more carefully at the cash flow: "Cash Flows From Used In Financing Activities" 2022: 8,795,000 (positive, meaning inflow) This seems odd if debt increased. Let me check: if proceeds are 250M and repayments are 73M, net borrowing is +177M. But debt increased by 264M. There's a discrepancy of about 87M. This could be due to: - Foreign exchange effects - Acquisitions (there was a subsidiary acquisition for -110M) - Other financing activities - Lease additions Actually, the cash flow shows "Other Inflows Outflows Of Cash Classified As Financing Activities" of 92,441,000, and "Interest Paid" of 114,121,000, and "Dividends Paid" of 146,238,000. Let me try to reconcile: 250,000 - 73,287 + 92,441 - 114,121 - 146,238 = 8,795 ✓ So the 8,795,000 matches. But this doesn't explain the full debt change because interest paid is part of financing cash flow but doesn't affect debt principal. Actually, debt change should be: Proceeds - Repayments + Other financing inflows/outflows that affect debt ± FX effects ± fair value changes + leases entered into. The 264M increase in debt vs 177M net borrowing (proceeds - repayments) suggests about 87M of additional debt from other sources (likely leases or acquisitions). Anyway, for S&P adjusted leverage, they might make various adjustments. But based on the raw data I have, let me proceed with my calculation. Actually, I want to reconsider if I should use "Net Debt" as just debt minus cash, or if there are other items to include. S&P typically adjusts for: - Cash and cash equivalents (deduct) - Short-term investments (deduct) - Some adjustments for pension deficits, etc. From the data, I have: - Cash: 559,908,000 (2022) and 680,820,000 (2021) - Other Current Financial Assets: 342,085,000 (2022) and 407,944,000 (2021) Should I include "Other Current Financial Assets" as part of "cash-like" items? These might include short-term investments, deposits, etc. Also "Financial Assets" noncurrent: 30,531,000 (2022) and 22,549,000 (2021). If I include these as cash-like: 2022: 559,908,000 + 342,085,000 + 30,531,000 = 932,524,000 2021: 680,820,000 + 407,944,000 + 22,549,000 = 1,111,313,000 This would change Net Debt: 2022: 5,341,681,000 - 932,524,000 = 4,409,157,000; ratio = 3.378x 2021: 5,077,201,000 - 1,111,313,000 = 3,965,888,000; ratio = 3.157x Difference: 0.221x, still Stable. But I think for standard Net Debt calculation, we typically only deduct cash and cash equivalents, not all financial assets. Financial assets could include equity investments, loans to others, etc. which are not as liquid as cash. However, looking at "Other Current Financial Assets" of 342M and 408M, these seem substantial. Let me check if there's more detail... Actually, looking at the related party information: "Attività Finanziarie Correnti Di Cui Verso Parti Correlate" = 117,998,000 (2022) and 113,981,000 (2021). So part of these financial assets are related party items. Without more detail on what's in "Other Current Financial Assets", I'll stick with standard cash and cash equivalents for Net Debt. Let me also verify my balance sheet dates are correct. The report is "at the end of 2022", so: - 2022 fiscal year ends 2023-01-01 (Italian companies often have Jan 1 year-end) - 2021 fiscal year ends 2022-01-01 So my comparisons are correct: comparing FY2022 (ending 2023-01-01) vs FY2021 (ending 2022-01-01). Let me do one more verification of the ratio: Net Debt 2022: 4,781,773,000 EBITDA 2022: 1,305,021,000 Ratio 2022: 3.664 Net Debt 2021: 4,396,381,000 EBITDA 2021: 1,256,075,000 Ratio 2021: 3.500 Gap: 3.664 - 3.500 = 0.164 Since |0.164| < 0.3, this is **Stable**. Wait, I want to double-check one thing. The problem says "S&P's adjusted leverage". S&P might make specific adjustments that I cannot fully determine from this data. However, based on the standard definition and the data provided, I need to make my best estimate. One common S&P adjustment is to treat half of dividends paid as mandatory (like debt) or to adjust for operating leases. But without specific guidance, I'll use the standard calculation. Actually, let me reconsider if I should include the "Disponibilità Monetaria Netta" (Net Cash Position) which is given as: - 2023-01-01: 559,908,000 - 2022-01-01: 693,193,000 Wait, this is interesting. "Disponibilità Monetaria Netta" = Net Cash Position? But this equals the cash and cash equivalents figure for 2023-01-01 (559,908,000), but for 2022-01-01 it's 693,193,000 vs cash of 680,820,000. There's a slight difference of 12,373,000, which equals "Disponibilità Liquide E Mezzi Equivalenti Alla Fine Dellesercizio Discontinued Operations" for 2022-01-01. Hmm, actually looking more carefully: - "Disponibilità Liquide E Mezzi Equivalenti Alla Fine Dellesercizio Continued Operations" 2022-01-01: 680,820,000 - "Disponibilità Liquide E Mezzi Equivalenti Alla Fine Dellesercizio Discontinued Operations" 2022-01-01: 12,374,000 - Total cash: 693,194,000 ≈ 693,193,000 (the "Disponibilità Monetaria Netta") So "Disponibilità Monetaria Netta" for 2022-01-01 includes discontinued operations cash. But for 2023-01-01, discontinued operations cash is 0. So total cash: - 2023-01-01: 559,908,000 (continued) + 0 (discontinued) = 559,908,000 - 2022-01-01: 680,820,000 (continued) + 12,374,000 (discontinued) = 693,194,000 But the "Disponibilità Monetaria Netta" is shown as 693,193,000 for 2022-01-01 and 559,908,000 for 2023-01-01. Wait, there's also "Disponibilità Monetaria Da Acquisizione Di Cui Verso Parti Correlate" - this seems to be cash from acquisitions related parties. Actually, I think I should just use the standard cash and cash equivalents figure as reported. Let me recalculate one more time with precise numbers: **2022 (FY ending 2023-01-01):** - Debt: 4,722,263,000 + 619,418,000 = 5,341,681,000 - Cash: 559,908,000 - Net Debt: 4,781,773,000 - EBITDA: 1,305,021,000 - Net Debt/EBITDA: 3.6643x **2021 (FY ending 2022-01-01):** - Debt: 4,791,979,000 + 285,222,000 = 5,077,201,000 - Cash: 680,820,000 (or 693,193,000 if using "Disponibilità Monetaria Netta") - Net Debt with 680,820,000: 4,396,381,000 - Net Debt with 693,193,000: 4,384,008,000 - EBITDA: 1,256,075,000 - Net Debt/EBITDA with 680,820,000: 3.5000x - Net Debt/EBITDA with 693,193,000: 3.4903x Using the more consistent "Disponibilità Monetaria Netta" for cash: 2022: 4,781,773,000 / 1,305,021,000 = 3.6643x 2021: 4,384,008,000 / 1,256,075,000 = 3.4902x Gap: 0.1741x Still Stable. Actually, I want to check if I should use "Disponibilità Monetaria Netta" as the cash figure. The term means "Net Cash Position" or "Net Monetary Position". But in 2023-01-01, it equals the continued operations cash (559,908,000), while in 2022-01-01 it's 693,193,000 vs 680,820,000 continued + 12,374,000 discontinued = 693,194,000. The slight difference of 1,000 is likely rounding. So "Disponibilità Monetaria Netta" = total cash including discontinued operations. For consistency, I should probably use this for both years. 2022 Net Debt = 5,341,681,000 - 559,908,000 = 4,781,773,000 2021 Net Debt = 5,077,201,000 - 693,193,000 = 4,384,008,000 Wait, I need to check: is "Disponibilità Monetaria Netta" already net of something? The name suggests "Net Monetary Position" which might already be net of some current financial liabilities? Let me check: 693,193,000 vs the sum of cash items. If it's just cash, then my calculation above is correct. But if it's "Net", it might already deduct some overdrafts or current financial liabilities. Actually, looking at the 2023-01-01 figure: 559,908,000. This exactly equals "Disponibilità Liquide E Mezzi Equivalenti Alla Fine Dellesercizio Continued Operations". So it seems to just be cash, not net of anything. For 2022-01-01: 693,193,000 = 680,820,000 + 12,374,000 (discontinued). So yes, it's total cash. So my Net Debt calculation using total cash is correct. But wait - I should double check if there are any bank overdrafts or current portion of debt that I might have missed. Let me look at "Other Current Financial Liabilities" again - this is 619,418,000 for 2023-01-01 and 285,222,000 for 2022-01-01. These are included in my debt calculation. Actually, I want to verify one more thing. Is there any "cash and cash equivalents" included in "Other Current Financial Assets"? The line "Attività Finanziarie Correnti Di Cui Verso Parti Correlate" = 117,998,000 for 2023-01-01. This is part of "Other Current Financial Assets" of 342,085,000. So related party current financial assets are 118M out of 342M. If these related party financial assets are something like loans to related parties, they might not be as liquid as cash. So I should probably not include them in "cash-like" items. Given all this, my calculation seems robust: - Net Debt/EBITDA 2022 ≈ 3.66x - Net Debt/EBITDA 2021 ≈ 3.50x - Gap ≈ 0.16x Since |0.16x| < 0.3x, the trend is **Stable**. Actually, let me reconsider one more time if I have the direction right. The ratio increased from 3.50x to 3.66x, meaning leverage increased (more debt relative to EBITDA). This is technically a deterioration in credit quality. But the magnitude of change (0.16x) is within the ±0.3x band defined as "Stable". So the answer should be **Stable**. Stable