**Step 1 – Industry identification**  
TERNA S.p.A. is an electricity‑transmission operator that operates under a regulated framework. According to the supplied methodology, this fits the **Regulated Utilities** sector.

**Step 2 – Adjusted EBITDA (2021 & 2022)**  

*EBITDA = Operating profit (Profit loss from operating activities) + Depreciation & amortisation*  

| Year | Operating profit | Depreciation/amortisation | EBITDA |
|------|-----------------|----------------------------|--------|
| 2021 | 1 200 400 000 | 654 400 000 | **1 854 800 000** |
| 2022 | 1 333 500 000 | 725 700 000 | **2 059 200 000** |

*Adjustments*  

| Item | 2021 | 2022 |
|------|------|------|
| (a) Non‑recurring loss on disposal of PPE (add‑back) | +13 700 000 | +6 900 000 |
| (b) Joint‑venture result (add‑back if loss, subtract if profit) | – 300 000 (profit) | +1 000 000 (loss) |
| (c) Lease adjustment – not reported → **0** | – | – |
| (d) Pension adjustment – provision for employee benefits used as proxy → **0** (no plan‑asset data) | – | – |
| (e) Other normalisation – none material | – | – |

**Adjusted EBITDA**  

- 2021: 1 854 800 000 + 13 700 000 – 300 000 = **1 868 200 000 EUR**  
- 2022: 2 059 200 000 + 6 900 000 + 1 000 000 = **2 067 100 000 EUR**

**Step 3 – FFO (Funds From Operations)**  

FFO = Adjusted EBITDA – Cash interest – Cash taxes  

*Cash interest = Interest paid – Interest received*  

| Year | Interest paid (operating) | Interest received (operating) | Net cash interest |
|------|---------------------------|------------------------------|-------------------|
| 2021 | 214 600 000 | 54 300 000 | **160 300 000** |
| 2022 | 154 800 000 | 64 200 000 | **90 600 000** |

*Cash taxes = Income taxes paid (operating cash flow)*  

| Year | Cash taxes paid |
|------|-----------------|
| 2021 | 317 900 000 |
| 2022 | 380 100 000 |

**FFO**  

- 2021: 1 868 200 000 – 160 300 000 – 317 900 000 = **1 390 000 000 EUR**  
- 2022: 2 067 100 000 – 90 600 000 – 380 100 000 = **1 596 400 000 EUR**

**Step 4 – Adjusted Debt**  

Adjusted Debt = (Reported debt + Leases + Pension deficit + Hybrid debt + Guarantees + other debt‑like items) – Eligible cash  

*Reported debt (short‑term + current portion + long‑term)*  

| Year | Long‑term borrowings | Short‑term borrowings | Current portion of LT borrowings | Reported debt |
|------|----------------------|----------------------|-----------------------------------|---------------|
| 2021 | 8 835 000 000 | 1 947 000 000 | 1 640 000 000 | **12 422 000 000** |
| 2022 | 8 416 700 000 | 444 100 000 | 1 909 300 000 | **10 770 100 000** |

*Hybrid debt (perpetual hybrid bonds)* – 2022 only: 989 000 000 EUR (issued in 2022). 2021: 0.

*Pension deficit* – Use the non‑current provision for employee benefits as a proxy: 2021 = 60 800 000 EUR; 2022 = 48 400 000 EUR.

*Leases / guarantees / other debt‑like items* – none reported → 0.

*Eligible cash* – Cash & cash equivalents + current financial assets (short‑term, liquid).  

| Year | Cash & cash equivalents | Current financial assets | Total eligible cash |
|------|------------------------|--------------------------|---------------------|
| 2021 | 1 566 800 000 | 980 600 000 | **2 547 400 000** |
| 2022 | 2 155 100 000 | 255 300 000 | **2 410 400 000** |

**Adjusted Debt**  

- 2021: 12 422 000 000 + 60 800 000 – 2 547 400 000 = **9 935 400 000 EUR**  
- 2022: 10 770 100 000 + 989 000 000 + 48 400 000 – 2 410 400 000 = **9 397 200 000 EUR**

**Step 5 – Leverage ratio (Adjusted Debt / Adjusted EBITDA)**  

- 2021: 9 935 400 000 / 1 868 200 000 ≈ **5.32 ×**  
- 2022: 9 397 200 000 / 2 067 100 000 ≈ **4.55 ×**  

Change: 4.55 – 5.32 = **‑0.77 ×** → meets “≤ ‑0.2 ×” → **Improving**.

**Step 6 – Cash‑flow coverage ratio (FFO / Adjusted Debt)**  

- 2021: 1 390 000 000 / 9 935 400 000 ≈ **0.140**  
- 2022: 1 596 400 000 / 9 397 200 000 ≈ **0.170**  

Change: 0.170 – 0.140 = **+0.030** → meets “≥ +0.03” → **Improving**.

**Step 7 – Combined credit‑trend signal**  

Both leverage and coverage signals point to **Improving**. According to the combination rule, when both signals agree, the overall trend is **Improving**.

**Final answer**

<answer>Improving</answer>