## 1. Relevant industry

Veolia Environnement is primarily a global environmental services / multi-utility group, with water, waste, and energy services. Based on the methodologies provided, the closest fit is **Regulated Utilities**, especially because water and utility-like environmental services often involve concessions, public-service contracts, and regulated or quasi-regulated tariff frameworks.

However, Veolia also has material non-regulated waste and energy-service activities, so I would not assume the lowest-risk regulated-utility treatment. For this exercise, I apply the **general corporate baseline formulas**, informed by the regulated-utilities framework, using reported cash-flow and balance-sheet data.

---

## 2. Estimate 2021 Adjusted EBITDA

Reported EBITDA is not directly given, so reconstruct EBITDA from operating income before equity-accounted entities plus operating depreciation/amortization/provisions/impairment.

For 2021:

- Operating income before share of equity-accounted entities = €1,212.7m
- Operating depreciation, amortization, provisions and impairment losses = €2,117.2m

\[
EBITDA_{2021} \approx 1,212.7 + 2,117.2 = 3,329.9 \text{ m}
\]

No detailed S&P lease, pension, guarantee, or proportional JV EBITDA adjustments are available, so I make no additional adjustment.

\[
\textbf{Adjusted EBITDA}_{2021} \approx €3,329.9m
\]

---

## 3. Estimate 2021 FFO

Baseline formula:

\[
FFO = Adjusted\ EBITDA - cash\ interest - cash\ taxes
\]

For 2021:

- Adjusted EBITDA = €3,329.9m
- Interest paid = €357.4m
- Income taxes paid = €285.6m

\[
FFO_{2021} = 3,329.9 - 357.4 - 285.6 = 2,686.9 \text{ m}
\]

\[
\textbf{FFO}_{2021} \approx €2,686.9m
\]

This is reasonably close to operating cash flow before working-capital effects after interest/tax-type deductions, though the dataset’s “cash flows from operations before changes in working capital” is €3,213.2m before some deductions/classifications.

---

## 4. Estimate 2021 Adjusted Debt

Use financial liabilities excluding concession liabilities plus lease liabilities, less eligible cash.

At Jan. 1, 2022, corresponding to fiscal year-end 2021:

Financial debt items:

- Noncurrent financial liabilities excluding concession liabilities = €10,462.5m
- Current financial liabilities excluding concession liabilities = €8,624.3m
- Noncurrent lease liabilities = €1,298.1m
- Current lease liabilities = €410.6m
- Bank overdrafts and other cash position items = €241.9m

Gross debt including leases and overdrafts:

\[
10,462.5 + 8,624.3 + 1,298.1 + 410.6 + 241.9 = 21,037.4 \text{ m}
\]

Cash and cash equivalents:

- Cash and cash equivalents = €10,518.7m

Assuming full cash netting as eligible cash:

\[
Adjusted\ Debt_{2021} = 21,037.4 - 10,518.7 = 10,518.7 \text{ m}
\]

\[
\textbf{Adjusted Debt}_{2021} \approx €10,518.7m
\]

Note: S&P may haircut surplus cash and adjust hybrid instruments partly as debt. Deeply subordinated securities were €2,460.7m at Jan. 1, 2022. If included partly as debt, leverage would be higher. Since detailed equity-content assumptions are unavailable, I exclude them from adjusted debt in the base calculation.

---

## 5. 2021 Adjusted Debt / Adjusted EBITDA

\[
Debt/EBITDA_{2021} = \frac{10,518.7}{3,329.9} = 3.16x
\]

\[
\textbf{2021 Adjusted Debt / Adjusted EBITDA} \approx 3.16x
\]

---

## 6. 2021 FFO / Adjusted Debt

\[
FFO/Debt_{2021} = \frac{2,686.9}{10,518.7} = 0.255
\]

\[
\textbf{2021 FFO / Adjusted Debt} \approx 25.5\%
\]

---

## 7. Estimate 2022 Adjusted EBITDA

For 2022:

- Operating income before share of equity-accounted entities = €2,206.3m
- Operating depreciation, amortization, provisions and impairment losses = €3,178.6m

\[
EBITDA_{2022} \approx 2,206.3 + 3,178.6 = 5,384.9 \text{ m}
\]

No further detailed S&P adjustments are available.

\[
\textbf{Adjusted EBITDA}_{2022} \approx €5,384.9m
\]

---

## 8. Estimate 2022 FFO

For 2022:

- Adjusted EBITDA = €5,384.9m
- Interest paid = €637.7m
- Income taxes paid = €557.4m

\[
FFO_{2022} = 5,384.9 - 637.7 - 557.4 = 4,189.8 \text{ m}
\]

\[
\textbf{FFO}_{2022} \approx €4,189.8m
\]

---

## 9. Estimate 2022 Adjusted Debt

At Jan. 1, 2023, corresponding to fiscal year-end 2022:

Financial debt items:

- Noncurrent financial liabilities excluding concession liabilities = €19,692.1m
- Current financial liabilities excluding concession liabilities = €6,521.4m
- Noncurrent lease liabilities = €1,656.2m
- Current lease liabilities = €496.5m
- Bank overdrafts and other cash position items = €213.6m

Gross debt including leases and overdrafts:

\[
19,692.1 + 6,521.4 + 1,656.2 + 496.5 + 213.6 = 28,579.8 \text{ m}
\]

Cash and cash equivalents:

- Cash and cash equivalents = €9,012.2m

\[
Adjusted\ Debt_{2022} = 28,579.8 - 9,012.2 = 19,567.6 \text{ m}
\]

\[
\textbf{Adjusted Debt}_{2022} \approx €19,567.6m
\]

Again, this excludes potential hybrid debt adjustments. Deeply subordinated securities increased to €3,496.3m, which could raise S&P-adjusted debt if only partial equity credit is granted. Including hybrid debt partly as debt would make 2022 leverage somewhat worse.

---

## 10. 2022 Adjusted Debt / Adjusted EBITDA

\[
Debt/EBITDA_{2022} = \frac{19,567.6}{5,384.9} = 3.63x
\]

\[
\textbf{2022 Adjusted Debt / Adjusted EBITDA} \approx 3.63x
\]

---

## 11. 2022 FFO / Adjusted Debt

\[
FFO/Debt_{2022} = \frac{4,189.8}{19,567.6} = 0.214
\]

\[
\textbf{2022 FFO / Adjusted Debt} \approx 21.4\%
\]

---

## 12. Credit trend classification

### Signal 1: Leverage

\[
Debt/EBITDA\ change = 3.63x - 3.16x = +0.47x
\]

Threshold:

- ≥ +0.2x = Deteriorating

So leverage signal = **Deteriorating**.

Although EBITDA improved significantly, adjusted net debt increased even more, mainly reflecting the enlarged balance sheet following the Suez acquisition and integration. Gross financial liabilities increased materially, while cash declined.

### Signal 2: Cash-flow coverage

\[
FFO/Debt\ change = 0.214 - 0.255 = -0.041
\]

This is a decline of about 4.1 percentage points.

Threshold:

- ≤ -0.03 = Deteriorating

So cash-flow coverage signal = **Deteriorating**.

### Combined signal

Both signals point to **Deteriorating**:

- Debt / EBITDA worsened by about +0.47x, exceeding the +0.2x deterioration threshold.
- FFO / debt declined by about 4.1 percentage points, exceeding the -3 percentage-point deterioration threshold.

Despite stronger revenue, EBITDA, operating income, and FFO in absolute terms, the increase in adjusted debt was more material than the improvement in earnings and cash flow coverage.

<answer>Deteriorating</answer>