### Step 1: Identify the relevant industry for VERBUND AG

VERBUND AG is an Austrian electricity company. Based on its operations:
- It generates and sells electricity (predominantly from hydropower).
- It operates electricity grids.
- It is subject to regulatory frameworks for its grid operations but also has significant unregulated generation activities (hydropower, wind, solar).
- It does not explore for or produce oil and gas.
- It is not a transportation infrastructure company.

The provided description fits best with the **Unregulated Power And Gas** methodology, given VERBUND’s large merchant generation exposure (hydropower sales at market prices) alongside some regulated grid revenue. However, VERBUND also has regulated grid operations (Grid Revenue). Given the mix, I will primarily use the unregulated power and gas framework but note that the grid portion could be considered regulated. Since no single methodology perfectly covers a hybrid utility, I will apply the baseline adjustments with relevant sector-specific considerations. The baseline formulas will be adjusted as needed.

---

### Step 2: Estimate 2021 Adjusted_EBITDA

**Formula:**
```
Adjusted_EBITDA = EBITDA (reported) + adjustment_leases + nonrecurring_losses - nonrecurring_gains ± pension_adjustments ± joint_venture_proportional_EBITDA ± other_normalization_adjustments
```

**Given data (2021):**
- EBITDA: 1,578,959,000 EUR
- Depreciation and Amortisation: 417,269,000 EUR (not directly used here)
- Impairment Loss: 9,869,000 EUR (nonrecurring loss)
- Reversal of Impairment Loss: 115,009,000 EUR (nonrecurring gain)
- Other Income: 97,414,000 EUR (already in EBITDA)
- Valuation and Realisation of Energy Derivatives: -269,667,000 EUR (part of EBITDA? Usually yes for unregulated power; we keep as is unless it's nonrecurring—likely operating, so no adjustment)
- No explicit lease adjustment given, but lease payments are in financing cash flows. For simplicity, assume leases already included in EBITDA under IFRS 16; no adjustment needed.
- Pension adjustments: Not directly available; omit.
- Joint ventures: Share of profit of associates = 34,837,000 EUR (equity method, not included in EBITDA; we do not add back unless specified; usually not added for Adjusted EBITDA).
- Other nonrecurring items: None obvious.

**Normalization:**
- Remove impairment losses and reversals (nonrecurring).
  - Add back Impairment Loss: +9,869,000
  - Subtract Reversal of Impairment Loss: -115,009,000

**Calculation:**
Adjusted_EBITDA = 1,578,959,000 + 9,869,000 - 115,009,000 = **1,473,819,000 EUR**

---

### Step 3: Estimate 2021 FFO

**Formula:**
```
FFO = Adjusted_EBITDA - cash_interest - cash_taxes
```

**Given data (2021):**
- Interest Paid (cash) = 17,900,000 EUR (from cash flow statement)
- Income Taxes Paid = 238,200,000 EUR

**Calculation:**
FFO = 1,473,819,000 - 17,900,000 - 238,200,000 = **1,217,719,000 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
```

**Balance sheet data (2021-12-31):**
- Cash and Cash Equivalents: 318,562,000 EUR
- Noncurrent Financial Liabilities: 1,834,155,000 EUR
- Current Financial Liabilities: 1,462,453,000 EUR
- Lease liabilities (Right-of-use assets): 103,826,000 EUR (2022-01-01 ≈ 2021-12-31). Use this as proxy for lease debt.
- Pension deficit: Not explicitly given; assume 0.
- Hybrid debt: Not given.
- Eligible cash: Assume all cash is eligible (no trapped cash).

**Calculation:**
Adjusted_Debt = (1,834,155,000 + 1,462,453,000) [reported debt] + 103,826,000 [leases] - 318,562,000 [cash]
= 3,296,608,000 + 103,826,000 - 318,562,000 = **3,081,872,000 EUR**

---

### Step 5: 2021 Adjusted_Debt / Adjusted_EBITDA

Ratio = 3,081,872,000 / 1,473,819,000 = **2.09x**

---

### Step 6: 2021 FFO / Adjusted_Debt

Ratio = 1,217,719,000 / 3,081,872,000 = **0.395** (39.5%)

---

### Step 7: Estimate 2022 Adjusted_EBITDA

**Given data (2022):**
- EBITDA: 3,160,679,000 EUR
- Impairment Loss: 197,761,000 EUR
- Reversal of Impairment Loss: 125,973,000 EUR
- No other obvious nonrecurring items.

**Normalization:**
- Add back Impairment Loss: +197,761,000
- Subtract Reversal of Impairment Loss: -125,973,000

**Calculation:**
Adjusted_EBITDA = 3,160,679,000 + 197,761,000 - 125,973,000 = **3,232,467,000 EUR**

---

### Step 8: Estimate 2022 FFO

**Given data (2022):**
- Interest Paid (cash) = 36,100,000 EUR
- Income Taxes Paid = 343,100,000 EUR

**Calculation:**
FFO = 3,232,467,000 - 36,100,000 - 343,100,000 = **2,853,267,000 EUR**

---

### Step 9: Estimate 2022 Adjusted_Debt

**Balance sheet data (2022-12-31):**
- Cash and Cash Equivalents: 409,252,000 EUR
- Noncurrent Financial Liabilities: 2,844,559,000 EUR
- Current Financial Liabilities: 1,109,297,000 EUR
- Right-of-use assets: 146,613,000 EUR (proxy for lease debt)

**Calculation:**
Adjusted_Debt = (2,844,559,000 + 1,109,297,000) + 146,613,000 - 409,252,000
= 3,953,856,000 + 146,613,000 - 409,252,000 = **3,691,217,000 EUR**

---

### Step 10: 2022 Adjusted_Debt / Adjusted_EBITDA

Ratio = 3,691,217,000 / 3,232,467,000 = **1.14x**

---

### Step 11: 2022 FFO / Adjusted_Debt

Ratio = 2,853,267,000 / 3,691,217,000 = **0.773** (77.3%)

---

### Step 12: Classify year-on-year credit trend

**Signal 1: Leverage change**
- 2021: 2.09x
- 2022: 1.14x
- Change = 1.14 - 2.09 = **-0.95x**
- Threshold: ≤ -0.2x → **Improving**

**Signal 2: Cash-flow coverage change**
- 2021: 0.395
- 2022: 0.773
- Change = 0.773 - 0.395 = **+0.378**
- Threshold: ≥ +0.03 → **Improving**

Both signals agree: **Improving**.

---

<answer>Improving</answer>