I'll work through this step-by-step.

## Step 1: Identify the relevant industry

REN - Redes Energéticas Nacionais is Portugal's national energy grid company, operating electricity transmission and natural gas infrastructure under concession/regulated frameworks. This fits the **Regulated Utilities** industry methodology.

## Step 2: Estimate 2021 Adjusted EBITDA

For 2021 (period 2021-01-01 to 2022-01-01):

**Reconstruct EBITDA:**
- Operating Profit (EBIT) = 218,863,000 EUR
- D&A = 241,940,000 EUR
- EBITDA = 218,863,000 + 241,940,000 = 460,803,000 EUR

**S&P Adjustments:**
- Lease adjustments: The cash flow shows lease payments of 2,065,000 + 29,000 = 2,094,000. I'll add back lease interest (29,000) already in finance costs and approximate lease depreciation. The lease adjustment to EBITDA would add back the lease expense (~2,094,000).
- Pension adjustments: Noncurrent provisions for employee benefits existed. The OCI remeasurement gain of 2,436,000 (before tax) suggests some pension movement, but for EBITDA we focus on the service cost component already in operating expenses.
- Construction revenue/costs for concession assets: These are largely pass-through (revenue 237,696,000 vs cost 215,253,000 = margin 22,443,000). S&P typically strips out construction margin for regulated utilities operating under IFRIC 12. Let me adjust by removing both construction revenue and costs.

Adjusted EBITDA (simplified):
- EBITDA = 460,803,000
- Remove construction margin: Revenue 237,696,000 - Cost 215,253,000 = 22,443,000 net profit from construction → subtract this
- Add lease adjustment: ~2,094,000

Actually, for S&P analysis of regulated utilities under IFRIC 12 concession accounting, the construction revenue/cost is often left as-is since it represents real activity. Let me keep it simpler and include construction.

**Adjusted EBITDA 2021 ≈ 460,803,000 + 2,094,000 ≈ 462,897,000 EUR**

Let me round: ~463,000,000 EUR

## Step 3: Estimate 2021 FFO

FFO = Adjusted EBITDA - cash interest - cash taxes

- Cash interest paid (financing activities): 39,725,000 + 29,000 (lease interest) = 39,754,000
- Cash taxes paid: 74,253,000
- Energy Sector Extraordinary Contribution: 27,041,000 (this is a tax-like charge; included in taxes paid likely)

FFO = 462,897,000 - 39,754,000 - 74,253,000 = 348,890,000 EUR

## Step 4: Estimate 2021 Adjusted Debt

As of 2022-01-01 (end of fiscal 2021):
- Long-term borrowings: 2,390,852,000
- Current borrowings: 375,221,000
- Total reported debt: 2,766,073,000
- Pension deficit: 94,109,000
- Lease liabilities (included in borrowings likely, but let me add estimated lease liability if not): Small amount, assume included.
- Cash: 398,759,000 (S&P typically only deducts surplus/accessible cash; for regulated utilities, limited deduction. I'll deduct a modest portion or none.)

For regulated utilities, S&P is conservative on cash netting. Let me not deduct cash.

**Adjusted Debt 2021 ≈ 2,766,073,000 + 94,109,000 = 2,860,182,000 EUR**

## Step 5: 2021 Adjusted Debt / Adjusted EBITDA

= 2,860,182,000 / 462,897,000 = **6.18x**

## Step 6: 2021 FFO / Adjusted Debt

= 348,890,000 / 2,860,182,000 = **12.2%** (0.122)

## Step 7: Estimate 2022 Adjusted EBITDA

For 2022 (period 2022-01-01 to 2023-01-01):

**Reconstruct EBITDA:**
- Operating Profit (EBIT) = 239,721,000
- D&A = 249,276,000
- EBITDA = 239,721,000 + 249,276,000 = 488,997,000 EUR

**Adjustments:**
- Lease adjustment: 2,157,000 + 26,000 = 2,183,000
- Construction margin: Revenue 197,420,000 - Cost 175,095,000 = 22,325,000 (keep included)

**Adjusted EBITDA 2022 ≈ 488,997,000 + 2,183,000 ≈ 491,180,000 EUR**

## Step 8: Estimate 2022 FFO

- Cash interest: 40,545,000 + 26,000 = 40,571,000
- Cash taxes: 77,970,000

FFO = 491,180,000 - 40,571,000 - 77,970,000 = 372,639,000 EUR

## Step 9: Estimate 2022 Adjusted Debt

As of 2023-01-01 (end of fiscal 2022):
- Long-term borrowings: 1,695,362,000
- Current borrowings: 638,944,000
- Total reported debt: 2,334,306,000
- Pension deficit: 64,939,000
- The 1,000,000,000 gas stabilization asset/liability net to zero.

**Adjusted Debt 2022 ≈ 2,334,306,000 + 64,939,000 = 2,399,245,000 EUR**

## Step 10: 2022 Adjusted Debt / Adjusted EBITDA

= 2,399,245,000 / 491,180,000 = **4.88x**

## Step 11: 2022 FFO / Adjusted Debt

= 372,639,000 / 2,399,245,000 = **15.5%** (0.155)

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

**Signal 1: Leverage change**
= 4.88x - 6.18x = **-1.30x** → ≤ -0.2x → **Improving**

**Signal 2: Cash-flow coverage change**
= 0.155 - 0.122 = **+0.033** → ≥ +0.03 → **Improving**

Both signals agree: **Improving**

The significant debt reduction (~432M EUR decrease in total debt) combined with higher EBITDA drove substantial deleveraging.

<answer>Improving</answer>