**Step 1: Identify the relevant industry**

Naturgy Energy Group SA is a multinational energy company involved in the distribution of natural gas and electricity, as well as generation and supply. The provided methodologies cover "Regulated Utilities," "Oil And Gas Exploration And Production," "Unregulated Power And Gas," and "Transportation Infrastructure."

Naturgy operates primarily as a utility with significant regulated distribution networks (gas and electricity) in Spain and other jurisdictions, alongside unregulated generation and supply activities. The "Regulated Utilities" methodology is the most appropriate primary framework because a substantial portion of its earnings and cash flows come from regulated network activities which provide stability. However, given the mix, we must check if it fits the "Unregulated Power and Gas" volatility tables or if the "Regulated Utilities" adjustments apply. The prompt asks to estimate S&P's credit trend. S&P typically classifies integrated utilities with significant regulated assets under the Regulated Utilities methodology, applying specific adjustments for unregulated portions if necessary. For the purpose of this calculation, we will apply the standard corporate baseline formulas modified by typical utility adjustments found in the text (specifically regarding leases and debt-like items). The text notes that for regulated utilities, we look at EBITDA margins and ROE. For financial risk, we calculate leverage and coverage.

The provided text for "Regulated Utilities" mentions: "We apply the low volatility benchmark table... where they derive about two-thirds or more of their operating cash flows or profits from regulated operations...". It also mentions adjustments for leases ("purchased power methodology" or netting inventory). However, the baseline formulas provided in steps 2-6 are generic. We will stick to the provided baseline formulas but include lease liabilities in debt as per standard S&P practice for utilities (where operating leases are often capitalized or treated as debt-like, especially given the "Right-of-use Assets" and "Lease Liabilities" are explicitly reported).

**Step 2: Estimate 2021 Adjusted_EBITDA**

*   **Reported EBITDA:** The item "Beneficio Bruto De Explotacion Ebitda" for the period 2021-01-01 to 2022-01-01 is **3,529,000,000 EUR**.
*   **Adjustments:**
    *   *Leases:* The baseline formula includes `adjustment_leases`. In many utility contexts, EBITDA is reported after lease expenses or before. Under IFRS 16, EBITDA usually includes the depreciation of ROU assets and interest on lease liabilities, or excludes lease payments depending on the definition. The reported "EBITDA" line item in European utilities often adds back depreciation and amortization. Let's look at the components.
    *   Reported EBITDA = 3,529 million.
    *   The formula asks for `Adjusted_EBITDA = EBITDA + adjustment_leases + ...`.
    *   Standard S&P adjustment for leases often involves adding back rent expense if it was deducted, or treating lease liabilities as debt. If the reported EBITDA is already IFRS 16 compliant, it likely includes the EBITDA impact of leases (depreciation of ROU is below EBITDA, interest is below EBITDA). Wait, under IFRS 16, operating lease payments are replaced by depreciation and interest. Depreciation is added back to get to EBITDA? No, EBITDA is Earnings Before Interest, Tax, Depreciation, and Amortization. So Depreciation of ROU assets is added back. Interest on leases is added back. Therefore, reported EBITDA under IFRS 16 is generally higher than under old operating lease accounting. S&P often treats the entire lease liability as debt. Does it adjust EBITDA? Usually, no significant adjustment to EBITDA is made for the *level* if it's already IFRS 16, but sometimes rent equivalents are considered. However, without specific "rent expense" data, we assume the reported EBITDA is the starting point.
    *   *Non-recurring items:* The text does not explicitly list non-recurring gains/losses separate from "Other Gains Losses" or "Gains On Disposals". "Gains On Disposals Of Property Plant And Equipment" is 5 million. "Other Gains Losses" is 133 million. These are likely part of operating profit or below. EBITDA is usually operating. Let's assume the reported "Beneficio Bruto De Explotacion Ebitda" is the core operational metric. We will assume no major non-recurring adjustments are needed beyond what is standard, or that they are immaterial relative to the scale, as no specific "non-recurring" line item is isolated in the provided facts for adjustment.
    *   *Pension/JV:* No specific data provided for pension deficits or proportional JV EBITDA adjustments in the facts. We will proceed with the reported EBITDA.

    **2021 Adjusted_EBITDA = 3,529,000,000 EUR**

**Step 3: Estimate 2021 FFO**

*   **Formula:** FFO = Adjusted_EBITDA - cash_interest - cash_taxes
*   **Cash Interest:** The item "Finance Costs" is 598,000,000 EUR. This is an accrual figure. We need *cash* interest. The Cash Flow statement provides "Interest Paid Classified As Operating Activities" as **488,000,000 EUR**. Note: S&P often uses cash interest paid.
*   **Cash Taxes:** The item "Income Tax Expense" is 358,000,000 EUR. The Cash Flow statement provides "Income Taxes Paid Classified As Operating Activities" as **864,000,000 EUR**. We use the cash paid figure.
*   **Calculation:**
    FFO (2021) = 3,529,000,000 - 488,000,000 - 864,000,000
    FFO (2021) = **2,177,000,000 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
*   **Reported Debt:**
    *   Current Financial Liabilities: 1,698,000,000 EUR (from "Current Financial Liabilities" 2022-01-01 which is end of 2021).
    *   Noncurrent Financial Liabilities: 15,114,000,000 EUR.
    *   Total Reported Financial Debt = 1,698 + 15,114 = **16,812,000,000 EUR**.
    *   *Note:* "Current Borrowings..." is 1,493 and "Longterm Borrowings" is 13,786. The difference in "Financial Liabilities" vs "Borrowings" includes derivatives and other items. S&P typically includes all interest-bearing debt. "Noncurrent Financial Liabilities" includes "Noncurrent Lease Liabilities" (1,325 million). "Current Financial Liabilities" includes "Current Lease Liabilities" (196 million).
*   **Leases:** The formula adds `leases`. If we use "Financial Liabilities" which *already includes* lease liabilities (as per IFRS 16 classification in the balance sheet lines "Noncurrent Lease Liabilities" and "Current Lease Liabilities" being subsets of Financial Liabilities or reported alongside), we must be careful not to double count.
    *   Looking at the breakdown:
        *   Noncurrent Financial Liabilities (15,114) = Longterm Borrowings (13,786) + Noncurrent Lease Liabilities (1,325) + Other (3). Sum = 15,114.
        *   Current Financial Liabilities (1,698) = Current Borrowings (1,493) + Current Lease Liabilities (196) + Other (9). Sum = 1,698.
    *   So, Reported Financial Debt *includes* Lease Liabilities.
    *   The baseline formula says `Adjusted_Debt = reported_debt + leases ...`. This usually implies adding operating leases if they are *not* in reported debt. Since IFRS 16 capitalizes them into financial liabilities, they are already in `reported_debt`. We should *not* add them again. However, sometimes "reported debt" refers only to borrowings. Let's assume `reported_debt` in the formula context means interest-bearing borrowings excluding leases if leases are added separately. But standard S&P practice for IFRS reporters is to take Total Debt (including leases) from the balance sheet. Let's assume the `reported_debt` variable captures the total financial liabilities provided.
    *   Let's check if there are *other* debt-like items. "Pasivo Derivados Comerciales" (Commercial Derivatives Liabilities) are significant.
        *   Current Derivatives Liabilities: 2,704,000,000 EUR.
        *   Noncurrent Derivatives Liabilities: 730,000,000 EUR.
        *   Total Derivatives Liabilities: 3,434,000,000 EUR.
    *   S&P often treats negative mark-to-market derivatives as debt-like if they are hedging future cash flows, especially in utilities. However, without explicit instruction to capitalize derivatives, we might stick to financial debt. But wait, the prompt says "modify it as required by the industry methodology". In Regulated Utilities, derivative positions are often monitored but not always added to debt unless they represent financing. Given the volatility, let's look at the "eligible cash" first.
*   **Eligible Cash:** "Cash And Cash Equivalents" is **3,965,000,000 EUR**. S&P typically deducts unrestricted cash.
*   **Pension/Guarantees/Hybrid:** No data provided.
*   **Calculation:**
    *   Reported Financial Debt (including leases) = 16,812,000,000 EUR.
    *   Less Eligible Cash = 3,965,000,000 EUR.
    *   Adjusted Debt (2021) = 16,812 - 3,965 = **12,847,000,000 EUR**.
    *   *Self-Correction/Refinement:* Does S&P add back leases? If `reported_debt` meant only borrowings, we would add leases.
        *   Borrowings only: 1,493 (Current) + 13,786 (Non-current) = 15,279.
        *   Leases: 196 (Current) + 1,325 (Non-current) = 1,521.
        *   Total = 16,800 (close to 16,812 due to rounding/other).
        *   Since the balance sheet explicitly lists "Lease Liabilities" under Financial Liabilities, they are part of the debt stock. We will use the Total Financial Liabilities.

    **2021 Adjusted_Debt = 12,847,000,000 EUR**

**Step 5: Calculate 2021 Adjusted_Debt / Adjusted_EBITDA**

*   Ratio = 12,847 / 3,529
*   Ratio (2021) ≈ **3.64x**

**Step 6: Calculate 2021 FFO / Adjusted_Debt**

*   Ratio = 2,177 / 12,847
*   Ratio (2021) ≈ **0.1695** (or 16.95%)

**Step 7: Estimate 2022 Adjusted_EBITDA**

*   **Reported EBITDA:** "Beneficio Bruto De Explotacion Ebitda" for 2022-01-01 to 2023-01-01 is **4,954,000,000 EUR**.
*   **Adjustments:** Similar to 2021, we assume no major non-recurring or lease adjustments change the baseline significantly relative to the reported figure.
*   **2022 Adjusted_EBITDA = 4,954,000,000 EUR**

**Step 8: Estimate 2022 FFO**

*   **Formula:** FFO = Adjusted_EBITDA - cash_interest - cash_taxes
*   **Cash Interest:** "Interest Paid Classified As Operating Activities" for 2022 is **520,000,000 EUR**.
*   **Cash Taxes:** "Income Taxes Paid Classified As Operating Activities" for 2022 is **762,000,000 EUR**.
*   **Calculation:**
    FFO (2022) = 4,954,000,000 - 520,000,000 - 762,000,000
    FFO (2022) = **3,672,000,000 EUR**

**Step 9: Estimate 2022 Adjusted_Debt**

*   **Reported Debt:**
    *   Current Financial Liabilities (2023-01-01 balance, i.e., end of 2022): 2,302,000,000 EUR.
    *   Noncurrent Financial Liabilities (2023-01-01 balance): 13,999,000,000 EUR.
    *   Total Reported Financial Debt = 2,302 + 13,999 = **16,301,000,000 EUR**.
    *   (Check components: Longterm Borrowings 12,689 + Noncurrent Lease 1,309 + Other 1 = 13,999. Current Borrowings 2,110 + Current Lease 177 + Other 15 = 2,302. Matches.)
*   **Eligible Cash:** "Cash And Cash Equivalents" (2023-01-01) is **3,985,000,000 EUR**.
*   **Calculation:**
    Adjusted Debt (2022) = 16,301,000,000 - 3,985,000,000
    Adjusted Debt (2022) = **12,316,000,000 EUR**

**Step 10: Calculate 2022 Adjusted_Debt / Adjusted_EBITDA**

*   Ratio = 12,316 / 4,954
*   Ratio (2022) ≈ **2.49x**

**Step 11: Calculate 2022 FFO / Adjusted_Debt**

*   Ratio = 3,672 / 12,316
*   Ratio (2022) ≈ **0.2981** (or 29.81%)

**Step 12: Classify the credit trend**

*   **Signal 1: Leverage (Adjusted_Debt / Adjusted_EBITDA)**
    *   2021: 3.64x
    *   2022: 2.49x
    *   Change: 2.49 - 3.64 = **-1.15x**
    *   Threshold: ≤ -0.2x is Improving.
    *   Signal 1: **Improving**

*   **Signal 2: Cash-flow coverage (FFO / Adjusted_Debt)**
    *   2021: 0.1695
    *   2022: 0.2981
    *   Change: 0.2981 - 0.1695 = **+0.1286**
    *   Threshold: ≥ +0.03 is Improving.
    *   Signal 2: **Improving**

*   **Combination:**
    *   Both signals are Improving.

**Conclusion:**
The leverage ratio decreased significantly (improved) by 1.15 turns, and the FFO coverage ratio increased significantly (improved) by ~12.9 percentage points. Both metrics indicate a stronger credit profile in 2022 compared to 2021.

<answer>Improving</answer>