# S&P Adjusted Debt-to-EBITDA Analysis for FERROVIAL SA (2022)

## Step 1: Identify the Relevant Industry

FERROVIAL SA is a Spanish infrastructure company with significant operations in:
- **Transportation Infrastructure** (toll roads, airports, ports)
- **Construction and Services**
- **Infrastructure investments** (both intangible asset model and financial asset model)

The company's primary business classification falls under **Transportation Infrastructure** according to S&P methodology, though it also has construction/services operations. Given the substantial infrastructure operations portfolio (€13.667 billion in investments in infrastructure projects), the Transportation Infrastructure methodology is most appropriate.

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## Step 2: Estimate Adjusted_Debt

### Components of Adjusted Debt:

**A. Reported Debt (as of 2022-01-01):**
- Noncurrent Debt Securities and Bank Borrowings (Infrastructure Projects): €7,362M
- Noncurrent Debt Securities and Bank Borrowings (Excluding Infrastructure): €2,151M
- Current Debt Securities and Bank Borrowings (Infrastructure Projects): €47M
- Current Debt Securities and Bank Borrowings (Excluding Infrastructure): €1,049M
- **Total Reported Debt**: €7,362M + €2,151M + €47M + €1,049M = **€10,609M**

**B. Lease Obligations (Right-of-Use Assets & Lease Liabilities):**
- Noncurrent Lease Liabilities (2022-01-01): €115M
- Current Lease Liabilities (2022-01-01): €58M
- **Total Lease Liabilities**: €115M + €58M = **€173M**

**C. Pension Deficit Adjustments:**
- No significant pension provisions indicated in noncurrent/current provisions that would suggest a funding deficit requiring adjustment.
- **Pension adjustment**: €0M

**D. Guarantees and Hybrid Debt:**
- No explicit guarantees disclosed that require adjustment
- Perpetual Subordinated Bonds categorized as "Other Equity Securities": €507M
- These should be treated conservatively; S&P typically includes a portion. For transportation infrastructure with strong concession characteristics, apply 50% treatment: **€253.5M**

**E. Eligible Cash Reduction:**
- Cash and Cash Equivalents (Excluding Infrastructure Projects) 2022-01-01: €5,329M
- Cash and Cash Equivalents (Infrastructure Projects) 2022-01-01: €207M (restricted, partially included)
- For adjusted debt purposes, use readily available cash: **€5,329M** (exclude infrastructure project-specific restricted cash initially)

**Adjusted Debt Calculation:**
- Base debt: €10,609M
- Plus: Lease liabilities: €173M
- Plus: Hybrid debt (50% of perpetual bonds): €253.5M
- Less: Eligible cash: €5,329M
- **Adjusted_Debt = €10,609M + €173M + €253.5M - €5,329M = €5,706.5M**

Rounded: **€5,707M**

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## Step 3: Estimate Adjusted_EBITDA

### Starting with Operating Profit and Working to EBITDA:

**From Income Statement (2021-01-01 - 2022-01-01 period for FY2021):**

The data provided spans 2022-01-01 - 2023-01-01 (FY2022). For debt ratios at 2022-01-01, we need FY2021 or annualized 2022. Using the most recent complete year (2021-01-01 - 2022-01-01):

- Profit from Operations Before Impairment: €340M
- Amortisation Expense: €270M
- Impairment and Gains/Losses on Disposal: €1,139M (includes large gain on disposal - nonrecurring)

**Construct EBITDA (FY2021):**
- Profit from Operations Before Impairment: €340M
- Plus: Amortisation Expense: €270M
- EBITDA before adjustments: **€610M**

However, we should focus on FY2022 data (more recent, closer to balance sheet date of 2022-01-01):

**For FY2022 (2022-01-01 - 2023-01-01):**
- Profit from Operations Before Impairment: €429M
- Amortisation Expense: €299M
- **EBITDA (base)**: €429M + €299M = **€728M**

### Adjustments to EBITDA:

**A. Nonrecurring Items:**
- Impairment and Gains/Losses on Disposal (FY2022): -€6M (small loss, not material adjustment)
- Nonrecurring gains: The €1,139M disposal gain in FY2021 and large gains from held-for-sale operations suggest asset disposition activity
- For FY2022: impairment impact is minimal (-€6M, already excluded from EBITDA)

**B. Lease Adjustments:**
- Operating lease expense embedded in operating expenses. S&P adds back standardized lease expense.
- Estimated normalized lease expense ≈ €173M / 5 years (typical lease life assumption) ≈ €35M annually
- **Lease adjustment**: +€35M (conservative estimate)

**C. Pension Adjustments:**
- No material pension deficit visible
- **Pension adjustment**: €0M

**D. Joint Venture/Associate Adjustments:**
- Share of Profit of Associates (FY2022): €165M
- Investments in Associates: €1,838M (significant)
- For proportional consolidation, adjust: **+€165M** (include associate earnings proportionally)

**E. Other Normalization:**
- Discontinued operations profit (FY2022): €64M (nonrecurring)
- **Exclude from normalized EBITDA**: -€64M

**Adjusted EBITDA Calculation:**
- Base EBITDA: €728M
- Plus: Lease adjustment: €35M
- Plus: Associate earnings (proportional): €165M
- Less: Discontinued operations (nonrecurring): -€64M
- **Adjusted_EBITDA = €728M + €35M + €165M - €64M = €864M**

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## Step 4: Calculate Adjusted Debt / Adjusted EBITDA Ratio

**Adjusted_Debt / Adjusted_EBITDA = €5,707M / €864M = 6.60**

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## Verification and Sensitivity Check:

- **Adjusted Debt**: €5,707M (conservative; includes lease liabilities and partial hybrid debt treatment)
- **Adjusted EBITDA**: €864M (includes associate contributions and lease normalization)
- **Ratio**: 6.60x

This reflects a leveraged infrastructure/transportation company with significant debt relative to EBITDA, consistent with capital-intensive infrastructure operations. The ratio is reasonable given Ferrovial's business model of infrastructure concessions and services.

<answer>6.60</answer>