# Workflow Execution: FERROVIAL SA FFO/Adjusted Debt Analysis (2022)

## Step 1: Identify Relevant Industry

**Analysis:**
Ferrovial SA is a Spanish infrastructure company with significant operations across:
- Transportation infrastructure (toll roads, airports, ports)
- Construction and services
- Infrastructure projects (both intangible asset model and financial asset model)

The company operates primarily in the **Transportation Infrastructure** sector, as evidenced by:
- Substantial infrastructure project investments (€13,667M noncurrent)
- Diversified transportation infrastructure operations
- Long-term concession-based assets
- Geographic diversification across multiple jurisdictions

However, Ferrovial also has significant construction and services operations. The company is best characterized as a **Transportation Infrastructure** operator with diversified infrastructure holdings, following S&P's Transportation Infrastructure methodology.

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## Step 2: Estimate Adjusted EBITDA (2022)

### Baseline EBITDA Reconstruction:

**Starting with Operating Performance (2022):**
- Revenue: €7,551M
- Other Income: €2M
- Operating Expense: €(6,825)M
- **EBIT (before impairment):** €429M
- Impairment & Disposals: €(6)M
- **EBIT (after adjustments):** €423M

**Add back non-cash items:**
- Amortisation Expense: €299M
- **EBITDA = €423M + €299M = €722M**

### Adjustments for S&P Normalized EBITDA:

**1. Lease Adjustments (Operating Leases):**
- Current Lease Liabilities: €64M
- Noncurrent Lease Liabilities: €120M
- Right-of-use Assets: €183M
- Operating lease expense (implicit in operating expenses): estimate ~€72M (from cash flow for leases)
- **Lease adjustment: +€72M** (add back operating lease expense treated as financing)

**2. Non-recurring Items:**
- Impairment losses: €6M (add back)
- Gains on disposals: included in impairment line
- Profit from discontinued operations: €64M (exclude - one-time)
- **Non-recurring adjustment: +€6M**

**3. Share of Associates (equity-accounted companies):**
- Included: Share of profit of associates: €165M
- This should not be added to EBITDA as it's already excluded from operating income
- No adjustment needed (already normalized)

**4. Fair Value Adjustments:**
- Fair value adjustment on derivatives and other items already netted
- Minor impact: €1M gain on fair value
- **Fair value adjustment: -€1M** (normalize out)

**5. Infrastructure Project Specific Adjustments:**
For infrastructure projects using the intangible asset model, revenue recognition may include items like:
- Operating revenue from infrastructure projects embedded in operations
- These are already included in the reported operating income
- No separate adjustment required

### Calculated Adjusted EBITDA:

$$\text{Adjusted\_EBITDA} = €722M + €72M + €6M - €1M = €799M$$

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## Step 3: Estimate FFO (Free Flow from Operations)

### FFO Calculation:

**Starting with Adjusted EBITDA:** €799M

**Less: Cash Interest Paid:**
- Interest Paid (Financing Activities): €329M

**Less: Cash Taxes Paid:**
- Income Taxes Paid (Operating Activities): €82M

### Calculated FFO:

$$\text{FFO} = €799M - €329M - €82M = €388M$$

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## Step 4: Estimate Adjusted Debt

### Components of Adjusted Debt:

**1. Reported Debt:**
- Noncurrent Debt Securities & Bank Borrowings (Infrastructure): €7,893M
- Noncurrent Debt Securities & Bank Borrowings (Excluding Infrastructure): €2,883M
- Current Debt Securities & Bank Borrowings (Infrastructure): €74M
- Current Debt Securities & Bank Borrowings (Excluding Infrastructure): €803M
- **Total Reported Debt: €11,653M**

**2. Lease Obligations (Add to debt):**
- Current Lease Liabilities: €64M
- Noncurrent Lease Liabilities: €120M
- **Total Lease Debt: €184M**

**3. Pension Deficit (if any):**
- Noncurrent Provisions for Employee Benefits: €2M
- Current provisions are immaterial
- **Pension adjustment: €0M** (minimal exposure)

**4. Other Debt-like Items:**
- No material hybrid instruments or guarantees identified
- Perpetual subordinated bonds: recorded as equity (€508M in "Other Equity Securities")
- **Other adjustments: €0M**

**5. Eligible Cash (Deduct):**
- Cash and Cash Equivalents (Excluding Infrastructure): €4,962M
- Restricted Cash (Infrastructure Projects): €597M (long-term)
- Current Restricted Cash (Infrastructure): €38M
- Other restricted cash: €130M
- **Total Eligible Cash: €4,962M** (using unrestricted cash as primary measure)
- Note: Infrastructure restricted cash is typically earmarked for debt service but can be deducted in S&P methodology

For conservative adjustment, using total unrestricted cash:
- **Eligible Cash: €4,962M**

### Calculated Adjusted Debt:

$$\text{Adjusted\_Debt} = €11,653M + €184M + €0M + €0M - €4,962M = €6,875M$$

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## Step 5: Calculate FFO / Adjusted Debt Ratio

### Final Calculation:

$$\text{FFO / Adjusted\_Debt} = \frac{€388M}{€6,875M} = 0.05644$$

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## Verification and Sanity Check:

1. **FFO Positive:** €388M ✓ (company generating positive cash flow)
2. **Adjusted Debt Reasonable:** €6,875M ✓ (net of substantial cash position of €4,962M)
3. **Ratio Magnitude:** 5.6% ✓ (typical for infrastructure companies with moderate leverage)
4. **Industry Context:** Transportation infrastructure companies typically show FFO/Debt ratios of 0.05-0.12x, so this result is reasonable

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<answer>0.0564</answer>