To estimate the S&P-adjusted debt-to-EBITDA ratio for Ferrovial SA for the fiscal year ended December 31, 2022, we follow the workflow outlined. ### Step 1: Identify the Relevant Industry Ferrovial SA is a multinational infrastructure company. Its primary business segments include Airports (Heathrow, etc.), Roads (toll roads), and Construction/Services. The provided industry methodologies include "Regulated Utilities," "Oil And Gas Exploration And Production," "Unregulated Power And Gas," and "Transportation Infrastructure." Ferrovial's core assets (airports and toll roads) fit squarely into the **Transportation Infrastructure** sector description. Specifically, the methodology notes: "We analyze car parks that operate under long-term concessions as infrastructure companies... Airports... Roads... Ports... Mass transit and railway." Ferrovial operates toll roads and airports under concessions or regulated frameworks. Therefore, we apply the **Transportation Infrastructure** methodology. ### Step 2: Estimate Adjusted Debt The baseline formula for Adjusted Debt is: `Adjusted_Debt = (reported_debt + leases + pension_deficit + guarantees + hybrid_debt_portion + other_debt_like_items) - eligible_cash` **1. Reported Debt:** We need to identify interest-bearing debt from the balance sheet items provided for the period ending 2023-01-01 (which corresponds to the fiscal year end Dec 31, 2022). * **Noncurrent Borrowings:** * `Noncurrent Portion Of Other Noncurrent Borrowings`: 10,776,000,000 EUR * `Noncurrent Debt Securities And Bank Borrowings Of Infrastructure Projects`: 7,893,000,000 EUR * `Noncurrent Debt Securities And Bank Borrowings Excluding Infrastructure Projects`: 2,883,000,000 EUR * *Note: The sum of the two sub-components (7,893 + 2,883 = 10,776) matches the total "Noncurrent Portion Of Other Noncurrent Borrowings". Thus, we use the total to avoid double counting.* * Total Noncurrent Debt = 10,776,000,000 EUR * **Current Borrowings:** * `Current Borrowings And Current Portion Of Noncurrent Borrowings`: 877,000,000 EUR * *Note: Similarly, `Current Debt Securities And Bank Borrowings Of Infrastructure Projects` (74,000,000) and `Current Debt Securities And Bank Borrowings Excluding Infrastructure Projects` (803,000,000) sum to 877,000,000.* * Total Current Debt = 877,000,000 EUR * **Total Reported Debt** = 10,776,000,000 + 877,000,000 = **11,653,000,000 EUR** **2. Leases:** S&P typically treats lease liabilities as debt. * `Noncurrent Lease Liabilities`: 120,000,000 EUR * `Current Lease Liabilities`: 64,000,000 EUR * Total Leases = 120,000,000 + 64,000,000 = **184,000,000 EUR** **3. Pension Deficit:** The provided facts do not explicitly list a net pension deficit liability. `Noncurrent Provisions For Employee Benefits` is listed at 2,000,000 EUR. Without specific details on the funded status (assets vs liabilities), we generally use the provision if it represents the net underfunding, or assume it's negligible if not specified as a significant deficit. Given the small amount (2M), we will include it or treat it as negligible. Let's include it for completeness, though it has minimal impact. * Pension Deficit ≈ **2,000,000 EUR** **4. Other Debt-like Items / Hybrids / Guarantees:** * `Perpetual Subordinated Bonds`: The equity section shows movements in "Perpetual Subordinated Bonds" but they are often treated as equity or hybrid debt. In the equity roll-forward, there is a line item "Perpetual Subordinated Bonds" with a net change of -8,000,000 EUR. The ending balance in Equity components isn't explicitly summed as a single "Perpetual Bond" liability line in the debt section. However, S&P often treats perpetuals as 50% debt or full debt depending on terms. Looking at the `Other Equity Securities Member` in Equity, it has a balance of 508,000,000 EUR. This likely includes perpetuals classified as equity. Without explicit debt classification, and given they are in equity, we might exclude them from *debt* or treat a portion. However, standard S&P adjustment for "Adjusted Debt" usually adds back hybrid debt classified as equity. Let's look for `Other Noncurrent Financial Liabilities`: 838,000,000 EUR. This often contains derivatives or other instruments. Without specific breakdown, we stick to explicit debt and leases. We will assume no significant *additional* debt-like items beyond reported debt and leases for this estimation, as guarantees are off-balance sheet and not quantified in the facts. **5. Eligible Cash:** S&P allows the deduction of unrestricted cash and cash equivalents. Restricted cash is typically excluded from the cash deduction unless it is freely available to service debt. * `Cash And Cash Equivalents`: 5,130,000,000 EUR * Breakdown: * `Cash And Cash Equivalents Infrastructure Projects`: 168,000,000 EUR (Likely restricted or ring-fenced) * `Current Restricted Cash And Cash Equivalents Infrastructure Projects`: 38,000,000 EUR (Restricted) * `Restricted Cash Relating To Infrastructure Projects And Other Financial Assets` (Noncurrent): 597,000,000 EUR (Restricted) * `Cash And Cash Equivalents Excluding Infrastructure Projects`: 4,962,000,000 EUR. Infrastructure project cash is often ring-fenced and not available to service parent-level or general corporate debt. S&P methodology for infrastructure often excludes project-level cash from the group's eligible cash unless there is upstreaming capability. Given the "Infrastructure Projects" label, we should likely exclude the infrastructure-related cash from the eligible cash deduction. Eligible Cash = `Cash And Cash Equivalents Excluding Infrastructure Projects` = **4,962,000,000 EUR**. *Self-Correction/Refinement*: Sometimes `Cash And Cash Equivalents` total is used, and restricted cash is added back to debt or just not deducted. The most conservative and standard S&P approach for a conglomerate like Ferrovial is to deduct only unrestricted cash. The item `Cash And Cash Equivalents Excluding Infrastructure Projects` (4,962M) seems to be the unrestricted portion. The infrastructure cash (168M + 38M + 597M = 803M) is restricted. So, Eligible Cash = **4,962,000,000 EUR**. **Calculation of Adjusted Debt:** Adjusted Debt = (Reported Debt + Leases + Pension Deficit) - Eligible Cash Adjusted Debt = (11,653,000,000 + 184,000,000 + 2,000,000) - 4,962,000,000 Adjusted Debt = 11,839,000,000 - 4,962,000,000 **Adjusted Debt = 6,877,000,000 EUR** *(Note: If we included the perpetuals classified as equity as 50% debt, it would add ~250M. If we included all cash, debt would be lower. Given the infrastructure nature, ring-fencing is key. We will stick to the explicit debt + leases - unrestricted cash.)* ### Step 3: Estimate Adjusted EBITDA The baseline formula is: `Adjusted_EBITDA = EBITDA + adjustment_leases + nonrecurring_losses - nonrecurring_gains ...` First, we reconstruct EBITDA from the Income Statement data for the period 2022-01-01 to 2023-01-01. **1. Calculate Reported EBITDA:** EBITDA = Profit from Operations + Depreciation & Amortization Alternatively: Revenue - Operating Expenses (excluding D&A) + D&A? No, simpler is: EBITDA = Operating Profit + Amortization + Depreciation. From the facts: * `Profit Loss From Operating Activities`: 423,000,000 EUR * This is effectively EBIT (Operating Profit). * `Amortisation Expense`: 299,000,000 EUR * Depreciation Expense is not explicitly listed as a separate line item in the provided text snippets, but `Ajustes Al Resultado Por Gastos Por Depreciacion YAmortizacion` (Adjustments to result for Depreciation and Amortization expenses) is listed as **299,000,000 EUR**. * Wait, let's look closer. `Amortisation Expense` is 299,000,000. The Spanish line `Ajustes Al Resultado Por Gastos Por Depreciacion YAmortizacion` is also 299,000,000. This suggests that the total D&A might be 299M, or that Depreciation is negligible/included. However, Ferrovial has significant PP&E and Right-of-Use assets. * Let's check the change in Accumulated Depreciation if possible, or look for `Depreciation Expense`. It is not explicitly labeled "Depreciation Expense". * However, `Rightofuse Assets` and `Property Plant And Equipment` exist. * Let's look at `Operating Expense`: 6,825,000,000 EUR. * `Revenue`: 7,551,000,000 EUR. * `Gross Profit`: 728,000,000 EUR. * `Profit From Operations Before Impairment...`: 429,000,000 EUR. * `Impairment And Gains Or Losses...`: -6,000,000 EUR. * `Profit Loss From Operating Activities`: 423,000,000 EUR. Usually, EBITDA = Operating Profit + D&A. If `Ajustes Al Resultado Por Gastos Por Depreciacion YAmortizacion` represents the total add-back for D&A in the cash flow reconciliation or similar, then D&A = 299,000,000 EUR. Let's verify with the Cash Flow from Operations indirect method logic if available. `Adjustments For Reconcile Profit Loss`: -697,000,000 EUR. This is a net figure. Let's assume **D&A = 299,000,000 EUR** based on the explicit `Amortisation Expense` and the combined Spanish label which often aggregates them in Spanish reporting if depreciation is small or grouped. *Correction*: In many infrastructure firms, amortization of intangibles (concessions) is the major component. PP&E depreciation might be smaller or included. Given the explicit line `Amortisation Expense` is 299M and the combined line is 299M, it implies Depreciation is either zero or included in that 299M figure. We will use **299,000,000 EUR** as the total D&A. **Reported EBITDA** = Operating Profit (423,000,000) + D&A (299,000,000) = **722,000,000 EUR**. **2. Adjustments:** * **Lease Adjustment:** S&P adds back the interest portion of lease expenses to EBITDA? No, S&P defines EBITDA as pre-interest. The lease *principal* repayment is a financing cash flow. The lease *expense* in P&L consists of depreciation (of ROU asset) and interest. The depreciation is already in D&A. The interest is in Finance Costs. EBITDA is before interest. So, strictly speaking, Reported EBITDA already includes the EBITDA contribution of leases (Revenue - OpEx). However, S&P often makes an adjustment to **Debt** (adding lease liabilities) and may adjust **EBITDA** to ensure consistency if the reported EBITDA excludes lease-related EBITDA (unlikely) or to add back non-cash items. * Standard S&P Adjustment for Leases in EBITDA: Usually, no adjustment is needed to EBITDA itself if it's calculated from Operating Profit, as lease interest is below the line. However, some definitions start from Net Income. We started from Operating Profit. * Wait, the prompt formula says `+ adjustment_leases (if any)`. In S&P methodology, when capitalizing leases, we add the lease liability to debt. For EBITDA, we generally do *not* add back anything if we start from Operating Profit, because the operating lease expense (if any remained) or the depreciation/interest split is handled. Under IFRS 16, depreciation and interest are separate. Depreciation is in OpEx (added back via D&A). Interest is in Finance Costs (below EBITDA). So Reported EBITDA (Op Profit + D&A) is correct. * *However*, sometimes "Adjusted EBITDA" in S&P terms for infrastructure might include **Share of Profit of Associates** if they are considered core operating assets, or exclude it. S&P typically uses **Consolidated EBITDA**. The `Share Of Profit Loss Of Associates` is 165,000,000 EUR. This is equity income, usually below the operating line or separate. It is *not* in Operating Profit. S&P often adds the proportional EBITDA of associates or just uses the dividend/cash flow. But the standard "Adjusted EBITDA" for leverage ratios usually sticks to consolidated operating EBITDA. Let's look at the "Transportation Infrastructure" section. It focuses on FFO to Debt. FFO is derived from Net Income. * Let's stick to the prompt's baseline: `Adjusted_EBITDA = EBITDA ...`. * Are there non-recurring items? * `Impairment And Gains Or Losses On Disposal Of Non Current Assets`: -6,000,000 EUR (Loss). This is included in Operating Profit. Since it's a loss, we add it back to get Adjusted EBITDA? Yes, `+ nonrecurring_losses`. * So, Add back 6,000,000 EUR. * `Profit Loss From Discontinued Operations`: 64,000,000 EUR. This is below operating profit. It is not in EBITDA. We ignore it for Operating EBITDA. * `Financial Result`: Not in EBITDA. **Refined Adjusted EBITDA Calculation:** Reported EBITDA = 722,000,000 EUR. Add: Non-recurring losses (Impairment/Loss on disposal) = 6,000,000 EUR. Add: Lease adjustment? If we capitalized leases, the "Operating Profit" under IFRS 16 includes depreciation of ROU assets. We added back D&A (299M). If the 299M includes ROU depreciation, we are good. If the 299M is *only* intangible amortization, we are missing PP&E and ROU depreciation. Let's re-evaluate D&A. `Property Plant And Equipment` is 479M. `Rightofuse Assets` is 183M. Depreciation on these assets is likely significant. The line `Ajustes Al Resultado Por Gastos Por Depreciacion YAmortizacion` is 299M. The line `Amortisation Expense` is 299M. This implies that **Depreciation Expense is effectively zero** or included in the 299M label but the value is driven by amortization. This is common in concession-based infrastructure companies where the main asset is an intangible concession right (amortized), and PP&E might be small or fully depreciated/immature. Or, the "Amortisation" line captures all non-cash operating charges. Let's assume Total D&A = 299,000,000 EUR. So, Base EBITDA = 423M (Op Profit) + 299M (D&A) = 722M. Add back impairment/loss on disposal: 6M. Adjusted EBITDA = 728,000,000 EUR. *Check for other adjustments:* S&P often adjusts for "Proportional EBITDA of Joint Ventures/Associates" if they are material and the company is an infrastructure holding company. Ferrovial has `Investments In Associates` of 1,892M and share of profit 165M. If we use the standard corporate baseline, we usually stick to consolidated. However, for infrastructure, FFO is the key ratio. The prompt asks for **Adjusted Debt / Adjusted EBITDA**. Let's check if `Share Of Profit Of Associates` should be added. In many S&P ratings for infrastructure, they look at Group EBITDA which may or may not include associates. Given the prompt's generic formula, we will stick to Consolidated EBITDA unless "other_normalization_adjustments" implies adding associates. Without explicit instruction to gross up, we use Consolidated. One significant item: **Discontinued Operations**. The `Profit Loss From Discontinued Operations` is 64M. The `Gross Profit Loss From Discontinued Operations` is 155M. Did the Operating Profit (423M) include discontinued ops? Usually, "Profit Loss From Operating Activities" refers to continuing operations. The line `Profit Loss From Discontinued Operations` is separate. However, `Revenue` (7,551M) and `Operating Expense` (6,825M) likely refer to continuing operations if Discontinued Ops are presented separately. The prompt facts list `Revenue` and `Operating Expense` and then `Profit Loss From Operating Activities`. If Discontinued Ops are excluded from these lines, our EBITDA is for Continuing Operations. S&P ratios typically use Continuing Operations. So, **Adjusted EBITDA = 728,000,000 EUR**. ### Step 4: Calculate the Ratio Adjusted Debt = 6,877,000,000 EUR Adjusted EBITDA = 728,000,000 EUR Ratio = 6,877 / 728 Calculation: 6,877 / 728 ≈ 9.4464 Let's double check the Debt calculation. Did we miss any debt? `Other Noncurrent Financial Liabilities`: 838,000,000 EUR. What is this? It could be derivatives or other borrowings. `Noncurrent Derivative Financial Liabilities`: 66,000,000 EUR. So 838M - 66M = 772M of "Other". This is significant. In many annual reports, "Other financial liabilities" can include factoring, supplier finance, or other debt-like instruments. S&P typically includes interest-bearing items. Without a breakdown, it's risky to include all of it as debt, but also risky to exclude. However, looking at Ferrovial's structure, "Other Noncurrent Financial Liabilities" often includes long-term payables or structured finance that might be debt-like. If we include the full 838M as debt: Debt increases by 838M. Adjusted Debt = 6,877M + 838M = 7,715M. Ratio = 7,715 / 728 = 10.60. Let's look at `Current Provisions` (930M) and `Noncurrent Provisions` (416M). These are likely not debt. Let's look at `Trade And Other Current Payables` (3,430M). Not debt. Let's reconsider the "Eligible Cash". If we deduct *all* cash (5,130M): Adj Debt = 11,839 - 5,130 = 6,709M. Ratio = 6,709 / 728 = 9.21. If we deduct *only* unrestricted cash (4,962M): Adj Debt = 6,877M. Ratio = 9.45. Let's reconsider the EBITDA. Is it possible D&A is higher? If `Amortisation` is 299M, and there is hidden depreciation? PP&E is 479M. RoU is 183M. If we assume a 5% depreciation rate on PP&E (24M) and 5% on RoU (9M), that's ~33M. If D&A was actually 299 + 33 = 332M. EBITDA = 423 + 332 = 755M. Ratio = 6,877 / 755 = 9.11. However, we must stick to the provided facts. The fact `Ajustes Al Resultado Por Gastos Por Depreciacion YAmortizacion` is 299M strongly suggests the total D&A charge recognized in the P&L reconciliation is 299M. We will use 299M. Let's look at the `Other Noncurrent Financial Liabilities` (838M) again. In Ferrovial's 2022 report, this line often includes "Other long-term financial liabilities" which may be debt. Given the magnitude, excluding it might understate debt. However, without explicit "Interest Bearing" label, and given the baseline formula asks for "reported_debt", we usually sum Borrowings. The line `Noncurrent Portion Of Other Noncurrent Borrowings` (10,776M) seems to capture the main borrowings. The `Other Noncurrent Financial Liabilities` might be non-debt (e.g., long-term retainers, etc.). But 838M is large. Let's check the 2021 value: 72M. It jumped to 838M. This suggests a new instrument or reclassification. If we assume it is debt-like: Adj Debt = 6,877 + 838 = 7,715M. Ratio = 7,715 / 728 = 10.60. Let's check the S&P methodology for Transportation Infrastructure again. "Core ratio: FFO to debt". The prompt asks for **Adjusted Debt / Adjusted EBITDA**. This is a standard leverage ratio. In the absence of clear guidance on "Other Financial Liabilities", standard practice is to include interest-bearing debt. If we can't verify interest-bearing status, we might exclude it. However, "Financial Liabilities" usually implies debt or derivatives. Derivatives are 66M. The remaining 772M is likely debt-like (e.g. loans from partners, etc.). Let's include it to be conservative? Or exclude it to be strict on "Borrowings"? The line `Noncurrent Portion Of Other Noncurrent Borrowings` is very specific. The `Other Noncurrent Financial Liabilities` is separate. I will exclude `Other Noncurrent Financial Liabilities` from "Reported Debt" as it is not explicitly labeled "Borrowings" or "Debt", and might include non-debt items. The explicit "Borrowings" lines sum to the "Other Noncurrent Borrowings" total. So, sticking with: Adj Debt = 6,877,000,000 EUR Adj EBITDA = 728,000,000 EUR Ratio = 9.446... Rounding to two decimal places: **9.45** 9.45