# Credit Trend Analysis for BOUYGUES (2021-2022) ## Step 1: Identify Relevant Industry BOUYGUES is a diversified French conglomerate operating across multiple sectors: - **Construction** (Bouygues Construction) - **Telecom** (Bouygues Telecom) - **Media** (TF1) - **Real Estate** The company does **not** fit neatly into any single industry methodology provided (Regulated Utilities, Oil & Gas E&P, Unregulated Power & Gas, or Transportation Infrastructure). Therefore, I will apply **general corporate baseline methodology**. --- ## Step 2: Estimate 2021 Adjusted_EBITDA **Reconstruct EBITDA from the data:** For FY 2021-2022 (year ended 2022-01-01): - Operating Profit (Loss From Operating Activities): €1,872M - Depreciation & Amortisation Expense: €2,228M - Right-of-Use Asset Depreciation: €446M - **EBITDA (2022 fiscal) = 1,872 + 2,228 + 446 = €4,546M** For FY 2020-2021 (year ended 2021-01-01): - Operating Profit (Loss From Operating Activities): €1,733M - Depreciation & Amortisation Expense: €2,065M - Right-of-Use Asset Depreciation: €353M - **EBITDA (2021 fiscal) = 1,733 + 2,065 + 353 = €4,151M** **Adjustments for 2021 (using corporate baseline):** - Operating Lease Adjustment: ROU assets increased from €1,741M to €2,472M; adjusting debt for lease obligations: - Noncurrent Lease Liabilities (2021): €1,473M - Current Lease Liabilities (2021): €362M - Total operating leases (2021): €1,835M Operating lease interest proxy = €1,835M × 5% (typical) ≈ €92M (approximation, but captured in interest expense) - **Nonrecurring items (2021):** - Operating losses (non-recurring): €75M - Operating gains (non-recurring): €115M - Net nonrecurring items: +€40M - **Adjusted_EBITDA (2021) = €4,151M + €92M (lease adjustment) + €40M (nonrecurring) = €4,283M** --- ## Step 3: Estimate 2021 FFO **Formula:** FFO = Adjusted_EBITDA - cash_interest - cash_taxes - Adjusted_EBITDA (2021): €4,283M - Interest Paid (Financing Activities, 2021): €207M - Income Taxes Paid (Operating Activities, 2021): €397M **FFO (2021) = €4,283M - €207M - €397M = €3,679M** --- ## Step 4: Estimate 2021 Adjusted_Debt **Components:** - Long-term Borrowings (2021): €5,805M - Current Portion of Borrowings (2021): €1,324M - Current Overdrafts/Short-term Borrowings (2021): €351M - Total Reported Debt: €7,480M **Lease Adjustments (corporate method):** - Noncurrent Lease Liabilities (2021): €1,473M - Current Lease Liabilities (2021): €362M - Total Lease Liabilities: €1,835M **Less: Cash and Cash Equivalents (2021):** - Cash (2021): €6,501M **Adjusted_Debt (2021) = €7,480M + €1,835M - €6,501M = €2,814M** --- ## Step 5: Calculate 2021 Adjusted_Debt / Adjusted_EBITDA **Ratio (2021) = €2,814M / €4,283M = 0.66x** --- ## Step 6: Calculate 2021 FFO / Adjusted_Debt **Ratio (2021) = €3,679M / €2,814M = 1.31** --- ## Step 7: Estimate 2022 Adjusted_EBITDA **EBITDA (2022):** - Operating Profit: €1,872M - Depreciation & Amortisation: €2,228M - ROU Depreciation: €446M - **EBITDA (2022) = €4,546M** **Adjustments for 2022:** - **Operating Lease Adjustment:** - Noncurrent Lease Liabilities (2022): €2,107M - Current Lease Liabilities (2022): €498M - Total operating leases (2022): €2,605M - Lease interest proxy ≈ €2,605M × 5% ≈ €130M - **Nonrecurring items (2022):** - Operating losses (non-recurring): €183M - Operating gains (non-recurring): €93M - Net: -€90M (loss) - **Adjusted_EBITDA (2022) = €4,546M + €130M - €90M = €4,586M** --- ## Step 8: Estimate 2022 FFO - Adjusted_EBITDA (2022): €4,586M - Interest Paid (Financing Activities, 2022): €260M - Income Taxes Paid (Operating Activities, 2022): €518M **FFO (2022) = €4,586M - €260M - €518M = €3,808M** --- ## Step 9: Estimate 2022 Adjusted_Debt **Components:** - Long-term Borrowings (2022): €11,586M - Current Portion of Borrowings (2022): €1,361M - Current Overdrafts/Short-term Borrowings (2022): €418M - Total Reported Debt: €13,365M **Lease Adjustments:** - Noncurrent Lease Liabilities (2022): €2,107M - Current Lease Liabilities (2022): €498M - Total Lease Liabilities: €2,605M **Less: Cash (2022):** - Cash: €5,736M **Adjusted_Debt (2022) = €13,365M + €2,605M - €5,736M = €10,234M** --- ## Step 10: Calculate 2022 Adjusted_Debt / Adjusted_EBITDA **Ratio (2022) = €10,234M / €4,586M = 2.23x** --- ## Step 11: Calculate 2022 FFO / Adjusted_Debt **Ratio (2022) = €3,808M / €10,234M = 0.37** --- ## Step 12: Classify Credit Trend ### Signal 1: Leverage (Adjusted_Debt / Adjusted_EBITDA) - 2021 Ratio: 0.66x - 2022 Ratio: 2.23x - **Change: 2.23x - 0.66x = +1.57x** - Threshold: ≥ +0.2x → **DETERIORATING** ### Signal 2: Cash-flow Coverage (FFO / Adjusted_Debt) - 2021 Ratio: 1.31 - 2022 Ratio: 0.37 - **Change: 0.37 - 1.31 = -0.94 (in decimal terms, this is -0.94 percentage points or -94 percentage points)** - Threshold: ≤ -0.03 → **DETERIORATING** --- ## Analysis & Conclusion **Both signals unambiguously indicate DETERIORATION:** 1. **Leverage deteriorated dramatically:** The debt-to-EBITDA ratio nearly tripled from 0.66x to 2.23x, an increase of 1.57 turns. This massive increase of +1.37 turns above the 0.2x deterioration threshold indicates substantially weaker balance sheet strength. **Root cause:** Long-term borrowings increased from €5.8B to €11.6B (nearly doubled), likely driven by major acquisitions in 2022 (the cash flow statement shows €6,269M spent on obtaining control of subsidiaries in 2022 vs. €382M in 2021). 2. **Cash-flow coverage collapsed:** The FFO-to-debt ratio fell from 1.31 to 0.37, a decline of -0.94. This represents a reduction of 31 percentage points, far exceeding the -3 percentage point deterioration threshold. Despite improved absolute FFO (+€129M), the debt increase overwhelmed any cash generation gains. **Context:** The deterioration reflects BOUYGUES' major acquisition/consolidation strategy in 2022 (nearly 16x increase in acquisition spending), which significantly enlarged the debt base while EBITDA growth (+€303M or +7%) was insufficient to offset the leverage increase. Both signals align strongly on **deteriorating** credit quality. Deteriorating