Corporacion America Airports SA (CAAP) 2021 Q2 法說會逐字稿

Good morning, and welcome to the Corporación América Airports Second Quarter 2021 Earnings Conference Call. A slide presentation accompanies today's webcast and is available in the Investors section of the Corporación América Airports' Investor Relations website. (Operator Instructions).

At this time, I would like to turn the call over to Patricio Iñaki Esnaola, Head of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us today. Speaking during today's call will be Martin Eurnekian, our Chief Executive Officer; and Jorge Arruda, our Chief Financial Officer. Both will be available for the Q&A session.

Before we proceed, I would like to make the following safe harbor statement. Today's call will contain forward-looking statements, and I refer you to the forward-looking statements section of our earnings release and recent filings with SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances.

Note that for comparison purposes and for a better understanding of the underlying performance in our presentation today, we will be discussing results, excluding hyperinflation accounting in Argentina, which became effective in July 2018. Additional information in connection with the application of rule IAS 29 can be found in our earnings report.

Now let me turn the call over to our CEO, Martin Eurnekian.

Thank you, Iñaki. Hello, everyone, and welcome to today's call. Before we start, I wish to welcome Iñaki Esnaola as our new Head of Investor Relations. He comes to us with significant experience in Investor Relations for a multinational LatAm New York Stock Exchange listed company and a strong background in credit as the former Moody's analyst. I also want to thank Gimena for her contributions in setting up and moving forward our Investor Relations program since our IPO and for ensuring a smooth transition. Gimena has been promoted to Head of Financial Planning for Aeropuertos Argentina, our largest concession. I wish her great success in her new role.

Over the last 1.5 years, we have been managing through an unprecedented global pandemic, which has significantly impacted our industry. I am extremely proud of how the entire team has pulled together to move us forward and ensure that we are a stronger company coming out of the pandemic than we were going into it. Although we are experiencing different dynamics across our operations, we began to see a recovery in total traffic starting in May, following the impact of the second wave of the pandemic that affected passenger traffic trends in our LatAm operations earlier in the year, particularly in Brazil.

Traffic reached nearly 6 million passengers in the second quarter, up over 11x from the year ago levels, but over 3x below the 20 million passengers posted in the second quarter of 2019. Cargo activity in turn posted a strong recovery and reached volumes that were just 20% below pre-pandemic levels with Uruguay and Italy outpacing 2019 levels.

Back to passenger traffic. We are pleased with the significant recovery observed in Ecuador, Brazil, Armenia and Italy this quarter. Activity in Argentina, however, remains heavily impacted by severe government travel restrictions. On a positive note, we are encouraged by the advance of the vaccination program in most countries of operations, particularly with the accelerated rollout in Argentina and continued pace in Brazil.

Moving on to our financial performance. Revenues ex-IFRIC more than doubled year-on-year to slightly over $120 million, although still remain 60% below the second quarter of 2019. This, together with our sustained focus on cash preservation and tight cost controls, contributed to a comparable adjusted EBITDA of $7 million, an improvement of $40 million from the adjusted EBITDA loss posted in the year ago quarter. On the balance sheet front, net debt remained stable.

Finally, we remain focused on advancing on the process of obtaining long-term economic re-equilibrium of our concession agreements in Brazil and Armenia as well as on the revision of the concession agreements in Uruguay to drive long-term value creation. I will discuss this in more detail shortly.

Turning to Slide 4. We are seeing a gradual lifting of government travel bands with commercial operations allowed across all countries of operations, although high restrictions for international travel remain in place in Argentina, Italy and Uruguay which are indicated in the yellow boxes in the slide. In Argentina, while domestic traffic remains open, borders remained close to foreigners until October 1.

In addition, since the end of March, and to contain the spike in COVID cases, the government has imposed limits on the number of international passengers arrivals, which stood at 2,000 passengers per day during the most part of the quarter and was stressed to 600 passengers per day by the end of June. As a result, passenger traffic remained 84% below second quarter of 2019 levels despite improving 19x year-on-year.

Following the acceleration in pace of vaccination, this daily limit was recently relaxed to 1,700 international arriving passengers. Passenger traffic in Italy increased over 3x sequentially. By contrast, traffic was still 86% below second quarter of 2019 levels, reflecting restrictions for travelers coming from or that transited certain countries that apply until August 30. However, more recently, known restrictions apply to traffic from the (inaudible) area and traffic from the U.S.

Throughout the quarter, however, traffic improved from a 95% drop in April to a decline of 75% in June, both compared to respective month of 2019. In Uruguay, passenger traffic increased over 5x year-on-year. That was 90% below second quarter of 2019 levels, reflecting the sustained closure of borders to nonresident foreigners with certain exemptions and weak travel demand.

Government has recently announced that starting November 1, borders will reopen to foreigners presenting a full vaccination certificate and a negative COVID test. Passenger traffic in Brazil increased sequentially as the sanitary situation improved and reached 47% of the second quarter of 2019 pre-pandemic levels.

Domestic travel is not restricted while the main requirement for nonresident foreigners entering the country is a negative PCR test. International travel is also open with limited exceptions. In Armenia, traffic continued to show a positive sequential trend reaching 67% of second quarter of 2019 levels reflecting the opening of Russian borders to foreigners earlier in the year and benefiting from power restrictions in a country where Armenia competes for tourism.

Finally, in Ecuador, traffic improved sequentially and reached 45% of the second quarter of 2019 levels with routes to the U.S. and Panama with higher traffic levels than in 2019. No restriction supply to domestic nor to international travel, those subject to certain requirements of an arrival.

Please turn to Slide 5, where we show monthly passenger traffic trend since January 2019. As anticipated, passenger traffic began to recover in May this year, following the contraction that has started in February as the second COVID-19 wave hit our operation in LatAm. The positive trend of travel in May continued into June and July as the vaccination rollout advances across our market and travel demand recovers. Traffic in May, June and July improved gradually to 74%, 69% and 60% below the respective month of 2019. Armenia, Brazil, Ecuador and Italy were the strongest performers, driving this gradual recovery. We expect this momentum to strengthen towards the second half of the year in our main LatAm market as the vaccination rollout continues to advance and governments relax travel bans.

Turning to Slide 6. Cargo operations posted a strong performance with volumes reaching nearly 80% of pre-pandemic levels in the second quarter of 2019. While growth was driven by all countries of operation, we saw a particularly strong recovery in Uruguay with cargo volumes beating the second quarter of 2019 levels. Argentina also sends out with cargo volumes just 20% below the levels achieved in the second quarter of 2019. The good performance in cargo activity in Argentina and Uruguay helped mitigate the impact from weaker passenger traffic in both countries.

Let's turn to our financial results on Slide 7. Starting with our top line. Aeronautical revenues increased over 4x in the quarter but remained significantly below pre-pandemic levels. Compared to the first quarter of this year, aeronautical revenues were 6% higher reflecting improved operations in Armenia, Italy and Ecuador. Commercial revenues achieved over 60% of 2019 levels, mainly driven by higher cargo activity, which continues to recover at a faster pace. Notably, consolidated cargo revenues beat second quarter of 2019 levels by nearly 4%, driven by stronger volumes as discussed above, together with tariff increases at Argentina.

Moving now to the P&L as we show on Slide 8. We continue to deliver significant savings in our cost structure as a result of the cost control and cash preservation initiatives implemented at the beginning of this crisis. When compared to 2019, cash operating costs declined this quarter by 34%, equivalent to savings of $52 million. Remember, this excludes concession fees and construction costs. Year-on-year, cost increases below revenue growth led to a positive adjusted EBITDA of $7 million compared to negative adjusted EBITDA of $33 million in the second quarter of 2020.

Looking into the coming quarters, while cost controls remain a key priority, we expect to continue benefiting from a leaner operation. We also anticipate to see some increases in certain cost lines as traffic and operations continue to recover.

Now turning to Slide 9. We continue to advance in the process of obtaining economic re-equilibrium of our concession agreements. A new milestone on this front was successfully obtained in last July, the economic re-equilibrium for the Guayaquil concession in Ecuador. This includes a long-term compensation mechanism, a 2-year concession extension and a reduction in the concession fee.

In Brazil, we remain focused on 2 fronts. Starting with Brasilia Airport, last May, we filed out our request for a long-term economic re-equilibrium beyond the compensation already obtained for 2020. We are also advancing on the process to return our Natal concession and expect to receive the corresponding indemnification payment during 2022. We also remain in active discussions with the Government of Armenia. Remember, this concession agreement includes a contractual internal rate of return of 20% in U.S. dollars. In Uruguay, we continue to advance negotiations with the government to review the concession agreements.

Finally, in Italy, we expect the concession to obtain additional resources from the fund established in the Italian State Budget Law to support the entire Italian airport sector in this year. Note that this fund which has not been allocated yet was recently expanded to EUR 800 million from the original EUR 500 million amount.

Moving on to our debt and liquidity on Slide 10. We ended the quarter with a total liquidity position of $287 million while our total debt remained stable at $1.3 billion. Our net debt to last 12 months adjusted EBITDA ratio remains above historical levels, solely driven by the impact of the pandemic on adjusted EBITDA, while net debt has remained fairly stable over the past quarters. All of our subsidiaries remain in compliance with the debt covenant. And remember that CAAP itself has no direct indebtedness.

Turning to our debt management initiatives. From April to July, we refinanced a total of $50 million in principal payments in our Argentine operations, and we obtained a $10 million loan in Uruguay. Finally, I am very proud of the cost control and cash preservation initiatives executed since day 1 that allowed us to deliver 3 consecutive quarters of positive operating cash flow across most of our operations.

Please turn to Slide 11 for our closing remarks. Over 1.5 years into the pandemic, we have demonstrated our flexibility to rapidly respond to the changing market conditions. We remain fully focused on consistently advancing in the execution of the mitigation plan established at the start of the crisis which includes 3 key objectives: first, conclude the economic re-equilibrium processes to restore the value of our business; second, keep our focus on preserving liquidity and strengthening our balance sheet; and finally, maintain a lean cost structure and strict cost controls as the level of activity continues to gradually increase.

Looking at travel demand, we expect that the continued recovery trend in passenger traffic posted in July will further strengthen towards the end of the year as the summer season approaches in our LatAm markets and the vaccination rollout further accelerates in Argentina and continues in Brazil as well as in the majority of countries of operations. Governments are anticipated to gradually lift travel events and restrictions as sanitary conditions continue to improve. While we remain vigilant of the new virus strains, we are confident that local and global travel is a firm part of the future.

With pent-up demand and the desire to travel unchanged, we expect sustained travel growth in the long run. The future of our business remains strong. And while the pace of recovery is still not linear, our near-term goals include building a leaner and stronger company.

Finally, I wish to thank our teams for their continued commitment to the execution of our strategic initiatives.

(Operator Instructions) Our first question today will come from Alex Demichelis with Nau Securities.

The question relates to your option to buy out the preferred shares from the government. How you're thinking about that how that could impact your cash flow. So trying to think how you are approaching that?

Thank you very much for your question. Martin here. Well, this option of buying your preferred share has been there for quite a while and it's now in the overall negotiations we have with the government because the proceeds of buying the preferred shares are counted as CapEx and would go into a CapEx plan of the company.

So we are now in conversations with the government given the current restrictions on traffic, on the timing of the CapEx program and of course, at the same time, the preferred share redemption. So in the near future, we will present the market with a financial strategy for AA2000 that will probably include the redemption of the preferred shares and the timing of the execution of our CapEx.

Okay. And just as a follow-up. So when you're talking about these discussions with the government, are you also including the amounts owned by Aerolíneas Argentinas or is that separate?

That is a separate discussion with Aerolíneas Argentinas, but we are going -- we are having very productive discussions with them as well.

Our next question will come from Peter Bowley with Bank of America.

I have 2. On the cost side, could you share an update on the status of the government support for salaries, social security payments and what we could expect for second half 2021? And just as a follow-up, do you have any expectations for CapEx that would be funded by AA2000 as opposed to the trust for strengthening for the second half of 2021, given the works at Ezeiza and Bariloche?

Can you please repeat the last part of the question, which -- the sound was not good.

Oh sorry. Yes, I was just wondering if there was an expectation for CapEx in the second half of 2021?

So regarding CapEx, as we mentioned in the last question, since the severe restrictions for international traffic in Argentina, we have been having discussions with the government in terms of reestablishing the CapEx program timing. So the Bariloche that you just mentioned, will probably the rest of the CapEx, put it in these discussions to come up with a new schedule for all of that. And regarding the government support, give me 1 second -- yes, in Italy, we still have what is called Cassa Integrazione, which is the government taking part of the salaries of the employees of the company.

In Argentina, there was a program to support part of the salaries during 2020, which was called ATP, which we received, that program is finished and now it's been replaced by another one called REPRO, which is smaller in size, probably around 1/4 or 1/3, but we're still receiving that as well. And in Uruguay, with the lifting of the restrictions, the government is lifting also the, what they call, (foreign language) by the end of September.

(Operator Instructions) Our next question today will come from Nicholas (inaudible) with Jefferies.

It's encouraging to see improvement here across most segments. Just a question on the Argentine segment where we still see a bit of pressure. When I'm looking at the liquidity and debt maturity profile, at the consolidated level, it looks healthy, but we have started to see some concerns around the OpCos and particularly Argentina, where the reported cash and cash equivalent number from last week is now below the next 12 months amortizations.

Could you please give us your perspective from the HoldCo cap level on liquidity management at the OpCos potential parent support? And any additional levers you can pull that would maybe leave us a little bit more comfortable?

Okay. Thank you. This is Jorge. Thanks for your question. We are working in a financial plan for AA2000. We expect to be able to make certain announcements in the next 45 to 60 days. But it is definitely something that we are working on in connection with our maturity profile. What I want to and can highlight at this point in time is that we continue to have strong support from our lenders, taking into consideration the characteristics -- the strong characteristics of this concession. And we have the whole airport system is a single till regime, we have the cargo revenues, we basically control close to 100% of international passage into the country that are processed through our infrastructure. Given these characteristics and the importance of this concession, we continue to have very strong support from our lenders. And again, in approximately 45, 60 days, we expect to make some announcements.

Ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Martin Eurnekian for any closing remarks.

I would like to thank everybody for joining us today. We really appreciate your interest in our company. We look forward to providing updates on our business initiatives as they become available. In the meantime, the team remains available to answer any questions that you may have. Thank you, everybody.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.