Corporación América Airports Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 18, 2023

There are 6 speakers on the call.

Operator

Good morning, and welcome to the Corporacion America Airports Second Quarter 2023 Earnings Conference Call. A slide presentation accompanies today's webcast and is available in the Investors section of the Corporation America Airports website. As a reminder, all participants will be in a listen only mode. There will be an opportunity to ask questions at the end of the presentation. At this time, I would like to turn the call over to Patricio Ignacio Esmaola, Head of Investor Relations.

Operator

Patricio, please go ahead.

Speaker 1

Thank you. Good morning, everyone, and thank you for joining us today. Speaking during today's call will be Martina Can, our Chief Executive Officer and Jorge Aruba, our Chief Financial Officer. 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 the SEC.

Speaker 1

We assume no obligation to update or revise any forward looking statements to reflect new or changed events or circumstances. Now let me turn the call over to our CEO, Martin Erneken.

Speaker 2

Thank you, Inaki. Hello, everyone, and welcome to our Q2 2023 earnings call. I will kick off today's call by providing a summary of our financial highlights, followed by a quick review of traffic and cargo trends. I will then turn the call to Jorge to go through our Q2 financial results. We reported an outstanding quarter with robust performance across the board.

Speaker 2

Adjusted EBITDA reached yet another record of $151,000,000 up 27% when compared to Q2 of 2019 With the adjusted EBITDA margin ex IFRIC 12 expanding 30.2 percentage points. This was achieved with passenger traffic approaching Again, this quarter, all territories contributed with positive adjusted EBITDA, fueled by a strong rebound in travel demand and solid execution across operations. Revenues ex IPIC 12 climbed 17% when compared to Q2 2019, reflecting the good performance in both aeronautical and commercial revenues. Costs in turn increased below revenue growth reflecting the operating leverage we have built into the company. The increase in profitability along with a slight reduction in net debt contributed to further lowering our leverage ratio to an all time low of 1.8 times, reflecting the amazing work we have undertaken during and after the pandemic in connection with our commercial On the CapEx front, we remain well on track with the execution of our fully funded CapEx programs In Argentina and Uruguay, we are actively and selectively looking to other airport concessions to continue Expanding our airport network and delivering long term value to our stakeholders.

Speaker 2

Next, turning to Slide 4 For a deeper dive into passenger traffic patterns. The line chart tracks the sustained recovery we have been seeing in travel demand. We were just 1% below Q2 of 2019 levels. As a point of reference, In the Q1, traffic was about 10% below the 2019 level. Importantly, by June, passenger traffic has exceeded pre pandemic by 3%.

Speaker 2

Now let's look at the 2nd quarter performance across each of our countries of operations. Armenia, Argentina and Ecuador posted volumes above pre pandemic levels, while Uruguay, Italy and Brazil continued their recovery trend. Armenia continues to lead the recovery with traffic climbing 73% year on year and exceeding pre pandemic levels for the 5th straight quarters by 82%. This strong performance was aided by the entrance of new carriers and increased flight frequencies. And it continued into July with traffic surpassing pre pandemic levels by 62%.

Speaker 2

Passenger traffic in Argentina surpassed pre pandemic levels by low single digit for the first time since the onset of the pandemic. Domestic traffic, which accounted for over 70% of total traffic, exceeded pre pandemic levels by 11%, Well, international passengers continued to recover reaching 82% of Q2 of 2019 levels. This good performance continued into July with total traffic at 98% of July 2019 levels, driven by domestic traffic above pre pandemic levels and international traffic improving to 88% on July 2019. Ecuador continues to post a healthy traffic trend 11% above pre pandemic levels, supported by double digit growth in both domestic and international traffic. Growth continued into July, outperforming 2019 volumes By 10.1 percent as robust traffic with the U.

Speaker 2

S, Europe and Panama supported international performance, While Equahertz and reenergized the competitive environment in domestic traffic. Uruguay, where traffic is 100 percent international, saw the number of passengers increase to 87% of Q2 of 2019 levels, following a weaker Q1 of the year. This performance continued into July with passenger traffic increasing to 94.6% of July 2019 volumes. In Italy, passenger traffic continued to recover, reaching 98% of 8% above Q2 of 2019 levels, while some pre pandemic destinations have not yet resumed at Pisa Airport. In July, total traffic improved further surpassing 2019 volumes by 6.2%.

Speaker 2

Finally, traffic in Brazil increased to 96% of pre pandemic levels, up from 86% in the prior quarter. While traffic was impacted by financial and aircraft constraints at some local airlines, domestic traffic, which accounts For the vast majority of traffic in Brazil surpassed pre pandemic levels for the first time, up In the low single digits, the light traffic was 12.1% below 2019 levels, Still impacted by the aforementioned financial and aircraft constraints. Next, cargo on Slide 5. Cargo volumes were up low single digit year on year, reaching 86% of pre pandemic levels, up from 81% in the prior quarter. Noteworthy, cargo revenues were 29% above pre pandemic levels, reflecting a sustained strong contributions from Argentina.

Speaker 2

Cargo volumes in Armenia and Uruguay remain above pre pandemic levels. In turn, Argentina and Ecuador improved to 86% and 82% of Q2 of 2019 levels respectively, While Italy and Brazil are still in recovery phase. In sum, we are encouraged by the positive recovery trends we are seeing In our cargo business, and we are confident in the sustained recovery going forward. Importantly, our customers can rely on us to provide dependable I will now hand off the call to Jorge, who will review our financial results. Please, Jorge, go ahead.

Speaker 3

Thank you, Martin, and good day, everyone. Starting with our top line on Slide 6, Total revenues, exiflick 12 increased 20% year on year and surpassed pre pandemic levels by 17%. We are pleased with the continuation of the robust growth we have been able to deliver driven by solid revenue growth from both commercial and Aeronautical. Aeronautical revenues increased 24% year on year, surpassing pre pandemic levels for the 2nd consecutive quarter. This was mainly driven by tariff increases and a continued recovery in passenger traffic across our geographies, reaching 99% of Q2 2019 levels.

Speaker 3

Argentina maintained strong momentum, while aeronautical revenues in Armenia increased double digit year on year and were up 80% compared to Q2 2019. Commercial revenues, which accounted for nearly 50% of our total ex E3 revenues, were up 16% year on year and 39% above pre pandemic levels. This was mainly supported by a solid performance of cargo and duty free Revenues in Argentina and higher fuel related revenues in Armenia. As a reflection of these strong results, Our revenues per passenger increased 19% from $15.6 in the Q2 2019 to $18.5 this quarter. Now turning to our cost structure on Slide 7.

Speaker 3

Total costs and expenses for the quarter increased 12% year on year ex IFRIC 12, following the sustained growth of our business, but still below our 20% revenue growth. Compared to 2019, total costs and expenses ex EFIG12 for the quarter grew by 10%. This is mainly explained by higher fuel costs in Armenia due to increased fuel sales in the quarter, Higher concession fees in Argentina also tied to higher activity and higher salaries in Argentina as the local inflation Rate was above currency depreciation. SG and A expenses were up 40% year on year, mainly reflecting a benefit of a one time bad debt recovery of $10,000,000 in Argentina, which occurred in the Q2 of last year. Compared to Q2 2019, SG and A increased 8%, well below the 17% revenue growth.

Speaker 3

Moving on to Slide 8. As a result of our strong top line growth and a streamlined cost structure, We delivered record adjusted EBITDA of $151,000,000 in the Q2 of 2023, beating the historical high previously achieved in the Q1 of the year. All geographies contributed to this performance. Year on year, adjusted EBITDA was up 37%, when including this comparison, the bad debt recovery recorded in the Q2 2022 an increase 27% when compared to the Q2 2019. Moreover, the adjusted EBITDA margin ex EFRIC12 reached 14.9%, up 4.7 percentage points from last year and 3.2 percentage Turning to Slide 9.

Speaker 3

Supported by our strong cash flow generation, We ended the quarter with a total liquidity position of $512,000,000 up $60,000,000 compared to year end 2022. Importantly, we delivered positive cash flow from operations in all our operating subsidiaries. Moving on to our debt and maturity profile on Slide 10. Total debt At quarter end was $1,460,000,000 while our net debt stood at $1,000,000,000 We closed the quarter with a strong balance sheet and healthy debt profile. As a result of the continued growth in our adjusted EBITDA And slightly lower net debt levels, our net leverage ratio declined further to 1.8 times from 2.4 times as of December 2022 reaching an all time low.

Speaker 3

Wrapping up, we maintained a strong momentum, Delivering strong operating and financial results, further contributing to the reduction of our leverage. I will now hand back the call to Martin, who will discuss I'll review for the remainder of the year and provide some closing remarks.

Speaker 2

Now to wrap up, Please turn to Slide 11. We are pleased to have delivered a solid second quarter performance, Setting a new record high adjusted EBITDA 27% above pre pandemic levels despite traffic volumes at practically pre pandemic levels. Also noteworthy is the considerable increase in revenues per passenger, which expanded to $18.5 up from

Speaker 4

$15.6 in the same period of 2019.

Speaker 2

As we look ahead, our primary focus Continues to be on the negotiations with the government of Armenia regarding a much needed $400,000,000 CapEx program. The approval process for the new master plan at Ternes Airport, which remains on track and then receiving the mitigation payment in connection with the return of Natal Airport in the Q4 of this year. Additionally, we also remain focused on expanding our portfolio We continue working with the government of Nigeria in connection with the Abuja and Kano concession agreements. Separately, We are also pleased to report that we have just published our 2nd sustainability report and invite you to read it. We are just starting this journey.

Speaker 2

We are committed to driving continuous improvement and awareness across the company and look forward to share with you more updates as we advance on this ESG journey. This ends our prepared remarks. We are ready to take your questions. Operator, please open the line for questions.

Operator

Thank you, sir. Ladies and gentlemen, we will begin the question and answer session. Followed by 1 on your touchtone phone. You will hear a 3 tone prompt acknowledging your request. And your first question will be from Jaeson at Citi.

Operator

Please go ahead.

Speaker 5

Good morning, everybody. Thank you for taking my question. What are your plans for expanding Markets right now, can you talk to us a little bit more about the Nigerian market plan?

Speaker 3

Sure. Thank

Speaker 4

you. Thank you, Jay. We as we always said, we once we started the recovery out of the pandemic, We started again looking for opportunities to grow our markets. We participated in the Nigeria process, And we were selected to prepare to be there for 2 airports, Abuja, the capital and Kano, an airport in the north.

Speaker 2

And we continue discussing with the government

Speaker 4

the terms to be able To finalize and then sign and start that process, this has opened the door for us to start looking for opportunities In Africa as a continent, which we are which we have the team working now on Different opportunities that they arise there, but we

Speaker 2

also keep

Speaker 4

our eyes open and working in the different geographies We're already present, understanding if there are opportunities that can be accretive for our portfolio. And we will keep with that attitude looking for good opportunities, but always being very disciplined with our cash and our investment criteria.

Speaker 5

Awesome. And as a follow-up, I'd like to know how should

Operator

Please unmute.

Speaker 4

Thank you, Jay. In terms of CapEx, what we have is A CapEx agreement with the government of Argentina related to the ten year extension signed in 2020, which we are currently executing. That had a requirement of US406 $1,000,000 which are perfect underway And some extra CapEx for the following years, which will probably be decided later on. The same thing happens in Uruguay, where we agreed with the government The addition of 6 regional airports in the country, which require us to do CapEx in all of them, and we have a CapEx agreement as well there, which is also underway with the first airport opened in the end of last year And other investments in the rest of the airports underway and on track in terms of I mean, in budget as well. For the rest in terms of material CapEx for the rest of the subsidiaries, Beyond maintenance CapEx, it will have to do with what we mentioned Just now on Florence and Pisa regarding the agreement with the government for the investments there And the discussions we're having in Armenia regarding also an important CapEx development Because of the high traffic that we are seeing there and the requirement to fit this growing traffic.

Speaker 4

But beyond this Require CapEx that we have because of the agreements with the governments. The rest would be only maintenance CapEx going ahead. Thank you very much.

Speaker 5

Thank you. Super helpful.

Operator

Thank you. Thank you. And at this time, it appears we have no further questions. I will turn the call back to Martin for any additional closing remarks.

Speaker 4

I just wanted to thank you all for joining us today and remind you that our team remains available We will discuss any further information that you may require. And please enjoy the rest of your day. Thank you very much.

Operator

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.

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Corporación América Airports Q2 2023
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