Corporación América Airports (CAAP) has demonstrated resilience in its second-quarter 2024 earnings, maintaining stable total revenues despite macroeconomic challenges and a decline in traffic.
The company reported a 9% year-over-year (YoY) increase in revenues per passenger excluding IFRIC 12, though EBITDA excluding IFRIC 12 saw a 9% YoY decrease. Strong performances in Italy and Uruguay offset the impacts in Argentina and Brazil. CAAP is actively pursuing growth opportunities, including a new capital expenditure plan in Armenia and a master plan for Florence Airport in Italy.
Key Takeaways
- Revenues per passenger ex-IFRIC12 grew by 9% YoY, showcasing resilience amid a traffic decline.
- EBITDA ex-IFRIC12 decreased by 9% YoY, primarily affected by the Argentine economy.
- Italy and Uruguay delivered robust results, while Argentina and Brazil faced challenges.
- Cargo volumes rose, yet cargo revenues fell by 13% YoY.
- Aeronautical revenues increased by 3%, while commercial revenues decreased by 3% YoY.
- Costs and expenses climbed by 6% YoY, and adjusted EBITDA went down by 9% YoY.
- CAAP ended the quarter with a liquidity position of $549 million and a net leverage ratio of 1.1 times.
- The company is negotiating a $400 million CapEx plan with Armenia and seeking approval for a master plan in Italy.
Company Outlook
- CAAP anticipates the continuation of positive trends in Uruguay and Italy.
- Soft domestic traffic is expected to persist in Argentina due to economic recession.
- Open skies bilateral agreements are projected to enhance Argentina's aeronautical sector.
Bearish Highlights
- Argentine and Brazilian traffic was negatively affected.
- Cargo revenues experienced a 13% YoY decline.
Bullish Highlights
- Italy and Uruguay are expected to maintain strong performance.
- Aeronautical revenues showed a 3% YoY increase.
Misses
- Adjusted EBITDA and EBITDA ex-IFRIC12 both saw a 9% YoY decrease.
Q&A Highlights
- CAAP is optimistic about new airline routes and frequency increases in Argentina.
- Deregulation and the open skies policy in Argentina are expected to bring positive effects.
- The company is addressing cost base development in Argentina, with expectations to soften in Q3.
- Investment opportunities are being actively pursued, with proposals in Angola and documents submitted in Saudi Arabia.
- Tariff adjustments in Argentina and the progression of the master plan in Italy were discussed.
Corporación América Airports has shown a strong ability to navigate through economic uncertainties, particularly in its Argentine operations. The company's strategic initiatives, including international expansion plans and infrastructure development, are set to support its growth trajectory. CAAP remains dedicated to delivering solid financial performance, safeguarding its balance sheet, and enhancing shareholder value. The company's proactive approach to managing its cost base and leveraging new market opportunities positions it to potentially capitalize on the evolving dynamics of the global aviation industry.
Full transcript - Corporacion America Airports (CAAP) Q2 2024:
Operator: Good morning, and welcome to the Corporación América Airports Second Quarter 2024 Conference Call. A slide presentation accompanies today's webcast and is available in the Investors section of the company's website. As a reminder, all participants 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 conference over to Patricio Iñaki Esnaola, Head of Investor Relations. Please go ahead.
Patricio Iñaki Esnaola: 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. Before we proceed, I would like to make the following safe harbor statements. 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. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. Please note that throughout this call, all references to revenues, costs, adjusted EBITDA and margin, we refer to figures excluding IFRIC12. I will now turn the call over to our CEO, Martin Eurnekian.
Martin Eurnekian: Thank you, Iñaki. Hello, everyone, and welcome to our second quarter 2024 earnings call. I will begin today's presentation with some key highlights from our second quarter performance. After that, I will turn it over to Jorge for a more detailed financial review, and then we will open the floor for questions. Our business is supported by having a diversified geographic portfolio. By operating in a variety of countries globally, we were able to mitigate weaker domestic traffic in Argentina, impacted by the challenging macro backdrop in the country, as well as aircraft constraints in Brazil, which resulted in less number of flights. As a result, revenues remained resilient despite the mid-single-digit year-on-year decline in traffic when adjusting for the discontinuation of the Natal Airport concession earlier in the year. Revenues per passenger ex-IFRIC12 expanded 9% year-over-year, outpacing revenue growth, underscoring our ability to adapt to challenging market dynamics. And Jorge will discuss this more in detail shortly. EBITDA ex-IFRIC12 declined 9% year-over-year, largely due to the macroeconomic challenges that Argentina is facing, which affected our domestic traffic and operational costs. Moreover, duty-free sales were lower this year, as last year's figures were artificially high due to the gap between the official FX rate and the parallel one. By contrast, our robust results in Italy and Uruguay emphasize the strength and resilience of our operations in those markets. Furthermore, our strong cash flow generation and solid balance sheet with a record low leverage ratio demonstrate our commitment to sustaining financial stability while maintaining the flexibility needed to support growth initiatives. Now moving on to Page 4 for a review of passenger traffic trends. Total passenger traffic in the quarter was negatively impacted by weak demand from domestic travel in Argentina as the market was challenging for reasons I just mentioned. By contrast, international traffic in Argentina continued to perform well, further supported by continued expansion in traffic in Italy and in Uruguay. On a comparable basis and excluding Natal Airport, a concession we exited in February as previously disclosed, passenger traffic declined 5% year-on-year, driven by a 15% contraction in domestic traffic, mainly driven by Argentina, while international traffic increased 8% in the period. Now discussing year-on-year trends by country of operations. In Italy, we saw steady passenger traffic growth, up 14% year-on-year. This positive performance was mainly due to a 17% rise in international traffic and mid-single-digit growth in domestic traffic. This positive trend continued into July, benefiting from the summer season with traffic growing 5.5% versus the same month of last year. In Uruguay, the opening of new routes and frequencies by JetSMART and SKY Airlines in May contributed to the 11% increase in traffic in the quarter. This positive trend extended into July with traffic growing 15% year-on-year. In Argentina, international traffic was up 9% in the quarter, driven by the resumption of more routes and frequencies. This very good performance, however, was more than offset by a contraction of 19% in domestic traffic. In addition to facing difficult comps, as last year's travel benefited from the Previaje government incentives to boost local tourism, domestic traffic was also impacted by the temporary suspension of several routes and flight cancellations after recessionary environment dumped demand for travel. As a reminder, while domestic traffic comprises around two-third of total traffic in the country, over 90% of passenger use fees are generated by international traffic and are fully linked to U.S. dollars. In July, we saw an improved performance with international traffic growing 14% and domestic traffic declining 12%. Traffic in Armenia remained largely flat, declining in the low-single digits as the market continues to face very strong comps versus last year. In July, total traffic decreased by 2% year-on-year. In Ecuador, total traffic declined by mid-single-digits. International traffic growth of 4% was more than offset by a decline of 13% in domestic travel following the exit of a local airline in October last year. This trend continued into July with the total traffic declining 5% year-on-year. In Brazil, as mentioned, traffic flow continues to be significantly impacted by financial and aircraft limitation in one of the local airlines, causing a lack of supply. This dynamic resulted in a 3% decline in passenger traffic when excluding Natal Airport. In July, we saw an improved performance with transit passenger traffic growing 15% and domestic traffic decreasing 5%, excluding Natal. Turning to Slide 5. Cargo volumes continued the sustained recovery trend, increasing in the mid-single-digit year-on-year. Argentina, Ecuador and Armenia, which accounted for over 70% of cargo volumes, remained the main driver behind this good performance, while Italy and Uruguay posted slight declines. However, despite the volume growth, cargo revenues declined 13% year-on-year, primarily due to lower revenues in Argentina. This decline was caused by a reduction in the number of days that cargo remained stored. I will now hand off the call to Jorge, who will review our financial results. Please go ahead.
Jorge Arruda: Thank you, Martin, and good day, everyone. Let's start with our top-line on Slide 6. Total revenues ex-IFRIC12 were stable year-on-year despite the lower passenger traffic as aeronautical revenue growth was offset by the decline in the commercial segment. Aeronautical revenues were up 3% year-on-year, mainly driven by higher international passenger traffic in Italy, Uruguay and Argentina, and tariffs increase in Uruguay and Ecuador. As a reminder, the majority of our aeronautical revenues in Argentina is derived from the international traffic. Moreover, aeronautical revenue in Uruguay and Italy delivered double-digit year-on-year growth in the second quarter of 2024, benefiting from the consistent positive momentum in those geographies. Commercial revenues decreased 3% year-on-year, mainly impacted by lower cargo and duty-free revenues in Argentina and lower fuel revenues in Armenia. As anticipated in our first quarter 2024 earnings call, the duty-free business in Argentina was impacted by the December 2023 peso devaluation. This was partially offset by higher revenues from VIP lounges advertisement and rental space, with strong performance in Italy, Uruguay and Brazil. In summary, leveraging CAAP's geographically diverse portfolio, our revenue per passenger ex-IFRIC12 increased 9% to $20.1 this quarter from $18.5 in the second quarter of 2023. Turning to Slide 7. Total cost and expenses ex-IFRIC12 increased 6% year-on-year, mainly reflecting inflationary pressures in Argentina, as the local inflation rate was above currency devaluation. As a reminder, around 60% of total costs in Argentina are peso-denominated. Regarding specific cost items, we experienced higher maintenance expenses, together with higher services and fees. Importantly, we remain focused on keeping stringent cost controls in Argentina consistent with our commitment to maintain a streamlined cost structure. Moving on to profitability on Slide 8. Adjusted EBITDA ex-IFRIC12 was $136 million, a 9% year-on-year decline, mainly explained by the performance we saw in Argentina. This was partially offset by another quarter of double-digit growth in adjusted EBITDA in both Italy and Uruguay. We are very encouraged by the ongoing momentum in these two countries and the corresponding financial performance, which included solid margin expansion during the quarter. Turning to Slide 9. Underpinned by our strong cash flow generation, we closed the quarter with a total liquidity position of $549 million, up $91 million when compared to year-end 2023, with all of our operating subsidiaries reporting positive cash flow from operating activities during the first half of the year, except Ecuador. Moving on to the debt and maturity profile on Slide 10. Our net leverage ratio stood at 1.1 times at quarter-end, down from 1.4 times at year-end and 1.2 times as of March 2024. The reduction in net leverage resulted from the amortization of scheduled principal payment, early redemptions in Argentina and Armenia, as well as cash generation. In Italy, we successfully refinanced all our outstanding debt into one single facility. This allowed us to extend the average life of our debt while raising additional funds of €60 million for our CapEx program at Pisa Airport. Wrapping up on my end, I would like to underscore the strength and resilience of our business. We achieved high single-digit growth in revenues per PAX, strong cash flow generation, and we continue to maintain a robust balance sheet and healthy debt profile. We are accomplishing all of this even as we continue to face some headwinds mentioned earlier. I will now hand the call back to Martin, who will provide closing remarks and discuss our view for the remainder of the year.
Martin Eurnekian: Before opening the line for questions, please turn to Slide 12 to wrap our prepared remarks. Revenues remained resilient despite the mid-single-digit decline in comparable traffic as our geographic diversification mitigated the challenging macro conditions in Argentina and aircraft constraints in Brazil. We are also pleased to see revenue per passenger outpace revenue growth, underscoring our ability to adapt to challenging market dynamics. While EBITDA ex-IFRIC12 declined, solid cash flow generation further strengthened our balance sheet. We achieved another record-low net leverage ratio, demonstrating our commitment to financial discipline. On the strategic growth front, we are actively negotiating a new $400 million CapEx plan with the Armenian government and seeking approval for the new master plan for Florence Airport in Italy. Additionally, we are assessing expansion projects across various geographies, in line with our strategic roadmap to pursue value creation. Looking ahead, on the operations front, we expect the positive dynamics in Uruguay and Italy to continue throughout the year. In Argentina, we expect domestic traffic to remain soft, impacted by the persisting recession, although we are pleased to see slight better traffic figures in July. Moreover, Argentina has strengthened its regulatory framework through recent open skies bilateral agreements with Brazil, Chile, Ecuador, Peru, Uruguay, Panama, Canada and Paraguay. These agreements are designed to enhance the flexibility and inject greater dynamism into the country's aeronautical activities. While on the financial front, we remain committed to delivering strong results, maintaining a healthy balance sheet and creating value for our shareholders. By doing so, we have the financial flexibility to support our growth initiatives. Thank you for your continued support and confidence in our company. This ends our prepared remarks. We are ready to take your questions. Operator, please open the line for questions.
Operator: Thank you. [Operator Instructions] Your first question comes from Alejandro Demichelis from Jefferies. Please go ahead.
Alejandro Demichelis: Yes. Good morning, guys. Thank you very much for taking my questions. Two questions, if I may, please. The first one, Martin, maybe you can update on how you see discussions with the different airlines regarding potential new routes into the country or higher frequency now that the deregulation of the sector has accelerated? And then, the second question, maybe for Jorge, is how you see the development of the cost base, particularly in Argentina, for the rest of the year?
Martin Eurnekian: Thank you, Alejandro, for the question. Regarding the effects on traffic of the deregulation that the government is pursuing, and moreover, the amount of bilateral agreements opening the skies of Argentina to other countries, we are very, very positive. There are many studies demonstrating that in short, medium and long term. This has very deep effects on the healthy growth in traffic numbers. So, this is what we expect. It's probably not going to happen one day to the next, because airlines have to understand and adapt and have the availability of aircrafts to do this, but the amount of flexibility that this gives to regional and local airlines to tap on the Argentina market, we think it's a very, very positive news. And that it's not only short-term news, but also for the medium and long term.
Alejandro Demichelis: Okay. Thank you.
Jorge Arruda: Okay. So, on the cost front, and I guess your question was targeted to Argentina, we see the same trend into the third quarter and thereafter softening. Bear in mind that the first quarter, we managed to withhold price adjustments on suppliers, and among other things, and our cost structure in general. But at some point in time, we had to accept given the inflation environment. And we saw the same scenario -- or we are seeing the same scenario to the third quarter, and we expect thereafter to soften.
Alejandro Demichelis: Okay. That's very clear. Thank you.
Operator: [Operator Instructions] Your next question comes from Jay Singh from Citi. Please go ahead.
Jay Singh: Hey, thanks for taking my question. Dialing in for Stephen Trent here today. Since one of my other questions has already been answered, I guess the other thing I wanted to ask was, aside from Nigeria and Armenia, what other investment opportunities do you see? And do any of them happen to be in conjunction with Dubai? Thanks.
Martin Eurnekian: Hi. Thank you for your question. We -- from -- in connection with opportunities that are public, we recently submitted a proposal for the Luanda Airport in Angola as part of the public tender being carried out by the government and submitted pre-qualification documents in Saudi Arabia. However, there are a number of other situations we are actively looking at that we will be announcing if and when they become more concrete or official.
Jay Singh: Okay. Thank you so much.
Operator: Your next question comes from Fernanda Recchia from BTG. Please go ahead.
Fernanda Recchia: Hello. Thank you for taking my question. Two here from our side. The first one, Jorge, Martin, if you could please provide an update on the tariff discussion on Argentina on the domestic side? How is the negotiation for a rebalancing progressing? If you have any update on this matter? And second, if you could please provide an update on the master plan discussion on Italy? It will be very helpful. Thank you.
Martin Eurnekian: Thank you, Fernanda, for your interest and your questions. Martin here. Well, on the tariffs in Argentina, we expect the domestic tariff to be adjusted soon, because it's lagging behind the exchange rate, but we have to also bear in mind that the Board of the regulatory agency was formed not long ago by the government. So, we expect to see some adjustment time since the new authorities took over to the actual announcement of the catching up that the domestic tariff has to do in Argentina. We also expect the rebalancing of the whole economic equilibrium of the concession to be done at some point by this new authority. We are already late on that, but hopefully, before the end of the year, we would have that exercise done. This is what we expect at least for now. And regarding Italy, we are moving on a tight schedule and back and forth with questions and documentation with the different agencies and the commission that needs to give the green light in terms of environmental approvals for the master plan to go ahead. We are working on the last round of questions with a deadline for October. And then, we need to see if there is another round of questions or the agency is ready to wrap up the process with our replies. But it's an active process, and it's moving forward.
Fernanda Recchia: Thank you. Martin, just to clarify, what you're expecting for the end of this year? It's just the tariff rebalancing in Argentina or the rebalancing for the whole concession?
Martin Eurnekian: The rebalancing of the economic equilibrium of the concession will most probably be reflected in tariffs in Argentina and that's what we expect by the end of the year. But prior to that, we expect the regulatory agency to do a required catch-up on the domestic tariffs that are lagging behind due to the valuation in Argentina, and that has to happen in a shorter time than the required working calculations needed to do a rebalancing of the economic equilibrium. So, we expect that to happen first.
Fernanda Recchia: Perfect. Thank you very much.
Martin Eurnekian: Thank you.
Operator: And there are no further questions at this time. I will turn the call back over to the presenters for closing remarks.
Martin Eurnekian: I'd like to thank everybody for your interest in our company and remind you that our Investor Relations team is always available to engage and answer your calls. Thank you very much, and have a very nice rest of the day. Bye-bye.
Operator: Ladies and gentlemen, this concludes your conference call for today. You may now disconnect. Thank you.
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