Q4 2019 Earnings Call

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Good morning, and welcome to the corporation in America airports, fourth quarter, 2019 earnings and covid-19 updates calls off a slide presentation the company's today's webcast and it's available in the investor section of the Corporation of America airports investor relations website at investors Corporation. Birth airports. As a reminder all participants will be in listen-only mode. There will be an opportunity for you to ask questions. If you end up today's presentation as a reminder of this call is being recorded.

At this time, I would like to turn the call over to the other investor relations, please go ahead. Thank you. Good morning everyone and thank you for joining us today. I'm doing today for calling William Victor also with us today. I will Frank or Thirty Financial officers and got her share of finance and m&a all should be available for the Q&A session before we proceed. I will let you make the following states are bold statement today's call will contain forward-looking statements and our Easter you to respond on the home inspection for everything lease and we can sign into the SEC. We assume no obligation to update or revise any further statements to reflect new or changed events across the country.

Note that for comparison purposes and for a better understanding of the underlying performance giving a presentation today. We will be discussing results excluding hyperinflation Accounting in Argentina, which became effective in July 2018 information in connection with the application of those can be found in earnings report. Now. Let me turn the call over to them, you know.

Thank you, ma'am. Hello, everyone and welcome to today's call. We are holding our year-end call during an unprecedented Health crisis that has rapidly expanded worldwide and that has disrupted global economy. And in particular the aviation industry resulting in drastic reductions in passenger traffic there is significant worldwide and certainty in terms of the direction and magnitude of the covid-19 outbreak as well as the impact. It will generate on the overall macro environment and on the consumer confidence.

When do they call it? I will discuss briefly our key operating and financial highlights for the fourth quarter and fiscal year 2019 and then we want to discuss the impact of the home and let me when our operations during the first quarter of this year.

I will then address the initiatives. We are in demanding across the company to protect employees and passengers importantly. I will also discuss the measures. We are implementing to mitigate the impact of this crisis on our business and to strengthen liquidity.

Starting with a quick recap of 2019 results the total of 84 million passengers travel across or fifty two airports last year resulting in a wage increase in total traffic or the year and nearly 2% in the quarter.

The coronavirus outbreak comes at the time when adverse market conditions in Argentina were already Dumping Ground demand and effect depreciation impact performance in Brazil.

This resulted in Revenue declines of 6% 12 for the fourth quarter and nearly 7% for the full year.

Despite being in our top-line. We delivered comparable adjusted ebitda margin expansion of over 220 basis points in the quarter.

Ended the year with a comparable adjusted of nearly four hundred and fifty million dollars and and I took 12 margin of 37%

Note that compatible adjusted ebitda in 2019 excludes forty-three million non-cash impairment loss in Brazil the bad debt charge of 23 million per month as well as certain one-time items in 2018. Totaling $1000000.

We continue to make significant Capital Investments during the year totaling slightly over three hundred eighty million dollars as we move the head with works at the satyr in Arabic airports. I need the structure upgrades across several other airports in Argentina as well as in Ecuador and intermedia.

More detail in terms of our 2019 results can be found in our earnings report and the exhibits of this presentation.

As you can see on slide for we have a track record of consistently driving both passenger traffic and gargoyles across different economic Cycles over last month shut down across all of our countries of operations are taking a heavy toll on travel industry and our business. We began to see the impact of covid-19 on traffic flow later in it along and around the second week of March at our airports preliminary traffic for the first quarter 2020 was down nearly 17% year-on-year.

As you can see on the next slide governments across our countries of operations establish a series of travel bans and restrictions beginning in March to reduce the spread of the virus wage. They least of these restrictions is included in the slide operations are also being impacted by the introduction of flight restrictions in many other countries worldwide.

On the chart on the left side of the slide. We have included a trend in weekly passenger traffic in large preliminary figures show. The traffic was down approximately 12% year-on-year in the first off the game further to around 18% in the second week deteriorating to a drop of nearly 60% in the third week and over ninety percent in the fourth week of March.

Whole month of March preliminary traffic is estimated to have declined approximately 45% year-on-year.

Note that while we usually do not disclose preliminary weekly figures. We are providing them on this call to share with you how the covid-19 condemn impacted our business figures may be subject to adjustments.

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Reacted rapidly in the face of this disruption and form the crisis committee on post of myself and the operating CEOs of each of our subsidiaries.

We have developed a four-pronged strategy focusing on our employees and passengers first controls and cash preservation measures near-term negotiations with regulatory bodies and government support as well as negotiations of the economic freedom of all concessions.

Stopping we our first set of initiatives the well-being of our employees and passengers is of utmost importance to us and we have taken specific measures to protect them off. This includes the enhancing safety and hygiene protocols across our operations. We have established remote working through the use of Technology. Only attends. Our staff is working on premises for these employees. We have provided healthier and establish additional sanitation policies.

Other initiatives include promoting stuff Communications around prevention Personal Care and Family Care.

Turning to slide seven with the main objective of ensuring the sustainability of our business in this kind of environment. We are implementing a number of cost control and cash preservation measures off our Airport network.

You are making significant reductions in personal experiences, including salary reductions suspension of salary increases and freezing new hiring as well as mandatory am sending locations or advancing locations to employees to Impossible given the embassy on the trick is to insist that you are facing you made the difficult decision to play to place a breathing in life on in certain geographies. You need and Uruguay our employees under further are receiving government and government subsidies.

Second we are lowering or maintenance expenses while maintaining the quality and safety standards required to support the minimum level of operation in all of our concessions wage is a result of this combined measures we expect our total cash operating costs and expenses excluding concession piece to decrease by approximately 43% during the month that we operate under described these scenarios. This target reduction is based on current company estimates for the second quarter of 2028 compared to a second quarter of 2019 figures.

Let me also remind you that except for our concessions in Brazil. All of our operations are under a valuable concession. Jean in Brazil trees are large large subject to a fixed annual payment and I will discuss shortly our initiatives on this front in addition to this and to further protect our liquidity. We are aggressive managing our working capital by negotiating. We are suppliers the extension of payment terms while we are also reducing drastically our capex program. Are we go into further detail short?

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Like of this unprecedented crisis, we have started discussions with regulatory agencies to renegotiate concession prepayment aligning to the current environment.

You had already making important stripe in the field where we have recently obtained the regulatory approval to defer until December the variable and fixed annual concession prepayments originally due in May and July respect the regulator have also begun in Argentina Italy and Uruguay.

On another front you are requesting the federal tax payments. We obtained the deferral of fiscal taxes in Brazil and are requesting expects except n or deferral of certain taxes in Argentina. And Italy as well in Argentina. We are pursuing the collection of approximately forty million dollars of certain past due receivables from the national airline and the 15 million dollar recovery of trades in connection with Catholics.

You need any discussions with the government to obtain a grant for the current amount of approximately twenty million euros, we're Florence and Pisa airport wage update on the outcome of this initiative once talks have progressed further.

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another important area we are working on this is review of the vehicle or the concession agreements across our Network.

They remain there we have different type of concession agreements.

I'm over concession agreements have guaranteed returns which comprise our operations in Argentina Italy and Armenia which accounted for approximately 74% of total revenues excited wage in 2019. Argentina operate under single team schemes where certain result return shall be achieved over the life of the concession wage opportunity operate under a dual team model which provides a guaranteed return in connection with its aeronautical activities.

Can contacts did not provide for a guaranteed return. However, some of these have forced measure vehicle is in process.

This includes our operations in the field and inequality in Brazil. We have initiated conversations to begin the process of requesting economic. We believe them for the rest and the airport concession what color we have recently filed the request to begin an economic regulation process for the dealer for possession.

You need to contest the amount and mechanisms for compensations will be negotiated with authorities and may include a reduction in the concession amount and Thursday Monday increasing Target extending the tenure of the concession or a combination thereof.

We are in the initial stages of this process which requires going to administrative and Regulatory channels will be providing updates over time as they become available.

Moving on to our balance sheet and liquidity on slide, then the end 2019 with 196 million dollars in cash and equivalents and off with that ratio of two point seven times. We also have approximately 66 million dollars in treasury bills and time deposits not included in cash and equivalents.

About total debt your rent 2019 247 million dollars in principal and interest payments were due this year of this you already paid down around $39 million dollars by the end of March.

In the current environment cash reservation is a critical for this to us.

That in over the past weeks. We have be totally and quickly in The Lending a comprehensive plan on several times starting in April. We canceled all capital Investments and deferred main priority projects note that approximately 69 million dollars were already invested in the first quarter of the year including expansion pack Works a minimum with most of the minimum maintenance Catholics plan for the year.

Second. I just mentioned we have implemented a set of cost control measures to reduce our operating expenses and we are negotiating we are suppliers extending payment terms to limit additional cash outflows.

We have suspended the third parties in opposition to any color for an approximate amount of 17 million tap currently does not take corporate dealer and we did not place a share repurchase program either.

Poor connection with our indebtedness. We have obtained a six month deferral of principal and interest payment until October for all are dead in the seat originally due on the September.

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You're paying additional funding in the first quarter for an amount of $40 and you continue to work closely with the financial Community particularly in our main markets represent the company security and financial flexibility in this challenging environment.

We can predict disability and length of this endemic. So we're working hard to be prepared for any and all semantics.

No, crop up turn to slide 11 why we have enjoyed a solid truck driver or passenger and rapid growth across our diverse network of airports over the last five years the events of the last few months are unprecedented and have severely impacted every corner of the global market and in particular travel-related dead.

Back to recovery Still Remains uncertain and is dependent on a number of factors including the duration of the kinetic government assistance and the resilience of the global economies.

We have been working on all fronts to reinforce our business. You are serious of operating and financial measures as well as entering into killing associations with governments related took our concession fees to align them with the current environment.

You have build a strong network of international and domestic airport and have made significant Investments over the past years to further modernize our infrastructure that will I get an important role in recognizing economic growth. Once the current travel restrictions start being affected.

You mean yeah focused on the health and security of our employees flashing and passengers while working to ensure the sustainability of our company. We are not ready to take wages operator. It's open the line for questions.

Thank you. We will now begin the question-and-answer session to ask a question. You may press star one on your telephone keypad. If you are using the speaker phone, we ask that you please pick up your handset before pressing the keys. We do ask yourself two questions at a time and you may re-enter the queue can do have more at this time. We will pause momentarily to assemble our roster month.

And today is first question comes from Steven Johnson City, please go ahead.

Hello, Martina and hello everybody and thanks very much for the the color and for taking my question my first question pertains to a a a 2000 and I know in the current environment. It's it's it's very hard to ascertain where we land but with respect to a 2000 and your conversations with the government, you know any view with respect to the probability that we could see that assets can such an extended considering that you're owed on that guaranteed return and the government's National Airline. Apparently also owes you money.

Stephen thank you for your question. This is Martin here. I would say just your question, of course again the world and I'm just getting in particular and I think all countries and all sectors are experiencing something so new and so different and it's an emergency that I think with or without comes possible. We are having productive conversation. I think with all of the government's where we operate wage and I think we will see the development moving the next few months as we see and and start getting an idea of where their salary restrictions are going in and how long would you describe them a glass then in aside from that? What have you did we will go out.

Have regarding this we are also working with all the most important agencies in the world to try to understand how and and when will will be recovery start and and what measures should we start thinking of you to give to reignite traffic as fast as possible. But as far as the conversations with the government and probably governments elsewhere where we operate I think given the size and magnitude of scratches and the fact that there are no precedents and and no one really has a recipe on how to deal with this. I think we will have to all keep an open mind to work and create suggestions for where our industry and in our airports.

I appreciate that Martin. And if I may just follow up with one very quick question. I know in the case of Italy, you know that market seem to be one of the first places in the EU that got hit very hard and maybe at least lately also showing some signs that the situation has peaked. Are you seeing anything at this very early stage with respect to anything you can see in in in the booking curve that would suggest that there's light at the end of the tunnel kind of medium term. It's still, you know, way too early to say

I think it's very early to say the conversations I have with with our with our staff initially started off very green and and we can now see that the mood the moods have changed. They they they went from all the containment Nash in in in conversations with the governments and Regulators regarding the crisis to uh, starting to switch. I always say this last week Monday to conversations with different organizations over lines directly with Airlines and Regulators on starting to think what the the next day would look like and that has changed the mood for staff and and people are lines are already talking about. When are they going to restart? And yep?

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I hope that's not a false hope but but that's the mode we are we are receiving from Italy and that's hopeful for us because they window his first month. They started the the quarantine first and and hopefully they'll be one of the first to come out but I think it's too early to to say how we this month restart. If you see if it will be first with domestic traffic and and and slowly International traffic. If you've got the calls are going to be implemented for travelers for international travel to be able to walk you can waste and and how the pandemic will will will look like in the rest of the world. I think all of those things will will will have to do with how fast in in how will the the the restart the results look like.

Okay, I will leave it there very helpful. Thanks Martina.

Thank you. Ladies and gentlemen, as a reminder. If you would like to ask a question, please press * then 1 at this time. Next question comes from Ian with Jeff, please go ahead.

Hi, good morning guys. This is Mark on free and thanks for taking our question. So I guess I just wanted to follow up on your concession rebuilding process and the tall. Do you guys suck? When do you guys expect a response from the regulator and then, you know as a follow-up question, are there any other concessions in the portfolio that you guys are also testing? Thank you.

Hi, thanks for your question. This is George. I'm I'm head of corporate finance and also head of Brazil for for the group here Thursday. We filed the the so-called friendly rebooting process approximately a month for goal. We expect that off this here. We will be able to make progress at the free levels of the government which are the regulator and act money and the means of infrastructure more precisely sack and then the PPI which is the body government in charge of the the tender process delicious station process. Once we go through those, uh free body governments, we should be

Ready to sign an amendment to the concession agreement and have a date for for the for the new building object this whole situation that we are in bring some uncertainty over the the timeline but we expect that the new building will take place sometime next year. We are hopeful that by meteor it will take place. But let's see. We are working very closely and with the government and keep you posted.

Great. Thank you guys very much.

Hey ladies and gentlemen as a final reminder. If you'd like to ask a question, please press * then 1 at this time. Once again, we will pause momentarily while we assemble our roster.

Question answer session. I'd like to turn the conference back over to your neck.

I'd like to take the opportunity to thank you very much for joining us today. We really appreciate your interest in our company. We look forward to providing updates and our business and initiatives that they become available in the meantime the team remains available to answer any questions that you may have. Thank you. Again. Thank you this includes both lines and have a wonderful day.