Q2 2023 Corporación América Airports SA Earnings Call

Good morning and welcome to the Corporación America Airport's second quarter 2023 earnings conference call. A slide presentation accompanies today's webcast and is available in the investor section of the Corporación America Airport's 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 Inaki S. Naula, Head of Investor Relations. Patricio, please go ahead.

Thank you. Good morning everyone and thank you for joining us today. Speaking during today's call will be Martina Ornaquan, our Chief Executive Officer, and Jorge Rua, 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. We assume no obligation to update or revise any forward-looking statements.

Hello everyone and welcome to our second quarter 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 second quarter financial results. We reported an outstanding quarter with robust performance across the board. Adjusted EBITDA reached yet another record of $151 million, up 27% when compared to second quarter of 2019, with the adjusted EBITDA margin X-IFRE 12 expanding 20.2 percentage points. This was achieved with passenger traffic approaching pre-pandemic levels. 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 2nd quarter 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 activities.

On the CAPEX front, we remain well on track with the execution of our fully funded CAPEX programs in Argentina and Uruguay and are actively and selectively looking to other airport concessions to continue expanding our airport network and delivering long-term value to our stakeholders.

Next, turn 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.

As a point of reference, in the first quarter, traffic was about 10 percent below the 2019 level. Importantly, by June , passenger traffic has exceeded pre-pandemic by 3 percent. Now let's look at the second 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 percent year-on-year and exceeding pre-pandemic levels.

for the fifth 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%.

Passing traffic in Argentina surpassed pre-condemic levels by low single digit for the first times since the onset of the pandemic.

Domestic traffic, which accounted for over 70% of total traffic exceeded pre-pandemic levels by 11% while international passengers continue to recover reaching 82% of second quarter of 2019 levels. These good performance continued in July , with total traffic at 98% of July 2019 levels.

to 88% of July 2019.

Equal or continues to post a healthy traffic trend, 11% above pre-andemic levels, supported by double digit growth in both domestic and international traffic.

Growth continued in Kirlilay outperforming 2019 volumes by 10.1% as robust traffic with the US, Europe and Panama supported international performance.

while acquires and you energize the competitive environment in the domestic traffic.

Uruguay where traffic is 100% international, so the number of passengers increased to 87% of second quarter of 2019 levels, following a weaker first quarter 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 pre-pandemic levels, reflecting similar recovery levels for both domestic and international traffic. Notably, Florence Airport was operating 8% above second quarter of 2019 levels, 25.29km.7mm1154-12???? . traps require our security. Don't forget

from 86% in the prior quarter. While traffic was impacted by financial and aircraft constraints in some local airlines, domestic traffic, which accounts for the vast majority of traffic in Brazil, surpassed with economic levels for the first time. Up in the low single digits.

The light traffic was 12.1% below 20.0% steam impacted by the aforementioned financing and aircraft constraints.

Next cargo on slide five.

cargo volumes were up low single digit year-on-year, reaching 86% of pre-bondemic levels, up from 81% in the prior quarter.

Noteworthy cargo revenues were 29% above pre-Pahemic levels, reflecting a sustained strong contributions from Argentina.

Cargo volumes in Armenia and Uruguay remain about pre-pandemic levels. In turn, Argentina and Ecuador improved to 86 and 82% of second quarter of 2019 levels respectively.

while Italy and Brazil are still in recovery phase. In some, we are encouraged by the positive recovery trends we are seeing in our cargo business, and we are confident in this sustained recovery going forward. Importantly, our customers can rely on us to provide dependable and exceptional service.

I will now hand off the call to Jorge, we will review our financial results. Please Jorge, go ahead. Thank you, Martin and good day everyone. Starting with our top line on slide six, total revenues, X-EFLIC 12 increase 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 given by solid revenue growth from both commercial and aeronautical.

Aronical loving is increased 24% year-on-year surpassing pre-pandemic levels for the second consecutive quarter.

This was mainly driven by tariffs, increases, and a continued recovery in passenger traffic across our geography, reaching 99% of second quarter to 2019 levels.

Argentina maintain strong momentum while our national magazine Aminia increased double digit year on year and wore up 80% compared to second quarter of 2019.

Commercial revenues, which accounted for nearly 50% of our total ex-efficient 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.

Higher concession fees in Argentina also tied to higher activity and higher salaries in Argentina as a low inflation rate was above currency depreciation. SGNA expenses were up 40% year-on-year, mainly reflecting a benefit of a one-time bet that recovery of $10 million in Argentina, which occurred in the second quarter of last year. Compared to second quarter 2019, SGNA increased with 8% well below the 17% revenue growth.

first quarter of the year. All geographies contributed to this performance. Year-on-year, adjusted EBITDA was up 37% when including this comparison that the recovery recorded in the second quarter 2022 and increased 27% when compared to the second quarter 2019. Moreover, the adjusted EBITDA margin X-EFLIX-12 reached 14.9% up 4.7% from last year's last year and 3.2% points above pre-pandemic levels.

Our net leverage ratio declined further to 1.8 times from 2.4 times as of December 2022, reaching an all-time low. Wrapping up, we maintain a strong momentum, delivering strong operating financial results, further contributing to the reduction of our leverage. I will now hand back the call to Martin, who will discuss our view for the remainder of the year and provide some closing remarks. Now, to wrap up.

ratio declined further to 1.8 times from 2.4 times as of December 2022, reaching an all-time low. Wrapping up, we maintain a strong momentum, delivering strong operating financial results, further contributing to the reduction of our leverage. I will now hand back the call to Martin, who will discuss our view for the remainder of the year and provide some closing remarks. 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 even that 27% above pre-pandemic levels despite traffic volumes at practically pre-pandemic levels. Also noteworthy is the considerable increase in revenues per passenger.

As we look ahead, our primary focus continues to be on the negotiations with the government of Armenia regarding the much needed $400 million CAPEX program. The approval process for the new master plan at Torrens Airport, which remains on track, and on receiving the unification payment in connection with the return of Natal Airport in the fourth quarter of this year. Additionally, we also remain focused on expanding our portfolio and 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 second sustainability report and invite you to read it.

Separately, we are also pleased to report that we have just published our second sustainability report and invite you to read it. We are just starting this journey.

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.

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.

Thank you, sir. Ladies and gentlemen, we will begin the question and answer session. If you would like to ask a question, please press star followed by 1 on your touchtone phone. You will hear a three-tone prompt acknowledging your request. If you would like to withdraw from the question queue, please press star followed by 2.

And as a courtesy to other callers on the line, we ask that you please limit yourself to one question and one follow-up. Please go ahead and press star 1 now if you do have any questions. And your first question will be from Jay Singh at Citi. Please go ahead. Good morning, everybody. Thank you for taking my question. What are your plans for expanding to new markets right now? Can you talk to us a little bit more about the Nigerian market plan? Thank you. Thank you.

Thank you, Jay. As we always said, 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 be there for two airports, Abuja, the capital and Kano, an airport in the north. We continue discussion with the government.

the terms to be able to finalize and sign and start that process. And we will keep with that attitude looking for good opportunities, but always being very disciplined with our cash and our investment criteria.

Awesome. And as a follow-up, I'd like to know how should we think about your normalized long-run cat X-ray? Thank you very much.

Please unmute.

Hello?

Thank you Jay. In terms of capex...

What we have is a CAPEX agreement with the government of Argentina related to the tenant extension signed in 2020, which we are currently executing. That had a requirement of 406 million US dollars, which are perfectly 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 that the...

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 that the...

the addition of six regional airports in the country, which require us to do CAPEX in one of them. And we have a CAPEX agreement as well there, which is also underway with the first airport open in the end of last year.

and other investments in the rest of the airports underway and on track in terms of the timing and 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