Q3 2024 Corporación América Airports SA Earnings Call
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Speaker Change: 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 Enaki Esnaola, Head of Investor Relations. Patricio, please go ahead.
Speaker Change: Thank you. Good morning, everyone, and thank you for joining us today. Speaking during today's call will be Martina Orenquian, our Chief Executive Officer, and Jorge Arruda, our Chief Financial Officer.
Speaker Change: Before we proceed, I would like to make the following Safe Harbor Statement. Today's call will contain four looking statements, and I refer you to the four looking statements section of our earnings release and recent filings with the SEC.
Speaker Change: We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances.
Speaker Change: Please note that throughout this call, all references to revenues, costs, adjusted EBITDA and margins will refer to figures excluding IFRIC 12. I will now turn the call over to our CEO, Martín Ornegán.
Good day. Thank you for joining us today.
Martín Ornegán: Let me start today's presentation by sharing some key highlights from our third quarter results. Following that, Jorge will provide a more in-depth financial review, and afterward, we will open the floor for your questions.
Martín Ornegán: Our diverse geographic portfolio once again played a critical role in balancing our results this quarter, as solid performances in other countries partially mitigated a weaker result in Argentina, where the macroeconomic environment and specific dynamics put pressure on year-over-year comparisons.
Speaker Change: were down approximately 4% year-over-year, broadly in line with lower passenger volumes, while revenue per passenger held steady at $19, demonstrating our resilience in navigating challenging market conditions.
Speaker Change: And just to leave it there, for the quarter decline in the mid-teens year over year, primarily due to the ongoing macroeconomic challenges in Argentina, which continue to pressure domestic traffic and increase operational costs.
Speaker Change: Duty-free sales were again lower this quarter, as last year's results benefited from the significant disparity between the official and parallel effect rates.
Speaker Change: Importantly, our strong cash flow and solid partnership, with net leverage remaining at record lows, underscore our commitment to financial stability while providing the flexibility to pursue growth opportunities.
Now, let me touch on three recent events.
Speaker Change: First, a 124% increase in the domestic passenger tariffs in Argentina was approved and effective November 1st.
Speaker Change: which will support our local operations going forward. Second, our Argentine subsidiary, AA2000, approved an 80 million dollar dividend distribution.
Speaker Change: And finally, we completed the acquisition of an additional 2.1% economic interest in AA2000 for $30.9 million.
from Affiliated Entities.
Speaker Change: which consolidates CAP's economic interest in AA2000, while the Argentine government remains with its 15% stake in the company.
Speaker Change: Our performance during the most recent quarter reflects the ongoing successful execution of our long-term strategy and we will continue to be disciplined and balanced with our deployment of capital as we prioritize investment in their businesses to support long-term growth.
Jorge will provide further details on our finances shortly.
Speaker Change: Turning to page 4 for a review of passenger traffic trends.
Speaker Change: Overall, total passenger traffic declined 4% year-on-year, or by 1.5% when excluding Natal, which we exited in February as part of a friendly termination agreement with the Brazilian government.
Speaker Change: This decline was primarily driven by soft demand for domestic travel in Argentina, reflecting the current challenging market environment in the country.
Speaker Change: By contrast, international traffic in Argentina remains a bright spot, supported by additional routes and flight frequencies. We also continue to see positive momentum in Uruguay, Italy and Brazil.
Speaker Change: Let's take a closer look at some key year-on-year trends by region.
Speaker Change: In Italy, passenger traffic grew 6%, led by a 7% growth in international traffic, while domestic traffic was up by low single digits.
Speaker Change: This performance extended into October, with passenger traffic growing at 6.1% versus the same month of 2023.
Speaker Change: Uruguay continued its strong recovery, with passenger numbers up 15%, fueled by new routes and additional frequencies by JetSmart and Sky introduced in the prior quarter.
Speaker Change: Looking ahead, Sky and LATAM Airlines announced resumption of routes to Rio de Janeiro and Santiago de Chile for the summer season.
Speaker Change: while American Airlines will resume its Montevideo-Miami route in November, adding further connectivity to Uruguay. In October, passenger traffic rose by 2.6%.
Speaker Change: In Brazil, traffic saw a recovery this quarter, up 6% when excluding Natal Airport, even while domestic traffic remains affected by aircraft constraints.
Speaker Change: This performance extended into October, with passenger traffic ex-natal growing at a strong 12% versus the same month of 2023.
Speaker Change: In Argentina, total passenger traffic was down 6%, reflecting an 11% decline in domestic traffic, which remains impacted by the ongoing recession and tough comparisons to last year's previaje government program.
which boosted domestic travel, but was not repeated this year.
Speaker Change: By contrast, we continue to see a positive trend in international traffic, up nearly 10%, driven by the continued return of routes and increased flight frequencies.
Speaker Change: For example, Aerolíneas Argentinas launched new routes to Rio de Janeiro and Punta Cana, while carriers including Gol, Copa and Avianca added frequencies on several routes.
Speaker Change: We also saw solid performance in key tourist destinations such as Bariloche, Iguazú, and Mendoza, hoping to offset some of the domestic weakness. In October, international traffic continued to perform well, growing 7% year-on-year.
Speaker Change: Traffic in Armenia declined in the low signal digits, following very strong traffic last year on the back of the entrance of new airlines and frequencies.
Speaker Change: In October, total traffic decreased by 2.4% compared to the same month last year.
Speaker Change: Ecuador continues to experience a mid-single-digit decline in total traffic, led by a 10% contraction in domestic traffic, reflecting the exit of a local airline in October last year, and persistently high airfare prices, which have dampened travel demand.
This trend continues into October, with traffic declining 1.4% year-on-year.
Now moving on to slide 5.
Speaker Change: We saw continued momentum in cargo volumes, which increased 4.4% year-on-year. Argentina, Brazil and Armenia were particularly strong contributors collectively, accounting for 80% of total cargo volumes.
Speaker Change: Despite volume growth, cargo revenues declined 12% year-on-year, largely due to lower revenues in Argentina, impacted by a reduction in the number of storage days for imported goods.
Speaker Change: We continue to monitor these 70 trends closely and remain focused on maintaining efficient operations across all regions.
Speaker Change: 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.
Jorge Arruda: Total revenues exit rate 12 decreased 4.2% year-on-year, in line with lower passenger traffic, while our revenue per passenger remained consistent at $19, capitalizing on CAP's geographically diverse portfolio.
Jorge Arruda: Aeronautical revenues were down 1.5% year-on-year, mainly due to a one-time tariff compensation of $5.8 million received in Italy in the third quarter of last year.
Jorge Arruda: This was partially affected by the strong performance we saw in Uruguay, where we achieved a remarkable 22% increase in aeronautical revenues, as we continue to leverage from positive momentum in this country.
Jorge Arruda: Importantly, in Argentina, where aeronautical revenues remain fairly stable, we received approval for a 124% increase in the domestic passenger tariffs effective November 1st.
Jorge Arruda: Commercial revenues decreased 6.6% year-on-year, mainly impacted by lower cargo and duty-free revenues in Argentina and lower fuel revenues in Armenia.
Jorge Arruda: This was partially offset by higher revenues from VIP lounges, parking, catering, and advertisement.
Jorge Arruda: with strong performance in Italy, Uruguay and Ecuador. Moreover, in Brazil, we recently secured three new real estate agreements providing further evidence of our objectives to enhance our non-aeronautical revenues.
Now turn to slide 7.
Jorge Arruda: Total costs and expenses, exit rate 12, increased 5% year-on-year, mainly reflecting inflationary pressures in Argentina's operating expenses, as the local inflation rate was above currency devaluation.
Jorge Arruda: As a reminder, approximately 60% of total costs in Argentina are denominated in pesos, which have been impacted by retroactive adjustments based on inflation rates that are greater than the current rate.
Jorge Arruda: Importantly, we remain focused on maintaining strict cost controls, particularly in Argentina, where we continue to navigate challenging macrodynamics. However, we anticipate a more stable environment for the remainder of the year.
The End of the Video
Moving on to profitability on slide 8.
Jorge Arruda: Adjusted EBITDA exit rate 12 was $145 million, a 16% year-on-year decline, largely explained by the performance we saw in Argentina. This was partially offset by another quarter of double-digit growth.
Jorge Arruda: in a positive contribution from Brazil, where we benefit from the reversal of a $2.1 million provision that had been set in the fourth quarter of 2023 related to the 2023 COVID economic compensation.
Jorge Arruda: which ultimately did not occur due to a change in methodology we obtained with the regulatory agency.
Jorge Arruda: We are very encouraged by the underlying performance of our operations in Italy, despite facing difficult comparisons in this quarter due to a prelimination one-time tariff compensation related to previous years.
Jorge Arruda: Turning to slide 9, supported by our robust cash flow generation, we closed the quarter with a total liquidity position of $605 million, up 32% when compared to year-end 2023.
Jorge Arruda: Furthermore, all of our operating subsidiaries reported positive cash flow from operating activities during the nine-month period.
Jorge Arruda: Along this line, following the end of the quarter, in 2000, our Argentine subsidiary approved a dividend distribution of $18 million, of which $68 million will be paid to CAPS subsidiaries.
Jorge Arruda: Despite challenging macro dynamics in Argentina, we generated excess cash while maintaining healthy debt levels and meeting our capital expenditures commitments, providing evidence of the strength of our operations in Argentina.
Moving on to debt and maturity profile on slide 10.
Jorge Arruda: Our net leverage ratio stood at 0.9 times at quarter end. The reduction in net leverage resulted from the amortization of scheduled principal payments, early redemptions in Argentina and Armenia in the second quarter of 2024, as well as cash generation.
Jorge Arruda: Wrapping up on my end, while we face some headwinds in the quarter, our business remains strong, supported by a robust balance sheet, a healthy debt profile, positioning us well to capitalize on future growth opportunities.
Jorge Arruda: As we move forward, we remain focused on managing costs and strengthening our commercial operations to drive sustainable growth and create value to our stakeholders.
Speaker Change: I will now hand the call back to Martin, who will provide closing remarks and discuss our view for the reminder of the year.
Martin: As we conclude our prepared remarks, please turn to slide 12 for key takeaways before opening the calls for questions and answers.
Martin: Our geographic diversification helps to partially mitigate software results in Argentina on the back of a difficult macro-environment. Notably, we experienced strong international traffic performance in Argentina combined with overall traffic growth in Uruguay, Italy, and Brazil ex natale.
Martin: We remain focused on driving commercial revenue growth across our portfolio, leveraging opportunities in each of our markets.
Martin: Specifically, we are pleased to report that construction is underway on a new covered parking facility.
Martin: and Carrasco Airport in Uruguay, which will add 180 additional parking spaces.
Martin: In Argentina, we have introduced new parking-related services and initiatives, and work has commenced on expanding the duty-free area in the Arrivals Terminal and the Seiza Airport to 1,100 square meters from 700.
Additionally,
Martin: In Brazil, three new real estate contracts were signed at Brasilia Airport, further enhancing our commercial offerings and elevating the passenger experience.
Martin: Providence continues on key projects across our airport concessions, aiming and driving further growth.
Martin: Negotiations with the Armenian government on our proposed CAPEX plans are progressing and final approval for the Florence Airport Master Plan in Italy is expected by year-end.
Martin: Additionally, we continue to assess expansion projects in other regions in line with our commitment with value creation.
Martin: On Argentina, while the primary challenge has been the FX and inflation dynamic, as inflation continues to recede, we are optimistic that we will see a further reduction in the gap between inflation and devaluation in the coming months.
Martin: This, coupled with the recent domestic tariff increase, provides a more favourable context to support both revenue growth and operational resilience.
Martin: Additionally, strong international passenger numbers in October further bolster our positive outlook for the remainder of the year, while we continue to closely monitor the situation with Aerolíneas Argentinas.
Martin: As always, we remain focused on delivering solid financial results, maintaining a healthy balance sheet, and creating sustainable value for our shareholders.
Martin: This financial flexibility enables us to support our ongoing growth initiatives across diverse geographies.
Martin: Thank you for your continuous trust and support. This concludes our prepared remarks. We are now ready to take your questions.
Operator, please open the line for questions.
Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised.
Speaker Change: Should you wish to decline from the polling process, please press star followed by the 2. If you are using a speakerphone, please lift the handset before pressing any keys.
Speaker Change: And your first question comes from Alejandro de Mijeles at Jeffries. Please go ahead.
Speaker Change: Yes, good morning guys. Thank you very much for taking my questions. Three questions, please, if I may. The first one is, Martin, you mentioned you're monitoring the situation of Ireland and Argentina. Could you please give us some indication of how you're seeing the potential impact if the government...
Can these things kind of go? That's the first question.
Second question is...
Speaker Change: and the third question is, last quarter you indicated that you were making some progress on the review of the contract in Argentina, maybe you can give us an update on where you are at the moment, please.
Speaker Change: Let me answer in order. To give you a sense of what Arrhenius Argentinus means for CAP, it's about 6% of CAP revenues are coming from Arrhenius Argentinus operations.
Speaker Change: And in terms of the operation in Argentina itself, it's 15%.
Um...
Speaker Change: and each situation is very different and very complicated and this is, this has
Thank you. Bye.
Speaker Change: a political context also to take into consideration beyond the economics of the situation.
Speaker Change: It will be difficult for me to comment exactly on what can happen. I can give you an example on a different situation.
Speaker Change: remarks the resilience of this business and of the demand for travel.
Speaker Change: In 2012, we were operating Montevideo Airport when the National Airlines, which was...
more than twice as big as Argentina is for us.
in that operation.
Speaker Change: and stopped flying from one day to the next. And, of course, there was an impact, but for our company and the recovery that was sustained in the next two years, even the same year and the following year that the company stopped operation, our EBITDA kept growing.
So that remarks the resiliency.
of this business.
Speaker Change: and I think that that's a good example on a way to look at possibilities for what can happen. Although, again, the situation is very fluid and I would rather not get into different scenarios for everything that we hear on the news regarding that situation in Argentina.
Speaker Change: Regarding Florence, as we said in the presentation, we expect to finish the approval process hopefully by the end of the year.
for the environmental impact and the possibility to...
ask for a construction permit and begin construction.
Speaker Change: That will allow us to build a new runway, which by the way will be the first new runway in Italy for many, many years, even after the Second World War. And that would mean that we would be able to increase the number of flights and destinations for Florence, which is a magnificent city.
Speaker Change: to this destination, and that will allow us to realize the potential of tourism in Florence by air. That's creating the possibility of growing...
Speaker Change: at least twice to what we have today as an airport debt.
Speaker Change: And in terms of timing as well, we expect contraction to take somewhere between 2 and 3 years.
Speaker Change: for the whole project, which includes a new runway and a new terminus.
As far as the contact in Argentina,
Speaker Change: We know that this is happening now. It's a little bit delayed, but this is happening. We're waiting for it to finish and for us to be communicated by it.
the regulator of the results.
Speaker Change: and once we have that, we can work together with a regulator and a path ahead in terms of what we see in those results. But until it's not officially finished and we have the results, it will be difficult for me to comment on what can be the path forward. But we are making progress.
That's very clear. Thank you.
Thank you everybody.
Speaker Change: Thank you. The next question comes from Fernanda Recha at BTG. Please go ahead.
Speaker Change: I want to have a caller on traffic train going forward.
Speaker Change: We have seen international routes performing well, but domestic routes have been...
Speaker Change: performing a little bit lower. So what should we anticipate for next year?
is my first one, and the second one...
There's a comment on the...
Speaker Change: review of Argentina, but in the sense of the tariff negotiation. So just to be clear, the agreement that you got now is just related to 2024 and was wondering if you still expect any further adjustment in domestic tariff for next year. Thank you.
Speaker Change: Armenia has been on the sidelines in the past quarters, as you know. We think that there is a chance that we see some growth going forward, given new routes to Asia.
on Ecuador's sidelines.
Speaker Change: And Argentina, we continue to see very positive dynamics on international and not positive dynamics in the domestics as we have been seeing the past several months.
Speaker Change: That was your first question, your second question, was there anything specific different than that?
Speaker Change: Thank you, Jorge. Yes, regarding the second one, just wanted to understand,
Speaker Change: if you expect any further tariff revision in the domestic market for Argentina for next year.
Okay, thank you.
Patricio Esnaola
Speaker Change: Thank you, the next question comes from Jay Singh at Citi. Please go ahead.
Speaker Change: Hello, Jay. Would you mind depicting the question? I'm having trouble hearing you.
Speaker Change: Okay, well, thank you for your question. Today, as we see in the presentation, we are working on
on a capex proposal that will enable us to
Speaker Change: adjust the size and the capacity of the airport in Armenia
Speaker Change: to the current demand and future demand. That is a major investment for the size of the concession. And as we said, we are talking to the government to create the right environment for...
for such an investment.
So, um...
Speaker Change: We expect to close a positive negotiation with the government there that will allow us to make that investment.
Speaker Change: and one of the main barriers that we have to take into account.
Speaker Change: for such a negotiation would be a duration of the contract. But until we do not have a closing with the government, it will be difficult to say exactly and how much.
Speaker Change: Of course, that is one of the main levies to pull to be able to enable such an investment in Armenia.
and, as you asked, for the case of Argentina.
that would be subject to
Speaker Change: the outcome of the reduction of the economic equilibrium of the construction from the regulator and the different options that we will have from there depending on the result.
Speaker Change: to take action in terms of making sure that we are heading to the regulated IRR of the contract.
Filho, Martin Bonnarens, Patricio Esnaola
Speaker Change: But I guess that will be seen as we move ahead.
Speaker Change: in the results and in the conversations that we will have with the regulator and the possibilities.
Speaker Change: also that the law will give us in terms of ways to rebalance the concession even in the case that it's needed.
Speaker Change: That will be, as of today, what we can say regarding possible extensions in the weekend contracts that we have.
Got it. Thanks so much. That's it for me.
Speaker Change: Ladies and gentlemen, as a reminder, if you have any questions, please press star one.
Speaker Change: The next question comes from Marina Mertens at Latin Securities. Please go ahead.
Marina Mertens: Hi, good morning and thanks for taking my questions. I have two questions.
Marina Mertens: The first one regarding Argentina, so in recent quarters a commercial revenues and domestic traffic had shown year-over-year declines as last year's results were boosted by the favorable effects and the Previaje program.
Marina Mertens: Do you, would you say that these figures are more normalized levels that could be sustained over time rather than compared to last year's?
Marina Mertens: And then the second one, you mentioned that you expect Argentina's international traffic, the positive trend to continue.
Marina Mertens: Do you think this could eventually or the improved international traffic could eventually offset the negative results from lower commercial revenues and a weaker domestic performance?
Hello, George here. Thank you so much for your questions.
Marina Mertens: So, the last few quarters we have been negatively impacted in Argentina, as you pointed out.
Marina Mertens: due to several reasons, the decline in domestic passengers, the decline in cargo revenues, the decline in doofee-related revenues.
Marina Mertens: The fact that the tariff has been adjusted, the domestic tariff, I'm sorry, has just been adjusted a few weeks ago. And also because of inflation has been in the first, in the last six to nine months.
Speaker Change: Thank you. We have no further questions at this time. I will turn the call back over to Martin Yonakian for closing remarks.
Martin Yonakian: I want to thank everybody for joining us today. Thank you for your interest in our company, and please remember that our team is always available to take your questions or anything that you might need from Professional American Airports. Thank you very much, and have a good day.