Earnings Call Transcript - CAAP Q1 2021

Operator, Operator

Good morning, and welcome to Corporación América Airports First Quarter 2021 Earnings Conference Call. A slide presentation accompanies today's webcast and is available in the Investors section of Corporación América Airports’ Investor Relations website. At this time, I would like to turn the call over to Gimena Albanesi of Investor Relations. Go ahead.

Gimena Albanesi, Investor Relations

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. Both will be available for the Q&A session. 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 business filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. Note that for comparison purposes and for a better understanding of the underlying performance presentation today, we will be discussing results, excluding hyperinflation accounting in Argentina, which became effective in July 2018. Additional information in connection with the application of rule IAS 29 can be found in our earnings report.

Martin Eurnekian, CEO

Thank you, Gimena. Hello, everyone, and welcome to today's call. It's been over a year since the beginning of the pandemic and we are very proud of the way the company managed this unprecedented crisis. During the quarter, we began to navigate the second wave of this health crisis in some of our countries of operations, which is reflected in passenger traffic dynamics. However, we are encouraged by the positive trends we are seeing in the US and some countries in Europe, where the vaccine rollout is more advanced. As I will shortly discuss, while we have already started to see some of these positive trends in our operations, we are not losing sight of the challenges we still have ahead in our markets. The significant impact of the pandemic on air travel resulted in a 62% year-on-year decline in passenger traffic for the quarter, reaching a total of nearly 7 million passengers in the first quarter of 2021, almost a third of the pre-pandemic levels recorded in the first quarter. This mainly reflects the impact of the beginning of the second wave in Latin America, which resulted in travel restrictions and lower demand that negatively impacted traffic. By Armenia saw a significant pickup in traffic. Despite the challenges faced by the pandemic, we are optimistic about the progress we are seeing in the pace of vaccination in Uruguay and Italy, while vaccinations in Brazil are starting to pick up. Argentina lags behind, but we expect to start seeing a catch-up later in the year as more vaccines become available. Turning to our financial results. Our top line excluding IFRIC12 was down 57% year-on-year in the quarter to slightly over $110 million, also nearly a third of first quarter 2019 levels. Despite the severe impact of the pandemic on travel demand, our sustained focus on cost controls and cash preservation allowed us to achieve positive comparable adjusted EBITDA of $14 million in the first quarter of 2021, excluding one-time fees, representing a margin of 12%. This is an $18 million improvement from the previous quarter when excluding the economic compensations obtained in Brazil and Italy at the year-end. Results in the first quarter 2021 were also better than comparable losses of nearly $20 million posted in the second and third quarters of last year, respectively. We are confident in the potential of our business and we continue working towards reaching pre-pandemic adjusted EBITDA levels, while at the same time building a leaner and stronger company that will allow us to deliver profitable growth once demand returns. Finally, following the successful tenure expansion in Argentina and full economic reequilibrium for 2020 in Brazil, we are actively seeking to restore value by also pursuing economic reequilibrium in other operations, and I will discuss this in more detail shortly. More details on our first quarter results can be found on our earnings report filed yesterday and the exhibits of these presentations, both of which are available on our website.

Operator, Operator

Our first question is from Ian Zaffino from Oppenheimer.

Mark Zhang, Analyst

This is Mark on for Ian. Just on, I guess, the request for the long term economic reequilibrium for Brasilia. Can you give a sense of the process and the timeline there? After you file, when should we expect a response? And what sort of milestones should we be on the lookout for?

Jorge Arruda, CFO

Just to make sure I understood the question, you were requesting in connection with Nataal, right?

Mark Zhang, Analyst

The question was in regards to Brasilia, I guess, like the timeline and the milestones we should be looking out for as you filed the request for long-term economic reequilibrium.

Jorge Arruda, CFO

So we expect to formally file the long-term reequilibrium request this week. We have been, actually since the beginning of the year, really having very active discussions with the regulator, in particular, with the government in general. It's going to be an ongoing discussion. We expect to have a general agreement with them around the amounts and the mechanics, etc., by September, October and finalize the process before year-end. This is our objective. There is not a timetable set in stone, but that's what we're working towards. In terms of headlines, we expect very little, to be honest, because this is a private discussion and we do not expect any press release, either by ourselves or the government in the meantime until the process is much more advanced.

Mark Zhang, Analyst

And then just, if I may, a second question…

Jorge Arruda, CFO

And by the way, I mean, there are a bunch of operators here in Brazil, as you may know. All of them are basically in the same stage as we are. Some filed last week, others are about to file, etc. There is a lot of discussions directly with the regulator through the Airport Association. So it's a very intense topic at the moment in Brazil.

Mark Zhang, Analyst

I guess, like just for a follow-up. You guys continue to do very well on the cost control side. Can you give a sense of, number one, how much more costs can be taken out if we continue to see COVID volatility? And number two, how much of these costs are permanent once operations normalize? Any better sense you guys have now versus, call it, like six or eight months ago.

Jorge Arruda, CFO

We expect some of the cost savings to become permanent, but obviously, as traffic picks up, some of the costs that we are currently not incurring will come back without a doubt. There are multiple examples. One of them is the security checkpoint. Obviously, we have fewer security checkpoint channels currently, but as traffic increases, we will have to increase the number of security checkpoints to process passengers properly. That obviously will increase costs. So we do expect some of the savings to remain permanent. It's difficult to quantify how much, but we do expect some benefit out of costs going forward. Did I answer all your questions or is there anything pending on my side?

Mark Zhang, Analyst

No, I think we have all of it.

Operator, Operator

Our next question is from Jefferies.

Unidentified Analyst, Analyst

Just a quick one on liquidity. We noted the $256 million in cash and the $40 million refinancing of the short-term bank debt at the Argentine subsidiary. Could you please give us some additional color on available liquidity, anything in credit lines and progress on refinancing of the 2021, 2022 maturities that you listed on Page 8?

Jorge Arruda, CFO

We continue to have support from our lenders. We have refinanced the principal amounts due on paper for the syndicated loan facility in Argentina, as you already noted. We also secured a new loan from a local bank in Uruguay. We refinanced a smaller working capital facility in Brazil. We have been refinancing all the short-term debt at least coming due this year in Italy. So generally speaking, we have been receiving strong support from our lenders to navigate through the pandemic. We are looking at our cash position, our liquidity on a constant basis and taking the necessary actions. Therefore, we are confident that we are going to be able to continue navigating smoothly throughout the pandemic until traffic starts to come back in a stronger way.

Operator, Operator

Our next question is from Roberta Versiani from Citibank.

Roberta Versiani, Analyst

Just two quick ones on my side. First, could you give us some color about how the Argentine government is providing incentives or help to the local airlines to strengthen the local market? You gave some color on the help to the airports. But if you could expand that a bit more, it would be helpful. And secondly, in some markets, we see air cargo has risen consistently while passenger volume is low. Any view why this hasn't generally happened to Corporación América’s market? I'm just interested to understand a bit better.

Martin Eurnekian, CEO

Regarding the government priorities, as of today, the clear priority of the government is to transit the pandemic while putting health as the number one priority. That's what motivated all of the decisions made by the government regarding our industry, and that's why we have so many restrictions as of today. In that sense, I think that until the second wave in Argentina is past, we will not see strong reactions towards incentivizing the industry, at least until there's a clear path out of the health crisis that the country is currently facing. We assume that this will happen within this year as the vaccination campaign takes off and more vaccines become available for Argentina. Regarding cargo, what I can tell you is most of our airports have a mixture of full cargo aircraft and what is called belly cargo on passenger aircraft, and that second part is quite important in our operation. When passenger aircraft stopped flying because of the restrictions, we lost some cargo availability there. The good thing that happened is that the full cargo type of offer has increased, and that's why we did not see a proportional decline in cargo compared to what happened in the passenger market. I think that's why you see the net effect in our cargo operations numbers that we share. So I think that's the effect that you should look for and what is making the net cargo operations during the pandemic and as of today look like they do, and the fact that they didn't drop in the same way as passenger numbers did.

Operator, Operator

This concludes our question and answer session. I would like to turn the conference back over to Martin Eurnekian for closing remarks.

Martin Eurnekian, CEO

I'd like to thank everybody for joining us today. We really appreciate your interest in our company, and we look forward to providing updates on our business initiatives as they become available. In the meantime, the team remains available to answer any questions that you may have. Thank you, everybody. Bye-bye.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.