Earnings Call Transcript - CAAP Q1 2025

Operator, Operator

Good morning, and welcome to the Corporacion America Airports First Quarter 2025 Conference Call. A slide presentation accompanies today's webcast and is available in the investor section of the company's website. As a reminder, all participants are 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 Esnaola, Head of Investor Relations. Please go ahead.

Patricio Inaki Esnaola, Head of 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. 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 written 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 are figures excluding IFRIC12. I will now turn the call over to our CEO, Martin Eurnekian.

Martin Eurnekian, CEO

Thank you, Inaki. Good day, everyone, and thank you for joining us today. Let me begin by walking you through the main highlights of our first quarter 2025 performance. After that, Jorge will take you through the financials in more detail and we will then move on to Q&A. I am pleased to report that we had a strong start to the year with total passenger traffic growing by over 7% year-over-year or more than 9% when excluding the discontinued Natal concession. Growth was driven by strong performance in Argentina and Italy, with Argentina reaching record traffic levels in January. We also reached a record high in January at Carrasco airport in Uruguay. International traffic increased nearly 13%, led by Argentina and Italy, while domestic traffic rose 4% or close to 8% when excluding Natal. Revenues rose 6% year-over-year. However, on an ex-IAS29 basis, we delivered an increase of nearly 12% surpassing passenger growth despite the impact of local currency devaluations in Brazil and to a lesser extent in Italy on reported revenues in US dollars. Revenue per passenger remains relatively stable at $20.5 or increased by 3.9% excluding IAS29. Adjusted EBITDA came in at $156 million. Excluding IAS29, it was up 4%, and the margin stood at 38.2%. Inflationary pressures in Argentina, where Peso-denominated operating costs rose at a significantly higher pace than the valuation, had an impact on our EBITDA. From a financial standpoint, we sustained a solid performance, supported by healthy cash generation and a solid liquidity position. Our leverage remained at low levels, providing capacity to advance our strategic growth agenda with discipline. On the expansion front, we remain active in pursuing opportunities and continue to make progress across multiple geographies analyzing several projects. Let's turn to passenger traffic on Page 4, which showed a strong performance across most of our operations during the first quarter of 2025. Total passenger traffic increased by 7% year-over-year to over 20.4 million, excluding for comparison purposes the Natal Airport concession, which we exited in February last year. Traffic was up over 9% in the period and highlights the underlying strength of demand across key markets as well as the quality of our portfolio. Growth was broad-based with both international and domestic traffic performing well. Domestic traffic increased by 4% year-over-year or nearly by 8% when excluding Natal. This was primarily driven by a recovery in Argentina and strong performances in Italy and Brazil. International traffic was up by close to 13% year-over-year with a positive contribution from all markets, except Armenia. Let's go now into year-on-year performance by country. Beginning with Argentina, our largest market, passenger traffic rose over 12%, recovering strongly from the moderate decline seen in the prior quarter and achieving an all-time high in January. Growth was supported by a recovery in domestic demand and continued strong momentum in international travel. Domestic traffic grew by 9%, rounding from the contraction in the prior quarter, as year-over-year comparisons are no longer affected by the Previaje Travel Incentive Program discontinued under the new administration in December 2023. We've also seen positive broad developments in Argentina's domestic market with low-cost carriers expanding capacity and connectivity. On the international side, traffic increased by 21% year-over-year, further accelerating from the pace seen in the prior quarter. Aerolineas Argentinas resumed operations to Porto Alegre and confirmed plans to continue operating the Córdoba to Rio de Janeiro route year-round, while Avianca upgraded its service to Bogotá using more flights to accommodate rising demand. And LaTAM increased frequencies on its Cordoba to Santiago and Mendoza-Santiago routes. This strong performance in Argentina continued into April with domestic and international passenger traffic growing by 14% and 21% year-over-year, respectively. Turning now to Italy, traffic was up over 10%, reflecting steady growth across both Florence and Pisa airports. This good performance was mainly fueled by Ryanair's increased frequencies and load expansion initiatives. International traffic, which accounted for roughly three quarters of total volume, grew just over 8%, with both airports contributing positively. Domestic traffic grew at an even faster pace, rising over 17% year-over-year, underscoring the strength of local demand. This early performance continued into April with domestic and international passenger traffic increasing by 15% and 10%, respectively. In Brazil, we continue to see traffic growth, with volumes up in the mid-single digits year-over-year when excluding Natal Airport, which we ceased to operate in February of last year. While the sector still faces headwinds related to aircraft supply, underlying demand shows encouraging signs of improvement across the quarter. However, international traffic grew 28% year-over-year, underscoring the great momentum in international demand. In April, overall traffic increased by 17% against April last year. In Uruguay, total traffic was up low single digits as international routes continued to expand. The summer season saw new services from SKY and Latam, connecting Montevideo to Rio de Janeiro and Punta del Este-Santiago, respectively. A new airline also began operations between Montevideo and Lecce and announced the new route to Barcelona aiming at improving regional connectivity and tourism flows. Traffic in April performed well and increased by 17% benefiting from additional demand generated by the Easter holiday. In Armenia, where we are operating at capacity during various hours of the day, following strong post-COVID performance, passenger traffic increased slightly by over 1%. Notably, Wizz Air announced that it will establish a base at Yerevan Airport along with a broad range of new European routes, scheduled to start operating later in the year. In addition, China Southern, Air Cairo, Salam Air, and Sky Express, began operating at Yerevan Airport. These developments are boosting connectivity and positioning Armenia as a regional hub. We expect these operations to contribute positively to traffic growth in the country. Traffic in April rose by 8% against April last year. Finally, in Ecuador, total traffic increased by over 2% year-over-year, driven by a mid-single increase in international demand, combined with modest growth in domestic traffic. Higher federal levels and the challenging security factors in the country continue to weigh on growth. But overall activity remained positive. Traffic in April decreased by 1.8% compared to April 2024. The quarter delivered a strong performance led by Argentina’s solid rebound and steady growth across Italy, Uruguay, and Brazil, which showed improving trends excluding the Natal. Overall, these great results highlight the quality of our network of airports. Turning now to cargo on Slide 5. We saw a strong start of the year with volumes up 9% year-over-year in the first quarter reflecting solid performance in most geographies. Growth was particularly strong in Uruguay, up nearly 30%, reflecting higher activity in both imports and exports, followed by growth in the low teens in Argentina, which continued to benefit from more flexible import regulations and improved macro conditions. Armenia and Italy also posted solid gains, while Brazil and Ecuador showed modest declines. Notably, Argentina, Brazil, and Armenia continue to represent the bulk of activity, together accounting for nearly 80% of total cargo volume in the quarter. Cargo revenues declined 7% year-over-year, primarily reflecting fewer storage days for imported goods in Argentina. However, on an ex-IAS29 basis, cargo revenues were up slightly, supported by better pricing and volume trends in Uruguay. A new cargo business model was implemented in mid-March in Argentina, which has already started to contribute to revenue growth in the second quarter on a year-over-year basis. Looking ahead, we will continue working to enhance our cargo performance across the network, leveraging local opportunities and ensuring we maintain a competitive and efficient cost base. I will now turn the call to Jorge, who will review our financial results. Please go ahead.

Jorge Arruda, CFO

Thank you, Martin, and good day, everyone. Let's start with our top line on Slide 6. Total revenues ex-IFRIC12 increased 6.4% year-on-year or 11.5% on an ex-IAS29 basis. Well above passenger traffic growth despite the impact of local currency devaluations in Brazil and to a lesser extent in Italy on reported revenues in US dollars. Our revenue per passenger remains stable at $20.5 or increased by 3.9% when excluding IAS29. Aeronautical revenues were up 6.8% during the same period or 12.7% when excluding IAS29, mainly supported by the strong performance we saw in Argentina coupled with positive contributions from Uruguay and Ecuador. In local currency, aeronautical revenues at the Brazilian airport increased by 11%. Most notably, in Argentina ex-IAS29, aeronautical revenues grew by over 23%, supported by a 21% year-on-year increase in international traffic. And to a lesser extent, by higher domestic passenger fees due to the tariff increase that took effect in November last year. In contrast, aeronautical revenues in Italy declined despite traffic growth due to increasing marketing support provided to low-cost airlines at Pisa Airport, which is accounted as a deduction from revenue. However, the increased marketing support is generating additional growth in traffic and consequently in commercial revenues. Commercial revenues increased by 6.1% year-over-year or 10.2% excluding the impact of IAS29, primarily driven by higher contributions from parking facilities, VIP lounges, duty-free stores, and other passenger-related revenue streams. Growth was particularly robust in Argentina, which delivered double-digit gains, further underpinned by solid performance in Italy, Uruguay, and Ecuador. In local currency, commercial revenues at Brasília airport increased by 12%. These positive trends were partially offset by lower fuel-related revenues in Armenia, which have lower margins. Turing to Slide 7. Total costs and expenses excluding IFRIC12 were up 17.7% year-over-year. Cost of service rose approximately 16%, driven by higher maintenance expenses in Argentina and increased concession fees in line with higher activity. To note, cost of service in Argentina were significantly impacted by accumulated inflation, outpacing currency depreciation, and tough comparisons against the first quarter of 2024, which did not fully reflect the inflationary impact following the sharp valuation of the peso at the end of 2023. SG&A expenses grew 23%, mainly reflecting higher salaries in Argentina, primarily driven by the aforementioned effect of higher inflation and evaluation. Looking ahead, we remain firmly committed to maintaining strict cost discipline across our operations with a particular focus on Argentina. Furthermore, going forward, we currently do not expect material cost increases on a quarter-over-quarter basis. Moving to profitability on Slide 8. Adjusted EBITDA ex- IFRIC12 reached $156 million down 4.6% year-over-year or up 4% when excluding the impact of IAS29, driven by a 10.5% increase in Argentina. Uruguay reported another consecutive quarter of adjusted EBITDA growth of 3.8% fueled by steady traffic increases and strong commercial performance, particularly in cargo and VIP lounge services. Ecuador delivered solid results underpinned by robust retail and duty-free revenues contributing to the positive momentum across our key markets. Importantly, adjusted EBITDA at Brasília Airport increased 12% in local currency. Adjusted EBITDA margin ex-IFRIC12 was down 4.3 percentage points year-over-year or 2.7 percentage points on an ex-IAS29 basis to 38.2%, mainly impacted by margin contractions in Argentina and Italy. In Argentina, while margin headwinds persisted in the first quarter, we expect improved trends in the coming quarter supported by strong passenger performance and continued growth in commercial revenues combined with normalized cost levels, given the much lower gap between inflation and devaluation and easier comparisons. In Italy, results in the quarter were affected by higher maintenance and energy costs. However, both of them are embedded in the regulatory IRR pursuant to the dual fuel concession regime, and therefore will be compensated through tariff increases. Turning to Slide 9. We closed the quarter with a solid total liquidity position of $524 million, slightly down from $526 million recorded at year-end 2024. Notably, all of our operating subsidiaries reported positive cash flow from operating activities, except for Italy due to the CapEx program at Pisa Airport and Ecuador due to the one-time annual concession fee payment which is due and paid every January. The CapEx in Italy was financed with local borrowing pursuant to the existing syndicated credit facility. Cash used in financing activities reflected debt reductions in Argentina and Ecuador. In Ecuador, we have now fully repaid all outstanding debt. Moving on to debt and maturity profile on Slide 10. Total debt at the end of the quarter stood at $1.1 billion, while net debt declined to $690 million from $780 million in December 2024. Our net leverage ratio remains steady at 1.1 times. In summary, we closed the quarter with a robust balance sheet and healthy debt profile. As we continue to strengthen our liquidity position, our capital allocation strategy remains unchanged. We remain focused on pursuing both organic and inorganic growth opportunities to expand our airport portfolio and deliver value creation to our shareholders. I will now hand the call back to my team who will provide closing remarks and discuss our view for this year.

Martin Eurnekian, CEO

Thank you, Jorge. To wrap up, please turn to Slide 12. We delivered a solid first quarter with all countries posting traffic growth and particularly strong dynamics in Argentina, Italy, and Brazil, excluding Natal. Notably, both Argentina and Uruguay reached record high traffic in January, underscoring the positive momentum in such markets. The strong momentum continued into April with consolidated traffic growing 14% year-over-year, as previously reported. Financially, we maintained a healthy position with liquidity at $524 million and the net leverage steady at 1.1 times. Adjusted EBITDA excluding IAS29 rose 4% year-over-year, supported by strong contributions from Argentina, Uruguay, and Ecuador. On the commercial front, we remain focused on enhancing non-aeronautical revenues. At Ezeiza Airport in Argentina, we inaugurated the most modern VIP lounge in Latin America and are finalizing the expansion of the duty-free area at the airport's arrival terminal, more than doubling its space. In Uruguay, we inaugurated a new covered parking facility at Montevideo Airport, further enhancing the passenger experience and non-aeronautical revenue growth. We are also making progress on strategic fronts. In Argentina, we are advancing negotiations with the government in connection with the revision of the economic equilibrium of the AA2000 concession agreement. In Italy, our Florence master plan received a positive environmental review, while in Armenia we continue to move forward with the $425 million CapEx program. At the same time, we remain focused on expanding our portfolio. Having submitted a proposal in Montenegro and a revised plan in Angola, we are evaluating new opportunities across regions. We also strengthened our new business management team to further enhance our business development capabilities and reinforce our ability to pursue value-advanced growth opportunities. Looking ahead, we expect positive traffic trends to continue in Argentina, supported by strong demand and several new operations recently announced. And we anticipate a strong summer season, both in Italy and Armenia. Before closing, I'd like to highlight several recent accomplishments that underscore the strength of our network and commitment to operational excellence. In Uruguay, Carrasco International Airport was named the best airport in Latin America and the Caribbean in the under 2 million passengers category by ACI's Airport Service Quality Awards based on global passenger feedback. This is the second time Carrasco received this honor, reflecting our focus on delivering a seamless and passenger-centric experience. In Brazil, Brasília Airport was recognized as the most punctual airport in the country and ranked second globally among medium-sized airports with over 88% of flights departing on time. Brasília Airport also ranked number one in passenger satisfaction among Brazilian airports according to the latest survey from the Ministry of Ports and Airports for the first quarter of 2025. In Ecuador, Guayaquil Airport received a prestigious five-star rating from the European Foundation for Quality Management, recognizing the excellence in service quality and organizational performance. This award reflects the dedication of our local teams and reinforces our strategy of delivering best-in-class operations across geographies. Wrapping up, we remain confident in the strength of our portfolio, the discipline of our strategy, and our ability to continue creating value across our network. Operator, please open the line for questions.

Operator, Operator

Thank you, sir. The first question will be from Fernanda Recchia at BTIG. Please go ahead, Fernanda.

Fernanda Recchia, Analyst

Hello, Jorge and Martin. Thank you for taking my question. Two points from our side. First, could you please provide more information regarding the Montenegro proposal that you submitted in May? Maybe if you could comment on the capacity of these airports, the regulatory region, the amount of CapEx that you're planning to do so. And also, you also mentioned that you presented a revised proposal for Angola. If you could give us the updated term of the proposal would be great. This is the first topic. And second on traffic, if you could comment on Argentina. As you mentioned, it has been performing strongly at the beginning of this year. So if you could provide us with your outlook for the upcoming months. We have seen April that continue this performance, but looking forward if you think this is sustainable level. Thank you.

Jorge Arruda, CFO

Thank you for your questions. Regarding Montenegro, we submitted a proposal for the public tender process on May 9th. According to the tender rules, we expect an announcement within 30 days. We hope this will happen without delays. The project involves a 3 million passenger capacity at two airports: the capital, Podgorica, and Tivat, located in the picturesque Kotor Bay. We are enthusiastic about the potential there, as tourism is not very developed, presenting an opportunity for growth. We aim for a mid-teen internal rate of return, and tariffs will be adjusted annually for inflation. We are also optimistic about Montenegro's potential integration into the European community in the mid-term. Regarding Angola, we submitted our proposal some time ago and have moved into the second phase, where we've been asked to clarify and adjust our submission. We are currently preparing this revised proposal. About a month to a month and a half ago, we met with the Rwandan government and expect to submit an updated proposal to them in the coming weeks. As for traffic, we've released our numbers for the quarter in our main markets and have seen continued improvement into April. We anticipate healthy demand in our primary markets, especially in Argentina, both domestically and internationally. As mentioned, several new routes will launch in the upcoming months and quarters, indicating strong demand ahead. Similarly, in Italy and Argentina, WIZZ Airlines has announced new routes and established a base there. In Brazil, traffic is finally picking up, and emerging from Chapter 11 with a healthy balance sheet is promising for our overall traffic outlook. Is there anything else you would like me to address?

Fernanda Recchia, Analyst

No, that's very clear. Jorge. Thank you very much for your answer.

Operator, Operator

Thank you. Next question will be from Alejandro Demichelis at Jefferies. Please go ahead.

Alejandro Demichelis, Analyst

Yes, good morning, gentlemen. Thank you for taking my questions. A couple of questions please. Jorge, you mentioned about your cost controls that you're trying to implement. Now, could you please give us a bit more color on what initiatives are there? Should we expect kind of costs to continue to grow, say, in line with inflation in Argentina or at a different pace? That's the first question. And then the second question is, you mentioned your active discussions with the government in Argentina for the rebalancing of the concession. So are you thinking about the potential changes or the merger between ORSNA and ANAC, the changes that we have seen at the Secretary of Transport? So could those things delay the process that you embark or can we see a further review of the process?

Jorge Arruda, CFO

Thank you for your questions. I want to point out that the difference between inflation and devaluation in this quarter compared to the first quarter of 2024 was substantial. Inflation during this period was around 53%, while devaluation was 25%. Additionally, if we exclude amortization, which is closely related to our capital expenditures and ongoing projects, the figure shifts from 17% to 13%. What we reported shows a 17.7% increase, and without amortization, it’s a 13% increase, which is more in line with the overall passenger growth of about 9.5% and below the international traffic increase in Argentina, which is around 21%. Moving forward, we anticipate more normalized figures and do not foresee any significant changes on a quarter-over-quarter basis in Argentina. Cost control remains a regular part of our operations, and we are confident in our ability to maintain costs despite the considerable growth in international traffic. I also want to mention that we did experience a minor impact on costs in Italy, although it is not significant. This is related to the dual fuel regime and will be addressed through tariff increases in the future. Now, I will hand it over to Martin for further discussion.

Alejandro Demichelis, Analyst

No, I think the cost is clear. Thank you.

Martin Eurnekian, CEO

Thank you Jorge and thank you Alejandro for your questions. I think it's a difficult one. As you know, government bureaucracy is sometimes difficult to predict and usually it takes more time than is initially expected. So we are happy with the process that is being made. I cannot tell you what to expect from the change in the Secretary of Transport. I would assume that it might impact, not significantly, but might have an impact on the speed of the work. But still, being the same government and not being any material change in the environment overall, I don't expect it to be really material. So we need to see and understand what this new secretary wants to do and how it wants to do it and if there are going to be further changes in other authorities of the regulator and so on. But we're not afraid that any of these changes will in the end change the aim or the final decision or work on our concession. But as you said, it might impact on how fast it gets done. So as soon as we have updates, we will keep you our investors posted. But for now, we do not see any significant change and we see the teams working as before.

Alejandro Demichelis, Analyst

Okay. If I can kind of squeeze a bit of a follow-up there. I think in the last update that came from AA2000 there was this discussion about what the actual number could be. So the question is, is there now an agreement on what the actual difference or the actual imbalance of the contract is?

Martin Eurnekian, CEO

This is a work in progress and obviously led by the regulator, not by us. And it also has a confidential character. So in the end, until there is no official documents on this review, it would be probably unwise for us to really comment and give a sense that in the end, may not be exactly what comes out or might be fair. So I'd rather wait a little bit, have the government regulator work on it. And once we have official news, we can share it with everybody.

Operator, Operator

Thank you. Next we will hear from Stephen Trent at Citi. Please go ahead.

Stephen Trent, Analyst

Good morning, gentlemen, and thanks very much for taking my questions. A couple of them were already answered, but if I could circle back a little bit on M&A. I definitely heard some interesting stuff in Montenegro, Angola, et cetera. But maybe I missed it. I did not hear you say much about the Americas and wondering, for example, if the Motiva, the former CCR airports are of any interest to you? Thank you.

Jorge Arruda, CFO

Hi Steve, yeah, I will.

Martin Eurnekian, CEO

Go ahead, Jorge.

Jorge Arruda, CFO

Hi, Steve. Thanks for the question. There is a process happening that is confidential. We are interested in evaluating a large portfolio. There are both positives and challenges involved, and we will keep you updated as we make progress and can share information about the process.

Stephen Trent, Analyst

Appreciate that Jorge, that's very clear. And just kind of a quick follow up also on the M&A side. I recall some time ago that CAAP was possibly going to look at some investments along with an investment fund in the Middle East, I believe in the UAE. Is that something that could still be a conduit for you guys or are you thinking mainly to invest directly in places like Montenegro and elsewhere? Thank you.

Jorge Arruda, CFO

Thanks, Steve. Generally speaking, we have been very active in looking for new opportunities. As we have mentioned, we actually boosted our new business team. We allocated more people to this team and are looking at more opportunities for us including, but not limited to, the Middle East. So yes, the Middle East is included in our target.

Operator, Operator

Thank you. Next question will be from Daniel Harris at Bank of America. Please go ahead.

Unidentified Analyst, Analyst

Good morning, gentlemen. Thank you for taking my questions. I just wanted to ask you one question regarding the expansions in Italy. Can you give us an update on how that stands and the outlook for commencing the expansions? Thank you.

Martin Eurnekian, CEO

Hello. Thank you for your question. Regarding Italy, the process to obtain environmental impact approval is still young and bureaucratic. The team in Italy is dedicated to submitting all necessary documents and comments to the regulatory body. They report that the process is progressing as expected. We've received positive updates on parts of the process that have been successfully completed without any significant issues that could cause delays. However, it remains challenging to determine precise timing. We anticipate having updates by the third quarter, but, like any bureaucratic process, it's hard to set an exact completion date. So far, there have been no significant concerns, and progress is ongoing. Once we have official information, we’ll share it with all investors, and we hope to finalize the process by the third quarter, followed by the immediate start of the works, though it is still subject to the bureaucratic process. We will keep everyone informed as soon as we have updates.

Unidentified Analyst, Analyst

Great, thank you for the color.

Operator, Operator

Thank you. And at this time, it appears we have no further questions. I will turn the call back to Martin.

Martin Eurnekian, CEO

I just wanted to thank everybody for your interest in our company and your participation in the call. I wish you all a great rest of your day and remind you that our team is available at any time to engage with you, respond to any questions that you might have. Have a really good rest of your day. Bye-bye.

Operator, Operator

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you use disconnect your lines.