Corporacion America Airports SA
NYSE:CAAP
Earnings Call Analysis
Q3-2023 Analysis
Corporacion America Airports SA
The company delivered another quarter that not only continued to build on the strong foundation it had set, but also reached new heights. The adjusted EBITDA soared to a record $173 million, a 73% increase from the third quarter of 2019, with an adjusted EBITDA margin ex-IFRIC12 that expanded 8.6 percentage points to 40.9%. Despite a passenger traffic that is still 2% below pre-pandemic levels, the company boasted improved profitability, driven by positive adjusted EBITDA growth across all geographies and higher load factors signifying a sustained demand for travel.
The overall traffic nearly reached pre-pandemic levels at 99%, with international passenger traffic even surpassing the third quarter of 2019 by 5%. Notably, Armenia and Ecuador outshined with significant volume increases over 2019 levels, while Italy, for the first time, joined them with a growth in traffic. This traffic upswing, in tandem with regions like Argentina and Uruguay showing robust recovery numbers, sets a tone of gradual but steady resurgence, weaving a positive narrative for the months that lie ahead.
The aeronautical revenues witnessed a 27% year-on-year increase and a 17% surge above pre-pandemic levels. On the other hand, commercial revenues, which made up 48% of the total ex-IFRIC revenues, experienced a notable 16% year-on-year growth and stood 65% higher than pre-pandemic levels, recording $19 in revenues per tax this quarter, compared to $13.6 in the third quarter of 2019. This exceptional growth in commercial revenues, particularly through higher fuel-related revenues in Armenia and VIP lounges in Brazil, is commendable.
Even with total costs and expenses for the quarter rising by 13% ex-IFRIC12 year-on-year, this paled compared to the 22% growth in revenues and 19% growth in passenger traffic. Significant cost contributors included higher fuel costs in Armenia and higher concession fees and salaries in Argentina, attributable to local inflation rates outpacing currency depreciation. Despite these increments, the company efficiently managed Selling, General and Administrative (SG&A) expenses, which were down by 25% compared to third quarter 2019, underscoring shrewd financial stewardship.
The third quarter closed with the company in a fortified financial state, showing a liquidity position of $558 million, a notable improvement from year-end 2022. This reflects not only the effective cash flow management but also the reduction in net debt to $955 million, down from $1.1 billion. The company's approach towards reducing financial leverage, achieving a ratio of 1.6 times, underpins a strategy focused on sustained growth and profitability.
Looking to the future, the company puts a strong emphasis on strategic negotiations and expansion plans. This includes ongoing talks with the Armenian government regarding a substantial $400 million CapEx program and advancing the approval process for the Florence airport's new master plan. In parallel, the company pursues further expansion of the network with ongoing discussions for concession agreements in Nigeria. These strategic endeavors aim to fortify the company's market position and support future growth opportunities.
With varying but encouraging traffic growth trends across its portfolio, the company remains constructive and positive about the future. It boasts a remarkable year-to-date growth in Armenia and maintains an optimistic view while cautiously monitoring the macroeconomic environment in Argentina amid upcoming elections. Their seasoned experience in navigating through diverse challenges over the years instills confidence in their future performance regardless of possible new governance outcomes.
The company anticipates a two-part indemnification payment related to Natal Airport, with the first installment expected from the government and the subsequent one by Zurich. This is planned to be concluded by the end of the year as the company closely liaises with the government regarding necessary legislative changes to facilitate these payments.
The company has delineated a range for its recurrent CapEx within its airports between $30 million and $32 million, excluding expansion outlays. Additionally, it is on the verge of completing the first tranche of a significant CapEx program in Argentina, with future commitments in Pisa and an ambitious new infrastructure plan for Florence Airport. As with all extensive plans, they await final government approvals. This proactive approach in infrastructure investment is poised to support the company's long-term operational efficiency and growth trajectory.
The company is bracing for potential policy shifts contingent on the outcomes of the Argentine elections. There exists a sentiment of cautious optimism, rooted in historical resilience within the sector, bolstered by the consensus that tourism is integral to Argentina's economic fortitude, which many candidates acknowledge. The company is prepared to engage with any new government, leveraging its past experiences to foster growth in a sector that is on an upswing.
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Good morning, and welcome to the Corporación América Airports Third Quarter Conference Call. A slide presentation accompanies today's webcast and is available in the investors section of Corporación América Airports website. [Operator Instructions] At this time, I would like to turn the call over to Patricio Inaki Esnaola, 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 Martin Eurnekian, our Chief Executive Officer; and Jorge Arruda, our Chief Financial Officer. Before we proceed, I would like to make the Before we proceed, I would like to make the following safe harbor statements. This call will contain forward looking statements and I refer 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 statement to reflect or changed events or circumstances. I would now like to turn the call over to our CEO, Martin Eurnekian.
Thank you, Inaki. Hello, everyone, and welcome to our Third Quarter 2023 Earnings Call. I will start today's call with an overview of key highlights followed by a review of traffic and cargo trends. I will then hand it over to Jorge for an overview of our third quarter financial results.
We delivered another strong quarter with a robust performance across the business. Revenues ex-IFRIC12 increased 37% compared to third quarter 2019 and adjusted EBITDA set another record high at $173 million, up 73% compared to the third quarter of 2019, even with passenger traffic at 2% below prepandemic levels. Adjusted EBITDA margin ex-IFRIC12 expanded 8.6 percentage points to 40.9% as we continue to drive operating gains. This good performance was supported by positive adjusted EBITDA growth across all geographies, reflecting our sustained focus on efficient execution together with the continued recovery in travel demand. In addition, we closed the quarter with a strong balance sheet and a comfortable maturity profile. Our leverage ratio improved further this quarter, achieving an all-time low of 1.6x on the back of higher profitability and a slight reduction in net debt.
We are also making good progress in the execution of our fully funded investment programs in Argentina and Uruguay. Additionally, we continue to work on new airport investment opportunities and remain focused on delivering long-term value to our stakeholders. Please turn to Slide 4 for a discussion on traffic. By September, overall traffic had recovered to 99% of pre-pandemic traffic levels with international passenger traffic surpassing third quarter of 2019 levels by 5%. This performance was supported by a continued recovery in travel demand reflected by higher load factors and the gradual return of client growth and frequencies across all countries of operations. On a geographic basis, traffic volumes in Italy surpassed pre-pandemic levels for the first time in this quarter, while Armenia and Ecuador continued to beat 2019 volumes. In turn, passenger traffic in Argentina and Uruguay remained in line with third quarter of 2019 levels, while traffic in Brazil continues on the path to full recovery. Armenia continues to lead the recovery supported by the entrance of new carriers and increased flight frequencies. Traffic was up 40% year-on-year, meeting pre-pandemic levels for the sixth consecutive quarter. This solid performance continued into October with traffic surpassing pre-pandemic levels by 62%. In Argentina, passenger traffic increased to nearly pre-pandemic levels even as we experienced a minor contraction from the second quarter of 2023, which benefited from PreViaje, a government-sponsored program to boost domestic tourism. Domestic traffic, which accounted for more than 70% of total traffic remained strong, beating pre-pandemic levels by 4% while international passengers recovered to 89% of third quarter of 2019 leverage. In October, total traffic exceeded 2019 levels by 10% with domestic traffic surpassing pre-pandemic numbers and international traffic improving to 96% of 119 volumes. In Ecuador, solid performance in both domestic and international traffic driven mainly by increased frequencies, supported the sustained growth trend in passenger traffic, which was 12% above pre-pandemic levels. Growth continued into October, beating 2019 volumes by 9%. In Uruguay continued to recover with the number of passengers increasing to 94% of third quarter of 2019 levels. This good performance continued into October as passenger traffic surpassed 2019 volumes by 7%. Passenger traffic in Italy beat pre-pandemic levels for the first time up 4% from the third quarter of 2019 volumes, supported by growth in the high teens in international traffic and low single digit in domestic traffic. While some destinations have not yet resumed at Pisa Airport, Florence Airport continued to operate above pre-pandemic levels, increasing in the mid-teens from the third quarter of 2019 levels. In October, traffic exceeded 2019 levels by 6%. Finally, traffic in Brazil was at 94% of pre-pandemic levels compared to 96% in the previous quarter as some local airlines remain impacted by financial and air gas constraints. October traffic was 15% below 2019 levels, still impacted by the aforementioned financial and aircraft constraints. Moving on to cargo on Slide 5. We are pleased to observe a sustained recovery in our cargo business. Volumes were up 13% year-on-year to 93% of pre-pandemic levels compared to 86% in the prior quarter. Cargo revenues in turn were 56% higher than the third quarter of 2019 levels. With all geographies beating pre-pandemic levels, except Brazil, which still remains in a recovery phase. I will now hand off the call to Jorge, who will review our financial results. Please, go ahead.
Thank you, Martin, and good day, everyone. Starting with our top line on Slide 6. As Martin stated, we are pleased with the Third Quarter results. Total revenues execute increased 22% year-on-year and surpass pre-pandemic levels by 37%. The strong trends we have seen throughout the year continued in this quarter in both aeronautical and commercial segments of our business.
Aeronautical revenues were up 27% year-on-year and surpassed pre-pandemic levels by 17% mainly supported by tariff increases and the sustained recovery in passenger traffic across our airport network. Argentina, Armenia, Uruguay and Brazil maintained a strong momentum for Aeronautical revenues up to double digits year-on-year and also when compared to 3 quarter 2019.
Commercial revenues, which accounted for 48% of our total exit revenues in the quarter were up 16% year-on-year and 65% above pre-pandemic levels. The solid growth in cargo revenues in Argentina, higher fuel related revenues in Armenia and VIP lounges in Brazil were the main drivers behind this good performance. Notably, compared to 2019 levels, we have achieved strong commercial revenue growth well above passenger traffic growth resulting in a 40% increase in revenues per tax to $19 this quarter from [ $14.6 ] in the third quarter of 2019. Turning to Slide 7. Total cost and expenses for the quarter increased 13% year-on-year [ exit 3 12] reflecting the sustained growth of our business, but at the same time, remain well below the 22% growth in revenues and 19% growth in passenger traffic. Compared to 2019, total costs and expenses exited 12 were up 18%. The primary factors were higher fuel costs in Armenia due to increased fuel sales, while in Argentina, we experienced higher concession fee site to increase activity and higher salaries as the local inflation rate was above currency depreciation. SG&A expenses increased 9% year-on-year also well below the 22% revenue growth. Compared to third quarter 2019, SG&A was down 25%, mainly reflecting the easier comparison from the impact of bad debt charge of [ $43 ] million in Argentina recorded in the third quarter of 2019. Moving on to profitability on Slide 8. Our robust top line growth, coupled with our strong focus on cost control continue to support improved profitability. As a result, the third quarter 2023 adjusted EBITDA reached $173 million, setting another record and surpassing historical highs achieved in the first 2 quarters of the year. Year-on-year, adjusted EBITDA was up 32%, with strong contributions from Argentina, Armenia and Italy, and the adjusted EBITDA margin exited 12 expanded 3.2 percentage points to 40.9% in this quarter. Compared to 2019 levels, adjusted EBITDA increased 73% or 40% when excluding the bad debt charge recorded in the third quarter of 2019. Turning to Slide 9. We closed the quarter with a total liquidity position of $558 million, up $116 million when compared to year-end 2022, reflecting our sustained strong cash flow generation. Notably, all our operating subsidiaries reported positive cash flow from operating activities in the third quarter. Moving on to debt and maturity profile on Slide 10. Total debt at quarter end was $1.42 billion, while our net debt decreased to $955 million from $1.1 billion at year-end 2022. We closed the quarter with a strong balance sheet and a healthy debt profile with no significant maturities in the next 4 quarters. Consistent with our last quarter, as a result of the continued growth of our adjusted EBITDA and lower debt levels, our net leverage ratio decreased further to 1.6x from 2.4x at December 2022, achieving another all-time loan. In sum, we believe that robust operating and financial results, further reducing our leverage and strengthening our financial position to support future growth opportunities. I will now hand the call back to Martin, who will provide closing remarks and discuss our view for the remainder of the year.
Now wrapping up, please turn to Slide 12. We are pleased to have reported a strong third quarter achieving a new record high adjusted EBITDA and the margin expanded 8.6 percentage points versus the same period of 2019 or 1.1 percentage points when excluding the bad debt charge recorded in the third quarter of 2019. We are achieving these good results, even though traffic volume is still a bit below pre-pandemic levels. Also noteworthy is the considerable increase in revenues per passengers, which increased 40% to $19 this quarter from $13.60 in the third quarter of 2019. Looking ahead, we remain focused on advancing in the negotiations with the government of Armenia regarding a $400 million CapEx program. The approval process for the new master plan at Florence Airport which continue to advance and on receiving the indemnification payment related to the return of Natal Airport within the next few months. We are also focused on expanding our network and making continuous progress with the government of Nigeria regarding the Abuja and Kano concession agreements. In terms of travel dynamics, we remain cautiously optimistic as we are monitoring the macroeconomic environment in Argentina. A concession we have successfully managed across many different cycles and challenges over the past 20 years. We also maintained a positive view on Armenia, Italy, Brazil and Uruguay. On the financial front, we are supported by and benefit from a solid balance sheet and efficient operations in each of our operating subsidiaries. This ends our prepared remarks. We are ready to take your questions. Operator, please open the line for questions.
[Operator Instructions]. Our first question comes from the line of Fernanda Recchia from BTG.
Congrats on the results. Two questions here on our side. First, I wanted to further explore a little bit traffic trends. We saw the traffic has been posting double-digit growth. And as Martin mentioned in its initial mark, Armenia has been the nine month performance. So just wondering if you could provide us some color on the trends that you are anticipating for next year and next month. Maybe if you could give some comments by region, it would be very helpful. And second, I just wanted to get your latest update on the Natal Airport. I know that Martin mentioned that the negotiations are ongoing, but I think that the latest timeline we had was November for the evolution. So just wondering if this timeline is the latest one or if you have any update regarding this.
Fernanda, this is Jorge. Thank you so much for your questions as well as your comments. So regarding traffic trends, as you correctly pointed out, Armenia has been leading the growth. Year-to-date, they are up 53% versus last year. And perhaps, although still growing and still actually relatively good growth, but on the other spectrum within our portfolio is Brazil with plus 10% versus last year. So we remain positive and constructive going forward. We, this year, consider that we are still in the final stages of recovering what we had lost during the COVID. So going ahead, what we expect is a more normal growth, if you will. But we are very constructive and have a very positive feelings in some of our airport portfolios in our company. Armenia being one of them. Toscana, we are very constructive in Brazil. In Argentina, obviously, there are elections upcoming. And we have to wait and see what are going to be the financial measures by the new government, et cetera. But as Martin said, we have gone through many, many crises and always have managed to perform well during the many, many crises that we went through. So in summary, we are constructive. Regarding Natal, the government, and by that, I mean the Ministry of Ports and Airports and the Ministry of Finance requested the necessary amendments, if you will, to the budget law to the Congress to include this indemnification payment. It has been sent several weeks ago to the Congress. It's a normal procedure given the restrictions that exist in the budget law in Brazil. And the government expects within the next few weeks to receive that. And it's within perhaps a week following the receipt of the approval by the Congress of this amendment to the budget. The payment will be made to us and then Zurich would make their part. So in summary, we expect our indemnification payment to be paid in 2 installments, first by the government; and second, by Zurich, within a matter of a few days between one and the other. The minister told me that they expect this process to be concluded by year-end. We'll continue to update the market as we hear from the government.
[Operator Instructions]. We have our next question coming from the line of Stephen Trent from Citi.
Just one for me and then one follow-up as per your rules. Could you refresh my memory on CapEx, where you think the long-term maintenance number is going to be given that your CapEx today is -- seems very low versus historical levels. And two, with runoff elections in Argentina in the pipeline. Are you at this very early stage seeing any kind of major policy differences with respect to airports or aviation of the different candidates?
Stephen, Martin here. I will address your second question first, and then I'll pass it on to Jorge for the second one. So regarding elections in Argentina, it's still very uncertain. Although we are very, very close, I see the uncertain -- the outcome of the elections. And with the outcome also understanding the possible policy changes. So we are looking at this with caution and expecting to engage with where the new government is. If the government remains with official party, most probably, we wouldn't see huge differences from what we've seen so far. If it changes color then we have to understand what the government possible policies are.
We have been in touch with everybody before, but too early to say that we stay on policy shift. We are cautiously optimistic on the outcome of any candidate in the elections for our sector, which is growing a lot. And I think all candidates agree, but tourism is one of the key pillars for Argentina's growth and Argentina's ability to bringing current currency into the country. So we expect any candidate to support permit growth of tourism, which is core for our industry. So I'll pass it on to Jorge now regarding maintanence CapEx going ahead.
Thank you, Martin. Stephen. Thanks for your question, Jorge speaking. So let me let me divide the answer into 2, okay?
First, and I'd like to answer what is the recurring CapEx we see in our portfolio in total? Aside from expansion CapEx. So the CapEx that we have to do from time to time in our airports, outside, again, any expansion, any new terminals, any new runways, et cetera. So the amount is between $30 million and $32 million that we see recurring within our portfolio. Aside from that, we have expansion CapEx or committed CapEx that we have currently. We are in the final stages of Argentina. Out of the first tranche of $406 million, there is $65 million remaining. And then we have the $200 million in $50 million per year in 4 years. So that's Argentina. And then we have Pisa about $45 million to $50 million in Pisa. So aside from that, what we expect to do in the future is the new master planning in Florence Airport for a new terminal, a new runway which is still subject to final approvals by the government, and we expect that we will have within the next 9 months, if you will, and then we will immediately thereafter begin the CapEx program. And in Armenia, which we are negotiating with them. In Pisa, the total amount of CapEx, which, in fact, its public information has been, to a certain extent, widely reported is EUR 400 million of which EUR 150 million would be financed through a grant pursuant scheme that exist for European midsized airports. And in Armenia, once approved, we expect we've seen 4 to 5 years to deploy USD 400 million.
There are no further questions at this time. I'd now like to turn the call back over to Mr. Martin Eurnekian for final closing comments.
I wanted to finalize thanking everybody for joining us today. And reminding you that our team is available for any further questions or discussions. Please enjoy the rest of your day. Thank you very much.
Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.