Corporación América Airports S. A. (NYSE: CAAP) Third Quarter 2022 Earnings Conference Call November 18, 2022 10:00 a. m. Et
Participating companies
Patricio Esnaola – Head of Investor Relations
Martín Eurnekian – CEO
Jorge Arruda – Chief Financial Officer
Conference Call Participants
Alejandro Demichelis – Nau Securities
Operator
Welcome to Corporación América Airports’ third quarter 2022 earnings convention call. A slideshow accompanies today’s webcast and is available in the Investors segment of the Corporación América Airports website. As a reminder, all participants will be in listen-only mode. Questions will be taken at the end of the presentation.
At this point, I would like to entrust the presentation to Patricio Iñaki Esnaola, Head of Investor Relations.
Patricio Esnaola
Good morning, everyone, and thank you for joining us today. On today’s call, Martin Eurnekian, our Managing Director, will speak; and Jorge Arruda, our CFO. Before we go any further, I’d like to do the following about Safe Harbor. Today’s call will include 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 legal responsibility to update or revise forward-looking emails to reflect new or replaced occasions or circumstances.
Now, let me talk to our CEO, Martin Eurnekian.
Martin Eurnekian
Thanks Inaki. Hello everyone and welcome to our Q3 2022 earnings convention call. We reported a physically strong quarter with continued earnings and a net source of earnings growth, which topped grades on record. Total revenues were up double digits compared to the third quarter of 2019, supported by continued traffic recovery and strong ad revenue growth. Coupled with our continued focus on cargo control, we posted adjusted EBITDA of more than $130 million with positive contributions from all countries of operation. Notably, the adjusted EBITDA margin excluding IFRIC12 was also above pre-COVID grades, emerging to 38% this quarter, from 32% in Q3 2019 and a low of 20% in Q3 last year. For the first nine months of the year, adjusted EBITDA was already $339 million. On the balance sheet front, our leverage ratio continued to decline with net debt to adjusted EBITDA of less than 3x, reflecting strong net debt grades combined with a significant recovery in adjusted EBITDA. Let me also note that last August we also redeemed the remaining notable amounts similar to the preferred shares in AA2000, which totaled almost $40 million. As a reminder, this follows from the mandatory CapEx in Argentina. Finally, as part of our ambitions for progress, we were appointed this month to prepare bidders to manage the Abuja and Kano airports in Nigeria. We have recently been in discussions with government officials regarding the terms of the concession agreements and will update them as we progress.
As shown on slide 4, passenger traffic continues to show a stable recovery all the way through with more than 18 million passengers passing through our airports in the third quarter. Traffic reached 82% of grades for the third quarter of 2019, compared to 76% for the current quarter, reflecting canceled demand and the removal of travel restrictions. We also saw improved functionality on a month-over-month basis in the quarter, with this momentum continuing through October, when traffic was only around 90% of pre-pandemic levels. Armenia continues to lead the recovery with traffic 16% higher than pre-pandemic levels. This review continued into October when traffic increased 26%. We remain attentive to the geopolitical environment of the region. We also registered intelligent functionality in Ecuador, supported via traffic from the United States, Europe and Panama with higher frequencies for foreign and domestic flights. Passenger traffic [exceeded] pre-pandemic levels by 3% and benefited from the airport closure for three weekends in September 2019. This strong functionality continued into October, when traffic increased 8% compared to with October 2019. In Italy, traffic showed a physically powerful sequential expansion improvement, driven by the summer season, reaching 89% of the grades of the third quarter of 2019 and continuing the recovery observed in the last quarter. Traffic in Brazil grew to 91% in the third quarter of 2019 from 76% in the last quarter, and we expect this momentum to continue for the rest of the year. Argentina and Uruguay continued the end of the slow recovery, with passenger traffic reaching 80% and 68% of grades in the third quarter of 2019, respectively. As a reminder, the borders were fully reopened at the beginning of November last year, while in Argentina the old entry and COVID regulations were only fully lifted at the end of August this year.
Looking at slide 5, we also continue to see a sustained recovery in freight, which exceeded 82% of Q3 2019 volumes. Uruguay, Armenia and Italy were particularly strong, surpassing levels in the third quarter of 2019, while Argentina saw a sequential improvement. with cargo volumes reaching 83% of pre-pandemic levels. In particular, revenue per load increased by 43% in the third quarter of 2019, which also reflects revisions implemented last year. I will now pass the call to Jorge, who will review our monetary results. Please George, move on.
Jorge Arruda
Thank you Martin and happy day to all. Starting with our profit on slide 6, IFRIC 12 consistent headline profit performed very well this quarter, surpassing pre-pandemic levels for the first time. Aviation revenue generation increased nearly 130% year-on-year, driven primarily by the continued recovery in passenger traffic across all geographies, reaching 93% grades in Q3 2019. Continued to make a strong contribution to this expansion with earnings aerospace industries that increased in the mid-teens from pre-pandemic grades, as well as Ecuador, which also saw low-single-digit accumulation since the third quarter of 2019. Business profits continued to be the largest contributor to our overall expansion of gains, up 90% year-over-year and up 42% from 2019 degrees. basically explained through an increase in the charging, parking and tax loss service in Argentina and an increase in the refueling service in Armenia. Reflecting those strong results, our revenue consistent with passenger creation increased 30%, from $13. 6 in the third quarter of 2019 to $18. 6 this quarter.
Now let’s move on to our charge design on slide 7. Total prices and operating expenses increased 56% year-on-year, essentially reflecting the strong recovery in advertising activity. However, this accumulation was particularly smaller than the 106% earnings growth. . Compared to 2019, operating and quarter expenses increased by 4%. This was basically due to higher fuel prices in Armenia due to the strong accumulation in fuel sales for the quarter and, to a lesser extent, higher wages in Argentina. , as the local inflation rate was particularly higher than the depreciation of the currency. However, this was partially offset through a reduction in SG expenses.
Turning to slide 9. We ended the quarter with an overall liquidity position of $470 million, compared to $448 million at the end of June 2022. As Martin mentioned, the quarter ended the last expected redemption of our preferred stocks in AA2000. As a reminder, the total amount of $174 million paid for the repurchase of those shares is deducted from our $406 million CapEx program from our AA2000 grant. Moving on to our debt and adulthood profile on slide 10. Total debt at the end of the quarter was $1. 5 million, while our net debt was $1. 1 billion. Driven by the strong functionality of our adjusted EBITDA last quarter, our net debt ratio showed significant improvement this quarter, reducing to 2. 6x compared to 3. 5x in the last quarter. Importantly, our strong monetary effects allow us to continue financing the CapEx program we announced in the past while maintaining strong levels of net debt. We remain committed to maintaining a strong balance sheet and a healthy debt profile that allows us to take advantage of long-term expansion opportunities.
I will now give way to Martin to make our final comments on slide 12.
Martin Eurnekian
Thank you, Jorge To conclude, please go to slide 12. Looking ahead, we expect continued expansion in the number of passengers at our airports. In the short term, we are already seeing construction in demand since the beginning of the summer in South America. We expect this to benefit our performance, as we remain cautious about the overall macroeconomic and geopolitical environment. We are also working on several fronts as we look to drive price creation. First, we remain focused on building new routes to serve our passengers through our airport network. Secondly, this month we obtained the economic reimbursement of our concession in Brazil and we remain focused on advancing the economic rebalancing procedure for our concession in Armenia. Finally, I reiterate that the key detail of our expansion strategy is to selectively expand our airport concessions, and we remain focused on finding opportunities to create attractive prices for our business. Before I close, I would like to note that last week we had a town hall assembly with our smartest executives and key managers across all of our global operations and we took the opportunity to reiterate our ambition to grow our business. our shareholders, employees, consumers and all stakeholders founded on our purpose to unite the global in a simple, inclusive and sustainable way.
With that, I need to thank you all for your attention. We are now in a position to answer your questions. Operator, please open the lines for questions.
Q&A session
Operator
[Operator Instructions] Today’s first comes from Alejandro Demichelis’ lineage of Nau Securities.
Alexander Demichelis
Two queries, if I may, please. Perhaps the first is that you can give us an indication of how you see foreign traffic and seat availability for the upcoming summer season in Argentina. That is the first consultation. And then the question of the moment is, can you give us a concept of how you see the evolution of non-commercial revenue for the group?Because when we look at the third-quarter numbers, if we subtract fuel revenue, then their non-commercial revenue revenue seems to be lower than, say, what we’ve had in the last two quarters. So I’m looking to find out how that evolves.
Jorge Arruda
You may have noticed that we recently released the October figures. And you may have noticed that we continue to see a recovery in all spaces and in Argentina in particular, which was your question. Clearly, the recovery in recent months has been strong, given that the post-pandemic starting point was at incredibly low levels. We expect the recovery to continue at a slower pace, but a recovery to continue. Overall, of course, the challenge will be aircraft availability and airlines’ confidence in continued recovery. But so far or more speaking now, we expect the recovery to continue. As for your current question, I just wanted to clarify. Were you talking about aeronautical profit or advertising profit?
Alexander Demichelis
I mean non-aeronautics, yes.
Jorge Arruda
Not aeronautics, yes. No, again, I think we have noticed a significant improvement in duty free, parking in all spaces and in Argentina, specifically and above all, and refueling. Refueling has a much smaller margin, however, the volume is huge and we have noticed significant construction in Armenia due to the surroundings and traffic dynamics there, especially with Russia. to Armenia, and they want to refuel — they want more fuel in Armenia than before with giant planes.
Alexander Demichelis
What if you can answer the first inquiry about foreign trafficking?The factor is that we have noticed and heard that some airlines are waiting for the return of long-haul flights, for example, British Airways. So, you can simply. . . I don’t know if they have some visibility if you see some of those airline movements.
Jorge Arruda
We see, I mean, we have access several months in advance to our formula in terms of flight availability and flight availability, to buy tickets. And again, we see continued recovery.
Alexander Demichelis
Fine thank you.
Jorge Arruda
I’m not in a position, I mean, if you need to know more about very fast flights, et cetera, we can have a one-on-one meeting and we can give you more data about what’s available. But I think the answer to your inquiry is that we’re seeing continued recovery.
Operator
Thank you [Operator Instructions]. There are no other questions recorded at this time. I would like to pass the lecture to Martin Eurnekian for any final comments. Continue.
Martin Eurnekian
I would like to thank everyone for joining us today. And that the team is available for any follow-up questions or questions you may have. Enjoy the rest of your days. Thanks a lot.
Operator
That concludes the convening of today’s convention. Thank you all for your participation. You can now disconnect your lines.