U.S. markets open in 9 hours 16 minutes

Edited Transcript of CAAP.N earnings conference call or presentation 22-May-20 1:00pm GMT

Q1 2020 Corporacion America Airports SA Earnings Call

May 22, 2020 (Thomson StreetEvents) -- Edited Transcript of Corporacion America Airports SA earnings conference call or presentation Friday, May 22, 2020 at 1:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Gimena Albanesi

Corporación América Airports S.A. - Head of IR & IR Manager

* Martin Francisco Antranik Eurnekian

Corporación América Airports S.A. - CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Chris Dechiario

* Mark Zhang

Oppenheimer & Co. Inc., Research Division - Associate

* Roberta Versiani

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, and welcome to Corporacion America Airports First Quarter 2020 Earnings Conference Call. A slide presentation accompanies today's webcast and is available in the Investors section of Corporación America Airports Investor Relations website at http://investors.corporacionamericaairports.com. (Operator Instructions) As a reminder, this call is being recorded.

At this time, I would like to turn the call over to Gimena Albanesi of Investor Relations. Please go ahead.

--------------------------------------------------------------------------------

Gimena Albanesi, Corporación América Airports S.A. - Head of IR & IR Manager [2]

--------------------------------------------------------------------------------

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. Also with us today are Raul Francos, our Chief Financial Officer; and Jorge Arruda, Head of Finance and M&A. All 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 recent 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 in our 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.

Now let me turn the call over to our CEO, Martin Eurnekian.

--------------------------------------------------------------------------------

Martin Francisco Antranik Eurnekian, Corporación América Airports S.A. - CEO & Director [3]

--------------------------------------------------------------------------------

Thank you, Gimena. Hello, everyone, and welcome to today's call. I wish you and your families are safe. Trends and dynamics, we have seen since the second half of March, are not comparable to anything we have seen before. The COVID-19 outbreak has steadily impacted the travel industry worldwide, leading to an unprecedented situation in which air traffic has dropped to minimum levels in a matter of weeks.

On today's call, I will discuss briefly our key operating and financial highlights for the first quarter, and the most recent trends across our airport network. I will then provide an update of the strategic initiatives we shared with you in our previous call to mitigate the impact of this crisis on our business.

Before I begin, I would like to highlight the significant progress we have achieved over the past few weeks on the balance sheet front to strengthen liquidity. We successfully refinanced nearly 50% of our principal and interest payment for the next 12 months, through a series of transactions that I will cover in more detail later in the presentation.

Now turning to a brief overview of our first quarter results. Passenger traffic fell almost 17%, mainly due to the 45% drop we saw in March, when most of our operations began to see the impact of government shutdown measures. Our top line was significantly impacted by the COVID-19 pandemic. This, coupled with difficult macro conditions in Argentina and FX depreciation, both in Argentina and Brazil, resulted in a year-on-year decline of nearly 17% in revenues ex-IFRIC 12 in the first quarter.

In terms of profitability, as most of our cost and expense reduction initiatives were implemented late March and early April, benefit from these measures did not flow through first quarter results. Therefore, comparable adjusted EBITDA declined 30% to $86 million, with the margin ex-IFRIC 12 contracting to 33% from 39% in the first quarter of 2019. Note that comparable adjusted EBITDA in 2020 excludes a $4.5 million noncash impairment loss in Brazil.

We invested $52 million in CapEx in the quarter, mostly deployed before the outbreak of the COVID-19 pandemic, mainly in works at Ezeiza and Aeroparque Airports in Argentina as well as in Uruguay, Italy and Ecuador. Since then, we have suspended nonessential CapEx to preserve cash, and I will discuss that more in depth shortly. More details in terms of our first quarter 2020 results can be found in our earnings report and the exhibits of this presentation.

Please turn to Slide 4. Beginning in March, governments across our countries of operations, established a series of travel bans and restrictions to contain the spread of the virus. On this slide, you can see the status of each of our operations as of today.

At the moment, in Argentina, Ecuador and Peru, borders are still close with bans on domestic and international flights, and our airports are only operating cargo and repatriation flights. Similarly, in Uruguay, borders are close to commercial passenger traffic. In Argentina, the regulator recently issued a resolution prohibiting airlines to sell air tickets for travel before September 1. In the rest of the countries, borders have not been closed, but we are only operating cargo and domestic flights, except for Armenia, where we also are operating international flights.

Moving on to Slide 5. You can see on the chart, on the left side of the page, preliminary weekly passenger traffic trends for April and May 2020. The full impact of the travel bans, introduced mid-March, drove year-on-year declines of approximately 98% in each of those weeks.

As a reminder, while we usually do not disclose preliminary weekly figures, we are providing these figures on this call to share with you how the COVID-19 pandemic has impacted our business.

On the right side of the slide, we provide an update on the most recent monthly cargo trends. While we continue to see some cargo activity as we are facilitating transportation of medical and essential items to support the continuity of supply chain, cargo was down 56% year-on-year last April. This was driven by all countries, except Uruguay, which benefited from some extraordinary cargo movements that month.

Please turn to Slide 6. In our year-end call, we shared with you our action plan to mitigate the impact of this health crisis. We have been working hard, focusing on 4 key areas, starting with the wellbeing of our employees and passengers. This is our top priority, and we have been working since day 1 to protect them. We have enhanced safety and hygiene protocols across our operations, established remote working, and only essential staff has been working on-premise, with the adequate protective gear.

As restrictions that were put in place as part of the coronavirus response are being reviewed across our countries of operations, we have begun to prepare safety policies to ensure a successful transition back-to-office premise when restrictions are lifted.

A second area of focus is cost control and cash preservation. We already made significant reductions in personnel expenses in Brazil, Uruguay, Italy and Armenia, through layoffs, salary reductions, furloughs and reductions of working hours. In Uruguay, Italy and Armenia, some of our employees, under furlough, are already receiving government unemployment subsidies. In Argentina, we are receiving government assistance to cover a portion of April salaries, representing a monthly relief of $1.2 million. We have applied to receive this relief in May, and are awaiting government approval. The government could eventually further extend this assistance.

We also reviewed maintenance contracts across all our countries of operations, driving significant savings that we expect to see in the second quarter. For instance, in Brasilia, we halted the use of 1 of the 2 runways and closed 1 of the 2 piers to reduce maintenance expenses. To further protect our liquidity, we successfully negotiated with our suppliers the extension of payment terms across the business.

Importantly, starting in April, all capital investments were suspended. Note that the $52 million invested in the first quarter also covers most of the minimum maintenance CapEx plan for the year, so we do not expect to incur an additional significant CapEx in the year. With these cost reduction measures, we expect to obtain a year-on-year reduction of approximately 43% in total cash operating costs and expenses, excluding concession fees, with most of the benefit from the full impact of the majority of these initiatives beginning in the second quarter. This estimated reduction is based on our second quarter 2019 total cash operating costs and expenses.

Please turn to Slide 7. As we anticipated in our previous call, as we navigate this unprecedented crisis, we started discussions with regulatory agencies to renegotiate concession fee payments. To date, we have made progress on this front in Brazil and Italy, and are moving forward with conversations with regulators in Uruguay and Ecuador. As disclosed before, in Brazil, we obtained regulatory approval to defer to December 2020 the variable and fixed concession fee payments that were due in May and July.

More recently, we received the regulatory approval in Italy to defer until January 2021 the semi-annual concession fee payment originally due July 2020. Importantly, the calculation of the amount due will be made based on the actual number of passengers in 2020.

Without losing sight of the mid- and long-term, we continue to work on the review of the re-equilibrium of the concession agreements across our airport network. As a reminder, our concession contracts in Argentina, Italy and Armenia have guaranteed returns. In Brazil and Ecuador, we have concession contracts that contemplate force majeure clauses. In Brazil, we have initiated conversations to begin the process of requesting economic re-equilibrium for the Brasilia and Natal airport concessions. While in Ecuador, we have filed a request to begin an economic re-equilibrium process of the Guayaquil concession. Finally, in Uruguay, we will soon begin the process to request the economic re-equilibrium of the concession as well. As we mentioned in our last call, we are in the initial stages of this process, which requires going through administrative regulatory channels. We will be providing updates over time as they become available.

Turning to Slide 8. We have also made significant progress on the strengthening of our debt profile. Over the past weeks, we have entered into a series of negotiations with our debt holders and banks, and I'm very proud to announce that we have successfully extended almost half of our maturities due over the next 12 months. We deferred a total of $126 million in principal and interest payments.

In Argentina, we have concluded 2 transactions. First, last Wednesday, we completed an exchange offer for our $400 million international notes due 2027, with 86.73% of the principal amount tendered for exchange. This transaction allowed us to defer $60 million in principal and interest payments. We also obtained the waiver of certain debt covenants until November 2021.

Second, we deferred a total of $26.6 million in principal due 2020, in connection with our $120 million credit facility and a $10 million bilateral loan. As a result, in Argentina, we only have a total of $21 million in financial debt due this year.

Please turn to Slide 9. In Uruguay, we also launched an exchange offer for our $200 million notes due 2032, and we have obtained approximately 92% of the principal amount tendered for the exchange at the early participation deadline. With this, we have the option to defer up to $20.5 million in principal and interest payments originally due over the next 18 months. In addition, we deferred a total of $8.7 million in principal payments due 2020, under our local notes. More details on the terms and conditions of these transactions can be found in these slides, our earnings report and recent 6-K filings.

Please turn to Slide 10. We are pleased with our efforts to strengthen liquidity and extend our debt maturity profile. As you can see on the left chart, we had $278 million in principal and interest payments due over the next 12 months. As a result of these debt refinancing initiatives, we reduced significantly our debt maturities, with a total of $149 million now due during this period.

Moving on to our balance sheet and liquidity on Slide 11. We closed the first quarter of 2020 with $173 million in cash and equivalents and the net debt-to-EBITDA ratio of 2.9x. We also had approximately $99 million in treasury bills and time deposits not included in cash and equivalents that provided additional liquidity, if needed.

We have several initiatives underway to preserve our cash and strengthen our liquidity, which I have been sharing with you over this presentation. I am very pleased with the significant progress we made so far. We successfully deferred $129 million in interest and principal payments, originally due over the next 12 months, and canceled all nonessential capital investments. We also implemented significant cost and expense reductions and suspended dividends to third-parties in Italy and Ecuador. Moreover, we obtained additional funding in the first quarter for an amount of $37 million.

Now please turn to Slide 12. As we adapt to the new normal, we are developing customized protocols across our countries of operations to ensure maximum health, safety and comfort for our passengers and employees across our airports. We have established a dedicated team that is working together with the aviation industry and regulators to set and redefine new safety and health protocols. Protocols are also being monitored and will be approved by infectious disease experts.

Our efforts are being adapted to this new environment, implementing measures to minimize the risk of infections of our passengers and employees, while ensuring uninterrupted operations. This includes sanitization and social distance measures, screening and biosecurity control procedures for all passengers entering our airports, and the implementations of digital solutions to reduce contact with airport equipment, while limiting the crowds. We believe the path to recovery will depend on how fast we regain customer confidence to travel by making our passengers feel safe.

Now to wrap up, turn to Slide 13. This unprecedented crisis has severely disrupted the travel industry worldwide, resulting in significant declines in passenger traffic over the last month. The path to recovery still remains uncertain and is dependent on a number of factors, including the successful development of medical treatment or vaccines, government assistance, customer confidence to travel and the evolution of the global economies.

Over the past months, we have rapidly introduced measures to strengthen our financial position. We have refinanced our debt in Argentina and Uruguay, extending maturities and enhancing flexibility. We made significant progress on protecting our liquidity by reducing costs, limiting CapEx, while we continue to work on obtaining additional funding. At the same time, we started negotiations with regulators to review economic re-equilibrium of concession agreements.

Despite the overall uncertainty surrounding COVID-19, the situation is very fluid. For example, in Europe, which was hit earlier by the virus, countries are starting to discuss lifting bans on domestic travel and/or opening borders for original flights in the near-term as well as considering lifting quarantines. This could indicate that we're starting to see the initial signs of a gradual recovery process. With this in mind, we have started building our recovery plan, preparing for a new world and developing the new standards of travel that will be critical to reactivate the travel industry in the near future.

I wish to thank our teams and partners worldwide for all their hard work in this difficult time as we move together in overcoming this unprecedented challenge and begin travel again.

We are now ready to take questions. Operator, please open the line for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question is from Ian Zaffino from Oppenheimer.

--------------------------------------------------------------------------------

Mark Zhang, Oppenheimer & Co. Inc., Research Division - Associate [2]

--------------------------------------------------------------------------------

This is Mark on for Ian. Just quickly on your CapEx spend. Can you guys flush out how much of the $52 million of CapEx in the quarter is maintenance versus expansionary? And then, first of all, can you just give a sense of what's the normal -- what's normal CapEx required for operations going forward? And how much can you potentially take that down by?

--------------------------------------------------------------------------------

Gimena Albanesi, Corporación América Airports S.A. - Head of IR & IR Manager [3]

--------------------------------------------------------------------------------

Mark, sorry. Thank you for the question. We have maintenance CapEx in a minimum right now. In fact, most of our maintenance is usually recorded under operating expenses. So usually maintenance CapEx is minimum for us, although we don't have the breakdown right now of the $52 million that we did in the first quarter.

Just to give you an idea. Most of those $52 million were in Argentina, where you know that we are developing -- have been developing Ezeiza and Aeroparque works and also some work in major of the country as well that are mainly expansion CapEx. So although we don't have the breakdown, this is mainly for expansion, not so much for maintenance.

--------------------------------------------------------------------------------

Mark Zhang, Oppenheimer & Co. Inc., Research Division - Associate [4]

--------------------------------------------------------------------------------

Okay. Got you. And then just another quick one. I believe you guys have mentioned that you started to see signs of recovery. Can you guys share any metrics, maybe better passenger traffic in certain regions? Or what sort of signs of recovery are you guys seeing?

--------------------------------------------------------------------------------

Gimena Albanesi, Corporación América Airports S.A. - Head of IR & IR Manager [5]

--------------------------------------------------------------------------------

Sure, Mark. So as you know the situation is very uncertain. Still, you know that the COVID-19 pandemic has hit our industry the most. And we have started to see some initial signs of recovery, mainly in Europe, with the countries gradually starting to lift restrictions, including some potential reopening of borders. So this could indicate that we're starting to see some recovery, although, as I said, the situation remains uncertain. And as of today, we are not able to provide an estimation of how long the situation will remain as it is today, or an estimation of a recovery in the next few months.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question is from Chris Dechiario from Marathon Asset Management.

--------------------------------------------------------------------------------

Chris Dechiario, [7]

--------------------------------------------------------------------------------

I guess just 2 things. Is it possible to give us an idea of sort of what like monthly cash burn you have, given this current situation where you're 98% reduction in passengers? Just sort of how -- if we can just sort of get this general sense of what the monthly cash burn is now? I expect it to, obviously, be reducing as traffic comes back. But that would be helpful, if you can, number one. And then number two, although I don't expect there have been -- has been much progress on this, given the sovereign restructuring and the coronavirus issues and everything else, just curious if there's any progress made on talks about extending the concession in Argentina?

--------------------------------------------------------------------------------

Gimena Albanesi, Corporación América Airports S.A. - Head of IR & IR Manager [8]

--------------------------------------------------------------------------------

Sure, Chris. So let me take the first question regarding cash burn. As you know, April for us was the first month where we had a full impact in all of our countries with COVID-19. So as we discussed, during the call, we acted rapidly. We started to bring several initiatives on cost reductions, mainly on maintenance, salaries and so on. So for -- an estimated cash burn for April is around roughly $14 million, according to our most recent estimate.

And so, as I said, this was during the first months with full impact of the decline activity as well as our measures for cash preservation.

I will hand over to Martin for the second question.

--------------------------------------------------------------------------------

Martin Francisco Antranik Eurnekian, Corporación América Airports S.A. - CEO & Director [9]

--------------------------------------------------------------------------------

Thank you, Gimena. And thank you for the question, Chris. Well, regarding the extension, as we've been saying before, this contract has every ingredient to be ready to have the discussion with the government they've had before this huge crisis. And we believe that, given what is going on now, it becomes even more obvious the need for the extension of the contract.

Having said that, we really hope to begin negotiations with the government as soon as possible. But given the quarantines and the priorities that have shifted towards the crisis, that has not happened yet, but we hope to begin as soon as possible.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

(Operator Instructions) At this time, we have no questions, so we will conclude our question-and-answer session. I would now like to turn the conference back over to Martin Eurnekian for closing remarks. Go ahead.

I'm sorry. There's another question.

--------------------------------------------------------------------------------

Martin Francisco Antranik Eurnekian, Corporación América Airports S.A. - CEO & Director [11]

--------------------------------------------------------------------------------

Well, I'd like to...

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

There's a question. I'm sorry. It just came up.

--------------------------------------------------------------------------------

Martin Francisco Antranik Eurnekian, Corporación América Airports S.A. - CEO & Director [13]

--------------------------------------------------------------------------------

Okay. Please go ahead.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

There's a question from Roberta Versiani from Citibank.

--------------------------------------------------------------------------------

Roberta Versiani, [15]

--------------------------------------------------------------------------------

Sorry, I'm dialing from Skype, so I couldn't press for what type. Just a quick question. Are any government suggesting some level of financial support beyond the deferral of the concession payment? And just double-checking, you said $14 million for cash burn in April, right? Just double-checking.

--------------------------------------------------------------------------------

Gimena Albanesi, Corporación América Airports S.A. - Head of IR & IR Manager [16]

--------------------------------------------------------------------------------

Thank you, Roberta, for the questions. Correct. The cash burn for Italy is 14, 1-4, million. This is a monthly estimated cash burn.

Regarding the support from government, I would say that what we have already in place is the referral of concession fees in both Brazil and Italy. We are in discussion also for the deferral of concession fees in Uruguay and also Ecuador. And that is what we have so far already implemented in kind of payments. We are also requesting some financial relief in Argentina through these grants for the government implemented for companies to support wages. In Italy, we're moving forward also with some specific relief measures for the industry, although that is not in place yet. We will let you know as soon as we have something on those fronts.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

At this time, we have no questions. So we will conclude our question-and-answer session. I would like to turn the conference back over to Martin Eurnekian for closing remarks. Go ahead.

--------------------------------------------------------------------------------

Martin Francisco Antranik Eurnekian, Corporación América Airports S.A. - CEO & Director [18]

--------------------------------------------------------------------------------

I'd like to thank everybody for joining us today. We really appreciate your interest in our company. We look forward to providing updates on our business and initiatives as they become available.

In the meantime, the team remains available to answer any questions that you may have. Thank you, everybody. Bye.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

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