Corporation America Airports (CAAP) has exhibited a stable financial performance in the second quarter of 2024, despite a slight drop in passenger traffic. The company's revenue per passenger saw a notable increase, and its diverse geographical presence has played a key role in counterbalancing market difficulties, particularly in Argentina and Brazil. With total revenues holding steady and a significant rise in per-passenger revenue, the company's adaptability to market conditions is evident.
Key Takeaways
- Total (EPA:TTEF) revenues remained stable with a 9% increase in revenue per passenger to $20.1.
- Passenger traffic decreased by 5% overall, with Italy and Uruguay posting growth against declines in Argentina, Brazil, and Ecuador.
- Adjusted EBITDA ex IFRIC 12 saw a 9% decrease to $136 million.
- Costs went up by 6% mainly due to inflation in Argentina, yet the company maintained strong liquidity at $549 million.
- The net leverage ratio hit a record low at 1.1 times.
- Ongoing negotiations for a €400 million CapEx plan in Armenia and a new master plan for Florence Airport.
- Positive trends are expected to continue in Uruguay and Italy, with financial discipline remaining a core focus.
Company Outlook
- Corporation America Airports anticipates positive market dynamics in Uruguay and Italy to persist.
- Soft domestic traffic is expected in Argentina due to the ongoing recession.
- The company remains committed to financial discipline and enhancing shareholder value.
Bearish Highlights
- Passenger traffic in Argentina suffered due to a 19% decrease in domestic travel.
- Brazil and Ecuador faced traffic declines because of airline restrictions and market exits.
Bullish Highlights
- Italy experienced a 14% rise in passenger traffic, with a 17% increase in international traffic.
- Uruguay saw an 11% increase in traffic, thanks to the introduction of new routes.
Misses
- The company's adjusted EBITDA ex IFRIC 12 dropped by 9% to $136 million.
- Total costs rose by 6% year-over-year, largely due to inflationary pressures in Argentina.
Q&A Highlights
- CEO Martin Ermekian emphasized the benefit of operating in multiple countries, which helped offset weaker traffic in Argentina.
- CFO Jorge Pura highlighted the company's growth in revenue per passenger, strong cash flow, and a robust balance sheet.
- CEO Martin Ermekian discussed the positive impact of Argentina's strengthened aviation agreements on regional and local airlines.
Full transcript - Corporacion America Airports (NYSE:CAAP) Q2 2024:
Conference Operator: Good morning, and welcome to the Corporation America Airports Second Quarter 2024 Conference Call. A slide presentation accompanies today's webcast and is available in the Investors section of the company's website. At this time, I would like to turn the conference over to Patricio Inaki Esnaola, Head of Investor Relations. Please go ahead.
Patricio Inaki Esnaola, Head of Investor Relations, Corporation America Airports: Thank you. Good morning, everyone, and thank you for joining us today. Speaking during today's call will be Martina Henrikian, our Chief Executive Officer and Jorge Pura, our Chief Financial Officer. Before we proceed, I would like to make the following Safe Harbor statements. Today's call may 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. Please note that throughout this call, all references to revenues, costs, adjusted EBITDA and margin you refer to figures excluding IFRIC 12. I will now turn the call over to our CEO, Martin Ermekian.
Martin Ermekian, Chief Executive Officer, Corporation America Airports: Thank you, Inaki. Hello, everyone, and welcome to our Q2 2024 Earnings Call. I will begin today's presentation with some key highlights from our Q2 performance. After that, I will turn it over to Jorge for a more detailed financial review, and then we will open the floor for questions. Our business is supported by having a diversified geographic portfolio.
By operating in a variety of countries globally, we were able to mitigate weaker domestic traffic in Argentina impacted by the challenging macro backdrop in the country, as well as aircraft constraints in Brazil, which resulted in less number of flights. As a result, revenues remain resilient despite the mid single digit year on year decline in traffic when adjusting for the discontinuation of the Natal airport concession earlier in the year. Revenues per passenger ex IFRIC 12 expanded 9% year over year, outpacing revenue growth underscoring our ability to adapt to challenging market dynamics. And Jorge will discuss this more in detail shortly. EBITDA ex IFRIC 12 declined 9% year over year, largely due to the macroeconomic challenges that Argentina is facing, which affected our domestic traffic and operational costs.
Moreover, duty free sales were lower this year as last year's figures were artificially high due to the gap between the official FX rate and the parallel one. By contrast, our robust results in Italy and Uruguay emphasized the strength and resilience of our operations in those markets. Furthermore, our strong cash flow generation and solid balance sheet with a record low leverage ratio demonstrate our commitment to sustaining financial stability while maintaining the flexibility needed to support growth initiatives. Now moving on to Page 4 for a review of passenger traffic trends. Total passenger traffic in the quarter was negatively impacted by weak demand from domestic travel in Argentina as the market was challenging for reasons I just mentioned.
By contrast, international traffic in Argentina continued to perform well, further supported by continued expansion in traffic in Italy and in Uruguay. On a comparable basis and excluding Natal Airport, a concession we exited in February as previously disclosed, passenger traffic declined 5% year on year, driven by a 15% contraction in domestic traffic, mainly driven by Argentina, while international traffic increased 8% in the period. Now discussing year on year trends by country of operations. In Italy, we saw steady passenger traffic growth, up 14% year on year. This positive performance was mainly due to a 17% rise in international traffic and mid single digit growth in domestic traffic.
This positive trend continued into July, benefiting from the summer season with traffic growing 5.5% versus the same month of last year. In Uruguay, the opening of new routes and frequencies by JetSmart and Sky Airlines in May contributed to the 11% increase in traffic in the quarter. This positive trend extended into July with traffic growing 15% year on year. In Argentina, international traffic was up 9% in the quarter, driven by the resumption of more routes and frequencies. This very good performance, however, was more than offset by a contraction of 19% in domestic traffic.
In addition to facing difficult comps as last year's travel benefited from the pre vieja government incentives to boost local tourism. Domestic traffic was also impacted by the temporary suspension of several routes and trade cancellations as the recessionary environment dampened demand for travel. As a reminder, while domestic traffic comprises around 2 thirds of total traffic in the country, over 90% of passenger use fees are generated by international traffic and are fully linked to U. S. Dollars.
In July, we saw an improved performance with international traffic growing 14% and domestic traffic declining 12%. Traffic in Armenia remained largely flat declining in the low single digits as the market continues to face very strong comps versus last year. In July, total traffic decreased by 2% year on year. In Ecuador, total traffic declined by mid single digits. International traffic growth of 4% was more than offset by a decline of 13% in domestic travel following the exit of a local airline in October last year.
This trend continued into July with the total traffic declining 5% year on year. In Brazil, as mentioned, traffic flow continues to be significantly impacted by financial and aircraft limitation in one of the local airlines, causing a lack of supply. This dynamic resulted in a 3% decline in passenger traffic when excluding Natal Airport. In July, we saw an improved performance with transit passenger traffic growing 15% and domestic traffic decreasing 5%, excluding Natal. Turning to Slide 5.
Cargo volumes continued the sustained recovery trend increasing in the mid single digit year on year. Argentina, Ecuador and Armenia, which accounted for over 70% of cargo volumes remain the main driver behind this good performance, while Italy and Uruguay posted slight declines. However, despite the volume growth, cargo revenues declined 13% year on year, primarily due to lower revenues in Argentina. This decline was caused by a reduction in the number of days that cargo remains stored. I will now hand off the call to Jorge, who will review our financial results.
Please go ahead.
Jorge Pura, Chief Financial Officer, Corporation America Airports: Thank you, Martin, and good day, everyone. Let's start with our top line on Slide 6. Total revenues ex ECL12 were stable year on year despite the lower passenger traffic as aeronautical revenue growth was offset by the decline in the commercial segment. Our nonautical revenues were up 3% year on year, mainly driven by higher international passenger traffic in Italy, Uruguay and Argentina and tariffs increase in Uruguay and Ecuador. As a reminder, the majority of our Aeronautical revenues in Argentina is derived from the international traffic.
Moreover, Aeronautical revenue in Uruguay and Italy delivered double digit year on year growth in the Q2 of 2024 benefiting from the consistent positive momentum in those geographies. Commercial revenues decreased 3% year on year, mainly impacted by lower cargo and duty free revenues in Argentina and lower fuel revenues in Armenia. As anticipated in our Q1 2024 earnings call, the duty free business in Argentina was impacted by the December 2023 peso devaluation. This was partially offset by higher revenues from VIP lounges, advertisement and rental space with strong performance in Italy, Uruguay and Brazil. In summary, leveraging on CAPP geographically diverse portfolio, our revenue per passenger, exifig 12 increased 9% to $20.1 this quarter, up from $18.5 in the Q2 of 2023.
Turning to Slide 7. Total cost and expenses ex IFRIC 12 increased 6% year on year, mainly reflecting inflationary pressures in Argentina as the local inflation rate was above currency devaluation. As a reminder, around 60% of total costs in Argentina are peso denominated. Regarding specific cost items, we experienced higher maintenance expenses together with higher services and fees. Importantly, we remain focused on keeping stringent cost controls in Argentina consistent with our commitment to maintain a streamlined cost structure.
Moving on to profitability on Slide 8. Adjusted EBITDA exifreeq 12 was $136,000,000 a 9% year on year decline, mainly explained by the performance we saw in Argentina. This was partially offset by another quarter of double digit growth in adjusted EBITDA in both Italy and Uruguay. We are very encouraged by the ongoing momentum in these two countries and the corresponding financial performance, which included solid margin expansion during the quarter. Turning to Slide 9.
Underpinned by our strong cash flow generation, we closed the quarter with a total liquidity position of $549,000,000 up 91 $1,000,000 when compared to year end 2023, with all of our operating subsidiaries reporting positive cash flow from operating activities during the first half of the year except Ecuador. Moving on to the debt and maturity profile on Slide 10. Our net leverage ratio stood at 1.1 times at quarterend, down from 1 point 4 times at year end and 1.2 times as of March 2024. The reduction in net leverage resulted from the amortization of scheduled principal payments, early redemptions in Argentina and Armenia as well as cash generation. In Italy, we successfully refinance all our outstanding debt into 1 single facility.
This allowed us to extend the average life of our debt while raising additional funds of EUR 60,000,000 for our CapEx program at Pisa Airport. Wrapping up on Mayan, I would like to underscore the strength and resilience of our business. We achieved high single digit growth in revenue per fab, strong cash flow generation and we continue to maintain a robust balance sheet and healthy debt profile. We are accomplishing all of these even as we continue to face some headwinds mentioned earlier. I will now turn the call back to Martin, who will provide closing remarks and discuss our view for the remainder of the year.
Martin Ermekian, Chief Executive Officer, Corporation America Airports: Before opening the line for questions, please turn to Slide 12 to wrap our prepared remarks. Revenues remained resilient despite the mid single digit decline in comparable traffic as our geographic diversification mitigated the challenging macro conditions in Argentina and aircraft constraints in Brazil. We are also pleased to see revenue per passenger outpaced revenue growth underscoring our ability to adapt to challenging market dynamics. While EBITDA ex FX 12 declined, solid cash flow generation further strengthened our balance sheet. We achieved another record low net leverage ratio demonstrating our commitment to financial discipline.
On the strategic growth front, we are actively negotiating a new EUR 400,000,000 CapEx plan with the Armenian government and seeking approval for the new master plan for Florence Airport in Italy. Additionally, we are assessing expansion projects across various geographies in line with our strategic roadmap to pursue value creation. Looking ahead on the operations front, we expect the positive dynamics in Uruguay and Italy to continue throughout the year. In Argentina, we expect domestic traffic to remain soft, impacted by the persisting recession, although we are pleased to see slight better traffic figures in July. Moreover, Argentina has strengthened its regulatory framework through recent open sites bilateral agreements with Brazil, Chile, Ecuador, Peru, Uruguay, Panama, Canada and Paraguay.
These agreements are designed to enhance the flexibility and inject greater dynamism into the countries' aeronautical activities. While in the financial front, we remain committed to delivering strong results, maintaining a healthy balance sheet and creating value for our shareholders. By doing so, we have the financial flexibility to support our growth initiatives. Thank you for your continued support and confidence in our company. This ends our prepared remarks.
We are ready to take your questions. Operator, please open the line for questions.
Conference Operator: Thank you. Your first question comes from Adirantra Dimitchelli from Jefferies. Please go ahead.
Adirantra Dimitchelli, Analyst, Jefferies: Yes. Good morning, guys. Thank you very much for taking my questions. Two questions, if I may, please. The first one, Martin, maybe you can update on how you see discussions with the different airlines regarding potential new routes into the country or higher frequencies now that the deregulation of the sector has accelerated?
And then the second question is maybe for Jorge, is how you see the development of the cost base, particularly in Argentina, for the rest of the year?
Martin Ermekian, Chief Executive Officer, Corporation America Airports: Thank you, Valjano, for your question. And regarding the effects on traffic of the deregulation that the government is pursuing. And moreover, the amount of bilateral agreements opening the skies of Argentina to other countries, we are very, very positive. There are many studies demonstrating that in short, medium and long term, this has very deep effects on the healthy growth in traffic numbers. So this is what we expect.
It's probably not going to happen one day to the next because airlines have to understand and adapt and have the availability of aircraft to do this. But the amount of flexibility that this gives to regional and local airlines to tap on the Argentina market, we think it's very positive news and that is not only short term news, but also for the medium and long term.
Unidentified Participant: Okay. Thank you.
Jorge, Chief Financial Officer, Corporation America Airports: Okay. So on the cost front and I guess your question was targeted to Argentina. We see the same trend into the Q3 and thereafter softening. Bear in mind that the Q1, we managed to withhold price adjustments on suppliers and among other things and all our cost structure in general. But at some point in time, we had to accept given the inflation environment.
And we saw the same scenario or we are seeing the same scenario into the Q3 and we expect thereafter to soften.
Unidentified Participant: Okay. That's very clear. Thank you.
Conference Operator: Your next question comes from Jay Singh from Citi. Please go ahead.
Stephen Trent (NS:TREN), Analyst, Citi: Hey, thanks for taking my question. Dialing along for Stephen Trent here today. Since one of my other questions has already been answered, I guess the other thing I want to ask was, besides from Nigeria and Armenia, what are the investment opportunities do you see? And did any of them happen to be in conjunction with Dubai?
Jorge, Chief Financial Officer, Corporation America Airports: Thanks. Hi. Thank you for your question. We from in connection with opportunities that are public, we recently submitted a proposal for the Nuwanda Airport in Angola as part of the public tender being carried out by the government and submitted prequalification documents in Saudi Arabia. However, there are a number of other situations we are actively looking at that we will be announcing if and when they become more concrete or official.
Martin Ermekian, Chief Executive Officer, Corporation America Airports: Thanks so much.
Conference Operator: Your next question comes from Fernanda Ritchie from VPG. Please go ahead.
Fernanda Ritchie, Analyst, VPG: Hello. Thank you for taking my question. 2 here from our side. The first one, Jorge Martini, if you could please provide an update on the tariff discussion on Argentina on the domestic side? How is the negotiation for a rebalancing progressing if you have any update on this matter?
And second, if you could please provide an update on the master plan discussion on Italy, it will be very helpful. Thank you.
Martin Ermekian, Chief Executive Officer, Corporation America Airports: Thank you, Fernanda, for your interest in your question. Martin here. Well, on the tariff in Argentina, we expect the domestic tariff to be adjusted soon because it's lagging behind the exchange rate. But we have to also bear in mind that the Board of the regulatory agency was formed not long ago by the government. So we expect to see some adjustment time since the new authorities took over to the actual announcement of the catching up that the domestic tariff has to do in Argentina.
We also expect the rebalancing of the whole economic equilibrium of the concession to be done at some point by this new authority. We are already late on that, but hopefully before the end of the year we would have that exercise done. This is what we expect at least for now. And regarding Italy, we are moving on a tight schedule on a back and forth with questions and documentation with the different agencies and the commission that needs to give the green light in terms of environmental approvals for the master plan to go ahead. We are working on the last round of questions with a deadline for October And then we need to see if there is another round of questions or the agency is ready to wrap up the process with our replies.
But it's an active process and it's moving forward.
Fernanda Ritchie, Analyst, VPG: Thank you. Martin, just to clarify, what you're expecting for the end of this year as just the tariff rebalancing in Argentina or the rebalancing for the whole concession?
Martin Ermekian, Chief Executive Officer, Corporation America Airports: The rebalancing of the economic accretive of the concession will most probably be reflected in tariffs in Argentina and that's what we expect by the end of the year. But prior to that, we expect the regulatory agency to do a required catch up on the domestic tariffs that are lagging behind due to the evaluation in Argentina. And that has to happen in a shorter time than the required working calculations needed to do a rebalancing of the economic equilibrium. So we expect that to happen first.
Fernanda Ritchie, Analyst, VPG: Perfect. Thank you very much.
Martin Ermekian, Chief Executive Officer, Corporation America Airports: Thank you.
Conference Operator: And there are no further questions at this time. I will turn the call back over to the presenters for closing remarks.
Martin Ermekian, Chief Executive Officer, Corporation America Airports: I'd like to thank everybody for your interest in our company and remind you that our Investor Relations team is always available to engage and answer your calls. Thank you very much and have a very nice rest of the day. Bye bye.
Conference Operator: Ladies and gentlemen, this concludes your conference call for today. You may now
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