Corporación América Airports S.A. — FY2019 Form 20-F Summary
Business context and reporting period
This Form 20-F is an annual report for the fiscal year ended December 31, 2019, filed April 8, 2020. It is not a standalone 2019 fourth-quarter filing. CAAP is a Luxembourg holding company that acquires, develops and operates airport concessions across Argentina, Italy, Brazil, Uruguay, Ecuador, Armenia and Peru. The Group operated 52 airports, served 84.2 million passengers and handled 857,913 aircraft movements in 2019. Financial statements are audited and prepared under IFRS in U.S. dollars.
Key financial metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | U.S.$1,558.6 million | U.S.$1,426.1 million | +9.3% |
| Gross profit | U.S.$420.2 million | U.S.$454.7 million | -7.6% |
| Gross margin | 27.0% | 31.9% | Down 4.9 percentage points |
| Operating income | U.S.$223.6 million | U.S.$299.0 million | -25.2% |
| Operating margin | 14.3% | 21.0% | Down 6.7 percentage points |
| Adjusted EBITDA | U.S.$380.7 million | U.S.$445.9 million | -14.6% |
| Adjusted EBITDA margin | 24.4% | 31.3% | Down 6.9 percentage points |
| Loss from continuing operations | U.S.$5.8 million | U.S.$10.6 million | Loss narrowed |
| Net income attributable to parent | U.S.$9.1 million | U.S.$7.1 million | +27.7% |
| Operating cash flow | U.S.$(19.7) million | U.S.$191.7 million | Decrease of U.S.$211.4 million |
| Cash and equivalents | U.S.$195.7 million | U.S.$244.9 million | Down U.S.$49.2 million |
| Total borrowings | U.S.$1,208.3 million | U.S.$1,126.7 million | +7.3% |
| Net borrowings | U.S.$1,012.6 million | U.S.$881.8 million | +14.8% |
| Total equity | U.S.$1,198.6 million | U.S.$1,222.7 million | Down U.S.$24.1 million |
Adjusted EBITDA excluding construction services was U.S.$378.5 million, compared with U.S.$443.8 million in 2018. These are supplemental measures and should not be viewed as substitutes for IFRS operating income or cash flow.
Material changes versus the prior comparable period
- Revenue increased primarily because reported Argentina revenue rose U.S.$112.1 million, while Ecuador and Armenia increased U.S.$20.4 million and U.S.$15.1 million, respectively. The Argentina increase included a positive U.S.$86.9 million impact from IAS 29 hyperinflation accounting.
- Revenue growth was more than offset by a 17.2% increase in cost of services, driven mainly by construction activity in Argentina, Ecuador and Armenia. Construction-service revenue rose 76.5% to U.S.$350.3 million, but construction-service margin remained limited under the IFRIC 12 accounting model.
- Commercial revenue declined 5.0% to U.S.$481.9 million, reflecting lower duty-free, warehouse and parking revenues, particularly in Argentina.
- Operating income declined U.S.$75.3 million. CAAP recorded a U.S.$42.8 million impairment charge related primarily to the Natal Airport concession in Brazil.
- Adjusted EBITDA declined U.S.$65.2 million. Brazil shifted from U.S.$14.8 million of Adjusted EBITDA in 2018 to negative U.S.$22.3 million in 2019, largely because of concession-fee accretion, lower passenger volumes and currency effects.
- Total passengers increased 2.8% to 84.2 million, while aircraft movements decreased 2.6% to 857,913. Brazil passenger traffic declined 6.2%, and Argentina passenger traffic increased 7.5%.
- Operating cash flow turned negative because of higher capital expenditures, particularly in Argentina, and working-capital effects, including higher Brazilian concession-fee payments.
- Capital expenditures were U.S.$372.4 million on a consolidated segment basis, including U.S.$308.3 million in Argentina and U.S.$18.2 million at Guayaquil Airport.
Guidance, outlook, risks, contingencies and unusual items
The filing does not provide formal quantitative earnings guidance. Management expected future results to be materially affected by the COVID-19 pandemic, which had no impact on FY2019 financial performance but caused significant flight restrictions and demand disruption after year-end. Management implemented cost reductions, furloughs, working-capital measures, capital-expenditure deferrals and negotiations with regulators and suppliers. It stated that available resources were expected to fund liquidity needs for the next 12 months, subject to the duration and severity of the pandemic and its effect on operations.
- COVID-19: Travel restrictions, airport closures, lower passenger volumes and airline disruptions were expected to adversely affect revenue, cash flow, liquidity and financial position. The filing states that the ultimate impact could not be reasonably estimated.
- Concentration in Argentina: Argentina generated 60.0% of consolidated revenue in 2019, while the AA2000 concession generated 59.3%. Ezeiza Airport alone generated U.S.$639.9 million, or 41.1% of consolidated revenue.
- AA2000 concession: The concession expires in February 2028, subject to a requested 10-year extension. The Argentine Government may buy out the concession for public-interest reasons. Buy-out or termination would trigger defaults and acceleration under the Argentine Notes and 2019 Credit Facilities; amounts outstanding were U.S.$367.9 million and U.S.$120.0 million, respectively, as reported in the filing.
- Argentina financial environment: The Argentine peso depreciated approximately 58.4% in 2019 and inflation was approximately 53.8%. Foreign-exchange controls may restrict debt payments and dividend transfers. Comparability with 2018 is significantly affected by IAS 29 and currency translation.
- Airline receivables: Aerolíneas Argentinas and Austral had suspended payments and owed AA2000 approximately AR$171.6 million and U.S.$31.7 million, and AR$29.8 million and U.S.$2.9 million, respectively. Allowances were recorded.
- Brazil: CAAP recognized a U.S.$42.8 million impairment on the Natal concession and expected Brazilian concession-fee accretion losses of approximately U.S.$88.4 million annually in the near term. ICASGA requested a Brazilian government re-bidding process for Natal in March 2020.
- Italy: A February 2020 Council of State decision rejected appeals related to the Florence Airport expansion plan, requiring a new environmental-compliance process and creating uncertainty over planned investment and growth.
- Legal and regulatory matters: Significant proceedings include Argentine environmental and tax matters, ORSNA tariff and investment claims, Brazilian economic re-equilibrium claims, a Brazilian tax fine of approximately R$1.3 million, and Peruvian arbitration relating to the terminated Chinchero/Cusco concession.
- Debt and currency risk: Borrowings were U.S.$1.208 billion, including U.S.$460.6 million at variable rates and U.S.$450.4 million denominated in foreign currencies. The Group generally did not hedge currency exposure, although a Brazilian currency swap was entered into in 2019.
- Dividends: No dividends were declared by CAAP for 2019. Dividend capacity depends on subsidiary earnings, cash, legal reserves, foreign-exchange rules and debt covenants.
Important facts an investor should verify
- Reconcile FY2019 revenue growth with the decline in gross margin, operating income, Adjusted EBITDA and operating cash flow.
- Assess the sustainability and cash conversion of construction-service revenue recognized under IFRIC 12.
- Review debt maturities, covenant compliance, subsidiary-level restrictions and exposure to Brazilian concession-fee obligations.
- Monitor the AA2000 extension request, potential government buy-out rights, ORSNA tariff and investment decisions, and related debt acceleration provisions.
- Evaluate the collectability of Aerolíneas Argentinas receivables and the adequacy of the recorded allowance for credit losses.
- Verify the assumptions supporting the U.S.$42.8 million Natal impairment, including passenger growth and the 8.72% discount rate.
- Quantify the post-year-end COVID-19 effects on passenger traffic, concession fees, capital spending, liquidity and debt service; the filing does not provide a reliable quantitative estimate.
- Track the status and potential recoveries from Brazilian re-equilibrium claims and the Peruvian Chinchero arbitration.
- Consider the effect of Argentine inflation, devaluation, capital controls and IAS 29 on reported U.S.-dollar results and comparability.