Business context and reporting period
Corporación América Airports S.A. filed its annual Form 20-F for the fiscal year ended December 31, 2018. The company is a Luxembourg holding company that acquires, develops and operates airport concessions. It operated 52 airports across Argentina, Italy, Brazil, Uruguay, Ecuador, Armenia and Peru, with 81.3 million passengers and 880,579 aircraft movements in 2018. Financial statements are presented in U.S. dollars under IFRS as issued by the IASB and were audited by Price Waterhouse & Co. S.R.L.
The filing is annual rather than a standalone 2018 fourth-quarter report; the source text does not provide separate Q4 financial statements.
Key financial metrics
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Revenue | U.S.$1,426.1 million | U.S.$1,575.2 million | (9.5%) |
| Gross profit | U.S.$454.7 million | U.S.$545.2 million | (16.6%) |
| Operating income | U.S.$299.0 million | U.S.$369.1 million | (19.0%) |
| Income from continuing operations | Loss of U.S.$10.6 million | Income of U.S.$66.9 million | Decline of U.S.$77.5 million |
| Net income | Loss of U.S.$10.6 million | Income of U.S.$66.9 million | Decline of U.S.$77.5 million |
| Adjusted EBITDA | U.S.$445.9 million | U.S.$461.6 million | (3.4%) |
| Adjusted EBITDA excluding construction services | U.S.$443.8 million | U.S.$460.1 million | (3.5%) |
| Cash flow from operating activities | U.S.$191.7 million | Use of U.S.$49.4 million | Improvement of U.S.$241.1 million |
| Cash and cash equivalents | U.S.$244.9 million | U.S.$221.6 million | Increase of U.S.$23.3 million |
| Total borrowings | U.S.$1,126.7 million | U.S.$1,486.4 million | Decrease of U.S.$359.8 million |
| Net borrowings | U.S.$881.8 million | U.S.$1,264.8 million | Decrease of U.S.$383.1 million |
| Total equity | U.S.$1,222.7 million | U.S.$797.1 million | Increase of U.S.$425.6 million |
Calculated margins were approximately 31.9% gross, 21.0% operating and 31.3% Adjusted EBITDA in 2018, compared with approximately 34.6%, 23.4% and 29.3%, respectively, in 2017. Adjusted EBITDA is a non-IFRS measure and should not be viewed as a substitute for IFRS results or cash flow.
- Aeronautical revenue was U.S.$716.2 million, down 6.6%; commercial revenue was U.S.$507.0 million, down 8.7%; and construction service revenue was U.S.$198.4 million, down 20.7%.
- Financial income was U.S.$76.3 million, while financial loss was U.S.$331.1 million. The company also recorded a U.S.$36.5 million inflation adjustment loss following the application of IAS 29.
- Operating cash flow benefited from lower capital expenditures, lower income tax payments and lower Brazilian concession-fee payments following prior-year prepayments.
- Investing cash flow was a use of U.S.$59.2 million. Financing cash flow was a use of U.S.$65.7 million, including substantial debt repayments and IPO-related cash proceeds.
Material changes versus the prior comparable period
- Passenger traffic increased 6.1% to 81.3 million and aircraft movements increased 3.4%, but reported revenue declined because of Argentine peso devaluation, IAS 29 accounting and unfavorable translation effects.
- Argentina revenue declined 17.6% to U.S.$822.7 million and Argentina Adjusted EBITDA declined 12.8% to U.S.$274.8 million. Argentina remained the dominant market, representing 57.7% of consolidated revenue.
- Armenia revenue increased 25.3% to U.S.$118.4 million and Adjusted EBITDA increased 18.6% to U.S.$48.8 million. Italy revenue increased 0.6% and Adjusted EBITDA increased 30.1% to U.S.$38.8 million.
- Brazil revenue declined 4.3% to U.S.$123.2 million and Adjusted EBITDA declined 11.7% to U.S.$14.8 million. Uruguay revenue increased 5.7% to U.S.$116.3 million and Adjusted EBITDA increased 4.7% to U.S.$57.8 million.
- Adjusted EBITDA in Peru improved to a loss of U.S.$5.3 million from a loss of U.S.$15.3 million, while Ecuador Adjusted EBITDA declined 6.8% to U.S.$24.7 million.
- The company completed its IPO in February 2018, issued 11.9 million new shares and received approximately U.S.$185.5 million in net proceeds. It also completed a reverse stock split and increased outstanding shares to 160.0 million.
- CAAP increased its indirect ownership of Toscana Aeroporti to 62.28% through acquisitions, then sold 25% of Corporación América Italia to Investment Corporation of Dubai, leaving CAAP with a 46.71% indirect interest in Toscana Aeroporti.
- The Guayaquil concession was extended by five years to 2029. Uruguay approved an extension of the Punta del Este concession to 2033, but the amendment had not yet been executed as of the filing date.
Guidance, outlook, commentary, risks and unusual items
- Management expects continued investment in airport infrastructure, including approximately U.S.$1.1 billion of additional optional Argentine capital expenditures over the following five years, approximately U.S.$300 million in Italy and approximately U.S.$351.1 million for the Florence Airport plan through 2022.
- Management stated that existing cash, operating cash flows, financing capacity and IPO proceeds were expected to satisfy anticipated cash needs for the foreseeable future, while acknowledging that additional financing may be required for changed conditions, investments or acquisitions.
- CAAP expects Brazilian operations to incur losses for several years because of the accretion of fixed concession-fee liabilities; the related expense was U.S.$86.3 million in 2018 and management expected a similar magnitude in subsequent years.
- The Argentine peso depreciated more than 90% against the U.S. dollar in 2018, while Argentine inflation was reported at 47.6%. Argentina was treated as hyperinflationary under IAS 29 from July 1, 2018, materially affecting comparability and reported U.S.-dollar revenue.
- The AA2000 concession, which generated 57.0% of consolidated revenue in 2018, expires in February 2028. CAAP requested a possible 10-year extension, but approval was uncertain. Since February 2018, the Argentine Government may buy out the concession for public-interest reasons; such an event would trigger acceleration of the U.S.$400 million Argentine Notes.
- Brazilian subsidiaries had substantial economic re-equilibrium claims before ANAC. Most claims had been denied as of the filing date, with remaining amounts under review and potential arbitration or litigation being evaluated.
- CAAP’s principal risks include concession termination or non-renewal, regulatory fee changes, required investment commitments, passenger-traffic declines, inflation and currency depreciation, interest-rate movements, emerging-market political risk, airline concentration, environmental claims, labor disruptions, cybersecurity and anti-corruption investigations.
- In 2018, the company identified four non-material phishing attempts with no reported consequences and stated that it had increased cybersecurity measures.
- The company disclosed Iran-related activity involving Mahan Air flights at Zvartnots Airport. Related aeronautical and fueling revenue was approximately €3.0 million, described as not material; an affiliate reported approximately €0.7 million of handling-service revenue.
- Management and the external auditor concluded that internal control over financial reporting was effective as of December 31, 2018. A prior material weakness related to accounting for subsidiary dispositions had been remediated.
Most important facts for investors to verify
- Reconcile the reported revenue decline and loss to the effects of Argentine devaluation, IAS 29, inflation adjustment and currency translation.
- Review the maturity profile, covenants and security arrangements for the U.S.$1.13 billion of borrowings, including the U.S.$400 million Argentine Notes and Brazilian concession financing.
- Assess liquidity at the operating-subsidiary level, dividend restrictions, concession-fee obligations and the ability to upstream cash to the Luxembourg holding company.
- Monitor the AA2000 extension request, potential Argentine government buyout rights, ORSNA fee and investment-plan reviews, and the impact on the Argentine Notes.
- Track the status and recoverability of the Brazilian ANAC claims, the Peruvian Kuntur Wasi arbitration and related investigations, and Ecuadorian tax proceedings.
- Evaluate execution risk and funding requirements for planned capital expenditures, particularly in Argentina, Florence and Peru.
- Consider the concentration of revenue in Argentina and Ezeiza Airport, as well as exposure to LATAM Airlines Group and Grupo Aerolíneas Argentinas.
- Verify the effect of significant non-controlling interests, including the company’s effective ownership of key Argentine, Brazilian and Italian operating subsidiaries.