Good morning and welcome to the Corporación América Airports' fourth quarter 2018 earnings call. A slide presentation accompanies today's webcast and is available in the Investors section of Corporación América Airports Investor Relations website at http://investors.corporacionamericaairports.com.

As a reminder, all participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. As a reminder, today's call is being recorded. And at this time, I would like to turn the call over to Gimena Albanesi of Investor Relations. Please go ahead..

Thank you. Good morning everyone and thank you for joining us today. Speaking during today's call will be Martín Eurnekian, our Chief Executive Officer and Raul Francos, our Chief Financial Officer. Also with us today is Jorge Arruda, Finance and M&A Manager. All will be available for the Q&A session.

Before we proceed, I would like to make the following Safe Harbor statements. Today's call will contain forward-looking statements and I refer you to the forward-looking statements section of our earnings release and reconcilings with the SEC.

We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. I would also like to remind you that following the recent categorization of Argentina as a highly inflationary economy in accordance with IFRS commencing July 2018, we began applying IFRS rule IAS 29.

This rule applies retroactively starting January 1, 2018. For comparison purposes, in addition to presenting as reported results, we are also disclosing the isolated impact of the adoption of Hyperinflation Accounting in Argentina and our results excluding rule IAS 29.

Additional information in connection with the application of rule IAS 29 can be found in our earnings report. Now that for comparison purposes and a better understanding of our underlying performance in our presentation today, we will be discussing results excluding Hyperinflation Accounting in Argentina.

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

Thank you Gimena. Hello everyone and thank you for joining us today. It's a pleasure to welcome you to Corporación América Airports' fourth quarter 2018 earnings conference call. I will begin my presentation with a discussion of the highlights of the quarter and then Raul will take you through our financial results.

Afterwards, I will provide an update on our key business segments and our view for the remainder of the year. We will then open the call to your questions. Starting with slide three.

2018 was a challenging year with travel dynamics and results impacted by the unfavorable macro environments and the sharp devaluation in Argentina, our largest market and to a lesser extent in Brazil.

Beyond these headwinds, we served over 81 million passengers across our airport network, up 6% year-on-year as we continue to add new routes and airlines and began operations at El Palomar, our newer airport targeting low-cost airlines in Argentina.

Excluding inflation accounting, adjusted EBITDA margin ex-IFRIC for the year expanded 190 basis points to almost 37% and adjusted EBITDA increased by low single-digits.

Looking at the fourth quarter specifically, adjusted EBITDA ex-IAS 29 declined almost 19% and margin ex-IFRIC contracted approximately 330 basis points year-on-year impacted by the difficult economic conditions in Argentina as inflation in the country is catching up with currency depreciation reducing the strong operating leverage experienced in the third quarter.

This more than offset the strong performance in other markets. For example, Brazil delivered a nearly 61% increase in comparable adjusted EBITDA excluding one-time items, while Italy reported 40% growth in adjusted EBITDA. These good results were further supported by a majority of our other countries of operations.

With the goal of positioning the company for expected future growth and further enhance the passenger experience, we continued to advance our CapEx program during the year. During the fourth quarter, we made capital investments of nearly $70 million with full year spending reaching $257 million.

Investments were largely focused on our airport infrastructure, mainly in Argentina and Italy. Key investments for the full year included the start of the construction of the new departure terminal and multilevel parking at Ezeiza airport in Argentina expected to begin operations this year and the start of the expansion of Aeroparque airport.

We also undertook the expansion of regional airports including the Jujuy, San Juan, Comodoro Rivadavia and Iguazu airports. In Brazil, on the back of the four new international flights announced by GOL, we made capital investments at our Brasilia Airport to expand the international boarding, baggage claims and duty-free areas.

We also invested in the construction of runway safety areas. Let me take a moment to give you an update on our commercial projects at Brasilia Airport. We have redefined the project originally contemplated for this airport and are now planning a lower capital intensive model.

This new commercial space will be funded and operated by third parties with the airport receiving a percentage of the net operating income of the complex. We have also been busy in Italy. We are particularly pleased with the conclusion of the environmental and urban impact studies and approvals with respect to our expansion plans at Florence Airport.

We are awaiting the final approval by the Ministry of Transport and expect to initiate works in the fourth quarter of 2019. We also started the expansion of the terminal building at Pisa Airport, aiming to accommodate expected passenger growth.

An important event in the year was the agreement we entered into with Investment Corporation of Dubai to jointly identify and develop new opportunities in the airport sector in Italy, Eastern Europe and the Middle East.

Finally, in our other markets, note that we have successfully extended by five years our concession agreement in Ecuador, which we executed last July. Additionally, this month, we extended for another 14 years the concession agreement in Punta del Este in Uruguay. Moving to slide number four.

Traffic growth for the fourth quarter slowed to nearly 4% year-on-year, mainly driven by Argentina negatively impacted by difficult macro conditions and sharp FX volatility as already mentioned. Passenger traffic in Argentina continued to decelerate up to 4% from almost 6% in the third quarter, reflecting the overall slowdown in travel demand.

We also continued to see a mix shift in traffic with more affordable domestic travel up 12% year-on-year, while international traffic declined over 8%. In Brazil, traffic growth decelerated to nearly 3% year-on-year from over 5% in the third quarter. Italy posted a strong performance with traffic up 5% compared to 3% in the prior quarter.

The addition of new routes and airlines drove a pickup in international traffic more than offsetting the softer domestic travel demand. In Uruguay, traffic contracted almost 3% year-on-year as performance remains affected by softer travel demand from Argentina. However, we saw additional improvement from the 5% drop experienced in the prior quarter.

Traffic in Armenia remained strong, up close to 12%, mainly due to the addition of new frequencies to destinations in Russia.

Ecuador continued to post a strong performance with traffic up over 7% reflecting the addition of new routes in the year, while Peru posted a slowdown in traffic growth following the suspension of operations of a low-cost airline. I will now hand off the call to Raul Francos, who will review our operations and financial results.

Please, Raul, go ahead..

Thank you Martín. Good day everyone. As Gimena noted at the beginning of our presentation, for a better understanding of our performance we will discuss our results excluding the impact of hyperinflation in Argentina.

Note, however, that in the fourth quarter 2018, the application of IAS 29 resulted in a positive impact in reported numbers when compared to the previous accounting given that the indexation effect exceeded the translation impact from using the closing exchange rate as opposed to using the average exchange rate for the reporting period.

Starting with the topline on slide five. Total revenue declined close to 13% year-on-year to nearly $363 million and 9% when also excluding construction revenues. Consolidated revenues were impacted by the mix shift from international to domestic traffic as well as lower travel demand in Argentina.

Revenues were also affected by the FX translation impact from the strong currency depreciation of both the Argentine Peso and the Brazilian Real. Aeronautical revenue declined 7%, mainly due to weaker international traffic in Argentina and currency depreciation in Brazil.

By contrast, we are very pleased with the results we are seeing in Ecuador and Armenia posting another quarter of revenue growth.

Finally, in Italy, traffic increase is not entirely reflected in the revenue line, given that again this quarter marketing support expenses are reduced from revenues while in the year ago quarter they were included in SG&A.

Commercial revenue declined 12.4% year-on-year, mainly reflecting lower demand in Argentina and the FX translation impact in both Argentina and Brazil. In local currency, commercial revenues in Brazil increased 15%, benefiting from higher VIP lounge and other passenger revenues together with higher cargo volume.

In Italy, we initiated to enhance our service offering coupled with a higher traffic growth are showing positive results, while Armenia continued to perform well with growth mainly driven by higher fuel demand on prices. Coming to our cost structure on slide six.

This quarter we saw lower cost dilution, particularly in Argentina, our largest market, as inflation is catching up with strong currency depreciation we experienced through the year. The mix shift in revenues from international to domestic also contributed to lower cost dilution.

While cost of services ex-IFRIC 12 declined almost 5% year-on-year as a percentage of revenue, we show an increase of over 300 basis points. This was mainly due to lower labor cost dilution arising from salary increases reflecting both growth in the employees base, mainly in Argentina inflation adjustments as well as higher maintenance cost.

SG&A, in turn, was down slightly over 1% year-on-year, but increased as a percent of revenue, impacted mainly by the increase in bad debt charges in Brazil related to Avianca Brazil receivables, partially offset by lower sales taxes in Argentina. SG&A included one-time items in both quarters.

IPO expenses in the fourth quarter 2017 and the write-off of the commercial project in Brazil due its recent recognition this quarter as Martín just mentioned. Moving on to profitability on slide seven. Adjusted EBITDA ex-IFRIC declined 18.6% to $87 million in the quarter.

Growth in Italy, Armenia and Uruguay was more than offset by the weak performance in Argentina and to a lesser extent in Brazil. In addition, adjusted EBITDA margin ex-IFRIC contracted over 330 basis points to almost 28.1% from 31.4% in the same quarter of last year.

As we anticipated in our last earning call, the strong margin expansion we saw in our previous quarter moderated as inflation is catching up with the currency depreciation in Argentina reducing the benefits from the currency devaluation on costs. In addition, as I mentioned in the previous slide, nonrecurring items in Brazil also impacted the margin.

More details of these nonrecurring items is included in the earning release published this morning. Moving to the bottomline. Despite lower operating results, our net income showed a significant increase due to a positive variance in non-cash foreign exchange gains in Argentina, mainly arising from the U.S.

dollar denominated debt as the Peso appreciated during the quarter. This was partially offset by higher income tax expenses recorded in the quarter. As shown on slide eight, we continue to maintain a healthy balance sheet that provides financial flexibility to continue developing our strategic initiatives.

Total debt at the close of the quarter was relatively stable at $1.1 billion. Our net debt to last 12 months adjusted EBITDA ratio slightly decreased to two times from 2.1 times in the prior quarter.

Importantly, we maintain a conservative maturity profile with around 10% of our debt maturing within the year and an adequate currency mix with about 60% of our debt denominated in U.S. dollar, 20% in Reals and 14% in Euros.

Let me now turn the call back to Martín, who will go over performance at our key business segments and will comment on our outlook..

Thank you Raul. Starting with Argentina on slide nine. Revenues ex-IFRIC declined 16% year-on-year despite the 4% increase in passenger traffic, impacted by several factors. We continue to experience overall slower travel demand along with a mix shift from international to lower priced domestic destinations.

This resulted in a 12% increase in domestic traffic and an 8% drop in international travel. As the country is experiencing challenging macro environment, we are seeing a sustained increase in activities from low-cost airlines.

For example, during the fourth quarter, Norwegian Air Argentina started local operations with five domestic routes while Chilean low-cost carrier JetSmart lunched international operations from El Palomar designated as an international airport last October and FlyBondi added routes to Paraguay and Punta del Este.

At the same time, aeronautical revenues from domestic passengers and a portion of our commercial revenues that are Peso denominated remain affected by the FX translation impact from the sharp Peso depreciation that took place in the third quarter. We are also seeing lower commercial revenues from international passengers, particularly in duty-free.

Revenues were also negatively impacted by the mix shift in cargo volume with higher export activity and the sharp reduction in higher margin imports. Against this backdrop, adjusted Argentine segment EBITDA declined nearly 27% and ex-IFRIC 12 margin contracted approximately 514 basis points to 35.7%.

Differently from the third quarter and as anticipated in our prior earnings call, the impact from higher inflation on cost of services more than offset the benefit from the currency depreciation on our Peso base cost as inflation is catching with the Peso depreciation.

We continued to advance our CapEx program in the country and invested $56 million in Argentina.

Funds were mainly allocated to the construction of new departures terminal building and multilevel parking at the Ezeiza airport, the repavement of the runway and new terminal building at Comodoro Rivadavia airport, the construction of a new terminal buildings in Iguazu and Jujuy airports as well as several other investments across other airports in our concession as I mentioned earlier.

Our CapEx program is targeted to absorb future passenger traffic growth. We continue supporting the Government's Airplane Revolution Plan and plan to invest between $252 million to $300 million this year to be funded with cash flow from operations. This is in line with the CapEx program we are developing closely with the government.

Now please turn to slide 10 for a discussion about Brazil. Total traffic in Brazil increased nearly 3% year-on-year although a slowdown from the prior quarter.

Along with the gradually improving macro environment, growth was supported by the addition of new domestic and international routes opened by GOL in the fourth quarter of 2018, partially compensating the fleet adjustment at the leading Latin American airline and difficulties at the Brazilian airline.

Local currency revenues were up nearly 12% year-on-year, driven by the growth in both aeronautical and commercial revenues. We are very pleased with the good performance in commercial activities resulting from the new commercial agreements and higher cargo volumes.

On a reported basis, however, revenues declined almost 5% impacted by the FX translation effect from the depreciation of the Brazilian Real. Adjusted segment EBITDA, in turn, was down 80% to $2 million with a margin contracting to almost 6% from 27% in the prior year quarter.

This was mainly due to nearly $4 million bad debt charge in connection with a Brazilian carrier and $3 million write-off resulting from our decision to no longer deploy capital to construct the new commercial area at Brasilia Airport and instead develop a lower risk model as I explained earlier. This was partially offset by lower SG&A.

We invested over $4 million during the quarter for the expansion of the international boarding areas together with the construction of runway safety areas and engineering project at Brasilia Airport. Now moving to Italy on slide 11. Traffic trends remained strong, up 5% year-on-year driven by international traffic growth.

Comparable revenues ex-IFRIC and excluding marketing support expenses remained flat in the quarter. We posted a good performance at our new retail and duty-free stores at Florence Airport as well as higher car rental revenues from new areas opened in November.

Adjusted segment EBITDA was up an impressive 40% and adjusted segment EBITDA margin ex-IFRIC expanded by over 526 basis points to 16.6% in the quarter. We invested over $7 million in the quarter mainly for the expansion of the terminal at Pisa Airport and master plan development at Florence Airport.

Now that we have concluded the environmental and urban impact studies, we expect to obtain final approval in the next few months and to start construction of the Florence Airport expansion in the fourth quarter of 2019. Now please turn to slide 12.

To wrap up our presentation, while 2018 was a challenging year marked by significant macro and FX volatility in Argentina and to a lesser extent in Brazil which impacted our results, we continued to make progress on our strategic initiatives, further strengthening our airport platform for when the macro environment improves.

Looking to the current year, we expect travel trends in Argentina to remain impacted by the difficult economic dynamics in the country, in addition to the added uncertainty of this being a presidential election year.

While we expect the macro backdrop to improve gradually in the second half of the year, given the lag between the purchase decision and the actual travel date and overall pickup in international traffic trends in Argentina is anticipated to flow into our results in early 2020.

Domestic travel is expected to continue to improve throughout the year as connectivity continues to increase in the country.

We also expect to see an ongoing gradual pickup in inbound international traffic as traveling to Argentina becomes more affordable on the back of the weak Peso, but not fully offsetting the follow-up in outgoing traffic by locals.

Taking these factors into account, we expect to see a single digit increase in total passenger traffic growth in Argentina for the year. By contrast, in Brazil, we expect to see the economy continue its improving trend with traffic growth continuing throughout the year.

This is mainly the case for international passenger traffic, which is benefiting from the recent opening of international routes. We see a similar positive trend in Italy, complemented by solid traffic trends in our other markets.

We remain fully committed to elevating the travel experience across all our airports, developing new routes and frequencies, while continuing to establish infrastructure mainly in Argentina and Italy and further strengthening our global platform for long term success. This is the end of our prepared remarks. We are now ready to take questions.

Operator, please open the line for questions..

[Operator Instructions]. And our first question today comes from Roberto Otero with Bank of America. Please go ahead..

Hi gentlemen. Actually, this is Pedro here. Thanks for taking my question. I have one quick question from our side and have more follow-ups on AA2000.

Could you give us any update on the ongoing negotiation with the government regarding the concession's 10 years extension? I mean, in your view, how should the upcoming election in part impact your renegotiation, right? And if you could give us a sense of timing, should we expect any final terms happening still in 2019? Or maybe it will be more conservative to assume this happening all in 2020 onwards? That's my question.

Thanks..

Hello. This is Martín and again thank you for your question. It would be difficult for me to give you an idea on when the government will be ready. We are engaging with them as often as possible to understand when can we officially launch a negotiation.

To be honest, the fact that we have entered the election mode in Argentina has, at least in our perception, shifted the administration's priorities in terms of what they need to achieve because, as you probably understand, everybody goes into election mode once we start getting closer to the primaries and presidential elections.

So this is the feel that I can give you. Although not impossible to do a negotiation this year, I think that the fact that everybody is focusing on elections puts a little bit of strain in that possibility of being able to really close before the end of the year..

All right, Martín. Thanks for responding my question..

And our next question comes from Ian Zaffino with Oppenheimer. Please go ahead with your question..

Hi. Good morning guys. This is Mark on for Ian. Thanks for taking our question.

So if you guys could provide a little bit more detail on sort of the time line of the capital spend particularly at AA2000 would be much appreciated? So just a couple, can you give us, I guess like potentially give us a sense of when Ezeiza will open in 2019? Or just like first half or second half event? And what's sort of the time line on the Aeroparque expansion, that will be much appreciated? Thank you..

Okay. We have an inauguration set, Mark, for this year, Ezeiza being the main one. As of today, the set date for inauguration of the new terminal in Ezeiza is the end of September. But that will be fine-tuned with the group that is doing the actual CapEx and the government as well.

For the rest, we have a calendar for opening of the works that we have been doing so far and we can definitely provide that to you, but it will be publicly announced each time we decide on exact date for the openings that we have this year..

Okay. Terrific. That's very helpful. Okay. Great. Thank you guys very much..

[Operator Instructions]. And our next question comes from Bruno Amorim with Goldman Sachs. Please go ahead..

Yes. Hi. Good morning. I have two questions.

So the first one is, out of the additional $1 billion in CapEx expected to be included in the concession agreement in Argentina, how much have you already done so far? And also, has the regulator recognized or authorized this investment? Or is it something to be discussed only when the additional $1 billion is approved by the regulator? And the second question is, when should we expect to see the next tariff revision in Argentina? Is this negotiation tied with the discussion around concession renewal and additional investments for $1 billion? Or are those separate discussions? Could we see tariffs being adjusted before the final decision on the extension? So those are my two questions, please..

Thank you. First, the two things are totally separate. According to our current contract, the tariff revision should be done yearly. The regulator is a little bit late. As far as we know and for the interaction we have, they are getting ready to finish the exercise to be able to publish it. It's not a negotiation.

They have to run the numbers and do the adjustments. So it's not linked to any negotiation or anything else whatsoever. Regarding the CapEx question, as the discussion we are having end of 2018, we were either at the number agreed in the concession contract in terms of total CapEx for the concession or a little bit or slightly beyond that number.

So for 2018, that is a fact. For 2019 is where we are going beyond that number. But everything we do is approved by the regulator and taken into account into the regulatory [accounting] [ph] in the concession contract..

Very clear. Thank you very much..

And this will conclude our question-and-answer session. I would like to turn the conference back over to Martín Eurnekian for any closing remarks..

Well, thank you very much for joining us today. We really appreciate your interest in our company. We look forward to meeting more of you over the coming months and providing financial and business updates in the next quarter. In the meantime, the team remains available to answer any questions that you may have.

Thank you again and enjoy the rest of your day..

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