Good day and welcome to the Corporación América Airports First Quarter 2019 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. And as a reminder, today’s call is being recorded. And at this time, I would like to turn the conference 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.

Note that for comparison purposes and better understanding of the underlying performance in our presentation today, we will be discussing results, excluding hyperinflation accounting in Argentina, which came became effective July 28. Additional information in connection with the application of the rule IAS 29 can be found in our earnings report.

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 first quarter 2019 earnings conference call. I will begin my presentation today with an overview of the highlights of the quarter, and then Raúl 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 number 3. We’re navigating a challenging market environment particularly in Argentina, our largest market and to a lesser extent in Brazil.

In Argentina, we saw travel dynamics impacted by the sharp currency depreciation, which resulted in a negative mix shift towards the massive traffic, lower commercial demand and the impact of the FX translation on local currency revenues. Brazil, Italy and Hawaii were also impacted by currency depreciation.

In this context, we were still able to report an increase in passenger traffic, up 4% year-on-year as we continue to add new routes in airlines with over 20 million passengers traveling across our airports. Total domestic passengers increased 9% while international and transit passengers declined low single digits year-on-year.

Excluding inflation accounting and two one-time items that Raul will discuss shortly comparable adjusted EBITDA declined 8% year-on-year with the margin Ex-IFRIC flat at 39% despite the difficult backdrop. Net margin this quarter in Argentina and Italy offset quicker performance in our markets.

With the aim of further strengthening the Company's position to capture future growth and add to the passenger travel experience, we invested $64 million this quarter, spending was mainly focused while enhancing our airport infrastructure in Argentina.

Importantly, last month, we received the approval from the Italian Ministry of Transportation for the master development plan through 2029 for the expansion of Florence Airport. With this step finalized, we are on track to commence work in the fourth quarter of 2019.

Finally keeping with our goal of extending the life of our concessions, in April, we extend the concession agreement of the Punta del Este in Uruguay for a 14-year period through 2023.

Turning to Slide 4, traffic growth of 4% for the quarter was mainly driven by a pickup in Argentina and softer growth in the Brazil and Armenia, which more than offset declines of southern Peru and Uruguay. Traffic was negatively impact by difficult macro conditions and sharp FX volatility, as already mentioned.

We also faced tougher comps this quarter as first quarter 2018 benefited from Easter Holidays, which this year took place in April. Passenger traffic in Argentina was up close to 7% year-over-year compared with 4% in the previous quarter. This slide pick up came along with continued mix shift from international to more affordable domestic travel.

In Brazil, passenger traffic continued to decelerate and was flat year-over-year, impacted by reduction in less profitable routes by Latin America international airline and capacity adjustments at the Brazilian carrier with partially offset the benefit from new routes and frequencies.

Total traffic in Italy decelerated to nearly 2% year-over-year from 5% in the fourth quarter impacted by tariff calculations at Florence Airport due to bad weather conditions partially offset by new routes and airlines.

In Uruguay, traffic declined 6% year-on-year, affected by softer travel demand from Argentina and cancellation of route to Colombia and the impact of currency depreciation and local demand. Traffic was also weak in Peru, declining almost 6% as a result of the suspension of operations of a low cost airline last year.

Finally, traffic in Armenia was up 10% year-on-year, supported by new frequencies to destinations in Russia introduced last year, while Ecuador continue to post a strong performance with traffic up over 7% supported by new international routes and frequencies.

I will now hand off the call to Raul Francos, who will review operations and financial results. Please, Raul go ahead..

Thank you, Martin. Good day everyone. As Gimena noted, at the beginning of our presentation for a better understanding of our performance, we will discussion our result excluding the impact of hyperinflation in Argentina. Starting with revenues on Slide 5, total revenue growth reflected tough comparison against last year.

The first quarter of 2018 included the one-time recognition of the CPI inflationary effect on airport fees in Italy for an amount of 4.9 million, which was recovered in other revenues. On a companywide basis excluding these one-time item and also construction revenues, total revenue fell 8% year-on-year.

Aeronautical revenue declined 6%, mainly reflecting the mix shift from international to domestic traffic in Argentina and the FX translation impact on the domestic revenues from the strong currency depreciation.

In Italy and in Brazil despite traffic growth, Aeronautical revenue declined impacted by currency depreciation on both the Brazilian real and the euro against the U.S. dollar. Ecuador posted another quarter of revenue growth and in euro-wide the introduction of the new security target more than offset the decline in traffic.

Commercial revenue declined close to 14% year-on-year, mainly affected by lower demand in Argentina and the FX translation impact in Argentina and Brazil. In local currency, commercial revenues in Brazil increased 14%, mainly due to higher VIP lounge and advertising revenues.

In Italy fuelled by the expansion of a car rental area and remodelling of some commercial areas of our airport coupled with traffic growth, commercial revenue increased over 3% despite the depreciation of the euro. Armenia continued to post positive result on the back of higher fuel demand and prices.

Moving to our cost structure on Slide 6, the decline in revenues in our largest market coupled with tough top line comps in Italy resulted in lower cost dilution this quarter. However, given the most of our costs are denominated in local currency. The FX depreciation in key markets helped mitigate this impact.

As a result, cost of services Ex-IFRIC12 declined almost 7% year-over-year mainly due to lower maintenance cost in Argentina, which benefited from currency depreciation as well as lower concession fee and labor cost in our main markets. SG&A fell almost 11% year-over-year mainly driven by lower sale taxes and labor costs in Argentina.

This was partially offset by higher bad debt charges in Brazil related to Brazilian carrier, and in Argentina arising from commercial tenants. Also SG&A in the first quarter of 2018 included a one-time charge of almost 1 million in IPO expenses. Now please start to profitability on Slide 7.

Adjusted EBITDA Ex-IFRIC declined nearly 11% to 122 million in the quarter. Excluding both the nearly 1 million one-time IPO we spent and 5 million non-recurring revenue recognition in first quarter of 2018, comparable EBITDA was 8% lower year-over-year while the margin remains flat up 39%.

Profit improved in Argentina and Italy this quarter was more than offset by the weaker performance in the Brazil, Uruguay and Ecuador. As you can see on the Slide 8, our healthy balance sheet provides us with financial flexibility to move ahead on our strategic initiatives.

Net debt at the close of the quarter was relatively flat sequentially at 882 million with net debt to last 12 months adjusted EBITDA relatively flat year-over-year at of two times. We're also keep a sound debt profile with around 12% of our debt maturing with the year and 8% of our debt denominated in U.S. dollar 26% in real and 15% in euros.

Let me now turn the call back to Martin, who will go over performance of our key business segment and we comment on our outlook..

Thank you, Raul. Starting with Argentina on Slide 9, revenues Ex-IFRIC were down 14% year-over-year impacted by difficult market environment which had the following effect on our top line performance. First, we continue to experience a mix shift when the national to more affordable domestic travel.

International traffic was down 6% while domestic travel was up 16% year-on-year supported by the addition of new routes and frequencies by low cost carriers. Second, commercial revenues, mainly duty-free also declined following the lower international traffic trend.

And third, revenues were also negatively impacted by the decline in cargo volume with higher ex-productivity and a sharp reduction in higher margin inputs. Finally, domestic travel and local currency, commercial revenues were also impacted by the FX translation effect from the 98% quarterly average year-on-year peso depreciation.

In this context, adjusted segment EBITDA declined 10%. By contract, Ex-IFRIC12 margin expanded nearly 200 basis points year-on-year to 48%. While this is an improvement from the margin contraction experience in the fourth quarter, note that we anticipate low cost dilution as the year progresses, as cost inflation catches up with currency depreciation.

Making headway in our investment program, capital expenditures were 59 million in Argentina this quarter. Investments were mainly centered in the construction of the new departures terminal building and multilevel parking at the Ezeiza airport, which is on track to begin operations in the third quarter of this year.

Funds were also allocated to the expansion of Aeroparque Airport and new terminal buildings at regional airports including Comodoro Rivadavia, Jujuy and Iguazu. Now moving to Italy on Slide 10. As I mentioned earlier, we saw a year-on-year slowdown in traffic, reflecting several cancellations at Florence Airport due to bad weather conditions.

We expect this operational restrictions will be mitigated when the construction of the new runway is completed. Note, however that international traffic was up 3% more than offsetting the 2% decline in domestic travel.

Higher international traffics supported the good performance observed in retail, duty-free and car rental areas inaugurated in 2018 at Florence Airport. New larger and more profitable duty-free stores opened at Pisa Airport last February, and also contributed to solid commercial revenue growth.

This was partially offset by the 8% quarterly average year-on-year euro depreciation. Excluding the one-time revenue recognition in the first quarter of 2018 that Raul explained there, total comparable revenues Ex-IFRIC12 were flat year-on-year impacted by the euro depreciation.

Our Italian operations delivered solid underlying profitability supported by higher cost dilution with comparable adjusted EBITDA up 25% year-on-year, and the margin Ex-IFRIC12 expanding close to 130 basis points to slightly over 6% from 5% in the year ago quarter.

We invested 3 million in Italy this quarter mainly on the master development plan at Florence Airport. With the recent approval of this plan, we are now ready to start expansion of this airport in the fourth quarter of this year. We’re also moving along.

We have plans to expand the terminal building at Pisa Airport aiming to accommodate anticipated passenger growth and expect work to commence on the fourth quarter of this year. Now please turn to Slide 11 for discussion about Brazil. Traffic continued to decelerate in the Brazil, ending the quarter flat year-on-year at 5 million passengers.

Growth from the addition of new domestic and international route was offset by a reduction in the less profitable routes at a leading Latin American airline and capacity adjustment at the Brazilian Airline. Local currency revenues increased almost 8% year-on-year.

Commercial revenues were up in the mid-teens, reflecting our new commercial agreements and higher cargo volume while aeronautical revenues grew in the low single digit. This good local currency performance however was offset by the 16% FX depreciation of the Brazilian real in the period translating into a decline of 7% in as reported revenues.

In terms of profitability while cost of services declined reflecting lower concession fee as Raul just discussed. Adjusted EBITDA was impacted by weaker revenues and the 1.3 million bad debt charge related to our Brazilian carrier.

This resulted in a 28% year-on-year decline in adjusted segment EBITDA to 3 million and the margin contraction of close to 290 basis points to 10% in the quarter.

We believe in the long-term potential of the country and specifically our two airports, having said that in the near-term, our Brazilian operation is impacted by a challenging market environment, including FX volatility and recent reductions in GDP growth expectations.

In addition, we will also have to weather the annual payment of the concession fee. On the positive side, the Brasilia airport, our main airport in Brazil is one of the largest hub in the country and the third biggest airport in Brazil. Now please turn to Slide 12 to review our Uruguayan operations.

Impacted by week travel demand from Argentina and the cancellations of some routes, passenger traffic in Uruguay declined 6% year-over-year. Despite this, revenues were flat year-over-year. Higher aeronautical revenues driven by a new security fee offset the decrease in traffic and commercial revenues.

Specifically, softer demand from Argentine passengers resulted in the decline in duty-free and car rental revenues, which together with the 9% currency depreciation contributed to lower commercial revenues. Adjusted EBITDA in turn was nearly 3% lower to 19 million, with margin Ex-IFRIC12 contracting 63 basis points to 55% in the quarter.

Now please turn to Slide 13. Looking ahead as the year progresses, our business is expected to track generally in line with overall macro trends. Argentina, our key market is facing more difficult macro environment with GDP growth expectations for the year recently lowered.

This together with the added volatility from this being a presidential election year, suggest a more subdued economic recovery towards year end, waiting on the passenger traffic trends and revenue growth.

Domestic travel is anticipated to continue improving throughout the year, driven by higher competition amongst airlines and growth in the low cost carriers.

At the same time, inbound international traffic is expected to gradually increase as travelling to Argentina becomes more affordable during the week peso, but not fully offsetting the decline in outbound traffic by locals. In sun, we expect to see a single digit increase in total passenger traffic growth in Argentina for the year.

In the field, capacity adjustment taking place at the couple of carriers together with the recent reductions in GDP growth for the year are anticipated to weigh on the overall traffic trends and results.

At the same time, traffic in Uruguay should adopt the economic performance in Argentina; while in Italy, we continue to monitor developments at a national carrier.

In conclusion, while in the near-term we faced several headwinds across key markets, we maintain a solid balance sheet that supports our strategy for advancing on key capital investment project that better our position for the long-term growth.

And important component of this is our focus on enhancing the passenger travel experience across our portfolio of efforts. You’ve heard us discussed earlier in the quarter that we are improving our airport infrastructure specifically in Argentina and Italy with programs already underway.

We have been navigating through a volatile period, but believe we are in well position to assume growth as the microenvironment improves. This is the end of our prepared remarks. We are now ready to take questions. Operator, please open the line for questions..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question today comes from Steven Trent with Citi. Please go ahead..

Good morning guys and thanks for taking my questions. I just have two quick ones at this point. You mentioned the Brasilia asset, the 28% year-on-year dollar decline in EBITDA I imagine that some of that is coming from the currency movements.

Could you give us any color how much of that decline was driven by that the bad debt charges?.

Hi, Steve, thank you for the question. So, the bad debt in this quarter was around $1.3 million. Remember that the FX had a movement, so we are using an average of 3.8 in the quarter roughly. And that is -- that was the cash that we had this quarter specifically..

Great. Thanks, Gimena.

And is there any potential recourse in terms of you guys eventually collecting that money?.

Well, we have to see how this situation with these carriers and more forward. There is a chance that we're able to collect, but so far and according to an accounting rule, we have to record this bad debt. And let me remind you, last quarter we also recorded a bad debt for the same situation..

Okay, very helpful. And just one last quick question. When I think about AA2000 implied return versus the guaranteed return, it seems that in terms of potential levers to get you guys to the returns, you could A, increase tariffs; B, reduced CapEx; or C, extend AA2000.

It is fair to say that the third option would be the path of least resistance from a political perspective and considering the strong domestic traffic growth?.

Thank you for all questions. As we need to reply, I would say yes, definitely yes. The extension would be the easiest one, politically, but we have to monitor the development of our cash flows and the concession throughout the remainder of the year of the life of it, to be able to have a clear idea on where we're going, but the answer is yes..

[Operator instructions] 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..

I'd like to thank everybody 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 business updates in the next quarter. In the meantime, the team remains available to answer any questions that you may have. Thanks you very much..

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines at this time and have a nice day..