Good morning, and welcome to the Corporacion America Airport Second Quarter 2021 Earnings Conference Call. A slide presentation accompanies today's webcast and is available in the Investors section of the Corporation American Airports Investor Relations website.
Call.
Webcast. At this time, I would like to turn the call over to Patricio Inaki Esnola, Head 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 Martin Ehronecian, our Chief Executive Officer and Jorge Arruda, our Chief Financial Officer. Both will be available for the Q and A session. Lines.
Before we proceed, I would like to make the following Safe Harbor statement. Today's call will contain forward looking statements, slides, 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
slides to revise any forward looking
statements to reflect new or changed events or circumstances. Slides. Note that for conversion purposes and for a better understanding of the underlying performance in our presentation today, slides. We will be discussing results excluding hyperinflation accounting in Argentina, which became effective in July 2018. Financial results.
Additional information in connection with the application of Rule IAS 29 can be found in our earnings report. Webcast. Now let me turn the call over to our CEO, Martin Eurnigian.
Thank you, Inaki. Hello, everyone, and welcome to today's call. Slides. Before we start, I wish to welcome Inaki Esnaola as our new Head of Investor Relations. He comes to us with significant experience webcast in Investor Relations for a multinational LatAm New York Stock Exchange listed company and the strong background in credit as a former Moody's analyst.
Slides. I also want to thank Gimena for her contributions in setting up and moving forward our Investor Relations program since our IPO and for ensuring a smooth transition. Gimena has been promoted to Head of Financial Planning for Aeroportos Argentina, our largest concession. Webinar. Over the last year and a half, we have been managing through an unprecedented global pandemic, which has significantly impacted our industry.
I am extremely proud of how the entire team has pulled together slides to move us forward and ensure that we are a stronger company coming out of the pandemic than we were going into it. Slides. Although we are experiencing different dynamics across our operations, we began to see a recovery in total traffic starting in May, following the impact of the 2nd wave of the pandemic that affected passenger traffic trends in our LatAm operations earlier in the year, particularly in Brazil. Traffic reached nearly 6,000,000 passengers in the 2nd quarter, up over 11 times call. Cargo activity in turn posted a strong recovery and reached volumes that were just 20% below pre pandemic levels slides with Uruguay and Italy outpacing 2019 levels.
Back to passenger traffic, slides. We are pleased with the significant recovery observed in Ecuador, Brazil, Armenia and Italy this quarter. Activity in Argentina, however, slides remains heavily impacted by severe government travel restrictions. On a positive note, we are encouraged slides by the advance of the vaccination program in most countries of operations, particularly with the accelerated rollout in Argentina and continued pace in Brazil. Slides.
Moving on to our financial performance, revenues ex IFRIC more than doubled year on year call to slightly over $120,000,000 although still remain 60% below the Q2 of 2019 levels. Slides. This together with our sustained focus on cash preservation and tight cost controls contributed to a comparable adjusted EBITDA of $7,000,000 an improvement of $40,000,000 from the adjusted EBITDA loss posted in the year ago quarter. Slides. On the balance sheet front, net debt remains stable.
Finally, we remain focused on advancing on the process of obtaining long term economic re equilibrium of our concession agreements in Brazil and Armenia, as well as on the revision of the concession agreements in Uruguay slides to drive long term value creation. I will discuss this in more detail shortly. Slide. Turning to Slide 4. We are seeing a gradual lifting of government travel bans with commercial operations allowed across all countries of operation.
Slide. Although high restrictions for international travel remain in place in Argentina, Italy and Uruguay, which are indicated in the yellow boxes in the slide. In addition, since the end of March and to contain the spike in COVID cases, the government has imposed limits slides on the number of international passengers arrivals, which stood at 2,000 passengers per day during the most part of the quarter and was stressed to 600 passengers per day by the end of June. As results. Passenger traffic remained 84% below Q2 of 2019 levels despite 1700 international arriving passengers.
Passenger traffic in Italy increased over 3 times sequentially. Slides. By contrast, traffic was still 86% below Q2 of 2019 levels, reflecting restrictions for travelers coming from or that transit to certain countries that apply until August 30. Slide. However, more recently, known restrictions apply to traffic from the Schengen area and traffic from the U.
S. Slides. Throughout the quarter, however, traffic improved from a 95% drop in April to a decline of 75% in June, both compared slides to respective month of 2019. In Uruguay, passenger traffic increased over 5 times year on year, but was 90% below Q2 of 2019 levels, reflecting the sustained closure of borders to non resident foreigners with certain exemptions and weak travel demand. Government has recently announced that starting November 1, borders will reopen to foreigners presenting a full vaccination certificate and the negative COVID test.
Passenger traffic in Brazil increased sequentially slides as the sanitary situation improved and reached 47% of the Q2 of 2019 pre pandemic levels. Domestic travel is not restricted, while the main requirement for non resident foreigners entering the country is a negative PCR test. International travel is also open with limited exceptions. In Armenia, Traffic continued to show a positive sequential trend reaching 67% of Q2 of 2019 levels, slide reflecting the opening of Russian borders to foreigners earlier in the year and benefiting from federal restrictions in country where Armenia competes for tourism. Slides.
Finally, in Ecuador, traffic improved sequentially and reached 45% of the Q2 of 2019 levels with routes call to the U. S. And Panama with higher traffic levels than in 2019. No restrictions apply to domestic nor to international travel, slides, though subject to certain requirements upon arrival. Please turn to Slide 5, slide where we show monthly passenger traffic trends since January 2019.
As anticipated, passenger traffic began to recover in May this year, following the contraction that had started in February as the 2nd COVID-nineteen wave hit our operation in LatAm. Slide. The positive trend observed in May continued into June July as the vaccination rollout advances across our market and travel demand recovers. 59% 60% below the expected month of 2019. Armenia, Brazil, Ecuador and Italy were the strongest performers driving this gradual recovery.
We expect this momentum to strengthen towards the second half of the year in our main LatAm market as the vaccination rollout continues to advance and governments relax to advance. Slide. Turning to Slide 6, cargo operations posted a strong performance with volumes reaching nearly 80% of pre pandemic particularly strong recovery in Uruguay with cargo volumes beating the Q2 of 2019 levels. Argentina also stands out lines with cargo volumes just 20% below the levels achieved in the Q2 of 2019. The good performance in cargo activity in Argentina and Uruguay slides mitigate the impact from weaker passenger traffic in both countries.
Slides. Let's turn to our financial results on Slide 7. Starting with our top line, aeronautical revenues increased over 4 times in the quarter, but remained significantly below pre pandemic levels. Slides. Compared to the Q1 of this year, Aeronautical Railroad revenues were 6% higher, slide reflecting improved operations in Armenia, Italy and Ecuador.
Commercial revenues achieved over 60% of 2019 levels, call, mainly driven by higher cargo activity, which continues to recover at a faster pace. Notably, consolidated cargo revenues beat Q2 of 2019 levels by nearly 4%, driven by stronger volumes as discussed slide above together with tariff increases in Argentina. Slides. Now moving down to the P and L as we saw as we show on Slide 8. We continue to deliver significant savings in our cost structure as a result of the cost control and cash preservation initiatives implemented at the beginning of this crisis.
Slides. When compared to 2019, cash operating costs declined this quarter by 34%, equivalent call to savings of $52,000,000 Remember, this excludes concession fees and construction costs. Slide. Year on year cost increases below revenue growth led to a positive adjusted EBITDA of $7,000,000 slide compared to negative adjusted EBITDA of $33,000,000 in the Q2 of 2020. Looking into the coming quarters, topic and operations continue to recover.
Now turning to Slide 9, slide. We continue to advance in the process of obtaining economic re equilibrium of our concession agreements. A new milestone on this front was successfully obtaining slide. Last July, the economic equilibrium for the Guayaquil concession in Ecuador. This includes a long term compensation mechanism, slide, a 2 year concession extension and a reduction in the concession fee.
In Brazil, we remain focused on 2 fronts, slides. Starting with Brasilia Airport, last May, we filed out our request for a long term economic equilibrium slides beyond the compensation already obtained for 2020. We are also advancing on the process call to return our Natal concession and expect to receive the correspondence in gamification payment during 2022. Slides. We also remain in active discussions with the government of Armenia.
Remember this concession agreement slide includes a contractual internal rate of return of 20% in U. S. Dollars. In Uruguay, we continue to advance negotiations with the government to review the concession agreements. Finally, in Italy, we expect the concession to obtain additional resources from the fund established by the Italian Fleet Budget Law to support the entire Italian airport sector in this year.
Slide. Note that this fund, which has not been allocated yet, was recently expanded to €800,000,000 slides from the original BRL500 1,000,000 amount. Slides. Moving on to our debt and liquidity on Slide 10. We ended the quarter slides.
Our net debt to last 12 months adjusted EBITDA ratio remains above historical levels, slide solely driven by the impact of the pandemic on adjusted EBITDA, while net debt has remained fairly stable over the past quarters. Call. All of our subsidiaries remain in compliance with the debt covenant and remember that GAAP itself has no direct indebtedness. Turning to our debt management initiatives. From April to July, we refinanced a total of $50,000,000 in Brinsfeld made payments in our Argentine operations and we obtained a $10,000,000 loan in Uruguay.
Slides. Finally, I am very proud of the cost control and cash preservation initiatives executed since day 1 slides that allow us to deliver 3 consecutive quarters of positive operating cash flow across most of our operations. Slide. Please turn to Slide 11 for our closing remarks. Slides.
Over a year and a half into a pandemic, we have demonstrated our flexibility to rapidly respond to the changing market conditions. Slides. We remain fully focused on consistently advancing in the execution of the litigation plan established at the start of the crisis, webinar, which includes 3 key objectives. 1st, conclude the economic regulatory processes to restore the value of our business. Slides.
2nd, keep our focus on preserving liquidity and strengthening our balance sheet. And finally, maintain a lean cost structure and strict cost controls as the level of activity continues to gradually increase. Slides. Looking at travel demand, we expect that the continued recovery trend in passenger traffic posted in July slides will further strengthen towards the end of the year as the summer season approaches in our LatAm markets and the vaccination rollout further slides and anticipated to gradually leave travel events and restrictions as sanitary conditions continue to improve. While we remain vigilant of the new various trains, we are confident that local and global travel is a firm part of the future.
Slide. The future of our business remains strong. And while the pace of recovery is still nonlinear, our near term goals slide including building a leaner and stronger company. Finally, I wish to thank our teams for their continued commitment
line. Our first question today will come from Alex line, Timis Scholes with Nao Securities. Please go ahead.
Yes, good morning. Thank you very much for taking my question. The question relates to your option to buy out the preferred shares from the government. How you're thinking about that?
Thank you very much for your question. Martin here. Well, this option of buying the preferred share has been there for quite a while and slides. Now in the overall negotiations we have been with the government because the proceeds of buying the first shares Our counter CapEx and would go into CapEx into the CapEx plan of the company. So We are now in conversations with the government given the current restrictions on traffic on the timing of In the near future, we will present the market with our financial strategy for AA2000 that will probably include The redemption of the preferred shares and the timing of the execution of our CapEx.
Okay. Thank you. And just as a follow-up, so when you're talking about these discussions with the government, slides. Are you also including the amounts owed by Aeronios Argentinas or is that separate?
That is a separate discussion with Arenas Argentinas, but we are going we are having very productive discussions with them as well.
Line. Our next question will come from Peter Boley with Bank of America. Please go ahead.
Questions. I have 2. On the cost side, could you share an update on the status of the government support for salary, Social Security payments and what we could expect
call for second half
twenty twenty one. And just as a follow-up, do you have any expectations for CapEx that would be funded by AA2000 as opposed to the trust for strengthening for the second half of twenty twenty one, given the works at Ezeiza and Bariloche? Thank you.
Can you please repeat the last part of the question, which the sound was not good?
Sorry. Yes. I was just wondering if there was an expectation for CapEx in the second half of twenty twenty one.
So regarding CapEx, as we mentioned in the last question, Since the severe restrictions in international traffic in Argentina, we have been having discussions with the government in terms of Reestablishing the CapEx program timing. So beyond the biology that you just mentioned, We will probably the rest of the CapEx put it in these discussions to Give me one second. In Italy, we still have what is called Casto Interracione, The government is taking part of the salaries slides. The salaries during 2020, which was called ATP, which we received. That program is finished and now it's been replaced by another one called REFRO, which is smaller in size, probably around the quarter or a third, but we're still receiving that as well.
And in Uruguay, With the lifting of the restrictions, the government is lifting also the what they call Seguro del Parro by the end of September.
Line. Line. Our next question today will come from Nicholas Fabianci with Jefferies. Please go ahead.
Question on the Argentine segment where we still see a bit of pressure. When I'm looking at the liquidity and debt maturity profile look. At the consolidated level, it looks healthy, but we have started to see some concerns around the Opcos and particularly Argentina, where slides. The reported cash and cash equivalents number from last week is now below the next 12 months amortizations. Line.
Could you please give us your perspective from the HoldCo cap level on liquidity management at the OpCo's financial support and any additional levers you can pull that would maybe leave us a little bit more comfortable. Thank you.
Okay. Thank
you. This is George. Thanks for your question. We are working in a financial plan for AA2000. We expect to be able to make certain announcements in the next 45 to 60 days, but it is definitely something that we are working on in connection with our maturity profile.
What I want and can highlight at this point in time is that we continue to have strong support from our lenders. Slide. Take into consideration
the
characteristics the strong characteristics of this concession. We have the core airport system is a single tier regime. We have the cargo revenues. We basically control close to 100% of international passengers into the country that are processed through our infrastructure. Given these characteristics and the importance of this concession, call.
We continue to have very strong support from our lenders and again in approximately 45, 60 days we expect to make some announcements.
Lines. Ladies and gentlemen, this will conclude our question and answer session. I would like to turn the conference back over to Martin Yurekian for any closing remarks.
Slides. I would like to thank everybody for joining us today. We really appreciate your interest in our company. We look forward to providing updates on our business initiatives as they become available. Webcast.
Lines.