Grupo Aeroportuario del Sureste, S. A. B. de C. V.
Q2 2013 Earnings Call Transcript

Published: 22 Oct 2013

[Operator:]

Good day ladies and gentlemen and welcome to the ASUR Third Quarter 2013 Results Conference. My name is Aaron and I will be your operator. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions) As a reminder, today’s call is being recorded. For opening remarks and introductions, I’d like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please proceed, sir.

[Adolfo Castro:]

Thank you, Aaron and good morning, everybody. Thank you for joining us today for the conference call to discuss our third quarter 2013 results. Allow me to remind you that certain statements made during the course of our discussion today may constitute forward-looking statements, which are based on current management expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including factors that may be beyond our company’s control. For an explanation of these risks, please refer to our filings in the Securities and Exchange Commission and the Mexican Stock Exchange. For today’s call I will start by providing an update on San Juan, Puerto Rico International airport and afterwards I will briefly review the results for the quarter. Passenger traffic at San Juan airport remained unchanged quarter-to-quarter at 2.1 million passengers, reaching 5.0 million since February 28, 2013. On the financial front, I will start, net income contribution for ASUR's 50% ownership stake for the quarter was a net gain of Ps. 0.3 million. In terms of the work being done at Aerostar, we remain focused on repairing, cleaning and performing maintenance work of the San Juan airport infrastructure. We also concluded the preparation of work for the remodeling of San Juan airport which we expect in next month and continue for approximately three years. Now, in terms of our consolidated results, passenger traffic increased almost 11% year-on-year with domestic traffic up by 9% to 2.7 million passengers, an all-time high. Domestic traffic was particularly strong at Cancún, Veracruz, Merida, Minatitlan, Oaxaca and Villahermosa airports. Cancún continues to post strong growth, again achieving a record traffic of more than 1.5 million passengers for this quarter. And our modernization of smaller airports continues to improve, traffic remains affected by the link at domestic airlines with capacity. International traffic also performed as well, up by 12% year-on-year, reaching 2.6 million passengers, a record for our third quarter. The share of international traffic rose slightly to 45.7% of the total traffic, less 48.1% in the third quarter of 2012. Passenger traffic between Mexico, Canada and the United States represented 84.24% of the total traffic compared with 80.88% a year ago. Revenues were up 7.2% as higher passenger traffic and the continued expansion in international revenues more than offset the 22.5% decline in construction revenues – in construction service revenues. Commercial revenues per passenger increased 5.1% to Ps. 71.45 year-on-year. And we remain focused on maximizing on commercial revenue growth. As you can see for this year, EBITDA is getting harder to get with the amount of passengers we are receiving. Operating cost and expenses declined 3.4% year-on-year reflecting a 22.5% reduction in construction cost. Excluding construction cost, operating costs and expenses would have increased 2%. We continue with our – operations in Terminal one at Cancun Airport which should add some operating cost as from the fourth quarter. EBITDA was up by 15.4% with an EBITDA margin increase of around 489 basis points year-on-year to 61.5%. We invested Ps. 130 million this quarter in connection with expansion work in terminals of Puerto Vallarta, Villahermosa and Veracruz airports. Work at Veracruz and Vallarta have been expected to be completed this quarter and we have also finalized the expenses at terminals at Villahermosa and Veracruz. In terms of our balance sheet, we closed the quarter with cash and cash equivalents of Ps. 2.4 billion and a bank debt of Ps. 2.9 billion. Now let me open the floor for questions. Please Aaron, go ahead.

[Operator:]

(Operator Instructions) And we’ll take our first question from Eduardo Couto with Morgan Stanley.

[Eduardo Couto:]

Hi, good morning Adolfo. Congratulations on the results. I have two questions, Adolfo. The first one regarding Puerto Rico. Now, when you look the equity income contribution now that you have been reporting, now in the first quarter it was, I think negative Ps. 8 million, second quarter it was positive Ps. 27 million and this quarter it was breakeven. So, looking that it gives an impression that every time the Peso gets weaker. You have a positive contribution and when the Peso gets stronger, the number is negative. So, is there really, my question is, is there will be a FX impact on this equity income contribution from Puerto Rico? That’s the first question.

[Adolfo Castro:]

Hi, good morning, Eduardo. Thank you for your kind words. Yes, of course we have some impacts when you translate the U.S. dollar financial statement of Puerto Rico to Peso. Of course, if the Peso gets weaker, we get more pesos per dollar in terms of the financial statement. So, that’s very clear that we will have an impact when you translate from one Puerto Rico airport operations to the financial statement. Also keep in mind that in the case of Puerto Rico, we have that – and you can see that in with balance sheet. We had 218 million bank debt that of course is in dollars and on the assets side you have the relation and also we have the loan that we gave to San Juan, Puerto Rico. So it’s basically three elements in consideration when we buy.

[Eduardo Couto:]

So, what is the net dollar exposure, Adolfo that you say?

[Adolfo Castro:]

The net dollar exposure in this year’s balance sheet basically is breakeven because on the assets side you have the equity contribution which reaching an 118 million plus the loan which was 100 million and we see it’s almost the same amount. The problem is, that the net of the equity contribution that’s not brought to the P&L that goes into the equity. So if you can see in the report that we presented a Ps. 15 million to feed through equity to because of the equation and the other aspect was in the P&L.

[Eduardo Couto:]

Okay. And just another question, Adolfo, regarding the Cancun Airport, can you give us an update regarding the terminal capacity, the operations there, and the commercial revenues? Did you opened the old terminal or you had owned the operating with the two terminals?

[Adolfo Castro:]

As we speak, we have operating terminal two and terminal three. In the initial remarks, I said that we will be operating terminal one after the end of this month and that of course will generate some impact to the cost side for the fourth quarter. These terminals will have to give some kind of leads to terminal two, because of the strong base of passenger traffic that we have seen during the last two years.

[Eduardo Couto:]

Okay. With the terminals your capacity would be how much?

[Adolfo Castro:]

It’s – do you want the number and its 17 million passengers.

[Eduardo Couto:]

Okay. Thank you.

[Adolfo Castro:]

You are welcome.

[Operator:]

We will take our next question from Bernardo Velez with GBM.

[Bernardo Velez:]

Hi, good morning, Adolfo, thanks for taking my call. My first question is regarding the MDP negotiations and Mexican tariffs. Could you give us an update on how are the negotiations going and what can you expect on the new tariffs?

[Adolfo Castro:]

Well, what we can expect is that we will be announcing once we close the negotiations and I expect this to happen at the end of December and probably the report will be the beginning of January, that’s what I can share with you for the moment. We do not have any other things.

[Bernardo Velez:]

Okay and – in your annual report you mentioned an indicative investment for the next five years and can you expect, can we still expect this amount or are you planning on making another major investment?

[Adolfo Castro:]

Well, this is probably something that we will have to – because with the strong traffic growth that we are having today they do not want. As I said in the previous conference calls, terminal four is getting closer and closer because of the growth we are seeing. So that maybe – it could be some regional CapEx for the first five years.

[Bernardo Velez:]

Okay, thank you. And evolving with the fiscal reform, have you been thinking about, probably anticipating next year’s dividend payments?

[Adolfo Castro:]

Not for the moment.

[Bernardo Velez:]

Okay, perfect. Thanks for answering my questions.

[Adolfo Castro:]

You are welcome.

[Operator:]

(Operator Instructions) We will go next to Stephen Trent with Citi.

[Unidentified Analyst:]

Hi, good morning, Adolfo, this is - on for Stephen Trent he is ill, so I am in for him. Thanks for taking the question.

[Adolfo Castro:]

Good morning.

[Unidentified Analyst:]

Good morning. Now, I got three questions. The first one, can you guys quantify how much of the year ago EBITDA growth resulted from through Q ’12 like one-timers, related to due diligence or et cetera and resilient and sort of retaining the airport side?

[Adolfo Castro:]

Well, I don’t have the feeling at the top my head, probably you refer to the third quarter, the one we are presenting today you will see that the amount is not really important even though that’s one of the reasons we are presenting as a result of depleting of our income and expenses, but this one is not significant.

[Unidentified Analyst:]

Okay, thank you very much. Now, my second question I guess which comes from – I guess the news about the Airbus placing a large aircraft order. Can you tell us, like whether they or one of the other American airlines announced any growth plans which involve any flights, any more flights to any ASUR airport license?

[Adolfo Castro:]

Well, you know that, well, I heard the announcement of – and you have to do the others, we are in a situation that – situation, basically we have to remind that the capacity the airline capacity we have in June 2008 was around 307 and today we are one-third below that amount of planes. So basically, all of these airlines are tapping out for what we lost at the system some years ago. Of course I see this is very positive because at the end of the day, this will allow more passengers to fly. It’s few but in some cases there were some passengers that were not able to fly because there was no capacity. Let me give you the clear example that you can see today with the report we have presented and that’s the case of people, the question is when – is growing each quarter size 15% 13%, the answer is there is simple because someone if they get – and other flights with that information and these gave the opportunity to other passengers to fly. So I see that as a positive news and of course this will in my opinion in the future incentivize the margins and lower price, lower air ticket price.

[Unidentified Analyst:]

Okay, okay thank you. That answers our question and I guess the last question, what is your thinking about potential airport tenders inside and outside of Mexico, like Mexico City, Central America or Columbia and other tenders in Mexico, do you think ASUR would be sort of participating and if you were, how should we think about your thoughts around what sort of – it could be an attractive like IRR?

[Adolfo Castro:]

Well, today at the peak we are doing a project that I would say in the market there are some – we just focus in one in terms of bidding process and that’s the airport tender. Why don’t have been certainly fixed and that’s the only one that we are participating in and in the future, of course we will have to wait and see many projects and we will be analyzing those and if they have their own merits we will participate. I cannot give you an IRR because every single project has its own particularity. Every single project is designed with its own cycle or lease agreement and have to be taken in that way.

[Unidentified Analyst:]

Okay, fair enough. Now, could you just, I guess, could you repeat that Bolsa Airport project?

[Adolfo Castro:]

Yes, what we have – it’s in New York it’s now Merida.

[Unidentified Analyst:]

Oh, with Merida, okay, I just wanted to clarify. Okay, thank you very much.

[Adolfo Castro:]

You are welcome.

[Operator:]

(Operator Instructions) And we will go next to Neal Dihora with Morningstar.

[Neal Dihora:]

Yes, good morning. Thanks. I guess I wanted to go back to San Juan, it looks like third quarter you had an operating loss at San Juan is that – what I guess is that correct and two is there a lot of seasonality that is causing that? It looks like 2Q you had a large operating gain like – that’s sort of my questions?

[Adolfo Castro:]

Okay, let me turn to that one for a moment, first we do not have – we only just take over that part of – second, it is important to understand that for the moment we have to work very hard on maintaining and basically upgrading the facility we have there. It’s been past some quarters and the new one and we can find some kind of a stability in terms of the result and that’s what I can say. Of course, the equation of the Mexican pesos into dollar has an impact on the final number I think you – two selective segments. But, probably the most important one that I can say is, of course during the second quarter, the maintenance was not expected the same as the one that we are having right now. So we are been up the process of maintaining this or upgrading the facility and as I said in the initial remarks, from the month of November we were in the process of the turning out deliveries down there.

[Neal Dihora:]

Just a follow-up, is that – so the work that you are start in November is going to last three years, is that also considered maintenance or is that included capital investments?

[Adolfo Castro:]

You know what, I would say that is capital.

[Neal Dihora:]

Okay, all right, thanks.

[Adolfo Castro:]

You are welcome.

[Operator:]

We will take our next question from Gabriel [indiscernible] – with Goldman Sachs.

[Unidentified Analyst:]

Hi, Adolfo, thank you for taking my question. A quick question on – just to have your view on – with the Mexican City international airports reaching full capacity, I am curious to hear from you what would be expected in your view from potential impact for your any kind of potential decrease on volumes going to Cancun or something like that? Thank you.

[Adolfo Castro:]

You are welcome, Gabriel, thank you for the question. Yes, you are right, some months ago the Mexican government officially declared – this airport and they reduced the amount of operations per hour where we get and I don’t have an exact figure, but the number that heard was some 81 air traffic movements per hour to 61 air traffic movements per hour in the eight hours on a daily basis that the airport is full. That will represent traveling in passengers that will have to be relocated – can be relocated in terms at the time of the day or will have to be relocated to some other airports and of course the one that I believe will take the most important part of these so-called permanent passengers. One such – not all the passengers, not all of the so-called permanent passengers will be willing to fly from, so the possibility of losing some of them is very high. And of course, some of them will be or should be or will be willing to travel to Cancun.

[Unidentified Analyst:]

Okay, thank you.

[Adolfo Castro:]

You are welcome.

[Operator:]

We will take our next question from Alan Wiley with Deutsche Bank.

[Alan Wiley:]

Good morning, Adolfo. The question I had was - hoping you could explain a little bit more, excellent results that we saw in revenue per passenger which was up 5.1% and put that in context with the second quarter where we saw the decline 1.3%. What’s changed in the quarter? Is that a one-off or how should we look at that?

[Adolfo Castro:]

Well, what has changed in my opinion is the amount of passengers. Of course, we are at the record high but of course when you compare this with the previous one it’s lower. In other words, as you know, with terminals two and three in Cancun were very congested during the second quarter and that is why we are opening terminal one to keep some to leave to tens of amounts of passengers pass in through each terminal every single minute. You cannot solve that day one, you have lines in some of it with those – just that we are looking. So that’s probably one of the most important things that I can say in terms of the passengers and the combination of these with the commercial traffic. If you remember during the first quarter, we had the same situation and I gave a very clear indication why we have – no one remember in terms of just the passenger against the previous year. And one of those was of course the exchange rate, the other one was and it is on the top of my head, we are changing the mix of passengers. So we have more than that in comparison to previous years and domestic of course did not cater completely. So that’s the current situation and that is why I have said in the initial remarks again, that everyday it’s getting harder and harder to get more commercial revenue on a per passenger basis with the amount of passengers we are receiving today. In the future, as I have said before, that we expect this substantial reach and to report.

[Alan Wiley:]

So to continue with the last sentence what do you expect in the future as?

[Adolfo Castro:]

Sorry?

[Alan Wiley:]

Again, follow the last sentence what you expect in the future, is what?

[Adolfo Castro:]

What we can expect in the future is to one multi-class fleet and to construct a new airport?

[Alan Wiley:]

So, would it be fair then to assess in quarters we have lower growth or lower traffic we can expect better retail upside?

[Adolfo Castro:]

On a per passenger basis, I would say, yes.

[Alan Wiley:]

Okay. Thank you. That’s helpful.

[Adolfo Castro:]

You are welcome.

[Operator:]

(Operator Instructions) And it appears there are no more questions in queue. I would like to turn the call back over to Mr. Castro for any additional or closing remarks.

[Adolfo Castro:]

Thank you, Aaron and thank you, everybody for joining us today on our conference call. I have to say that on November 27, in order to celebrate Air France and ASUR’s 18th and 15th Anniversary respectively, the networks will be honored to receive the first commercial landing of an A380 in Latin America. This [indiscernible] into this unique opportunity in Cancun. And as always, do not hesitate to contact me if there is any further questions and thank you all of you and have a good day. Good bye.

[Operator:]

This does conclude today’s conference. We thank you for your participation.