Grupo Aeroportuario del Sureste SAB de CV (ASR) 2005 Q2 法說會逐字稿

Good morning, my name is Connie and I will be your conference facilitator today. At this time, I could like to welcome everyone to the Breakstone Group second quarter 2005 earning call. (Operator Instructions) After the speaker remarks, there will be a question and answer period.

(Operator Instructions)

El senor Adolfo Castro, you may begin your conference.

Thank you Connie, good day every one and thank you for joining us today. This is Adolfo Castro the company's Chief Financial Officer and Head of Investor Relations. This is ASUR's second quarter 2005 earnings release conference call.

Before we begin, 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 management's current expectations and beliefs and are subject to a number of risk and uncertainties that could cause actual results to differ materially, including risk that may be beyond our company's control. For this risk, please refer to ASUR's filings with the Securities and Exchange Commission, and the Mexican Stock Exchange.

Before moving into the discussion of our results for the quarter, I will like to provide an update on the operational front. Let's focus first on where we stand in terms of some of the investment projects we're focusing on this year. With respect to reaching 100% whole baggage screening for airlines at our airports, I can say that we have reached an agreement with the suppliers of equipment and the civil works.

In addition, this quarter, we saw the conclusion of the Mer (ph) Mexican Airspace Authority's study on the new outright capacity of the high speed exit for Cancun runway. This exit was constructed during the fourth quarter 2004, to reduce aircraft taxiing times at the airport and increase the number of aircraft movements. The authorities concluded that the high speed exit would allow 46 ATMs per hour under certain circumstances. This represents an increase of, around, 35% over the current capacity.

Finally, we're well on the way with the remodeling process of the terminal building at Villahermosa Airport and we expect that we will be almost finished by the year end.

Now, moving on to other developments that took place during the quarter, as you may have already read in our (indiscernible) press release, we have resolved favorably the arbitration process with Dufry in Mexico, one of our concessionaires in the Cancun airport. This arbitration came about as a result of a dispute over the rent paid to ASUR by Drop -- Dufry Mexico. I'm pleased to tell you that the arbitration panel ruled in our favor. To date, Dufry has not complied with the decision of the panel and we have instituted legal proceedings to make them comply with the final ruling. We estimate that these proceedings will take approximately between 5 to 8 months, and we shall keep you apprised of the situation as it develops.

We're also pleased to report that our recent visit from Hurricane Emily does not appear to cause significant damage to our properties, primarily as a result of the excellent job performed by the employees in the implementation of their emergency plans. As we reported, minor structural damages to air bridges, terminal buildings and advertising boards was caused by the adverse weather conditions. The impact on our appraisal was a total of 184 cancelled operations. Finally, I have to say that we are still working to estimate the final monetary impact on the airport infrastructure. Once this is concluded, we will proceed with the corresponding claim to the insurance company.

Now I would like to take you through our results of the second quarter 2005.Total passenger traffic increased by 6.67% over the same period last year. When we break this out, we see that while there was a 1.3% decrease in domestic traffic, this was more than offset by an 11.5% increase in international passenger traffic. The decline in domestic passenger numbers can be ascribed to the fact that this year, the Holy week and 4 days of the Easter week vacation period took place in March, while in 2004, it took place in April.

Passenger traffic to and from the United States through ASUR's airport increased year-over -year by 16.9%, 7.3% and 13.6% for the months of April, May and June respectively. Passenger traffic to and from Mexico, Canada and the United States represented 88.6% of the total passenger traffic for the quarter, below the 89.5% for the second quarter last year. International passenger traffic accounted for 64.9% of the total traffic for the quarter compared with the 62.2% in the same period last year.

Total revenues improved year-over-year by 11.44%, mainly driven by high revenues from aeronautical services resulting from ongoing growth in passenger traffic. Revenues from non-aeronautical services rose by 24.91% year-over-year, as a result of the 25.88% improvement in commercial revenues. Commercial revenues for passenger in the quarter improved 18.02% to 35.25 pesos or US $3.3. Direct commercial operations added 5.41 pesos in commercial revenues per passenger for the quarter. Commercial revenue per passenger excluding 100% of the revenues from the direct commercial operations were 28.84 pesos or US $2.7. As always, we remain focused on further improving commercial revenues per passenger.

Total operating cost and expenses increased by 10.75% over the same period last year. Mainly as a result of increasing revenues, EBITDA, and costs related to ASUR's direct commercial operation of 2 restaurants, a snack bar, 3 convenience stores for this quarter. Operating margin improved slightly on the same period last year, 43.64 compared with the 43.28%, while net income increased by 19.83% to 160.61 million Finally, during the quarter, we made investments related to master development plan of 139.85 million pesos.

Connie we can go to the period of questions and answers.

(Operator Instructions) Your first question comes from Danketh Towski (ph) from Surre (ph).

Good morning Adolfo, I have got 3 sort of sets of questions. The first one is can you give us an idea of what sort margins you are earning on the directly operated commercial operations?

Hello Dan.

Hi.

Well the margin in the direct commercial operation is different for it's one of the kinds of business that we are operating. In the case of the restaurant you can say that it's something around 40 to 50%, and in the case of the convenience stores it's higher than that, probably around 55, 60%.

Okay great, do you think in the future you'll be tendering them out for concession or is the idea to keep them in-house for the foreseeable future?

Well basically what I can say to you is that, we will be thinking twice in the future to give a concession to someone. First we'll see if we can operate this in the right way and if not we will make a concession agreement.

Okay, second question is can you update us on the state of the second runway. Have you managed to get all the land required?

We are still working together with the authorities in order to get the necessary land for that project - -

What stage are you at 97 or something like that, or 93?

Well I hope that we can start that project next year.

Right okay, and I take it, it's just the land owners are holding out for a better price?

I am sorry?

Should I understand that it's the land holders that are waiting for a better price?

Well, I don't know if they are waiting or not for better price. What I can say to you is that the government will have to negotiate with them on a commercial basis because, the land that is pending is as a result that the owners made injunctions, or presented injunctions, against the expropriation decree and they won the injunctions. So what I believe is that the government has to negotiate with them on a commercial basis.

Okay right. The last set of questions is, there has been lot of news in the newspapers that -- about low cost carriers in Mexico, especially running from Toluca. Can you give us an update how, if at all that's impacted you and how you think that might impact you in the future, how many flights that you see in the future coming from low cost carriers and that sort of issue?

Well at this stage I don't have that kind of detail. The only thing that I can say to you is that this will have a major impact in the passenger traffic of the country because what I can see is that the domestic traffic fares that we are paying today are really high and I hope that once these low cost carriers are in operation, they will compete with the other airlines and then the air ticket prices will be reduced and we will have more passenger traffic. That's what I expect.

Are you currently in negotiations with any of the low cost carriers in terms of routes at your airports?

No.

Okay. Thank you very much Adolfo

Welcome.

Your next question comes from Dan McGoey from Deutsche.

Morning Adolfo. I have 2 questions. 1, just to carry on with that line regarding the start-up of new low cost carriers in Mexico. Can you explain a little bit about the process of obtaining slots at airports in Mexico specifically how will some of these new carriers be petitioning for slots at ASUR airports and also given the restructuring of Cintra what would be the manner in which slots might be redistributed from your airports if any? That's the first question.

-- question? Sorry Dan. In the case of the slots, what I can see today is that the only problem in Mexico as a country is Mexico City airport. Today, I would say that there is no more slots on the peak hours, in our case in our airport we do not have any major problem. Probably you will not get a slot if you are trying to fly in the peak time on the Friday in the Holy week but that's it in the case of Cancun airport. In our case we do not have any problem at all with the slots.

I don't see any change if there's a restructuring process with the Mexicana in Mexico because what I believe is that these airlines are going to change the owner and the name but they will be operating in the same way, that means that they will kept their slots in Mexico City airport. What I have heard is that these low cost carriers are pretending to fly from the regional airports, they are not going to try to enter into Mexico City and my personal opinion is that they are going to try to start flying from Toluca basically.

Okay. But we are still quite optimistic on the impact on average fares for the domestic market even if those flights really run from airports like Cuernavaca, Toluca and Puebla -- that would still be a positive development – very positive development in your view?

A quick survey this morning, of how much it will cost you to fly from Mexico City in a round trip to every single airport that we have, you will find that you should be paying between $300 and $500 for each one. Which is in the worst case scenario, 2 hour flight.

Okay thanks. And then my second question was whether you could provide any update on some of the alternative investments that you've been looking at. The company has been accumulating quite a substantial amount of cash, and I'm wondering whether there's been any progress on identifying attractive investment opportunities?

(inaudible), we have seen some in the last weeks. But what I could say to you is that for the moment we do not have something reasonable or attractive from investment perspective this month.

Okay, thanks very much.

Your next question comes from Alan Mateaus (ph) from Accival.

Hello good morning. My question regards the concentration of the Mexico City airports into the regional airports. Does ASUR, give any kind of incentives or discounts for airlines that want to fly from for instance Toluca to Cancun. And recently we saw the first flight from Toluca and Cancun and if you can just say if any other flights are in the pipeline from regional airports?

Hello Alan. Well basically what I can say to you is that the Mexican government has been trying to reach an agreement with all the airport groups to make plan of certain discounts if the airlines flies from Toluca, Puebla and Cuernavaca. What I can say to you as of today is that we have not reached any agreement with them. That we have not given any discounts to these new flights from Toluca to Cancun with many (ph) charter. And for the moment we don't have any other new flights coming from Toluca with any other airlines, I would say in the next coming weeks. We of course know that some of these airlines are going to try to fly again from Toluca to Cancun. And some other airports that we have, that's what I can say to you.

Thank you.

At this time there are no further questions. There is another question just one minute. Your next questions comes from Daniel Parker from Bear Stearns.

Adolfo hi, how are you?

Hi Daniel.

Just a couple of questions for you. With respect to the high speed exits at Cancun are you now actually authorized and allowed to increase the number of hourly ATM's or are you still waiting for some kind of final approval?

No the approval has been issued, today we have an authorized capacity of 46 ATMs per hour under certain circumstance, and we are coming from a 34 ATMs.

Are those circumstances relatively restrictive or are they minor when you say under certain circumstances?

Basically, that's what the authorization says, and we are talking about technical conditions, let me give you 1 example is, you will reach 46 if you just have, lets say 6 or 7 private planes, you know that these planes are or take more time than the normal plane takes in a runway, so this kind of circumstances.

So what would you say, you think sort of your average ATM rate will be now with the new high speed exits in place?

Well, I think that we can be above the 38, 39 easily.

And you could go into the 40s if necessary?

We can go to 46 if necessary, yes.

Okay,--

I can say that during peak time we should be working today in 46, 44.

Okay, and in terms of the terminal, first have you guys decided whether you are going to increase the current terminal or if you are going to build a new one? And then what the time frame for that construction would be?

Well the studies have concluded, and our recommendation is to make a new terminal instead of expanding the current ones, we are today in the process to negotiate with the Mexican authorities in order to get the approval to start the construction of this project of this new terminal.

So do you think, if we were to assume, lets say a 2 year timeframe to get the approvals and finish the construction, would that be reasonable?

I hope that it will take us less than that.

Okay, and in terms of the second runway, let's say, let's assume that the government is able to successfully obtain the remaining, whatever 3, 4% of the land required for that runway in the next couple of months, what would be the timeframe then for the construction, would that be like a year and a half or something to build it out?

In the case of the second runway, it's 2 years also, including the necessary status for the airspace and this kind of things.

Okay great, thank you very much.

You're welcome.

Your next question comes from Boris Shirling (ph), from Arma Castow (ph).

Adolfo, how are you?

Fine, and you?

I am great thank you so much. I just wanted to ask 1 quick sort of technical question. With respect to the dividend payment that was made in the second quarter, could you tell me what the dividend tax was associated with that payment? And I couldn't find it in the cash flow statement, I guess - - could you tell me how that typically passes through your statements? Whether there is a delay of some sort? Or maybe I am just not looking at the right place?

Okay, it has to be there in the cash flow statements, what we have paid is the corporate rate, which is 30% it means that, if you have payments of 70 units, the tax is 30 units.

I'm not sure I follow exactly, to be honest. Is it -- exactly 30% of 17 or - - ?

70, if you receive a dividend payment of 70.

I understand, okay so you already have paid it?

Yes.

It's not like a payable on your balance sheet?

No it has been paid.

Okay so I apologize, thank you so much. That's all I had.

Your next question comes from Alan Mateaus from Accival.

I have 2 follow-up questions. The first would be, if at this moment you could give us any guidance on 2006, and the second would be regarding, if you have had any talks with Gol, the low cost carrier from Brazil. They recently started flights to other countries and also if you can clarify, that ITA or Chico Pardo joint venture with Gol and its possible effects with ASUR.

Okay first of all in the case of guidelines for the year 2006, Alan the only thing I can say to you, is that the World Cup football is going to take place in Germany. In the case of Gol what I can say to you is that this is a complete deal, made by apparently ITA with Gol. I don't know how this is being managed or negotiated because we are not part of this deal, and again I can not give any guidelines on the impact that this is going have in our airports. Because at the moment I don't have any more details of the ones that you have seen in the press, that's what I can say to you.

Okay and you haven't had any talks with Gol of they flying from Brazil to Cancun or something like that?

Not for the moment.

Thank you.

You're welcome.

Your next questions is from Guadalupe Vijard (ph) the Mexican Fund.

Hello Aldolfo, my question is also related to the cost you see going forward. Because since the cost raised because of these commercial cost you had. Can we expect the increase -- another increase in this kind of cost going forward?

Well Guadalupe, well basically the answer is yes, if the commercial direct operation continues increasing in terms of revenues. Because you have a direct cost different than, -- the one that we have when we have just concessionaires. Today we are selling a product and each of these products has its own direct cost, and it's included into our financial statements. Again if this direct commercial operation increases in terms of revenue, of course the cost will increase.

Okay, and among the expenses associated with the evaluation of new projects, do these new projects include also the possibility of you being part of a new airline low cost carrier somehow?

No, it is clearly indicated in our law, that the airport groups cannot participate in more than 5% of an airline. If there's any doubt that we will be participating in the case of Gol, I can say to you that we will not participate on that airline, not even with the 5%. When we are talking about additional projects, remember that we have finalized the feasibility studies for the light train in the Viramaya (ph) zone and that's what we're talking about.

And how will these projects be coming?

Well, for the moment the only thing I can say to you is that the feasibility study was positive, from a technical, physical and financial point of view. For the moment, we cannot say that we will be participating on that, or deny that we will be participating on that. We will have to talk with the State Government and the Federal Government to present them the results of the study and then to see what's the next step.

Okay, that was very clear thank you.

You're welcome.

Your next question comes from Daniel Parker from Bear Stearns.

Adolfo, hi, I'm sorry, one follow up related to the previous questions. Given the margins that you suggested for the retail businesses, obviously as that commercial operations continue to grow, your absolute revenues were increased, but should we assume based on the relative margins of the airport business versus the retail that we might sort of see maybe a sort of leveling of, of margins going forward because it sounds like the retail is slightly lower margin than what your pure airport margins would be?

Well, from the-- I didn't get your question completely, but the reality is once again, that if we-- that the margin that we have in the operations and the commercial of, in the direct commercial operations is lower than what we have for the other commercial operations because in the other commercial operations, we do not have a direct cost, except in the case of parking lots, because you know that we are operating the parking lots since the year 2000. In the other cases, I would say the margin is really high because what we get is just the percentage on the revenues of the concessionaire. We do not have any direct impact on the expenses side, apart from the personnel that co-ordinates all of these activities.

Okay, maybe I, maybe I'm misunderstanding but would it be accurate to say that the-- if you sort of weighted the profitability , the margins for your directly operated commercial businesses are effectively lower than your sort of pure airports. As those revenues continue to increase in a sense your weighted average margin might sort of stabilize around current levels or sort of level of as that business continues to grow?

Well probably, probably that's a good statement.

Or should we assume, perhaps additional margin expansion, because just the general increase in top line would lead to further fixed cost dilution, or do you see margins sort of more stabilizing?

Again that will depend, if we continue with this commercial operation increase in revenues.

Okay.

As an example, if we decide to stop this terminal, and if we decide to operate the commercial part of this terminal, of course the margin, the overall margin will reduce, with the same amount of passengers.

Okay, great, thank you.

You're welcome.

Your next quick question comes from Michelle Shlump (ph) from UDS (ph).

Hi, Adolfo my question is a very short one. Do you have an estimate of the impact that Hurricane Emily might cause in July passenger traffic?

Well that's a very easy and not easy question. Normally the passenger's appropriation in the case of Cancun Airport, are around or very close to hundred, but is not the case, its not the same case, in the case of Merida and Cozumel, that should be something around 45 passengers appropriation, so let's try to calculate that, see if we say that, it was 184 and 20 of those were from Cozumel and Merida, so we can say that around 18,000 passengers is what the impact should be.

18,000, okay, thanks very much.

You're welcome.

(Operator Instructions). There are no further questions sir.

Okay, once again thank you to all of you for your attention and we will talk in the next conference call meeting. Thank you, have a good day, bye.