Grupo Aeroportuario del Sureste SAB de CV (ASR) 2005 Q3 法說會逐字稿

Good morning. My name is Crystal and I will be your conference facilitator today. At this time, I would like to welcome everyone to the ASUR third-quarter 2005 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (OPERATOR INSTRUCTIONS) Mr. Castro, you may begin your conference.

Thank you, Crystal. Good day, everyone and thank you for joining us today. This is Adolfo Castro, the Company's Chief Financial Officer and Head of Investor Relations.

Before we begin, allow me to remind you that certain statements 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 risks and uncertainties that could cause actual results to differ materially, including risks that may be beyond our Company's control. For these risks, 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 would like to provide you an update on the effects of the Hurricane Wilma that hit Cancun and Cozumel during four days as from October 20th. This hurricane was a category four with winds from 200 up to 275 kilometers per hour. But the major problem we face was the amount of time this hurricane spent damaging Cancun and Cozumel, between 24 and 30 hours of wind, water and sand hitting every single infrastructure in the region.

Hurricane Wilma severely affected Cancun, the Riviera Maya and Cozumel. Hotel infrastructure, communications, energy, infrastructure and the airport infrastructure were in somehow damaged. At the same time, the seaports of Cozumel were destroyed while the roads between Merida and Cancun were flooded in parts with more than two meters of water. Yesterday, I personally visited Cancun Airport and after a lot of work, we were able to start evacuating some tourists through this airport.

At the time being, we cannot estimate the total damage cause to the infrastructure of Cancun and Cozumel airports. We're looking together with the insurance company in order to prepare the respective reports and calculate these amounts. As a result of all of this, at the moment, we cannot estimate what will be the final impact on our financial results for the month, not for the quarter, not for next year.

Now let me quickly discuss the results of the third quarter. I won't spend too much time on this as the numbers are in the announcement that we released yesterday. As you have seen by now, total passenger traffic for the quarter fell 4.82% over the same period last year with both domestic passenger and international passenger traffic during the quarter. This was principally the result of the Hurricane Emily that hit Cancun and Cozumel on July 13th.

Passenger traffic to and from the United States through ASUR's airport fell year-over-year by 4.2%, 8.4% and 7.1% for the months of July, August and September respectively. International passenger traffic accounted for 57.3% of the total traffic for the quarter compared with the 57.6% in the same period last year. Passenger traffic to and from Mexico, Canada and the United States represented 86.1% of the total passenger traffic for the quarter, slightly below of the 86.7% for the third quarter last year.

Total revenues improved year-over-year by 26.27%, mainly driven by higher revenues from non-aeronautical services as a result of the arbitration decision in ASUR's favor against Dufry de Mexico and the 9.9 million payment by Aldeasa owed to ASUR.

Commercial revenues per passenger for the quarter rose by 35.6% but excluding the effect of these two items, commercial revenues per passenger would have declined by 1.8%. Commercial revenues were also impacted by the position of the Mexican peso against the U.S. dollar approximately by 5.49%. Finally, operating margin for the quarter fell to 41.78% from 43.04% in the third quarter mainly as a result of high operational expenses while net income rose by 19.7%. Now, Crystal, please open the floor for questions.

(OPERATOR INSTRUCTIONS) Marcelo Telles, CSFB.

Good morning. I have two questions. The first one is regarding your insurance policy. I was wondering if you could just confirm that your first policy covers only some physical damage in the airport or if there is any first policy related to interruption of the business. My second question is -- I don't know if you could give us an update on the possibility of construction of a second airport in the Riviera Maya.

In terms of the insurance policy, I can say that today we are covered in terms of the infrastructure. We do not have a business interruption policy. In the case of the construction of the second airport is something that, for the moment, is not our priority. Our priority today is to think about how are we going to reconstruct the current airport. I will not have any additional comment on the construction of the second airport, more of what you can see in our documents in the filings.

Gonzalo Fernandez, Santander.

Hi, Adolfo. First of all, I am sorry for what is happening in Cancun. I hope that your people are okay there. On your press release today, you mentioned that the airport is severely damaged. You mentioned the damages to the administrative space but I don't know if you can expand on that what is the -- you being there yesterday, what is the status of the commercial areas of basically the control tower, the equipment and if you can expand a little more on this.

Good morning, Gonzalo and thank you for your words. In terms of the administrative offices, as I said this morning in the press release, I have 50% of the building is in somehow operational. The rest is not for the moment a place where you can stay there. We started some rescue operations yesterday in Cancun Airport, ff course without any commercial activities. All the commercial activities are completely closed. For the moment, we don't know when we could restart these activities.

In terms of the control tower, the control tower suffered some, I would say, little damage in terms of the building. In terms of the equipment, the equipment is basically out since the hurricane. We are working today in a (indiscernible) mode. That means that we do not have radar. We do not have VOR. We do not have ILS, instrumental landing systems. So we -- instead of being able to operate around 40, 43 operations per hour, we are working today at the speed of six operations per hour. That is what I can say to you for the moment.

About the commercial space just expanding, is it damaged or just not operating?

Well, in the case of Terminal 1, it is damaged. I would say Terminal 1, probably if you see some newspapers you'll see some pictures. The roof of Terminal 1 was destroyed. It is not there. So we have a terminal building with an open sky and you can imagine what has happened inside.

In the case of Terminal 2, I would say there are some damages in the case of the commercial spaces. I would not call them major damages. I would say minor damage and I hope that we will be able to start this operation in the coming future.

Dan Kowakowski (ph), Schroders.

Good morning, Adolfo and again, commiserations. A rather mundane question but in the second quarter there was a rescue clause write back of -- it looks like 2 million pesos. Could you just remind me what that was?

Okay. What we have placed in the rescue clause in the past is basically two items. The first one is related to commercial activities and we're talking about all tenants that we were trying to evacuate from the airport mainly in the case of Cozumel. The other concept that you can see there is in the case of hurricanes. I remember in the past, an amount that we placed there as a result of hurricane Isadore for the case of Merida Airport. The 2 million pesos that you are talking today is basically additional people that we were able to evacuate from the satellite building in Cancun Airport and Terminal 1 in the same airport.

Right, okay. Thank you very much.

(OPERATOR INSTRUCTIONS) Daniel McGoey with Deutsche Ixe.

Hi, Adolfo. My question is regarding also on the insurance side. I am wondering if you have an expected timeline of the disbursement of the insurance money and whether you have any idea on how that would be deployed, if you plan on making any -- do you need to make significant changes, structural changes to the Terminal 1 area? Also, if you can remind us whether there is anything specific in the contracts with the government regarding inability to operate or catastrophic events that might affect the business and we should be aware of?

In the case of the insurance policy, what I think is that we are covered. I don't know when the money can come to the Company. The discussion that I had yesterday with the insurance representatives was in the sense to first try to reach an amount, then to discuss what are we going to ask as the down payment, and then to finalize the calculations. I would say today, Dan, that I don't have any chance to tell you the amount related to this damage. So I cannot say or tell a date of when we will be recovering this amount. The only thing that I can say to you on that respect is that we think, we felt, that we are covered for the damages. In the case of Terminal 1, your question was about what?

Well, I guess the question is I know that there was designs being drawn up for construction of an entirely new terminal. I am just wondering to what extent that plays a role in a reconstruction of Terminal 1 and whether or not -- I guess there is a balance here between speed of getting back in operation on Terminal 1 and other construction project that was going to be breaking ground presumably quite soon. I'm wondering whether it is too early to be contemplating those issues together?

First of all, we can reconstruct Terminal 1. There is no structural damage in the building, apparently. Of course, in terms of how to tell of the future operation of Cancun is something that we cannot decide today. What I think is that we will reconstruct this building first, and then we will think about the possibility of changing the development in the future. But I believe that we will reconstruct Terminal 1. In case of catastrophic events, yes, there is some provisions in the concession title, and there is one specific provision for the case of hurricanes. In that case, what we can do is a maximum tariff increase if we need to do so. What I believe is that this is too early to try to think about this issue, because we do not have a specific amount or a specific number that we can present to the SCT in order to make our case. But yes, there is a provision that talks about catastrophic events like the one that we have last week in this region.

(OPERATOR INSTRUCTIONS) Cecilia Van Costillo (ph) with Mexivo.

Hello, Adolfo; good morning. I have a question. It's kind of a follow-up to Dan's question. In terms of five-year master plan, what to do you or what does that contemplate in terms of catastrophic events? I mean, I know it is early to get an amount of what will be the impact for investments for ASUR, but I don't know if there is like waivers that you can talk about to us?

In the case of the master development plan, we have our plan as from the year 2004. I think that this plan will not be modified for the moment, because what we are going to do right now is basically to reconstruct what it was damaged. It does not have to do anything with the master development plan. In terms of what will be the impact of this in our financial results, it's something that I cannot talk with you right now because we do not have yet the picture of what will be the impact. The only thing that I have to say is that there are two important elements here. The first one is the reconstruction and the second one is passenger traffic. I think that -- and I have not been there yet -- I think that the hotel infrastructure is also damaged, and this will affect of course the passenger traffic. In terms of the reconstruction, what I believe is that reconstruction can be made with the insurance company. Of course, it will have an impact on our financial statements in terms of the deductibles from the insurance policy, but I don't expect this to be very hard compared with the total damage that we have suffered in Cancun and Cozumel Airports last week.

Dan Kowakowski with Schroders.

Adolfo, just really a follow-up to that last question. I imagine that your investment plans are being sort of put on hold for a bit. I mean the new runway will be postponed, the possibility of train link, a train link will be postponed until you have a better idea of what damage has been done to Cancun. Is that a correct assumption?

Well, to be honest with you, we have not put on hold those projects. The situation of the airport right now is basically again to try to reconstruct what it was damaged. I don't think that we will postpone anything, because that is a commitment with the government, unless the situation is so dramatic that we have to postpone these things. But my first thought will be in the sense that we will not put on hold anything, that we will go ahead with the projects that we have, and that we will work very hard in order to reconstruct the airport as soon as possible. And then after, to start or to continue with the projects that we were doing last week.

Eyton Friedman with Baron Capital.

Good morning. I was hoping you could comment on Macquarie Airport's recent bid for Copenhagen Airports. Maybe if you could talk about -- I guess your understanding as to the status of the bid, whether you think it will be successful. And more importantly, if you could talk about your current relationship with Copenhagen and the implications for this relationship if they are acquired by Macquarie.

First of all, the thing that I can say about this issue is probably the same as you have seen in the press releases that Copenhagen Airport issued (indiscernible) last week. Basically, the situation is that the Board of Directors has recommended this offer to investors. I cannot tell you if this is going to be the case or not. I would not -- I don't want to make a personal opinion on this. In the sense of what the relation with Copenhagen Airports, the relation is excellent. They have been helping us a lot with all division of the airport. As you know, that they are very successful in what they do, and that is probably why Macquarie wants the control of these airports.

In terms of what would be the future impact is Macquarie is successful in getting the control of Copenhagen Airport, it is something that I cannot say right now. Maquarie is a great company. They operate all their airports in the world with a lot of success. I don't want to say that they are better or not compared with Copenhagen Airports. That's what I can say for the moment.

Are there any terms or specific terms in your contract with Copenhagen relating to how the contract is affected if they are acquired?

Well, there is no provision and they can do -- Macquarie can acquire the control of this company without any problem with us.

Okay. I'm assuming they can also cancel or terminate the relationship with you if they want to.

No, they cannot. They have a commitment with the Mexican government as shareholder of their strategic partner, and if they acquire that, they will be taking that responsibility.

Gordon Lee with UBS.

Good morning, Adolfo, and our thoughts are obviously with you and all of your people. Just one quick follow-up on the insurance policy. I just wanted to clarify or just wanted to get an understanding as to whether the amount of damage that is covered is capped at a certain level or whether the policy is for definite physical damage?

Well, the policy is to cover physical damages only.

But at an indefinite amount, or is there a capped dollar amount?

It is a capped dollar amount, but I don't expect this cap will be reached with what I can -- with what I saw yesterday.

Can you tell us what that amount is for both Cancun and Cozumel?

I do not have the exact figure right now, but it is around $150 million.

Perfect. Thank you very much, Adolfo.

You're welcome.

(OPERATOR INSTRUCTIONS). Stuart Powers with PCI.

I just wanted to understand a little bit more about the type of passenger that flies into Cancun. Can you give me any indication of what proportion of the passengers in a normal year are tourists or what proportion of passengers are, in effect, discretionary passengers rather than people who have to arrive for business or for any other reason?

Well, of course, I do not have an accurate number for that purpose, but I can say to you that the major, major portion of the passengers that goes to Cozumel, to Cancun and Cozumel, are basically tourists.

Okay. And we're talking 90% plus, yes?

It could be something like that, yes.

And secondly, I didn't quite understand your answer to the question on the situation with constructing a new runway and a new terminal. I think you said that you have got no plans to postpone this CapEx. And I didn't quite understand whether you were saying that you haven't -- now is not the moment to be thinking about this issue, and you haven't fully appraised whether it is necessary or not; or whether you're saying that you haven't postponed because you think that by sort of 2008 or whenever the new runway was going to be operational, you think traffic will have recovered to a level that requires it.

First of all, we have not postponed those projects because in those specific cases, we were expecting approvals from the authorities that we have not received yet. We were expecting the land from the government in the second -- in the case of the second runway that we have not received yet. What I can say to you is that as soon as we receive the runway, I think that we will go ahead with the project. Yes, of course, we think that the passenger traffic in the future will be recovered, and we will require this infrastructure. But again, it is too early to give statements on each one of these things.

Why? Because the hurricane just left us destruction, and it has been a very tough time over the last 72 hours. It is too early to start saying or to think about these kind of things, but my personal thoughts on this is that we will go ahead with those projects once we receive the appropriate land and the appropriate approvals from the government.

Just one further question. I haven't quite understood the extent of the damage to the hotel infrastructure in Cancun. I know someone else mentioned this. I'm just trying to understand, is this the sort of situation where pretty much all of the hotel capacity has been wiped out, so we are going to see no tourism to Cancun for a year? Or is this the sort of situation where 50% of the capacity could be up and running by the second half of next year? I know it is difficult to talk about figures, but if you just -- I can't really -- sitting over here in London, I haven't really got a feeling for the scale of the situation.

Okay. It's very hard for me to -- once again to give firm statements on this because we do not have real data yet. What I can say to you is that not all infrastructure was damaged. There are some hotels that can start operations, I would say, shortly, means next week, once the energy and the water it's again in their hotels. Today there is no water or there is no energy in the region. But we do not have yet the exact number of how many hotel rooms were damaged and also in what the size of or what kind of damage we have on those hotels.

Apparently, the damage is windows, curtains, things like that. But again, it is very early for me to tell you exactly what has happened in the hotel infrastructure. It is something that we will have to wait, I would say, probably one week to know exactly what has happened in this hotel infrastructure.

But is it fair to say that at this stage, it looks more like a sort of six-month rebuild process than a two-year rebuild process? I mean it's not that you have got to start building a whole load of new hotels. It's just you have got to do some reconstruction work.

No, no, no, I would say probably there are a couple of hotels that have structural damage, but I'm talking about a couple of -- well, not a couple, a few of them. The rest is basically window curtains, equipment; that's it.

So by Q4 next year, there should be some sort of tourism operation going on in Cancun again.

Well, I hope so.

Me, too. Thanks a lot, Adolfo. Sorry about all this. Best of luck recovering from everything.

Guadalupe Villar (ph) with the Mexico Funds.

Hi, Adolfo. From what you saw yesterday, and maybe it's too early as you are saying, but what is your sense about the speed of the organization for the reconstruction of the city in terms of infrastructure and hotel reconstruction?

I would say, Guadalupe, good morning. The speed, it's really nice, I would say; that over the last 48 hours a lot of things are up and running. We cannot compare these of what has happened this year in the case of the United States. Just think about this, after 48 hours we have been able to create some flights in the airport. Some parts of the infrastructure that are already there; I would say communications with a lot of problems, but some of the communications have been reestablished. We are basically in the process to clean the mess, and a lot of people is working on that. The authorities are cooperating and they're working together, and what I'm saying authorities is state authorities, federal authorities. President Fox has been there since Monday, and I think that the speed, it's okay.

In the case of hotels, a lot of people is working again to try to clean the mess first and then to start working on the reconstruction. I am positive on that side.

What about the sand of the beach? Are there any plans to have the beaches with sand again soon?

Okay, I don't know the details about that. The only thing that I can say on this is again a personal opinion. I remember Hurricane Hilberto in the year '88. I was working in a company that owned a hotel at the moment, and yes, that was one of the problems in that case. I remember equipment pulling some sand from the sea up to the front of the hotel, and you remember that there is some sand or there was some sand last week there. So it is not impossible. The sand can be recovered, and I think that they can reconstruct the beaches, too.

(OPERATOR INSTRUCTIONS). Daniel Parker with Bear Stearns.

A couple of questions for you. I take it that since you have been running, I guess, emergency or evacuation flights out of Cancun that the runway itself was not terribly damaged.

Well, I would say it is not -- apparently is not damaged. I have to say apparently because (indiscernible) an in-depth analysis. The runway was flooded over, I would say, 18 hours. We really don't know what this water can cause in the future of this runway. For the moment, it is completely operational and we are working there, I would say, today with 100% of safety in that respect. So I don't see any -- I don't expect any problem on that case in the future.

My next question was, do you have a sense, just a rough sense in terms of the time it will take to rebuild Terminal 1, i.e. put a new roof on it and I guess either fix or install new navigational equipment into the control tower and such?

Well, in the case of the control tower, it is something that we should be expecting to be up and running in the coming days, or I would say one week. I hope that they can restart this equipment in the near future. In the case of Terminal 1, it is very hard to say when this can be rebuilt because you can imagine that everybody is doing the same. So the construction companies are going to be filled with orders, and the speed will depend on labor basically. We are not just -- we are not the only ones that were damaged. A lot of people were damaged. A lot of infrastructure were damaged. So everybody is running to get the appropriate people to reconstruct the things. I cannot tell you when this can be reconstructed. That is why we said this morning that this terminal will remain closed in the near future. Probably in the case of this building, we can try to make an arrangement in order to operate the very, very small piece of this, but I don't know when we can be ready.

So you are basically routing everybody through Terminal 2 right now.

Absolutely. I would say we do not have Terminal 1 right now, and we will not have this for the near future.

I'm sorry, two last questions for you. One, maybe I misunderstood. I thought your insurance policy covered about $50 million, but you're saying it's $150 million?

It's around $150 million, yes.

Just the last question was, I know at this point it is sort of a peripheral issue, but I am just a little unclear at this point what the delay was with the government in getting or securing the last -- I think it was like 3 or 5% roughly of the land needed to actually construct the second runway?

Well, what I can say to you is that they have been in negotiations with the owners of the land. They have not reached yet an amount or the price for the land. They are getting closer. I don't know what is going to happen after this major event that we had last week, but if we can go back one or two weeks in the time, the negotiations were really advanced.

So do you think it is just a matter of time until they essentially close the gap on the price?

Absolutely.

Or is it an issue that they are going to have to take this to the courts to press them for --?

No, no, no, no. I think that they will have to reach a price.

Igor Kraika (ph) with Renaissance Technologies.

Regarding the insurance, what is your deductible there?

Well, I don't remember the exact figure right now again, but it should be something like, let's say, $11 million.

And what is the breakdown in capacity between Terminal 1 and Terminal 2?

Well, in the past, and you can see the filings, Terminal 1 was the charter flight terminal. So we can say 80/20, and Terminal 1 is 20%, more or less.

And what do you think is the earliest that you think you can be back up and fully in operation?

I don't know. I don't want to say something about it right now, because everything that I say, it is going to be wrong. I don't have enough information for the moment to tell you when we can go back again in a normal operation.

But would your guess be sort of three months or six months?

No, I don't want to say something about it, because I really don't know when.

Andreas Olak (ph) with Vector.

Good morning, Adolfo. One of my questions was already answered. I think by reconstructing the tower, you said it shouldn't take more than one week. But now my other question, what does worry you more? Is it that the reconstruction of the airport, that it might take a long time, or that once you did it that tourists won't be coming because the hotels still needs a lot more time, so that the passengers flow will stay very low?

Well, of course, it depends on the timeline or in the perspective. If we talk about the next 12 hours, I am worried about evacuating the tourists that are there in Cancun. If we talk about probably 24 hours, I am worried also about my personnel because they have suffered the same, and some of their properties have been lost. If we talk about the future meantime, three, six, nine months, of course we're talking about the passenger traffic and the hotel infrastructure.

So you can't say whether it will maybe take the hotel infrastructure longer to be reconstructed or the airport?

Again, I cannot tell you anything about it. You can try to dig into the files of what has happened with Hurricane Hilberto. A lot of people are saying that this was worse, but I don't know how worse, but I would say probably the same. And in that case, I remember, and you will see it in the files again, that Hurricane Hilberto hit Cancun in September, mid-September '88. And there was a huge event two months after basically to say we are back again, and that was the Miss Universe contest, beauty contest. So again, I cannot tell you what will be the time that they will need to reconstruct the thing. It is very hard to say.

A follow-up question from the line of Daniel McGoey.

Thanks, Adolfo. My questions have been answered.

Your next question is also a follow-up question from the line of Cecilia Van Costillo.

Adolfo, I have another question regarding costs and SG&A. All this, I think that one of the major impacts is the insurance costs, but other than that, what happens with the assistant's (ph) fee and the concession fee? Is there any clause or waivers to that, because maybe during just in the negative scenario, let's assume that you have operating losses in fourth quarter. What happens then?

Well, the case of -- well, let me try to talk about the insurance because we see for the future that will be also an important point. The hurricane season has been very hard with us this year. If you remember, we have Emily, we had Stan, and now we have Wilma. So insurance policy costs, I think, it will increase in the future. That is the most -- that is one of the things. The second thing in terms of concession fee, that is very clear; it's 5% of our revenues, and we cannot change the law in Mexico. In the case of the strategic partner fee, that is 5% of the EBITDA or a fixed amount that is $2 million plus the U.S. inflation as from 19 of April '99 up to now. I don't think that this can be also changed as a result of this.

And in terms of operating costs, for example, maintenance or, for example, wages or like employees or something else, is there any other effect?

Well, you know that most -- the large portion of our cost structure is fixed. So if we do not have passengers, the cost it's going to be there.

(OPERATOR INSTRUCTIONS) Gonzalo Fernandez.

A follow-up about the -- do you have any information about the status of Cozumel Airport, and if the Merida Airport is operating under normal conditions?

Let me try to answer your second question first. Merida is not operating under normal conditions, because a lot of the tourists that were in Cancun were redirected to Merida. Merida is operating right now at, I would say, over capacity. Merida normally it's an airport that manage, let's say, 1000 passengers a day. I can say to you that there were 10,000 passengers yesterday in that airport. They are operating 24 hours, so they are trying to once again evacuate all of these tourism as soon as we can.

In the case of Cozumel, I cannot tell you exactly what the situation is right now in Cozumel because we do not have communications. The port were destroyed, so today we cannot make connection with them in that sense, and I cannot assure what is the real status of the infrastructure. But the information that I got right now and what I have received in the last couple of days is that Cozumel is more or less in the same situation as Cancun right now.

Thank you, Adolfo, and again, good luck with the reconstruction.

Thank you, Gonzalo.

At this time, there are no further questions. Mr. Castro, do you have any closing remarks?

Well, I just want to say that we are working as hard as we can in order to reconstruct what it was destroyed. The people, it is without any personal damage. Everything is material. We're talking about money and time, and I hope that we can reconstruct this the earliest as possible. Thank you very much, and we will talk again in the next conference call.

This concludes today's ASUR third-quarter 2005 earnings conference call. You may now disconnect.