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Operator
Good morning, my name is Michael and I will be your conference operator today. At this time I would like to welcome everyone to the Breakstone 4th quarter 2005 conference call.
[OPERATOR INSTRUCTIONS]
Thank you. I would now like to turn the call over to Adolfo Castro, Chief Financial Officer. Sir, you may begin.
Adolfo Castro - CFO
Thank you Michael. Good morning this is Adolfo Castro, Chief Financial Officer of ASUR. This is fourth quarter earnings release.
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 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 the results of the quarter, I would like to provide an update of the effects of the Hurricane Wilma that hit Cancun and Cozumel during four days as from October 20 as well as the progress we are making in terms of our expansion in operations in Cancun.
In terms of the Hurricane Wilma, she was a monster Category 4, combined with a huge cold wind coming from the north creating a wall that stopped her for 30 hours above the region before she made a turn in her direction. It was 30 hours of winds of more than 118 mph. The damage to ASUR's infrastructure was severe. We have been working together with insurance companies in order to calculate a total damage cost to the infrastructure of Cancun and Cozumel Airports.
In the fourth quarter we recorded total damage of 134 million pesos. Of this amount 89 million have already been advanced to ASUR by the insurance company with 44 million remaining to be paid. However, we are still working on this front and expect to estimate the total resulting damage in the coming months. I also want to note that considering the magnitude of the events that impacted Cancun and Gulf of Mexico during 2005 we expect a significant increase in the insurance premium of the policy that covers the company against the damage from hurricanes. This policy is expected to be renewed this February 2006.
The impact on hotel infrastructure. In terms of the impact on hotel infrastructure in Cancun and the Riviera Maya region, around 40,000 hotel rooms were damaged of the regional 52,600 before the hurricane. As of the last day of January this year, around 25,000 of the regional 40,000 rooms have been repaired and are in operation. We can not make an estimation when the other 15,000 rooms could be in operation again. This of course could have an impact on the passenger traffic for Cancun Airport. In the case of Cozumel Airport, around 3,200 rooms were damaged of the regional 3,600 rooms. As of the last day of January no rooms have been repaired.
The impact in passenger traffic. In terms of the impact that the hurricane had over the passenger traffic from October 25 to December 31, 2005, traffic fell 57.05 at Cancun airport and 82.53% at Cozumel compared with what we had for the year 2004. As a result of what I have mentioned, we expect that the negative impact of Wilma on passenger traffic will continue a large portion of 2006. As a result of this, at the moment we cannot estimate what would be the final impact on our financial results for the year 2006.
On the operational front, I can say that in the case of Cancun and Cozumel airports almost everything is working almost the same way as it was before the hurricane with exception of Terminal One at Cancun Airport. Terminal One was physically damaged 40%. Today we are still analyzing what to do what to do with this building. For the moment we do not require that terminal capacity. During the year 2004 this building presented approximately 20% of our terminal capacity.
In terms of expansion of Cancun Airport, we are pleased to report that as ASUR received government authorization for the construction of Terminal 3 at Cancun airport and the second runway for the same airport. In December, we welcomed government representatives to a ceremony where the foundation stone for the new terminal building was laid. Full details are in the release, but in short, we believe that the new facilities will be some of the most modern and efficient in the country. And the new runway will effectively double our current capacity for air traffic operations.
Now let me discuss the results for the fourth quarter. I won't spend too much time on this as the numbers are in the announcement that we have released yesterday. As you saw in yesterday's release, total passenger traffic for the quarter fell 33.07% compared with the same period last year, with both domestic passenger and international passenger traffic down during the quarter. This was principally the result of Hurricane Wilma that hit Cancun and Cozumel on October 20th.
Total passenger traffic through ASUR fell year-over-year 19.8%, 50.3% and 28.4% for the months of October, November and December, respectively. International passenger traffic accounted for 42.4% of the total traffic of the quarter, compared with the 56.7% in the same period last year. Passenger traffic to and from Mexico, Canada and the United States represented 90% of total passenger traffic for the quarter, slightly above the 87.7% for the full quarter last year.
Total revenues declined year-over-year 32.57%, mainly owing to a decline in revenues from both aeronautical and non-aeronautical services as a result of the lower passenger traffic and a reduction in commercial revenues, respectively. Commercial revenues per passengers for the quarter increased year-over-year by 9.89% to 30.9 pesos. Total commercial revenues fell 26.28% to 76.9 million as a result of the decline in revenues from food, retail and service operations. Although the decline was partially upset by increase in advertising and parting revenues.
Finally, operating margin for the quarter fell 7.49% from 37.47% in the fourth quarter, mainly as a result of the lower revenues while net income also declined by 96.94% to 6.15 million. During the year we have invested 632 million pesos, this amount is the largest ever. In front, we have two major projects which are the second runway and Terminal 3, both for Cancun airport. Just with these two projects we are talking about 1.6 billion pesos for the next two years.
Now let me open the floor for questions. Michael go ahead please.
Operator
[OPERATOR INSTRUCTIONS]
Your first question comes from Gonzalo Fernandez with Santander.
Gonzalo Fernandez - Analyst
Hello Adolfo and good morning. Two questions, you mentioned in your press release that you are going to negotiate the insurance premium in February. And I don't know which was the amount of the insurance premium last year and whether if you have any expectations for what type of increase we can expect. And which is the treatment, do you make a one-time charge during the quarter or do you amortize the premium during the whole year.
And the second question would be the same as I did last conference call, considering that you expect this kind of difficult environment to continue and the significant investment going forward, I don't know if you have a reevaluate your dividend policy or do you expect to maintain kind of the same thing as de facto. I know that you don't have a dividend policy but more the historical --?
Adolfo Castro - CFO
Okay. Good morning Gonzalo. In terms of the insurance policy the cost of this policy for the year 2004 was around $400,000. I don't know for the moment how much I will have to pay, but believe me it is going to be several times more for this case as a result of the effect of the hurricanes that we had during the year 2005. Remember that in our case we had Emily, we had Wilma and we had another one that probably you do not remember, it was Stan that here basically includes [Oaxaca] and Tapachula.
Also you know that we had the Katrina in the case of the Gulf of Mexico and another one that was very strong. So my expectation is that these costs will increase significant. Of course these have to be amortized along the year, it's not just one shot.
In the case of the dividend policy, yes it's true that we have to review this carefully right now because we have in front a huge amounts of investments resulted from Terminal 3 and the second runway. You know that we, our revenues are declining and again I have to evaluate these carefully. I will be presenting my proposal next week to the authorities here in the company which are first, the strategic planner, then the operations committee then the board of directors and finally the shareholders assembly. I cannot say right now if this is going to change or not.
Gonzalo Fernandez - Analyst
Okay, thank you Adolfo and congratulations on a very good year on avery difficult environment.
Adolfo Castro - CFO
Thank you Gonzalo.
Operator
Your next question comes from [Alan Macias] with Citigroup.
Alan Macias - Analyst
Hi Adolfo.
Adolfo Castro - CFO
Good morning Alan.
Alan Macias - Analyst
I have several questions. Just to clarify the insurance premium is for all the airports, right?
Adolfo Castro - CFO
Yes, that's true.
Alan Macias - Analyst
Okay, the next question would be on CapEx and the maximum tariff. Are you negotiating for a revision of this with the government, for the maximum tariff?
Adolfo Castro - CFO
Well, not for the moment and you are absolutely right in the sense that in our concession title there's a clause that states that in the case of natural disasters, we can claim for a maximum tariff increase.
I have not done this because for the moment we really don't know what will be the full impact of this. I cannot ask today a maximum tariff increase without any base or without any numbers for this increase. I think this will take most of this year. I don't expect to be in the same situation that we were before this hurricane, before the year is over. So yes, we will have to evaluate that too.
Alan Macias - Analyst
The next question would be on CapEx for 2006. Can you share with us a number?
Adolfo Castro - CFO
Yes of course, in the case of the regional MDP for the year 2004/2008, more or less in terms of million dollars, we have [$50] million of these for specific year. But on top of this $50 million, you have to have the Terminal 3 and the second runway.
These approaches were announced during the first week of December last year, we're talking about 100 more less $150 million for both. I don't have a detailed breakdown of how much is going to be invested in each one for this specific year but a reasonable thing to do could be to say 50% this year and 50% next one.
Alan Macias - Analyst
Thank you. And just a last question. Regarding costs for security measures, the new security measures that are required in airports. Are we going to see any increase or have you already absorbed this cost? Can you just talk a little about this?
Adolfo Castro - CFO
Of course in the future you will see an increase. It's true that a portion of these new security measures had an impact on the fourth quarter last year because these new security measures are basically equipment and people. We had to hire, during the last fourth quarter, the people and we had to train those in order that they were ready for the first day of January this year.
The further increase that you will see is related or should be related to the maintenance of these specific equipment. Keep in mind that this project meant for us around $40 million investment last year.
Operator
[OPERATOR INSTRUCTIONS] Your next question comes from [Jorge Bariscallo] with PRG Management.
Jorge Bariscallo - Analyst
Adolfo, how are you? Can you give us an update of what's going on with the second airport in the Riviera Maya? Anything new?
Adolfo Castro - CFO
Of course, Jorge, good morning. Well, during the quarter there was, the pressure has increased as a result of the hurricane and because a lot of people are saying that it would be better to have two airports instead of one in the region. I have to say that I don't share that opinion with them.
This hurricane was huge and even though you have two airports or three airports, you would not been able to fly from those because she was there. There are some comments, first is the President Fox on December 13 in Cancun together with the governor and Ministry of Tourism expressed that they wanted to make a bidding process of these airports during the month of January 2006.
The second comment was also the Undersecretary of Communications and Transport two weeks ago in Cancun saying that they will be making a bidding process of these airport during the month of March. The last one was the CEO of the authorities in terms of civil aviation here in Mexico. He said basically that they will go ahead with the bidding process of these airports. So I don't know when this is going to be out. I don't know what are going to be the basis for the bidding process. Basically we are waiting to see what the authorities want to do with respect to these second airports.
Jorge Bariscallo - Analyst
Okay, but the bidding hasn't begun yet?
Adolfo Castro - CFO
No, it has not begun yet.
Jorge Bariscallo - Analyst
Okay, thank you.
Adolfo Castro - CFO
You're welcome.
Operator
Your next question comes from Alejandra Marcos with Banorte .
Alejandra Marcos - Analyst
Hi and also good morning. Just a quick question, when was the amount that you invest for the screening baggage and do you have already complete it?
Adolfo Castro - CFO
For the security measures?
Alejandra Marcos - Analyst
Yes.
Adolfo Castro - CFO
Well, I said around $40 million. We have concluded what we call phase 1 and we are just finalizing the phase 2 during the coming weeks. You know that these measures in the case of Mexico was divided into two steps. The first one was the 100% full baggage screening for the international passengers. And is from the first day of July this year for international and for domestic too.
Alejandra Marcos - Analyst
And this $40 million, already are contemplated the national and international?
Adolfo Castro - CFO
Yes, of course.
Alejandra Marcos - Analyst
Okay, perfect. Thank you.
Operator
Your next question comes from [Sherod Pulli] with MirGlobal.
Sherod Pulli - Analyst
Hi Adolfo, how are you?
Adolfo Castro - CFO
Fine and you?
Sherod Pulli - Analyst
I'm doing great, thanks. I might not have heard that number right but in terms of CapEx going forward, did you say that in terms of the runway and the Terminal 3 you're going to have expenses of $150 million over the next two years, is that right, 150?
Adolfo Castro - CFO
Yes, it's 150, yes, million dollars.
Sherod Pulli - Analyst
And then in terms of your regular CapEx, what is that number on a yearly basis?
Adolfo Castro - CFO
Well, I cannot say regular, because you know that we have a master development plan.
Sherod Pulli - Analyst
Right.
Adolfo Castro - CFO
These figures of the master development plan were published the first week of January 2004. Publication of this specific year, that means 2006, is $50 million.
Sherod Pulli - Analyst
Five zero?
Adolfo Castro - CFO
One zero.
Sherod Pulli - Analyst
Sorry.
Adolfo Castro - CFO
It's one zero for the case of 2006.
Sherod Pulli - Analyst
Okay, so 10 million for the 2006?
Adolfo Castro - CFO
No, I'm sorry. 15. One, five
Sherod Pulli - Analyst
One five. Okay.
Adolfo Castro - CFO
For the year 2006, around 25 for the year 2007 and approximately 17 for the year 2008. On top of these three numbers you should add the $150 million for the case of the second runway and Terminal 3.
Sherod Pulli - Analyst
And as you have mentioned before, it's a split of, probably 75 million approximately in 2006, and 75 in 2007?
Adolfo Castro - CFO
Yes, that the best advice that I can give you.
Sherod Pulli - Analyst
Okay, and the last thing, I think I missed the last point because I've been shuffling between calls, but this 40 million which you said in terms of baggage screening costs?
Adolfo Castro - CFO
Yes.
Sherod Pulli - Analyst
That's again, is that something just in terms of deployment, is that already something which the bulk of it has taken place, or that's also going to hit the balance sheet in 2006 and 2007.
Adolfo Castro - CFO
No, that investment was made during last year. It's part of the 632 million pesos that we invested during the year 2005. For the future, what will happen is just an increasing cost because we will have to operate and maintain these facilities.
Sherod Pulli - Analyst
Okay, great, thank you so much.
Adolfo Castro - CFO
You're welcome.
Operator
[OPERATOR INSTRUCTIONS] Your next question comes from Daniel Parker with Bear Stearns.
Daniel Parker - Analyst
Hi Adolfo, how are you?
Adolfo Castro - CFO
Fine Daniel, good morning.
Daniel Parker - Analyst
Good morning to you. Just a couple questions. First, I just wanted to get a better sense, I know that the next five year master development plan has included or contemplated the second runway for Cancun and that's estimated 50 million. What I'm not quite clear is the entire 100 million for the terminal, was that also incorporated in the forward five year master development plan, or are there incremental costs related to that above what was in the plan?
Adolfo Castro - CFO
It was included, Daniel, so it's important to say, as you can see it in the release that we have published is that the federal government has accepted these two projects and they have included those two projects in our master development plan so let's say there was a modification or an amendment to our original master plan and those have been included. That means that those will count for regulated investment and we will be recuperating revenues or returns on that.
Daniel Parker - Analyst
Okay, so if I look at the latest MDP plan that you guys have published, that incorporates the $150 million or there's a revision for that as well?
Adolfo Castro - CFO
No, we have not published that amendment. Basically what we are doing or what we are saying during this quarter is that the government has included those projects so now you can include those projects into our new master development plan.
Daniel Parker - Analyst
So, I'm sorry, so if I looked at your prior MDP plan that you guys had disclosed in the next five year period, that $150 million was not included in that?
Adolfo Castro - CFO
Were included, you just have the information for the first five years.
Daniel Parker - Analyst
Right.
Adolfo Castro - CFO
And you don't have the information for the next 10 years. So remember that every five years we present our master development plan to the government for 15 years.
Daniel Parker - Analyst
Right.
Adolfo Castro - CFO
So in those 15 years these projects were included. So the only thing that we made was just to move forward these projects and now the government has accepted that we can move forward thes projects. So again, we can claim return on those projects.
Daniel Parker - Analyst
Right and I'm sorry, I just want to just make sure. You guys had presented and it's been published, the '04 to '08 MDP plan. And I was assuming that 150 was largely included probably in the '07-'2008 period or was it actually '09 and beyond.
Adolfo Castro - CFO
It was in the case of the terminal, it was a piece in the case of the year 2009.
Daniel Parker - Analyst
Okay
Adolfo Castro - CFO
And 2008 because we have an original expansion of our terminal capacity in the case of Cancun.
Daniel Parker - Analyst
Right.
Adolfo Castro - CFO
This original expansion was originally foreseen for Terminal 1, the one that we had problems last year with the hurricane. So as from the beginning of last year we decided not to expand that terminal, not to make a patch on that terminal because we basically said that that terminal was lousy constructed and the hurricane proves that.
Daniel Parker - Analyst
Right.
Adolfo Castro - CFO
So instead of that, we said to the authorities, we want to construct a new terminal building. Of course, with a larger amount compared with the expansion that we have. So we presented our case to the authorities and they basically approved to take this piece and the piece that was for the years 2009-2013. So then we have moved those years in front.
Daniel Parker - Analyst
And I'm sorry, I'm just trying to get a sense. Are you saying that roughly maybe 50 to 75 million was included in the original '04 - '08 MD plan and then the rest was 2009 beyond? I'm just trying to get a sense of when I model, I know how much to be shifting forward and how much is coming from which period.
Adolfo Castro - CFO
Okay, I would say if we go back to the numbers that I just mention, the numbers 25 and 17 for the years 2007 - 2008. I can say to you around that $20 million of those $42 million were related to terminal expansion.
Daniel Parker - Analyst
Okay.
Adolfo Castro - CFO
So now you can deduct that from the amount that I'm saying.
Daniel Parker - Analyst
Okay. Okay and then just one other question with the change in ownership at Copenhagen, have you guys seen any changes in terms of operating or sort of strategic policy or do you envision any kind of changes?
Adolfo Castro - CFO
We have not seen any change up to now. That doesn't mean it cannot change anything. We are basically as we were before.
Daniel Parker - Analyst
Okay, because my understanding is that [Machary] is a bit more aggressive in terms of levering the balance sheet and I was wondering if that would perhaps translate or flow down to policy at ASUR level.
Adolfo Castro - CFO
Well, basically you know that we have been talking about this leverage over the last 12 months.
Daniel Parker - Analyst
Right.
Adolfo Castro. And that's one of the commitments we have as the management. During the last four quarter we have invested, we have spent some money trying to analyze some project, you can see that into the report and that's why the cost of services also increased throughout the year.
Again, we have analyzed some projects, for the moment, we have not found what we really want. That doesn't mean that we will not keep pushing on this direction. Of course, it is true that these people are more aggressive. It's clear and I don't know what will be the impact on their opinion in the future.
Daniel Parker - Analyst
Okay and then I'm sorry one last question, just any update or change in terms of Eldorado, if anything is happening there?
Adolfo Castro - CFO
Nothing has happened. I know that because the Federal Government of Columbia has announced that we will be participating on that project.
Daniel Parker - Analyst
Right.
Adolfo Castro - CFO
It was not true because we have not signed any document with them and for the moment, once again I cannot say that we will participate or that we will not participate. My personal opinion on this specific project is not exactly what we want and I believe that we will not participate.
Daniel Parker - Analyst
Okay, it seems like from the preliminary documents that they had filed they had a very aggressive CapEx program and a very limited term of the concession, it didn't seem to look that attractive at least at first glance.
Adolfo Castro - CFO
So I didn't get your question.
Daniel Parker - Analyst
I'm sorry I was just saying that looking at their preliminary documents, it seemed like they have a very aggressive CapEx program to refurbish the airport and the concession length was relatively short so it didn't seem to look that attractive.
Adolfo Castro - CFO
No, the problem is, just try to compare the numbers that we are say, in the case of Terminal 3, we're saying that we should be constructing Terminal 3 with less than $100 million. And what this airport needs is basically terminal buildings, they have two runways, the aprons are okay. And they are talking about $450 million.
Daniel Parker - Analyst
Right, exactly.
Adolfo Castro - CFO
So if you divide that by 10, by 100, you have 4.5 terminal buildings compared with the one that we are going to construct in Cancun. And I don't think that they require that amount of money.
Daniel Parker - Analyst
Okay, very good, I've taken up enough of your time, thank you.
Adolfo Castro - CFO
Thank you.
Operator
Your next question comes from Cecilia Del Castillo with Citigroup.
Cecilia Del Castillo - Analyst
Hello, Adolfo, I have a follow up question on costs. Can you quantify the impact of new security and the maintenance in terms of margins for all amounts going forward?
Adolfo Castro - CFO
Yes, for the moment what I can say to you is we believe that this could be something around $3 million every year, from 3 to 5.
Cecilia Del Castillo - Analyst
Okay, thank you.
Operator
Your next question is a follow up question from Gonzalo Fernandez with Santander.
Gonzalo Fernandez - Analyst
Yes, thank you Adolfo, two questions. I don't know if you mentioned this, sorry, but have you seen [inaudible] since the numbers you are reporting in the rooms in operations that you are reporting as of December to let's say the end of January or probably any date closer of today.
And the second is regarding low cost airlines, Volaris is starting operations, I don't know if you have already reached an agreement for flights to Cancun and if in the case of low cost airlines you are adding, you are offering some discounts or some lower fares than the ones that you normally charge.
Adolfo Castro - CFO
Okay in terms of room, Gonzalo, I cannot say to you anything specific on that because I have no official information. The major change that occurred during the month of February was in the case of Cozumel. It was not, I would say on a proportional basis, it was not the case of Cancun.
Cozumel is in a much, much better situation right now then the one that I reported at the end of January. In the case of local travelers, yes, of course they are flying to Cancun and they are flying to our other destinations. Keep in mind that one of these airlines is owned by the former governor De La Cruz and they are working with us very hard on that specific airport. You will see some flights to that destination shortly.
In terms of discounts, the only discount that we are in general giving right now is not for local carriers, it's for every single passenger that comes out from Toluca Airport which is the one that is close to Mexico City. And this is a general discount for everybody, you know that we have, or in accordance with the law, we have to keep the same kind of rates to everybody. So discounts are basically for everybody and not just for local carriers.
Operator
[OPERATOR INSTRUCTIONS]
There are no further questions at this time. Mr. Castro, are there any closing remarks?
Adolfo Castro - CFO
Well, thank you again for the interest on the Company. You know that we have suffered a very tough fourth quarter. I hope that you were well informed about what has happened. We will continue with the same kind of policy of keep you informed. It is not going to be easy at the beginning of this year, too, because you know that 15,000 hotel rooms are out of service down there in Cancun. I think these rooms will be in operation again during this year and probably during the end of the year, Cancun will be back again. That's what I can say to you and thank you again for taking the time to hear this conference. Thank you.
Operator
This concludes today's Breakstone Fourth Quarter 2005 earnings conference call. You may now disconnect.