Grupo Aeroportuario del Sureste SAB de CV (ASR) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Grupo Aeroportuario del Sureste fourth quarter 2008 earnings conference call. My name is Marisol and I will be your coordinator for today.

(Operator Instructions)

I would now like to turn the presentation over to your host for today's conference, Mr. Adolfo Castro, chief financial officer. Please proceed, sir.

Thank you, Marisol. Good morning, everybody. Thank you for joining us today to the conference call covering our fourth quarter 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 management 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 an explanation of this risk, please refer to ASUR's filings with the Securities and Exchange Commission and the Mexican Stock Exchange.

This has been a very good quarter, particularly in light of the current difficult global economic environment. As I mentioned on the previous conference call, this is clearly a result of the underlying strength of our business model and the macroeconomic factors that impact our operations. We have a very strong balance sheet. In fact, we closed the quarter with MXN1,733 million in cash and short term investments. The majority remains in short term investments in pesos as well as in peso denominated Mexican sovereign notes and corporate bonds issued by (spoken in Spanish).

There are also two micro-variables that are -- that have a very important effect on our industry. The recent decline in the oil price should alleviate the airlines while the position of the dollar-peso exchange rate should make our destinations today more attractive for international tourism. In fact, results for the quarter demonstrate Cancun's strength as an international tourist destination. However, I don't want to be overly positive for the future. We do not believe that 2009 -- we do believe that 2009 will be a tough year and continues to be difficult to make predictions at this time.

We remain on track with the construction of the second runway at Cancun Airport, which we expect to open during the fourth quarter 2009. In terms of our mass development plan for the next five years, we have submit our plans to the [SET] and await approval from them, as previously announced. On December 24th, Mexican government noted us that they will take additional 90 days to approve the maximum tariffs and mass development programs for each one of the nine concessions we have. We will inform you once this is approved.

Now let me go briefly on the financials. Results for the quarter were quite good, taking in consideration the challenging global economic environment. We remain focused on maintaining our routes, increasing flight frequencies, or increasing the number of seats offered for a specific route. However, we are seeing a reduction in flight frequencies and thus the number of transactions. But keep in mind that the airline's load factor has increased during the year, resulting in a net increase in [passenger traffic].

As expected, passenger traffic continues to slow down, up 1.71% this quarter, compared to the strong numbers recorded at the beginning of last year. Total passenger traffic growth in 2007 was more than 17%. As I have mentioned many times already, I don't believe in double digit passenger traffic growth in the medium and long term as such. These growth rates were not sustainable. In fact, I believe we are returning to normal growth levels, particularly in today's uncertainty economic environment worldwide.

Total passenger traffic rose 1.05% in October, 3.07% in November and 1% in December. International traffic in turn was up by 9.83% this quarter, more than offsetting the 6.6% decline in domestic passenger traffic. In fact, international passenger traffic accounted for 54.4% of the total traffic for the quarter from the 50.5% during the fourth quarter of 2007. Domestic passenger traffic faced the impact of the loss of some airlines and reduction in flight frequencies and some [routes], which more than offset the decline in fuel costs towards the end of the year.

Total passenger growth at Cancun Airport remains strong, up by 6.14% for the quarter and 11.52% for the year, again reflecting Cancun's strength as a tourist destination. We believe that Cancun passenger traffic growth at ASUR was principally driven by the strong depreciation of the peso in relation with the dollar, aggressive promotion packages offered by hotels to maintain occupancy, and the proximity to the United States. Of our other eight airports, only Huatulco, Oaxaca and Tapachula showed increase in passenger traffic. Passenger traffic between Mexico, Canada and the United States represented 89.4% of total traffic compared with the 89.78% in same quarter last year.

Total revenues rose by 14.2% this quarter, driven by the 13.97% increase in aeronautical revenues and the 14.63% growth in non-aeronautical revenues. Commercial revenue growth was also quite strong, up by 16.53% year-on-year to MXN57.86 per passenger from 49.73% in the year-ago quarter and 48.64% in the third quarter 2008. Operating costs and expenses rose 11.74% year-over-year, as expected.

Again, we are seeing the impact of higher costs related to the operation of Terminal 3 in Cancun as well as the increasing administrative expenses resulting from the corporate reorganization implemented in the second quarter of the year. Plus, we're also impacted by the very strong increasing energy costs. However, this January the Mexican federal government decreased energy prices on average by 17%. As a result of all of this, operating profits for the quarter rose 18.66% to MXN279.7 million, while EBITDA margins remained unchanged at 57%.

In terms of the CapEx during the quarter, we made investments for MXN351.25 million, mainly on the second runway of Cancun Airport. For the year, we invested a total of MXN796 million. Now let me open the floor for questions. Please, Marisol, go ahead.

(Operator Instructions) And your first question comes from the line of [Alan Solis] from Credit Suisse. Please proceed.

Yes, hi. Good morning, Adolfo. I wanted to ask you if you could tell us in terms of cost of services, roughly how much is variable cost and how much is fixed and what can we expect going forward? I mean should we expect them to remain more or less stable in terms of passengers for the next quarters?

And also, what -- how much does [Atiaxa] represent in terms of your total traffic in recent months? Thank you.

Hi. Good morning, Alan. The cost of services, most of -- you know that most of our cost is fixed. The only clear, [varible] things that we have are the concession fee and what we pay to the strategic partner, the technical assistance fee. I would say the rest is basically fixed. Of course, attached to the infrastructure, so the infrastructure -- if the infrastructure grows, the costs will grow accordingly.

In terms of Atiaxa, I don't have the exact figure in my hand, but I will estimate this between the 3% and the 4% during the recent quarters.

Okay. Thank you, Adolfo.

And our next question comes from the line of Nick Sebrell from Morgan Stanley. Please proceed.

Hi, Adolfo. First question, could you talk about Cancun Hotel capacity, has that been changing? Is there any construction going on? Can we change those -- can we expect those number to change? That's the first question.

Then the second, if you could discuss a little bit about tariff changes. The tariffs, at least in peso terms, were higher than we'd expected in the quarter. And those are set in pesos, but I guess the explanation is that they went up because you charged them in dollars? Is there any possibility of a refund or any going back and changing the counting of that in terms of what you were charging airlines, et cetera?

Thank you, Nick. Well, in the case of Cancun Hotel capacity, day to day we have more or less a 27,000 hotel rooms there. I see some construction undergoing. I don't have the number of hotels that are under construction. What I can say to you also is that in the case of the [Rivera Maya region] we have around 38,000, so in total more or less 65,000. We go back some time, remember that at the time of the hurricane, so that's October 2005, we had around 52,000 hotel rooms. Going back in the year -- at the end of the year 2000 we had 50,000 hotel rooms. So more or less with this you can see what the growth in the region.

In terms of the tariff changes, what we have seen during the last quarter was a peso devaluation against the US dollar. And because of this, our specific rates for international flights that are basically in dollars presented -- represented more pesos for us and that's why you saw an increase in the aeronautical revenue. Of course, this cannot reflect the full effect of the peso devaluation with the US dollar because the maximum rate is in pesos so the maximum amount that we can charge has a limit in pesos, even with the peso devaluation. So that's basically what we saw during the fourth quarter last year.

For this year we are waiting for the government to approve us our maximum rate and our master development program. As I have said during the first part of this conference, what we expect is this to be approved within 90 days as from the December last year. So I hope that by the end of this quarter we will be able to tell you what our new maximum rates are going to be. In the meantime, we have basically the same that we had at the end of last year.

Okay, so, but just to understand the rates that were being charged in the fourth quarter, the tariff, the apparent rate rose partly because of mix shift, then? I mean because what you're saying is that it wasn't so much that the -- I mean there was some devaluation but there must have been a mix shift or something to create a higher effective tariff now.

Well, that depends on an airport by airport basis because the situation is how much they are -- what's the level they have in accordance with the maximum tariff [compliance], so if any airport was at 100% of their maximum rate, and then we have the peso devaluation, they will not receive more pesos because they cannot exceed the maximum rate.

Okay. And do you charge different rates to foreign carriers or international flights versus domestic flights?

Yes, absolutely. Remember that in the case of international flights we have to give them some areas for customer migration and that's why we charge differently.

Of course. Adolfo, thank you.

And our next question comes from the line of Tomas Lajous from UBS. Please proceed.

Good morning, gentlemen. Thank you very much for the call. I have a quick question in terms of the tariff negotiation and the study that you have carried out. How much of an impact is that on your expenses, the consultants, the study, lawyers, et cetera, and how has that affected your [rev DA] or expenses, I guess, in the fourth quarter?

Tomas, hi, good morning. In the fourth quarter I don't see too much expenses from that specific line because basically the [works] have finished in terms of consultancy, or almost finished in terms of consultancy. The most important part of that was basically at the beginning of last year and probably the end of quarter 2006, that's what I can say to you.

Okay, thank you, Adolfo. But then hanging onto that idea, I guess the question stems from the fact that you had excellent revenues, very strong sales in the fourth quarter, but we didn't see that much operating leverage in terms of your margin vis-à-vis previous years. So can you talk a little bit about why we sort of missed this operation leverage?

Well, let me tell you about the price -- the energy costs. Just to give you an idea, the invoice that we paid for October was, in terms of price per kilowatt hour, 42% more compared with the last year. So just the energy was, for the full quarter, 42% above in terms of price. Even that we have worked a lot in terms of consumption, of course we saw a very strong impact there.

Okay.

And as I said during the first part of the conference, we saw the President Calderon at the beginning of this year making a reduction in the energy price by 17%. I hope that this will help us on the -- on that specific line.

All right. Thank you, Adolfo.

You're welcome.

And our next question comes from the line of [Modise Santo] from [GBM]. Please proceed.

Hi, Adolfo. Good morning. I had a couple of questions. The first one was regarding free cash flow. Did you paid any cash taxes during the quarter?

And the second -- and the second question was regarding the maximum tariff in Cancun. Do you have the -- do you have the actual tariff that we have to adjust then for inflation compared to the one we had in the -- to the ones we have in the master development plan? Thank you.

Hi. Good morning, Modise. In terms of free cash flow, what we are saying in terms of cash -- in terms of cash taxes are basically [year 2] tax, we are paying year 2 tax in all of the airports and we will be paying corporate tax in the case of the holding company. In terms of a maximum rate in Cancun, as I said before, we have the same rate that we have -- that we have at the end of last year. Those are not going to be adjusted by inflation.

Okay. What about the -- well, the thing is that I believe -- I'm not able to see the tax adjustment in your free cash flow generation during the quarter.

Well, you have -- during the quarter we had some impact from deferred taxes that we generated. If you see the P&L of the Company, there's a breakdown in four lines of the charges --.

Okay, but --.

And you have the -- what we pay and then you have the corporate rate for the holding company. Also you have some [asset tax] there and of course deferred taxes.

Okay. I'll check them out. Thank you.

Our next question comes from the line of Luis Miranda from Santander. Please proceed.

Yes, good morning, everyone. Adolfo, good morning. A couple of questions. The first one is related to Cancun. And you mentioned that results have been benefited by the exchange rate promotion on oil and I was wondering if you have any sense or any feedback from the operations in the airport in the beginning of the year, if the promotional activity in the hotels is increasing or it's changing in any sense.

And also, I understand that there's only a small portion of your flight that can be, like, scheduled, but if you're seeing any change there, either up or down.

And my last question is regarding the master development plan and the 90-day delay. I just want to understand if these 90 days at the end of the first quarter, it's -- that's the date or if there's any situation that's [still negotiating] we could see a further delay on the approval.

Thank you, Luis. On your first question, Cancun, if we are seeing promotions. Well, normally we don't see that at the airport. In general terms I would say that most of the season has to be [solved in] the case of international traffic, so booking in advances and things like that. What I can see in the case of Cancun for the first part of the year is what we have presented during our press release related to January figures. And again we saw a very positive number, a very strong positive number in the case of international traffic.

But also it's important to say that we saw a very strong decrease in Cancun for the domestic market. That may have an impact in the future and it is not just going to be the other airports that are decreasing in the domestic sector, but also Cancun is start decreasing the domestic market. So we have to be aware of this for the rest of the year and, moreover, when the summer comes.

In the case of the 90 days, well, I don't know what to say to you because we just received this letter from the government saying that they will take another 90 days in accordance with the law. It is clear that they can extend this period again. My expectation is that they will not and that they will say something before this quarter is over. The due date for that should be around March 30th this year.

Thank you, Adolfo.

And our next question comes from the line of [Carla Pif] from (inaudible). Please proceed.

Hi, Adolfo. I was just wondering about international traffic. While most of it still comes from the United States, I guess, but if you're seeing more traffic from Europe. That's my question.

Thank you. Good morning. Well, what we have seen basically is, as I said before, a very strong growth from the United States, a huge, huge growth from Canada, and I would say a very strong growth from Europe also. Of course, in terms of absolute figures, the more -- the most important is the U.S. But the others are growing very nice, too.

Okay. Thank you.

And your next question comes from the line of [Vivian Solomon] from HSBC. Please proceed.

Hi, Adolfo. Just a quick question. I was wondering if you could give us an update on what has been happening regarding the Rivera Maya Airport. Thank you.

Hi. Good morning, Vivian. In the case of the Riviera Maya, what I know, what I have been hearing is that the Minister of Communications and Transport wants to make a bidding process for this project during the first half of the year. That's what I can say to you and that's basically coming from what he says here and there or what he says also in some cases to the media in Mexico. That's what I can say. I don't have any other details there.

Okay, perfect. Thank you.

I would like now to turn the call over to Mr. Adolfo Castro for any closing remarks.

Okay. Thank you, Marisol. Thank you, all of you, as you have seen this was a good quarter, despite the global slowdown. Given the uncertainties today, is quite difficult to predict the future. However, we believe we have a very strong operation and a solid business model.

Thank you for your attention and for being here with us on this conference call. And have a good day.

Thank you for your participation in today's conference. This concludes today's presentation. You may now disconnect and have a great day.