Grupo Aeroportuario del Sureste SAB de CV (ASR) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ASUR Second Quarter 2009 Results Conference Call. My name is Marisa and I'll be your coordinator for today. At this time, all participants are in listen only mode. After the speaker's remarks, there will be a question-and-answer session. As a reminder, this conference is being recorded for replay purposes.

For opening remarks and introductions, I would like to turn the call over to Mr. Adolfo Castro, the Chief Financial Officer. You may proceed, sir.

Thank you, Marisa. Good morning, everybody. Thank you for joining us today for the conference call covering our second 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'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 an explanation of these risks, please refer to ASUR's filings with the Securities and Exchange Commission and the Mexican Stock Exchange.

Moving on to the discussion of the results, as you have seen, it has been a very difficult quarter. Passenger traffic which declined 3.3% in the first quarter of the year, reflecting the uncertainty of the global environment was down by 26.76% in the second quarter. All airports, with the exception of Huatulco and Oaxaca, which have easier year-on-year comps, felt the declines in domestic and international passenger traffic.

This strong decline was mostly due to the outbreak of the H1N1 influenza in Mexico. As you may recall, on April 28th, the World Health Organization announced the outbreak. In light of this, most passengers canceled their reservations and during the 10 days following to the announcement, flights to tourist destinations in Mexico were practically arriving empty and leaving full.

In fact, passenger traffic, which was down by 2.1% in April, fell to a low of 50.7% in May and begun a slow recovery declining by 28.4% in June. As a result of the influenza outbreak, international passenger traffic accounted for only 54.1% of the total traffic for the quarter, down from 57.1% in second quarter 2008 and 66.7% in first quarter 2009.

Domestic traffic, in turn, rose to 45% of total traffic from 42.9% in the year ago quarter. Although the impact of the flu outbreak was the main driver behind the strong decline in passenger traffic, to a lesser extent, domestic figures also continue to reflect the loss of some airlines and reduction in flight frequencies and routes as a result of the macro slowdown that more than offset the lower fuel costs.

For the remainder of the year, we expect traffic to remain weak, posting negative comps at least well into the beginning of fourth quarter 2009. Although the international crisis is subsiding and influenza effect is decreasing, international traffic will continue to be indirectly affected as international tourist operators look for alternative summer destinations, given uncertainty and health concerns at the time.

Remember, normally, international travel packages from the US and Canada are booked between two to three months in advance and from Europe from six to one year. On domestic front, although the flu is not an issue today, we are still seeing the effects of the economic slowdown in Mexico and we believe it will not disappear in the short term.

Total revenues fell 16.1% this quarter, driven by declines of 17.7% in our aeronautical revenues and 13% in non-aeronautical revenues. Commercial revenues fell 11.74% year-on-year. Commercial revenue per passenger, however, rose 20.29% to MXN59.29 this quarter, reflecting mainly the positive impact of the 28% depreciation of the peso against the dollar during the last 12 months of the year, as contracts with some concession holders are denominated in US dollars.

Operating costs and expenses for the quarter rose 2% year-on-year. Keep in mind that comps this quarter were negatively affected by the reversal of a deferred decision for approximately MXN34 million in the second quarter 2008, as a result of the personnel reorganization implemented that quarter. Excluding this effect, cost of services will have decreased by 8.4% and total operating cost and expenses would have decreased by 5.5%

Administrative expenses, in turn, declined this quarter, reflecting a renegotiation contract with suppliers. Technical assistance costs and concession fees also posted a decrease, driven by the decline in revenues. In summary, the 16.1% decline in revenues and 2% increase in cost resulted in a 36% decline in operating profit, to MXN243.3 million.

This quarter, we made CapEx investments of MXN56.35 million, mainly on the second runway of Cancun Airport which remains on target to begin operations in the fourth quarter of this year. In terms of our balance sheet, we closed the quarter with cash and short term investments of MXN973 million. The majority of this remains in short term investments.

As I mentioned in our previous conference call, in May due to the uncertainty, we took some debt to be ready to fund the CapEx program for the year. As you may have seen on yesterday's release, the debt consists of a MXN250 million three-year term facility from each of the -- IXE Banco, Banco Santander and BBVA Bancomer. The facilities are denominated in pesos and charged an interest at the rate based on TIIE plus 1.75% to 2%.

To reduce the Company's exposure to adverse fluctuations in interest rates, we have entered into interest rate swap agreements for each of the three credit facilities which have fixed the TIIE at between 6.21% to 6.37% as of today. As of today, MXN600 million have been disbursed on these facilities. As always, we intend to be conservative in terms of balance sheet management.

Now, let me open the floor for questions. Please, Marisa, go ahead. Marisa, are you there?

(Operator Instructions).

And you have your first question from the line of Tomas Lajous from UBS. You may proceed, sir.

Hello, good morning. Thank you. Thank you very much for the call. One quick question in terms of what's happening with or what happened in the quarter with the margin. Your commercial revenues were up and one would think that that would alleviate some of the negative impact of operating leverage coming in from the decline in aeronautical revenue.

Why do you think that this wasn't really the case or what's the impact we're seeing in the sort of aeronautical costs or maybe even commercial costs that is generating this sort of big lever despite what's going on with commercial revenues? And can you talk a little bit about it going forward?

Yes. Good morning, Tomas. Well, you know that this industry is managed by basically a large fixed cost structure, so if you are seeing a revenue decrease, you will see a margin decrease no matter what the actions we've taken on that respect. We have taken a lot of actions in order to reduce the cost, but of course as I have said, the reduction in revenues was pretty, pretty strong.

Okay. I think I'll take it from there, thank you.

And your next question comes from the line of Pablo Riveroll from Credit Suisse. You may proceed.

Hi, good morning. Related to the margin question, what incremental cost did you incur during the quarter due to the swine flu? And I have another question regarding the swine flu. We've seen some expansion of the virus through the southeast of the country, mostly in Chapas but also some other southeast states. So, I'm wondering if you're seeing any impact at all and if you can give us some color on how July traffic is looking?

Hi, good morning, Pablo. We just -- you're right, we have some costs as a result of the swine flu. The additional cost that we had was the additional procedures that were enforced by the Mexican government in order to monitoring the effect of the virus -- of the people that was entering and leaving the country. I would say that this was not significant, probably MXN300,000, MXN400,000 a month. It was two months, it was not three months during the quarter.

In terms of what you are mentioning, yes, it's true that the virus is affecting very strong in Chapas right now. Remember that Chapas is probably one of the poorest countries -- poorest states in Mexico. And it has also in impact in -- a minor impact into Yucatan. We are not seeing major impact of the swine flu in terms of passenger traffic from domestic people. Of course, the major impact in the swine flu is the international traffic and basically was because they redirected their summer to somewhere else.

The moment when this was announced was crucial for the -- to the tour operators and they decided to change and not to run the risk of losing the possibility of monitoring their customers. So, what I can say to you is yes, we are affected from the swine flu today, but mostly in the case of international traffic. It is not in the case of the domestic.

Okay. Completely, understood. And well, so far we've seen that occupancy levels have recovered somewhat in the Mayan Riviera. Do you have any color on how July traffic is shaping up?

Well, it's of course better than what it was in May and better than what it was in June. Remember again also that in the case of the domestic traffic, we had some impact from the delay in the holidays. This year, the holidays were two weeks later -- or the beginning of the holidays was two weeks later compared with last year. So, that had also an impact in the domestic traffic for the month of June.

I would say, in the case of July of course its better, but it's not as we expected or it's not as we thought one year ago. I -- as I said during the conference, we will -- we expect weak numbers for the coming months and mostly these as a result of the crisis -- the domestic crisis in Mexico and the effect of the swine flu for the international traffic.

Great, thanks.

And your next question comes from the line of Stephen Trent from Citi. You may proceed.

Good morning, Adolfo, and thank you for the time this morning. One or two questions from me. First of all, looking at the SCT. Obviously, the former director Luis Tellez had telegraphed that we would see Riviera Maya Airport bid by the first half of this year, which of course hasn't happened and swine flus has had an impact on the country. Luis Tellez is no longer the SCT head. Can you give us any color as to where you think SCT might be with respect to its thoughts on competing airports?

Yes. Again, we are hearing some news from their side saying that they are working towards -- to have this project ready for this second half of the year. What I can say to you is that probably for the first time, I am seeing them working towards -- to have the project or the bidding documents ready. We have seen some development in basically the land where these airports should be located. Apparently, some agreements have been reached on these sites.

This is not an easy task. You have seen what is happening with Pemex today. But I believe that -- or I feel, that they are working towards this project. Of course, as we have mentioned, this is not the best time for this project. We have this swine flu effect and the numbers that we are seeing right now are not very positive to launch a project like that. But what I believe is that they are working towards to have this project ready.

Okay. Very clear. Thanks, Adolfo.

You're welcome.

And your next question comes from the line of [Jose Carrero] from GBM. Please proceed.

Hi, Adolfo. It is Mauricio Santos. Well, the question -- returning to commercial revenues, did you make any changes on your leasing contracts on account of the current environment? And while this is taking the, compared to last quarter, commercial revenues managed to de-couple from the fall in -- the decline in traffic, pretty much did not happen this quarter.

Hi, good morning, Mauricio. There are some effects during the quarter about the commercial revenues. The first one, in terms of renegotiations, we made some agreements or we renew the current rental agreements and that had an impact on the first side. On the other side, it's clear that when you have less passengers and you have, I would say, less congested terminals, the people is -- it's more willing or have more willingness to go and buy some food and -- or some goods or services.

What I can say is that, yes, we had a very good quarter. We see this from the number on a per-passenger-basis. I do know that our objective at this Company is to increase these all the time. We still believe that we can do better and I hope that once this situation is normalized again, we will continue with these numbers.

Do you have any estimate for commercial revenues for this year? For the second half of the year?

No, you know that we don't give any estimates in numbers.

Well -- but you believe that maybe these second quarter results will be more -- will be a better comparison for the second half?

Well, that's what we hope. What I'm saying is, yes, we have a very strong quarter in terms of commercial revenues per passenger. And again, if this situation is normalized, during the fourth quarter, I hope that we will be able to maintain the level that we are seeing today.

Okay. Thank you very much, Adolfo.

You're welcome.

And your next question comes from the line of Karla Pena from Interacciones. Please proceed.

Yes. Thank you. Hi, Adolfo. Just two questions for me. I was wondering if you could just give us some light on how much you -- or if you expect CapEx to be higher or lower than first half or the second half? And if you would consider it probable to delay the opening of the runway, given the traffic levels, current traffic levels, of [Valya] -- runway in Cancun? Thank you.

Okay. You know that we have reached an agreement for the MDP end of the first quarter of this year with the government. The number is around MXN600 million in terms of cash flow, around 600-and-something million pesos. You know that the number that we published on our press release of April the 2nd have the note that says basically that we have invested some amount and that you should be discounting this from a cash flow perspective. So, the amount for the entire year should be very close to 600-and-something million pesos.

In terms of a second runway, we are still in line with our dates, the target dates, for the opening of this infrastructure and we are estimating that for the month of October this year.

Okay. Thank you.

(Operator Instructions).

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

Hi, Adolfo. First, could you elaborate just a little bit, you're talking about the holiday delay. Are you referring to state holidays? Or is that a standard vacation period that people get?

Yes, Nick, good morning. It was due to the swine flu, the government decided to close some schools, first in Mexico City and then nationally. Because of these, they thought that the children should be recovering this time, losing some holidays, and they decided to extend the period of the school, reducing two weeks the holidays during the summer for the entire nation. And that's what we saw during the first two weeks of June, this year, so that's why I'm saying that's had also an impact on the month of June.

So, June was lower than you expected, then? Or lower than it otherwise would have been?

Exactly.

Okay. Okay and the next question regarding the Maya Riviera Airport. What's your understanding as to whether ASUR would be able to bid? Or the most likely --?

Well, the question in all --

Mostly likely case.

-- the officials there are saying that we are going to be able to participate. The one who has to approve these is the antitrust commission. I believe that they are going to allow us to participate. We have said this many times. If they don't allow us, we will try to block this process through legal procedures. So, I don't expect them to say no to ASUR's participation.

Okay. And then, two more questions. First, is there any possibility of delaying or reducing CapEx if the need for capacity is found to be not present due to the traffic? And then, second, I know you can't give specific traffic details, but if we were to assume and think about 2010, well into the year, when all the swine flu and GDP recovery and whatnot is back to sort of a normal level, do you think it'd be most reasonable to assume that we're back at kind of a 2008 traffic level? Or maybe something closer to 2007? What do you think things settle out on an absolute-basis?

Okay. Let me talk about the CapEx. Yes, from a legal perspective, there's three ways to revise the maximum rate or to reduce the CapEx. And these three cases are when you have, when we have a natural disaster, when we have a very severe slowdown in the economy and when there is a change in law. Today, the swine flu can be considered as a natural disaster. But it's a weak, I would say, it's a weak legal case.

Okay.

It's clear that we have a severe downturn in the case of the Mexican economy. And in that respect, I think we have a very strong case there. But of course, we will have to wait, I would say, one year as from the moment when the MDP was approved. So, it is possible to present the legal case or it's going to be possible to present a legal case because of the slowdown in the Mexican economy, but that kind of cure, let's say second quarter 2010.

Of course, again, from a legal perspective, it is not clear that the government has to reduce or has to approve these MDP modifications, with of course, the effects of reducing the CapEx. Yes, that's a possibility. Or that could be a possibility for the future. We will have to see what is -- what happens.

In case of the traffic, what I expect for the year 2010 is, of course, a very strong recuperation from international traffic due to the economic recovery and also that I hope that it will not be affected by the swine flu. But in the case of the year 2010, what I expect is for the domestic traffic, is that the domestic traffic will continue for the year 2010. I don't see how the Mexican economy will recover as fast as the US is recovering. So, the Mexican recovery is something that I'm seeing more in the year 2011.

Okay. So, maybe normalization by 2011 and back to the long-term trend?

I hope so.

Okay. Adolfo, thank you.

You're welcome.

(Operator Instructions). This concludes the question-and-answer session. So, I will turn the call over to Mr. Adolfo Castro for any closing remarks.

Thank you, Marisa. Thank you. As you have seen, this was a difficult quarter as the negative effects of the influenza added to the slowdown resulting from the economic crisis in Mexican growth. Nonetheless, our fundamentals remain strong and we continue to take all necessary steps to effectively manage the Company in these challenging times.

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

Ladies and gentlemen, this concludes the presentation. Thank you for your participation in today's conference. You may now disconnect. Have a great day.