Grupo Aeroportuario del Sureste SAB de CV (ASR) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ASUR Third Quarter 2009 Results Conference Call. My name is Veronica and I will be your coordinator for today. At this time, all participants are in a listen-only mode. After the speakers remarks, there will be a question and answer session.

(Operator Instructions)

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

Thank you, Veronica. Good morning, everybody. Thank you for joining us today for the conference call of our third 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.

Today I will focus on a brief discussion of our results for the quarter, the opening of our second runway at Cancun Airport and what we see going forward on the backdrop of the challenging economic environment in Mexico.

As expected, all airports with the exception of Huatulco and Oaxaca, which have easier year-on-year incomes, continue to feel declines in domestic and international passenger traffic. Passenger traffic, in fact, declined 14% this quarter showing an improvement from the 26.8% decline in the second quarter 2009, following the H1N1 influenza outbreak in Mexico in late April 2009.

Looking at the monthly figures, we see a slow recovery in passenger traffic from the low of 50.7% posted in May, traffic declining 28% in June, 17% in July, 13% in August, and 11% in September. So we are still indirectly affected by the H1N1 virus today. As earlier, in the year international tourist operators look for an alternative summer destination given the uncertainty and health concerns on the onset of the virus outbreak.

As you may know, in general, 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. As a result, international passenger traffic for the quarter accounted 49% of the total traffic compared with the 52% in third quarter 2008. Domestic traffic in turn rose to 51.5% of total traffic from the 42.9% in year ago quarter.

Here, the difficult macroeconomic environment in Mexico with the loss of some airlines and the reduction in flight frequencies has continued to impact domestic traffic. We do not believe this will change in the short term. In summary, we expect the total traffic to remain weak, up to the beginning of the winter season.

Total revenues fell 2.67% this quarter, driven by declines of 3% in aeronautical revenues and 1.85% in non-aeronautical revenues. Commercial revenues fell slightly, 0.2% year on year. Commercial revenue per passenger, however, rose 14.88% to MXN55.88 per passenger as a result of the positive impact of the 23% position of the peso against the US dollar in the last 12 months as contracts with some concession holders are denominated in US dollars.

This was a 13% improvement from the MXN48.64 per passenger posted in the third quarter 2008 and 15% higher than the MXN49.29 pesos recorded in the second quarter 2009. Operating costs and expenses for the quarter declined 2.23% year on year. Cost of services was down by 9.42%, reflecting savings in energy and cleaning services. During the quarter, we reassigned of the operating employees of Cancun Airport to corporate, which resulted in an increase in administrative expenses. But keep in mind that this is just an accounting reclassification and has no had an impact in total cost and expenses for the quarter.

Technical assistance costs and concession fees also posted a decrease driven by the decline in revenues. In summary, operating profit for the quarter fell year on year by 3.36% to MXN278.35 million, reflecting the 2.67% decline in revenues, which more than offset that 2.23% reduction in costs. This, however, was a 14.4% improvement from the MXN243.3 million posted in second quarter 2009. Operating margin for the quarter stood at 38.95% compared with the 39.22% in third quarter 2008.

This quarter we made capital investments of MXN98 million, mainly on the second runway of Cancun Airport, which was inaugurated as planned this week and which represents an investment of approximately $67 million. As you may have seen on the release, with this new runway we have doubled the runway capacity at Cancun airport from the current 14 million passengers a year to approximately 38 million. This is very important as the peak we were operating at around 13 million passengers at this airport.

Moving onto our balance sheet, we levered our balance sheet last quarter, while still maintaining a very strong financial position. We closed the quarter with cash and short-term investments with MXN1,239 million, a 30% decline year on year, the majority of which remains in short-term investments.

Remember that in second quarter we paid MXN1,884 million in cash dividends. At the end of the year -- at the end of the quarter, ASUR had a total bank debt of MXN604 million on their MXN750 million three-year credit agreement in which we entered into in May 2009 with a group of banks. Still MXN150 million are available for additional borrowings to fund capital expenditures related to the master development plans.

Now let me open the floor for questions. Please, Veronica, go ahead.

(Operator Instructions). And your first question comes from the line of Stephen Trent. Please proceed.

Good morning, Adolfo and thank you for the color. I was curious, with respect to activity related to the Riviera Maya Airport bid, if there is any update as to what's going on.

Thank you, Stephen. Good morning. Well, the latest information that we have about the Riviera Maya is comments from the authorities basically from the SCT, the Communications and Transport Secretary, saying that they will be making the bidding process during November. Of course, we do not have an official date or an official document in relation with this Riviera Maya project.

Okay. Fair enough. And with respect to Cancun Airport itself, you made it very clear that the capacity has been expanded in terms of the runways. Are there areas that might also need to expand -- either additional terminal expansion, which I know you recently opened the new terminal, or maybe a different -- or excuse me, additional capacity on the air traffic controller side, on a personnel level? Anything else you think is sort of missing from the formula or are we -- is Cancun itself sort of clear to potentially begin receiving more flights?

Okay. The situation is the following. Today we are managing around 11.5 million passengers, if we say, over the last 12 months. Okay? If we see the peak, the peak was March 2008, February 2009, where we were very close to 13 million. And that's why we decided to increase the runway capacity because the runway was limited to 14 million passengers. Today we have terminal capacity for more than 17 million passengers. So if we make a very simple calculation, we have airport for many years to come.

Okay. Very clear. Thanks very much, Adolfo.

You're welcome.

Your next question comes from the line of Mauricio Santos, GBM. Please proceed.

Hi, Adolfo. Good morning.

Good morning, Mauricio.

I have a couple of questions. The first one was regarding commercial revenues. What was the reason behind the increase in direct operations? Did you solve any advertising space or it was renegotiation of contract? And the second question would be about the taxes. I couldn't find any -- moving to the statement of cash flow, I could not find any provision of taxes and -- okay, that's it.

Okay, Mauricio. In the case of commercial revenues, we have been working very hard in order to increase our commission of revenues per passenger. You know that this is one of our objective as a company. In the case of the operational -- the direct commission operation, we made a lot of effort in our stores in order to sell more. I have to say that due to the decrease in passengers, probably the service that we provided to the passengers was better and that's probably why we were able to increase the commercial revenues per passenger in our stores.

In the case of advertising, which is part also of our commission on direct operations, I have to say that there were no major improvements during the quarter. In the case of taxes, taxes is very high for the quarter as it has been for the year and I would say that probably it's going to be almost the same as during the fourth quarter. The situation is the following. We are paying, in all of the airports year two in the flat tax rate. And also we have to record deferred taxes in terms of corporate rate and also in terms of the flat rate. On top of these, we are recognizing or we are sending a piece of the asset tax that we have paid in the past because we believe that we will not be able to recuperate these in the future. As you can see, this was an amount of almost MXN10 million.

The situation is it's very strange and it's hard to forecast how the future is going to be. What I can say to you is if we continue to pay year two tax in all of the airports, you will see, more or less, the same effective rate as what we are seeing today. I have to say also that there is an initiative in the Congress today that will increase the corporate tax from 28% to 30% for last year -- for next year. So taxes is going to be a tough line for the future.

Okay. And well, a follow-up on that, on this issue. There is also a proposal from Congress regarding a change in the consolidation of fiscal losses. Does this -- would affect the Company considering that you consolidate all the -- well, I don't know ...

Normally, you do not have tax consolidation. We applied in the past for that and the authorities basically reject our request. Of course, today is not -- it is not worth to fight again that anymore. No, we do not have tax consolation.

Okay. Thank you, Adolfo.

You're welcome.

Your next question comes form the line of Juan Moctezuma, Credit Suisse. Please proceed.

Hi, Adolfo. Just one quick question. We saw important energy reductions costs for the quarter. Can you give you any additional color on whether you think these reductions are sustainable for the next year?

Yes, good morning, Juan. Well, in the case of energy, we have some -- we have basically two effects. The first one was a decrease in the price of the energy at the beginning of the year. In January -- the third week of January, the President of Mexico made a decree where they will -- reducing the cost of energy by 17%. The increase that we had in the cost of energy last year was very, very high. From the top of my head, it was almost 42% increase last year. That's one piece of the puzzle.

The second one is that we are working very hard to make reductions in energy consumption along all of the airports, basically improving facilities and improving the efficiencies of air conditioner, which is the highest consumption that we have at the airports. Also I have to say that we are working in new activities in order to reduce more the energy consumption. We're working in order to change the lighting of the airports from the regular bulb lamps that we have today to LEDs. Also, I have to say that for next year we will have additional consumptions resulted from the second runway of Cancun Airport. Of course, so that's what I can say today. I hope that the cost of energy will not be increased in the future from the government.

Okay. Great. Thanks.

You're welcome.

Your next question comes from the line of Juan Carlos Mateos. Please proceed.

Hello, Adolfo. Good morning. It's Juan Carlos Mateos at HSBC.

Juan Carlos, good morning.

Good to talk to you. I have just a quick question on the commercial revenue per passenger. I mean, it's been almost eight years in November that the Cancun Airport shopping center was open. And looking at the number, the nine months through September 30, if we look even after the peso depreciation, your commercial revenue per passenger, including both the direct and the not direct operations, you -- the number is about $4.50 per passenger, which, way back when the Company was listed, it was more or less a target that -- the long-term target that the Company had.

Now that, after eight years of operation and, of course, there must be some plans to expand, to refurbish the shopping center. But could you tell us what would be the new target or is this still -- are you satisfied with this $4.50 per passenger or what would be the next term, I mean, like the next step or the medium-term goal for this commercial revenue per passenger?

Well, I don't have a specific number to share with you. Of course, you are in -- you have the right to say that the regional objective that we placed was $4.00. Today we are at more than $4.50, including the pesos depreciation and all of this. What I can say to you is that we believe that we can do better of what we are doing today. As you have seen during the quarter, probably the result of a better service or a less congested airport -- let me put it that way -- resulted in an increase in the commercial revenue per passenger, which is our -- at the end, it's our objective.

I think that we can do better. And also I have to say that, in the case of the small airports, as soon as they increase or they have more passengers, let's say, more critical mass, we will be able to manage better numbers. Let me be clear on this. If we see Minatitlan, which has probably today five flights a day or six flights a day, you are not able to offer too much to the customer. If we compare that with Cancun, where you can have 440 flights a day, you can offer a lot of different products.

So once Minatitlan starts growing and the rest of airport, we will be able to offer more products to the passenger and these will have an impact on the commercial revenue per passenger. Again, what we can say, it's that we believe that we can do better and these numbers should be increasing in the future.

Thank you, Adolfo.

Thank you, Juan Carlos.

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

Hi, Adolfo. Good morning. Adolfo, a couple of questions. The first one is on Cancun perspective. I know that the facility overall is low in terms of the number of flights you will be receiving. But I understand also that there is sometimes a small category of flights that are scheduled previously. I would like to know if, in advance of the high season, either in the domestic or international market, you are seeing some recovery in the number of flights for November and December.

And the other one, in the commercial side, while you opened four new operations during the quarter you are expected to open some new operations during the fourth quarter.

Okay, Luis. In the case of the future -- in the case of the passenger traffic for the future, what I believe is that we should be very close to the end of negative numbers. Today you know that we are -- been affected by the H1N1 virus in the case of the international traffic and the domestic economic crisis. For the future, what I expect is that the H1N1 will disappear and then we will see a recover from international side, but not in the case of the domestic. What I believe is that the domestic traffic will remain weak for most of the next year.

In terms of the commercial revenues, what I can say is we continue to work very hard on that. The opening spaces normally are resulted from a normal operation. I don't see too much openings for the future in the short-term. The only -- probably the only spaces that we will opening in commercial revenues due next year and maybe at the end of next year, will be additional spaces that we will be constructing in the case of some of the small terminals. One example is Veracruz. Veracruz will have a major expansion in comparison with the current space that we have today. Not in the overall picture. But yes, Veracruz will have an expansion in commercial revenues next year and probably the year after, Huatulco and Villahermosa.

Thank you, Adolfo.

(Operator Instructions). And your next question comes from the line of Stephen Trent, Citi. Please proceed.

Good again, Adolfo. Just a follow-up question if I may. When H1N1 first broke out this spring, you saw the Mexican government basically telegraphing that it was extending certain level of aid, maybe tax breaks, to the airlines and maybe some to hotels. And there also seemed to be a bigger advertising apparatus to help mitigate the outbreak. Do you have any sense as to where we are with this now? Whether these programs, in your view, have really fulfilled what they were supposed to have fulfilled from at least a monetary and expenditure standpoint on the government's part?

Well, I have to say that when we are talking about H1N1 virus, we are not talking about prices. We are not talking about economic factors. So I believe that in the case of international traffic, they didn't come not because of the price. They didn't come because of the outbreak itself. On the contrary, in the case of the domestic, I have to say that these plans had an impact, a positive impact during the summer. We saw a recovery from the domestic side during the summer, especially in the case of Cancun.

For the future, again, I don't believe that a different price from the airlines nor from the airports will make any major change in the case of an outbreak of H1N1. It's a different story.

Okay. Fair enough. Thank you again, Adolfo.

Thank you.

(Operator Instructions). And your next question comes from the line of Patricio Rivera, IXE. Please proceed.

Hi. Good morning, Adolfo. Regarding your -- the permit you got from [Panatur] to promote a real estate development in [Watuko], I think you got permission to expand it that -- to extend it one year. How is that going? And another question is you had intended -- you had plans to build a hotel in the Cancun Airport. Is that still on?

Well, there's some -- let me start from your second question. There's a lot of projects that are being reviewed by our board of directors today in the case of hotels. We continue to believe that we can have some kind of facilities in the airport for, basically, crews that should be there instead of being in a very fancy or expensive hotel at the beach. So in the future, what I believe is that, yes, we will have someone making or constructing a hotel in the airport. I don't believe that we are going to be the ones who construct this.

In the case of Watuko, yes, you are right. We're receiving an extension from Panatur for the period to construct the 450 hotel rooms. And this was basically the result of the economic environment. We are working in that specific project. We finalized master development plan. We presented that to Panatur. It was approved. Then we proceed with the image and the beginning of putting all together in order to be able to attract someone.

What I have to say to you is that during the summer we made some approaches with some tourist operators and tourist managers and basically their answer was hold one second because the situation is not the best today as we expected. I think that once this H1N1 outbreak ends and we see the international recovery, we will be able to attract someone to construct the hotel in Watuko. For the moment, we are not in a hurry and we are not pressured by the authorities because they have extended the period.

Okay. Thank you.

Thank you.

(Operator Instructions). Ladies and gentlemen, this ends the question-and-answer session. I will now turn the call over to Mr. Adolfo Castro for closing remarks. Please proceed, sir.

Thank you, Veronica. As you have seen, despite the 14% decline in passenger traffic for the quarter resulting from the H1N1 influenza and the economic crisis in Mexico, EBITDA margin rose 1% to 60.83% from the 59.8% in a year ago. This was mainly due to the effort of -- to adjust our cost structure to the challenging environment.

Looking into the future, the fundamentals of our business remains strong. We expect to see a recovery in the winter season as international passenger traffic picks up. Thank you for your attention and being here with us on our conference. Have a good day.

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