Grupo Aeroportuario del Sureste SAB de CV (ASR) 2011 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to the ASUR Second Quarter 2011 Results Conference Call. My name is Desenia, and I will be your operator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. For opening remarks and introductions I would like to turn the call over to Mr. Adolfo Castro. Chief Executive Officer, please proceed sir.

Thank you Desenia. And, good morning everybody. Thank you for joining us today for the Conference Call for the Second Quarter 2011 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 active results to differ materially including those 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 would provide and update on Tulum Airport and corporate matters and afterwards, I will discuss passenger traffic performance and the results for the quarter.

With respect to Tulum Airport, the public bidding process for the construction operation and management for an international airport in the town of Tulum was declared void last May, because none of the technical bids presented by the participants complied with the requirements established in the bidding documents. As a result, the economic proposals were not opened and were returned to the bidding participants.

In terms of corporate matters, on April 27th, ASUR shareholders approved an ordinary cash dividend from accumulated return annually of MXN3 per share that was paid on May 17th. Last May, I was named Chief Executive Officer by the Board of Directors, effective June 1st 2011. Mr. Fernando Chico Pardo remains Chairman of the Company and President of the Nominations and Compensations and Operations and Acquisitions and Contracts Committee. Our Board of Directors expects to name a new financial and strategic planning officer in the -- sorry, and in the meantime I am overseeing the financial and strategic planning areas of the Company.

I feel really honoured to have been chosen to become ASURs CEO. The opportunities for future growth and advancing our position in Mexican and Latin American airport markets are very attractive. I look forward to continue to capitalize on our core strengths and as we move ahead on our strategies.

Moving to the results. As expected, during the quarter passenger traffic increased 2.9% year-over-year. Principally driven by the stronger passenger traffic at Cancun, particularly, in terms of the domestic traffic. Traffic was up 4.9% in April, 3% in May, 0.6% in June. Remember that this year, Monday and Wednesday of Holy Week fell in April, where last year they fell in March. Traffic however, continues to be negatively affected by the disruption of Mexicana operations in August of last year and the suspension of operations at Aviacsa in April of last year. In summary, this lack of domestic airline seats capacity.

This quarter, international passenger traffic declined in share of total traffic down to 57.6% from 58.8% a year ago. Passenger traffic between Mexico, Canada and the United States represented 89.2% of total traffic compared with the 89.7% posted in the same year, in the same year ago. Looking forward, even Mexicana and Aviacsa reinitiate operations this year, we continue to see capacity constraints on domestic markets and expect this situation to be normalized by the end of the year 2012.

Of course, domestic traffic comparisons are going to be easier during the second half of this year. On the international front, we must -- we seen no growth from the US market, some growth from Europe and strong growth from Canada. Consolidated revenues increased 7.1% this quarter, driven by the results -- by the revenue increases across the border. Excluding commercial revenues, total revenue would have increased 5.8%. Commercial revenues per passenger reach a record high this quarter of 8.3% year-on-year to MXN66.2 per passenger.

For the inception, this is the operator. Your conference will begin momentarily.

(Technical difficulty)

[Avelante].

Thank you Desenia. Commercial revenues for passenger reached a record high this quarter, up 8.3% year-on-year to MXN66.2 per passenger. Increasing commercial revenues per passenger also reflects the direct operation of 20 convenient -- 25 convenient stores this quarter, compared with the 14 stores directly operated a year ago.

During the quarter, we opened the last additional store of the 14 -- 14 we took over last year from a concessioner that was in Chapter 11. Operating costs and expenses rose 3.9% year-on-year mainly as a result of increasing construction costs. Excluding construction cost services, total operating costs would have increased by only 2.3%. Reflecting higher depreciation and amortization, resulting mainly from the investments made since the first quarter of 2010.

And, expenses related to the year, I might add, a result of all these EBITDA rose 10% this quarter with EBITDA margin up to 56.8% from the 55.3% achieved in the first quarter of 2010. During the quarter, we made capital investments of MXN109 million as we continue with the terminal expansions in Veracruz, Villahermosa, Merida, and Oaxaca airports, begun in the first quarter 2010.

Working through passenger flow operations at Cancun airport has been completed. And, now, those improving the quality of our sales and operations for our domestic passengers. In terms of our balance sheet, cash and cash equivalents at the end of the quarter increased by 131% to MXN1.4 billion while [banking] was MXN834 million. Now, let me open the floor for questions. Please, Desenia go ahead.

(Operator Instructions). Your first question comes from the line of Vanessa Quiroga from Credit Suisse. Please proceed.

Hello, good morning. My question is regarding the potential investment in Brazil regarding the privatization of the airports over there. We have heard from colleagues working closely with those kind of projects, and we have heard of very low potential returns coming from these investments in the range of 6% to 8%, at best.

And, I was wondering if this is the range that you are also seeing and if that is still attractive for ASUR, potentially given the lower risk? I just wanted to hear what your thoughts are on that. And, just on the Mayan Riviera as well, my second question would be on the Mayan Riviera, if you have to assign a probability of this project being relaunched, what would that be? Thanks.

Hi, good morning, Vanessa. In the case of Brazil, well, I have to say that we have been looking for investment opportunities over the last two years, maybe more, maybe three years in Latin America. We have been seeing one of the projects that the Chilean government launched, recently, and you're right, the returns that we are seeing in that specific project are not attractive. And, because of this, I think that we are not planning to present an offer on that specific project.

Of course, we will be looking at some others and see if the conditions of these bidding processes changed. And, then, those can have attractive returns. For the moment, I have to say that you are absolutely right, on the case of the one that is there. I don't see a chance to be inside this specific project.

In the case of the Riviera Mayan, it's hard for me to place a number there. I really don't know if the federal government wants to relaunch this process once these has failed. Remember that one year ago, when this project was launched, we had 23 participants in the process, and at the end, there were just three.

You know, one of them being ASUR, and you know that the Anti-Trust Commission decided not to accept ASURs proposal. So, there were just two of the 23 participants. So, what I think is if this process has to be relaunched, something has to change. Otherwise, it will be the same thing. So, that's what I can say to you.

That's very clear. Thanks Adolfo.

You're welcome.

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

Good morning, Adolfo. Thank you for the call. I guess, my first question was on the Mayan Riviera, but that's been covered. But, the other one is in terms of your margins for the rest of the year. Last year, your costs were affected by the Mexicana provisioning. For the second half of this year, should we expect margins similar to what we've seen in the first half or are your costs going to be a bit higher than in the first half? How should we be looking at it?

Hi, good morning, Tomas. You know that we don't like to talk about margins because margins are the result of revenues and costs. What we like to do is to talk about the cost side. And, the cost side, what I can say to you is that during this quarter, we just had some, let's say, onetime event. Like, the Riviera Maya cost, and a piece being processed down there in Brazil.

It's important to say, also, that during this quarter, the cost of sales have been affected by the increase in the direct commercial operation. So, the numbers that you are seeing, the good numbers that you are seeing there, also have the impact of increasing the direct sales.

What I expect from the future, I don't expect any major surprises I've been trying to be very conservative or very cautious on the cost side, and trying to maintain the costs at the minimum level as possible. For the moment, you can see that passenger traffic is not increasing in the way that it should be. We have to be aware that we are still below our historical peak. Let's say, June 2008. So, we have to be very careful on the cost side, and that's what we are intending to do for the second half of the year.

And, I guess, the other question is, you know, your results have continued to be pretty good. Are you thinking of changing your take on dividends or establishing a more, sort of, clear dividend outlook or policy for the future?

No, you know that we don't have a dividend policy, and I don't think that we're going to change that in the short term. What we do every year is to analyze what was the result of the year, what we have in front and then to make a proposal to our operations committee and then to board of directors and finally to the shareholders.

But, it is important to say, as of today, it would be on an accumulative basis, we have paid, basically, almost everything that we have generated in terms of economy earnings. With the exception of the effect that was generated last year, as a result of the new accounting standard. So, for the moment, that's what I can say to you.

Okay. Thank you very much.

You're welcome.

The next question comes from the line of Steve Trent from Citigroup. Please proceed.

Hi, good morning. This is Angela Lieh calling. We were just wondering what the status of Mr. Chico Pardo stake in the Company is and if he plans to sell? I have, also, a second question, which is how do you see a situation with Mexicana and Aviacsa? Thank you.

Hi, good morning. In the case of the stake of Fernando Chico, I don't have any information or any additional information that I can provide you. I have not seen any filing from him, and I have not been informed by any change on his participation.

In the case of Mexicana, the situation is very difficult. I don't believe that they are going to solve this issue or this problem in the coming two weeks. There's a clear date, and the date is August the 9th, where -- the period that they have to make, or to have a solution on the problem. It's going to be over. What I believe is that this process cannot be extended again. So, a definition will have to be set by August the 9th. So, it's a very hard call. Personally, I don't expect that they will be solving this issue in that short term period.

In the case of Aviacsa, I really don't know what is happening there, because they were ready to fly and all of the sudden, somebody said that they had a debt with the Mexico City airport of MXN22 million. What is not clear for me is that if they were ready to fly a very small amount, like the one that I mentioned, it's not, in my opinion, enough to stop them flying again. For the moment, again, I don't expect they will be flying, or they will resume flying shortly. I have some hopes and indications, yes.

Okay. Thank you. Just one more question if I may. We were wondering if there's any update on hiring additional personnel in ASUR's CFO Treasury divisions, Mr. Castro, the host, has moved to the CEO position.

I have to say that it's not a policy, but, normally, what we do in the Company is we try to see if we have someone inside the Company to replace a position. That's what we are doing, and I believe that we will find someone inside the Company to fill this position.

Okay, thanks very much. That's it for me.

The next question comes from the line of [Roberto Ramos] from Credit Suisse. Please proceed.

Thank you. Good morning and thank you for the call. I was just wondering if you can provide a little more color as to what happened in your other airports line, and the operating results per airport table? We saw EBITDA and operating profit drop sharply quarter over quarter and on an accumulative basis. So, I was wondering if you can give us some color on that?

Well, basically, what I can say about the other airports -- so, you are saying, basically, with the exception of Cancun. In the case of the other airports, we are facing some difficulties because of Mexicana's situation. The Mexicana situation is affecting more and more in the smaller airports because if one airport has operations with Mexicana and Aeromexico and all of the sudden, Mexicana disappears, Aeromexico is not willing to place the new flight there to replace Mexicana's seats.

Why? Because he will be flying with a very low load factor. So, the smaller airports are the ones that are suffering more because of the situation. And, unfortunately, I have to say that I don't see that this situation will be resolved in the short term. Because, in the case of the domestic offer, that will be, I will say, replaced or fixed during the next year.

Some of the airlines that we have to pay have requested for new airplanes. But, those are going to be delivered after the year 2012. So, my expectation is for the short term, the indication for smaller airports is that they will be -- they will continue to be affected by this lack of capacity.

Okay, thank you.

You're welcome.

The next question comes from the line of [Lewis Willard] from GBM. Please proceed.

Good morning, Adolfo, and thank you for the call. Just one question, are you currently performing any special strategy or working together with airlines to improve capacity or frequencies in your destinations?

Well, we normally do that. And, we have been doing that for the last three, four years. But, the problems that we have today, again, is lack of equipment. Just imagine -- just think about that if we say from June 2008 up to today, the system -- the domestic system, has 109 aircraft left, in comparison of what we had in June 2008.

109, if we say 120 seats per plane, times six or seven times a day, let's say at 70% load factor and, again, times 85 because of maintenance, you will find out that that number is around 20 million passengers per year. Of course, today, the system is not 20 million passengers left. Why is this? Because, the other airlines are using their aircraft in a higher manner. They are, probably, using their planes instead of 9, probably, 14 hours a day.

Also, I have to say that the load factor in the case of Mexican airlines have increased significantly. You can see now, because America is focused now, you can see that their load factor has increased in a very significant way from last year.

So, nevertheless, I have to say that the -- given the -- if we are working together and very closely, we meet with each one of the airlines, the problem that we have is a lack of capacity. And, of course, since the lack of capacity has -- or it's affecting the prices for the passengers, so here we are working, but we will have to wait until next year to be in a normal situation again.

Okay. Thank you.

You're welcome.

The next question comes from the line of Francisco Suarez from HSBC. Please proceed.

Thank you. Thank you for the call, Adolfo. At -- a question related with the quality of your passengers. It seems that we have seen a very nice trend in the average expenditures per passenger, as per commercial revenues. First of all, is that sustainable, in your view? Is that -- it relates with the quality of the passenger? Or it has to do, actually, with what you mentioned at the beginning of your call, of the opening of new commercial space?

Well, first, you know that one of the main objectives that we have in this company is to increase the commercial revenue per passenger. Everyone in this company is working towards that direction. And that's what we do. Of course, I have to say that an important increase in our commercial revenue per passenger during the quarter was the result of these tours that we are operating directly today. But remember that these stores were operated by a concessionary last year. So it's true that those are new for us, in terms of direct operations, but those were in a concession in last year.

Yes.

In terms of the nature of the passenger, as I have mentioned during the call, what we are seeing today is a strong increase in the case of the Canadian travel growth -- well growth, normal growth from Europeans and a weak situation with the US traffic. Of course Europeans are, they are passengers, in terms of the spending behavior. But the real thing is that we are working very hard to increase the commercial revenue per package.

Yes.

We have noticed that we are having more Europeans.

Great. And my second question relates with the overall trends in traffic. Yes, yes, for a period that there are major capacity constraints, as for domestic passengers. But what can you share with us on the international passenger trends? We have seen, of course, some consecutive months or quarters, sluggish growth in international passenger. But what are your views on the potential additional growth going forward? And what can you share with us about the trends going forward?

What we are seeing is the weak traffic from the United States. I don't want to say that this is because one or two things from the combination of many effects. But of course, one could be the economic situation in the United States. I think that that's weak and it will be, in the short term. In the case of the rest of the international traffic, which is Canadians, Europeans and some Latin Americans, I see it positive -- I am positive that that's -- in that front.

Okay.

So what I see for the rest of the year is better -- easier comparisons in the case of domestic, a difficult situation with the case of the US and an okay situation with the rest of the international.

Very clear. And lastly, if I may, can you share with us if you already have amended your master development plan, as for the overall capital expenditures that should be dispersed in your airports?

Well, that's a good question. You know, and we have been talking about these probably since the third quarter last year. We presented our request to the Mexican authorities in relation to Veracruz and Villahermosa, basically amending the MDP in the investment program, due to the constraints during the year 2009 -- the results in the Mexican GDP during the year 2009.

The Mexican authorities authorized the reduction of the amendment in the investment plan, but we have not been able to share with you these numbers because they have not concluded their work in terms of what the new maximum rate will be for these two airports and we're expecting their response. I hope that we will be able to share this with you in the next two to three months.

Alright. Thank you very much.

You're welcome.

(Operator Instructions). Your next question comes from the line of Augusto Ensiki from Morgan Stanley. Please proceed.

Hi, Adolfo. Just one quick question, following up on the capacity topic. I was wondering if you had any estimate if -- that you could share with us regarding the number of -- regarding the capacity of your airports before Mexicana how much of that, minus Mexicana today, how much that capacity has been retaken or if it's still open.

Well, when you are saying capacity, you are talking about the physical installations? Or you are talking about the routes with Mexicana Airlines?

I guess the routes that Mexicana was flying.

Okay. In the case of the international flights, if you remember, I released some information from the third quarter, fourth quarter last year. Basically saying that in the case of the international routes, we have some other airlines covering those routes.

I have to say that nevertheless, that there were some other airlines covering those routes. We are seeing some kind of decrease in tourist-specific destinations, one being Chicago and the other one is Los Angeles. And that's probably that some of the ethnic traffic does not like to fly in US carriers. So we're working, today, as we speak, with Aeromexico, to see if they can open new frequencies there, to see if maybe we can recover those passengers. So that's the only effect that I am seeing in the international traffic, because of the Mexicana situation.

In the case of domestic, the situation is different. The smaller airports have been affected and Cancun, it's probably is somehow affected, but I have to say that Cancun is less affected. And that's because this specific to us, it's a very good point in Mexico. That's more or less the effect.

I see. And I'm sorry, you said in the international, you said Chicago and what was the second city?

Los Angeles.

Los Angeles. Great. Thank you very much.

You're welcome.

(Operator Instructions). And at this time, there are no questions on the line. Mr. Castro, I would like to hand the call over to you for closing remarks.

Thank you, Desenia. And thanks for everybody for joining us today on our conference call. As always, do not hesitate to contact me if you have any further questions. Thank you for being here and have a good day. And sorry for the technical problems. Thank you. Goodbye.

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