Grupo Aeroportuario del Sureste SAB de CV (ASR) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ASUR's Third Quarter 2011 Results Conference Call. My name is Veronica 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 this call over to Mr. Adolfo Castro, Chief Executive Officer. Please proceed.

Thank you, Veronica, and good morning, everybody. Thank you for joining us today for the conference call for the third 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 actual results to differ materially, including those that did -- 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.

On today's call, I will provide an update on our strategy and the different projects that we have been discussing this year. Afterwards, I will comment on passenger traffic performance environment and the results for the quarter.

We remain focus on providing an outstanding experience to our passengers at our nine concessions in Mexico while continuing to drive growth, efficiencies and profitability. For example, one of our main objectives is continuously improve the commercial offering to our airports. This quarter, commercial revenues for passenger reached MXN64.39, a year-over-year increase of more than 7%.

As we have announced before, it is our intention to use our strong balance sheet to increase leverage to partially finance CapEx for the year. In fact, during the quarter we obtained a loan for Veracruz airport of MXN50 million.

At the same time, we are seeking new attractive investment opportunities in Latin America airport market, to capitalize our core strength and maximize return on our own investment future progress. With this in mind, we are currently analyzing the public bidding documents issued by the Brazilian government for the [Yraus], Brasilia, and Viracopos Airport.

For the time being, all we can say is that the possibility of finding an attractive business is very low. We have also established a 50-50 aligned with Tristar capital to participate in the bidding process for the privatization of the Tercuanto Porico International Airport. Now we are among the players that have been short-listed by the government to continue the bidding process.

We're also seeking opportunity to Latin America which I can disclose at the moment. I'm glad to announce that today we will have our third direct flight with a regular carrier from Cancun to Paris, operated by airports.

Turning now to the results, this was a very good quarter. Passenger traffic increased 8.15% year-over-year reflecting easy traffic on parcels mainly in terms of the domestic traffic. Traffic was up by 0.8% in July, 4.2% in August and 18.4% in September. Despite the historic -- the strong traffic performance since the disruption of Mexicana operations and the suspension of [Aviacion] in 2010, traffic remains below previous levels with (inaudible) seen a lack of domestic airlines seat capacity.

At Cancun however, domestic traffic has reached a new historical peak despite the Mexicana effect. International traffic was, in our opinion, very strong this quarter particularly during the month of September which was the highest ever in terms of passenger traffic for ASUR.

The share of international passenger traffic fell to 51.2% of the total traffic from 52.9% in the third quarter 2010. Passenger traffic between Mexico, Canada and the United States represented 80% -- 87% of the total traffic compared with [80 -- 17 full] percent a year ago.

Looking ahead, we continue to see capacity constraints on domestic market particularly at the small airports until the end of the year 2012. Even in Mexicana and Aviacion reinstate operations this year. On the international front, considering the current uncertainties and the economic turmoil, the third quarter was a quite good and even difficult to predict whether this will continue.

Consolidated revenues rose 9.8% this quarter driven by revenue growth across the board. Excluding construction services, total revenue would have increased 13%. Commercial revenues per passenger were up to MXN64.4, the third highest ever -- profit ever.

Operating cost and expenses fell 15.2% year-on-year, mainly due to the cost of services. Remember that that as a result of the bankruptcy of Mexicana in the third quarter 2010, we have created our reserve, or adopt those accounts which did not impact this quarter results.

As a result, EBITDA rose 44.9% this quarter with EBITDA margin up to 56.1% from the 42.5% achieved in the second quarter 2010. In terms of CapEx, this quarter we invested MXN144.6 million as we continue with the terminal expansions in the Veracruz, Villahermosa, Merida and Oaxaca airports regarding the first quarter 2010.

Finally, we closed this quarter with a strong balance sheet with cash and cash equivalents up to 13.2% to MXN1.7 billion while the bank debt was MXN788.5 million. Now, let me open the floor for questions. Please, Veronica, go ahead.

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

Good morning, Adolfo. Can you hear me okay?

Yes. Perfectly, Steve.

Great. Thanks, Adolfo. Good morning. Just one or two things, if I may, and just to be clear on the potential foreign airport opportunities. You said at this point that the potential opportunities for the airports in Brazil that the attractiveness looks fairly low, if I heard you correctly?

That's correct. Final documents have not been published. What we have is the first draft that is in a hearing process. But what we see that the Brazilian government is not focusing on creating incentives for the airport operator or creating incentives for the company, for the winner to be efficient and then because of these to receive a higher return.

Apparently, everything is going to be kept at the very low return. Of course, I cannot confirm the situation because final documents have not been released. But my feelings of what -- or what I read in the documents is that is not going to be something that could be interesting in terms of interest.

Understood. And just one more question for me and I'll let someone else ask. Do you have any update or a color as to what exactly is going on with Mexicana and [Aviacion], everything we've been able to tell that's gone very quiet.

It's hard to say it because in the case of Mexicana, we have been hearing during the last 12 months that someone is willing to place the money to rescue this airline from time to time. The comments of last week are that apparently there's someone that is willing to place $300 million to rescue the airline. Apparently, this is serious but of course we cannot confirm anything.

Also, I have to say that even if these companies restart operations, they are nothing to restart in the same way that they were before their bankruptcy. Remember they seize operations August 26th last year with around 109 airplanes. If these companies restart operations, probably they would start with nine planes. So don't -- even if someone is willing to place the money or if someone is willing to restart operations with this company, the company will not start with 109, will not have the same fleet capacity that Mexicana Airlines had before.

In the case of Aviacion I have not heard anything. I had a meeting a month ago with the people in charge of the airline. I did not receive high hopes for the restart process in a short time. Probably they will do something first quarter, second quarter next year.

Okay. Perfect. I appreciate the color, Adolfo. I won't hog the microphone. I'll let somebody ask a question.

Thank you.

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

Yes. Thank you. Good morning, Adolfo. Thanks for the call. My question is regarding a potential opening of new routes and frequencies that you have been notified about. This is good news that can compare each route. Do you have a -- can you share information on other examples of routes and frequencies that are increasing that should become operational in Cancun in the next quarter? And if you can comment about your views on this topic that is starting to show on the news regarding the possibility of having open skies in Mexico. Thank you.

Okay. Thank you, Vanessa. Normally, I don't speak about routes and I don't speak about routes because you know that we have 230 routes, we are not depending on one or two or five routes. The case Air France is very important because it's a regular carrier.

Last year, just to give you a color on these last year, around the same date, around October last year, British Airways started its first flight from London to Cancun as a regular carrier. This was after growth. The last time they were flying in the same route in the same way was April 2002. So that is why this was so important. After them, then some other airlines -- some other regular carriers then started talking about having flights to Cancun. And that was the case of Virgin Atlantic, that was the case of Air France, and that was the case of Aeroflot from Moscow.

So, this is why I'm telling you this today, it's the first flight from Cancun/Paris but the importance of this is that it's regular carrier. And also it is important to say that if you have a direct flight to Paris, then you can connect from there to many other cities in Europe. So, that's why this so important. Normally again I don't speak about routes because it's almost impossible to talk what routes are we going to have in the next quarter or which ones we'll lose or how many frequencies we had in a destination we have. So that's my comment.

Your next question comes from the line of [Simon O'Wistle] from HSBC. Please proceed.

Good morning, Adolfo, and thank you for the call, and two questions, if I may. The first one is what are your expectations for commercial revenues growth for the fourth quarter and for the full-year of 2012?

Sorry I cannot hear you very well, so what -- could you repeat the question?

What are your expectations for commercial revenues growth for the fourth quarter and for the full-year of 2012?

My expectation is that the commercial revenue will continue with the same trends that we have seen during this year. You know that our main objective is to increase commercial revenue for passengers day by day. And that's why we work very hard on that. I cannot share with you the number because I don't have a number for that.

It's true that with the current situation, the peso is getting weaker and due to these probably we will take an advantage in that front because duty-free activities are basically based in dollars. So in that case, if the peso devaluates against the dollar, we receive more pesos if someone buys duty-free stuff. I cannot share with you a number but the only thing that I can share with you is that we're committed to increasing every single day. The Company is working towards that direction.

Thank you. That's clear. And my second question is related to your participation in the bidding process for Puerto Rico's International airport, what synergy should we expect if you win the bid?

Well, there are six companies today bidding for this airport, I have to say that the other five competitors are very good and very professional companies, I would say, specialize in airports. What kind of advantage do we have with these, we are there, we know the market, we know the American, we speak Spanish, we know Puerto Rico even if -- this is a US speaking country also. Some of the people speak Spanish. And not just that, we are Latin America and we understand the Latin American flavor of this country. That's what I can say to you.

Okay, thank you. And just one more question, if I may? Is there any update regarding the hiring of the new CFO?

Well, for the moment, we have found the people -- we are in the process of this. I can say that you will not see an assignment of a new CEO in this company, probably up to the end of this year.

Okay. Thank you very much, Adolfo.

You're welcome.

Your next question comes from the line of Augusto Ensiki from Morgan Stanley. Please proceed.

Hi. Good morning, Adolfo. I apologize if you already discussed this. I was wondering if you can give us an update on the tariff renegotiations for a few of the airports. And secondly, about the traffic that's been growing strongly over the past couple months, where are the primary origins that -- is that US, is it Canada or Europe? If you could give us a little bit more color, please?

Okay. Augusto, your first question was what?

About the renegotiation of the tariffs?

Okay. Yes. It's very hard for me to say that we have not reached yet an agreement with the Mexican authorities. They have not issued their final opinion about what will be the final conclusion of the new tariff schedule for the airports of Veracruz and Villahermosa. Remember, those will have to decrease. The level of the decrease is not clear yet, so we will have to wait. I hope that we would solve the situation before the year is over. As soon as we receive the documents signed by the Mexican authorities, we will issue a press release in that respect.

In terms of the traffic, apart from the situation of Mexicana last year and that it was very easy and clear that the domestic traffic numbers for the month of September have to be very high. I have to say that the international front was quite strong due to the given circumstances. It is as strong from Europe. It is as strong from Canada. And I would say, it was nice from the United States. That was the most important element we have during the month of September. As I said, I don't know if this will continue. I don't know exactly why this happened because what we can see in the US markets is a weak market, it's a market with economic problems.

Nevertheless, once again, we are proving that Cancun is resilient to these situations. I'm happy, I'm happy with what I'm seeing or what I saw during the month of September. And I have to say that we have in front, we see comps in terms of the domestic traffic, and I hope that the trend that we have seen for the international traffic could continue.

Excellent. And so just a little bit more about the revision. If you do get a final opinion from the regulator by the end of the year, how quickly does that become effective?

My opinion should be, due to the dates we are, my opinion is that the authority will issue a document saying that the rates of Veracruz and Villahermosa should decrease as from the 3rd day of that year.

Okay, excellent. Thank you very much.

You're welcome.

(Operator Instructions). Your next question comes from the line of Luis Willard from GBM. Please proceed.

Thank you, Adolfo. Good morning and congratulations on the results. Just two questions. The first one is, do you have any timeframe regarding the concessioning the -- the bidding process in [San Juan]? I think that the certification of qualification just ended, so what can we expect on this going forward. And on the commercial revenues growth, what would be the organic growth, excluding the openings, kind of a comparable growth for commercial revenue? Thank you.

Okay. The timeframe -- we do not have yet an official timeframe. The second phase, this is after the shortlist was announced. They concluded two, three weeks ago. After that, the concession is that perhaps these seconds -- so these second stage had to sign a confidentiality agreement. It has been signed by us and as far as I understand it has been signed by the other five companies.

What I expect is that the final documents or the final schedule timeframe should be released within the next few days. And then we are going to be able to know the -- when are we -- when will we -- will have to present our offer. The original expectation is that these have to be before the year is over. They are presenting some kind of delays so that probably could be extended up to the first months of next year.

In terms of the commercial revenue, if you see the -- well, first it's important to understand that the 14 new stores that we are operating in a direct way. Those stores were concessions to someone last year and if someone entered with chapter 11 and that's why we took over these stores and then we proceed to operate those directly. So last year, our numbers reflected revenue from those stores.

But of course not the same kind of levels of revenue because those stores were concessions and we were receiving a concession fee. The difference for us this year is that we are operating directly and we are presenting in our reports the 100% of the sale whereas the corresponding direct cost in the cost of services line.

But if you see the press release, you can see what is the level of revenues that we are getting from the direct commercial operations. So you can without the direct commercial operations and you can see that -- if we include that we have to grow on a per passenger basis which is again our primary objective.

Yes. Okay. Just I think I didn't -- I missed it. You were referring to the air shops, the convenience stores?

Yes.

Okay. Perfect.

Your next question comes from Rogelio Urrutia from Santander. Please proceed.

Good morning, Adolfo. Congratulations on your results. I just got a follow on your commercial direct operations. Are you planning on expanding further in this type of operations, the convenience stores going forward? Or what you have right now, it's what it's going to be?

Well, we have concluded with the opening of the stores that were in the hands of these concessionaires so for the moment, we will not open new stores on these fronts. Probably, the opposite, probably in the case of the very, very small airports like Tapachula and Minatitlan, we will have to plan a concession or to send it back to concessionaire because the numbers demands be used in a consolidated way are not working as we expected. So that's the only thing that I can expect from the case of the convenience stores.

Perfect. Thank you very much.

Your next question comes from the line of Vivian Salomon from ITAU. Please proceed.

Hi. Good morning, Adolfo, and congratulations on the results. Just have one question here regarding your CapEx for the year. To what we see in the report is that you have only invested MXN350 million. What could we expect by the end of this year and if you're going to comply with the total for the budget development plan of this year or is it going to be transferred to the next? That's it.

Okay, and what I can say is that fourth quarter is going to be very strong on that front as it has been in the past. We -- our intention is of course, to comply with the requirements that we have with the Mexican government. Remember that in some cases, we are having economy so that we are complying with the concept of the things that we have to invest on, not -- we are doing that in a reduced amount.

Remember that we have some kind of economies last year, on the top of my head MXN250 million that we are going to invest a piece of that in this year and a piece of that the next year. So, just to make a summary, fourth quarter is going to be a very strong in that front and we intend to comply with our requirements with authorities.

Thank you.

You're welcome.

(Operator Instructions). Your next question is a follow-up question from the line of Augusto Ensiki from Morgan Stanley. Please proceed.

Hi, Adolfo. Thanks for the follow-up. Just question about the cost of service, the third quarter cost of service came in -- I guess it's been increasing steadily since the first quarter, I think first quarter was about MXN200 million, third quarter now at MXN235 million. What's the primary driver of this increase?

The primary driver in the increase -- well not increase the additional cost -- the additional direct costs that we are having for the new commercial direct operations. And let me say this very clear, we're selling newspapers, magazines, Cokes and in the line of cost of services, we are placing the costs of these products that we didn't have last year.

As I said before, last year, what we had was the concession fee, so someone that was selling its products and that was shared with us a piece of the amount they were selling, without any cost. Nevertheless, at EBITDA level, I have to say that we are doing more of what we were doing last year.

Okay. Sorry, thank you very much for that.

Are sure is that clear or no?

Yes. Yes, it was.

Okay.

(Operator Instructions). Your next question comes from the line of Luis Willard from GBM. Please proceed.

Thank you. Just a follow-up regarding the convenience stores, how many did you acquire, Adolfo?

It was 14. We had to -- 14 and we receive another 14, of course not in the same airports, we received -- as I said before, we received those stores also in the smaller airports which are of course not the same as in comparison with Cancun.

Okay. Thank you.

Your next question comes from the line of Jose Fierro from GBM. Please proceed.

Hi, Adolfo. Good morning. Well, now that the Riviera Airport Project has been called off, do you have plans for expansion or other acquaintance -- acquiring different airports beside Puerto Rico's International?

Two questions, Riviera Maya. In the case of Riviera Maya, remember that it was originated as Mexican government. And my opinion is that I don't see any airport opportunity in the case of the country with exception of Mexico City and probably the case of Tuxtla Gutierrez, which is an airport that is managed today by the Mexican government that has a decent amount of passengers or enough amount of passengers to the concessionaire.

Apart from this, I do not see any other opportunities in the country. That's why what we are looking in terms of our broad strategy is to go outside. So for the moment, what I can share with you is that we are seeing closely the case of Yraus, Viracopos and Brasilia, in the case of Brazil. And we are -- in the case of Puerto Rico and we are seeing another opportunity but unfortunately due to confidentiality agreements, I cannot disclose this with you. But yes, we are seeing and we are in three trans right now.

Okay. Thank you very much.

You're welcome.

(Operator Instructions). At this time, there are no further questions. I would now like to turn the conference back over to Mr. Adolfo Castro for closing remarks.

Thank you, Veronica, and thank you for everybody to join 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 great weekend. Good bye.

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