Grupo Aeroportuario del Sureste SAB de CV (ASR) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ASUR's Second Quarter 2012 Results Conference Call. My name is [Shanelle] and I'll be your operator for today. At this time, all participants are in a 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, Shanelle, and good morning, everybody. Thank you for joining us today for the conference call of our second quarter 2012 results. Allow me to remind you that certain statements made here in the course of our discussion today may constitute forward-looking statements, which are based on current management expectations and beliefs and are subject to a number of risk and uncertainties that could cause actual results to differ materially, including those that may be beyond our company's control.

For an explanation of these risks, please refer to our filings with the Securities and Exchange Commission and the Mexican Stock Exchange.

I will start today's call by briefly discussing the San Juan, Puerto Rico, international airport bid, and afterwards I will provide a review of the results for the quarter. As announced last Thursday, Aerostar Airport Holdings, our 50/50 partnership with Highstar Capital won the bid to become the private operators of the Luis Munoz Marin International Airport in San Juan, Puerto Rico.

As a result Aerostar will enter into a 40-year long term lease agreement with the Puerto Rico Ports Authority. This entails an up-front payment of approximately $615 million. This payment is expected to be funded by a mix of financing and equity contributions on a 50/50 basis from Highstar Capital and ASUR.

The closing of the transaction remains subject to a number of conditions, including the award of a part 139 operating certificate by the Federal Aviation Authority. We expect this could take up approximately 180 days. However, this is the first airport to be privatized by the FAA, and there is no track record as a result of these, and, due to the confidentiality issues, there is limited information we can provide until the lease is closed.

However, keep in mind that while LMM handles 8.5 million passengers per year compared with the almost 18 million passengers served at ASUR here in 2011. LMM Airport is in a similar situation to what Cancun was 12 years ago. At the same time, airport regulations are different from those in Mexico, and as a result, economics are not the same.

So, although we see a lot of potential in this airport and we are enthusiastic to have won the concession, there's a lot of work ahead to us to bring LMM to the standards we have achieved at Cancun today. For the moment, in relation with San Juan, Puerto Rico, this is the information that I can share with you.

Moving on to the results, this was a very good quarter. Passenger traffic was up by 74.4% year-on-year, in line with our expectations. Growth was mainly driven by a 15% drive in domestic traffic while reach 2.15 million passengers this quarter, above the 1.8 million posted in the first quarter this year and the highest quarter following the peak of 2.11 million achieved in the third quarter 2011.

Domestic traffic was particularly strong at Cancun, Cozumel, Minatitlan, Oaxaca, and Villahermosa. Again, domestic traffic at Cancun for the last two months continued to be a historical peak, reaching 4.1 million passengers. This trend of new historical records in Cancun has been observed each month of the year. The smaller airports, however, still reflect the impact of lack of domestic airline-seat capacity.

International traffic was up by 1.8% to 2.59 million passengers, almost reaching the record of 2.63 million passengers observed in the second quarter 2008. The share of international passenger traffic, however, fell to 55% of total traffic from the 58% in the second quarter 2011.

Passenger traffic between Mexico, Canada, and the United States represented 92.1% of the total traffic compared with the 89.4% a year ago. Consolidated revenues were up by 16.5% in the quarter, driven by a revenue growth all across all activities. Excluding construction services, total revenue would have increased 15.4%.

Commercial revenues per passenger rose to MXN75.05, another record high, and we remain focused on maximizing commercial revenue opportunities.

Operating costs and expenses rose 11.9% year-on-year, mainly due to high construction cost and cost of services. Excluding construction costs, operating costs will have only risen by 7.9%. Higher cost of sales from the increasing revenues at our direct commercial operations, energy costs and expenses in connection with our participation in international bidding process drove the increase in costs. Costs also include fees from the bond required in the appeal of a decision overturning the tax rate of Cancun for the years 2006 and 2007.

EBITDA was up by 19% this quarter, with an EBITDA margin up by 120 basis points year-on-year to 58.02%. We made investments of MXN130.54 million this quarter as we continue with the terminal expansion in Huatulco, Merida, Oaxaca, Veracruz, and Villahermosa airports.

Finally, we closed the quarter with a strong balance sheet with cash and cash equivalents of MXN1.6 billion and bank debt of MXN511 million.

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

(Operator Instructions). And our first question comes from Eduardo Couto, Goldman Sachs.

Hi. Good morning, Adolfo, and thanks for the call. Adolfo that I know, as you said, there's limited information that you can share with us about the Puerto Rico airport, but just to try to understand a little bit the concession model there. Is it like a dual-till model as we have in Mexico and other countries, or it's like a single-till, just to try to understand how the concession's going to be, if there will be like aeronautical revenues and non-aeronautical revenues?

If you could also give us a little bit of color regarding the timing for the payment, now there is this around $600 million in payment. If that payment would only happen after this 180 days that you mentioned, that will be the timing for the conclusion of the transaction, and also if there is any big short-term investment that needs to be done once you get the concession -- just for us to understand a little bit better what sort of concession you may have in Puerto Rico. That's my first question.

Eduardo, basically you will have to wait until we sign the lease agreement, that it has not been signed. It was just the announcement made by the authorities last Thursday, so you will have to wait. The only thing that I can share with you is, yes, it's a dual-till system.

Okay, okay. But in terms, as I said, of the operating numbers and anything, we have to -- even to say if the revenues per passenger or anything like that, if this is too different from -- you mentioned it's somehow similar to what you had in Cancun in the past, but you cannot give any info regarding the revenues per passenger or anything like that, right?

Not for the moment. Once we sign this agreement then we will be able to share more information with you.

Okay. And the time for the payment is only after the agreement is signed, right?

It's after the certificate has been issued.

Okay. Thank you. That's it.

Our next question comes from Nicolai Sebrell, Morgan Stanley.

Hi, Adolfo, it's Nic Zibrelle. Two questions, if you could start out with international versus domestic traffic, it's been kind of a surprise to some of us that international's been a lot weaker than domestic, that really the last couple of quarters have been domestic-driven, if I'm not mistaken. Do you have any visibility or explanation or -- can you help us with what we'd expect in the second half. and in the next peak season from international do you expect it to continue to be weak, or might there be a change there?

And then the second one on Puerto Rico, nothing specific on the concession or anything, but it's obviously a very similar asset to Cancun inasmuch as being a leisure destination, I think. Do you see possibility of cannibalization? Question number one, and then, two, how do you think, compare and contrast it with Cancun? I know American Airlines tried to turn it into a hub once, to have that possibility as maybe a hub city. Thanks.

Nic, hi. Good morning. International traffic versus domestic, well, domestic is -- basically it's moving really fast, as you can see in the numbers, and what I can see is that they are filling the spaces that have been left by the US traffic. The US traffic is the one that is -- it's weak. It's not the whole international traffic. It's just the US traffic. I hope that in the rest of the year this could be better, but for the moment that's what we are seeing, a weak US and the rest of the regions are very strong.

In terms of Cancun and your comments about leisure traffic, I think these are two different markets. Given that both are within the same region, I think, are not the same. There's a lot of things to do right now here with promotion and there's a lot of work that we will need to do with a lot of [effort] here also with the cruise ship (technical difficulty).

In terms of Cancun, I think this part of the Caribbean needs -- it's a lot of money from hotel owners and it needs to be refreshed as a destination. In terms of American Airlines, it was a hub for the Caribbean region, basically for the smaller islands, but this has been different over the last two years. They basically pulled out from these operations, and that's why this airport came from 10.5 million to, let's say, 8.5 million passengers a year. For the moment, the strong airline here is -- it's basically just (technical difficulty) a lot of capacity in the airport. I don't know if these answered your questions.

Okay. So could still be possibility of a hub, maybe by another airline, if not -- in fact, it was more of a general question, because American Airlines going through bankruptcy, I think it's not really clear what they're going to look like after that. And before it was American Airlines it was TWA, I think they tried it back in the '80s or something. So, I just wonder how much of the try and then decide not to do it was because of lack of commitment from the airport and how much was there's just not enough demand or whatever that was sort of the thought.

No, it was a decision that has been taken by American Airlines. Basically they move most of its hub operations to Miami.

Yes, okay, that makes sense. And you said that you see them as different. You see them as different because one, is a US, what do you call it, territory, or is it because it's different kinds of leisure or is one not really leisure?

First, you have a lot of traffic from people that's coming back home, let's say so for people that is coming to visit their relatives, their parents, their family that live in the US, there's a lot of traffic like this. Of course there's a portion that is leisure, but it's not as it is in Cancun.

Okay, that's clear. Thank you.

Thank you.

Our next question comes from Vanessa Quiroga, Credit Suisse.

Hi, Adolfo. Good morning. Adolfo, I was wondering if you could provide any color regarding the debt that currently the authority that operates Puerto Rico airport, San Juan Airport, has, and if that will be assumed by ASUR.

No, Vanessa, this is a completely independent operation. What we are going to do -- well, not we, Aerostar will pay the government and then they will use a portion of this amount to pay its own debt.

Okay, so, that debt -- so the airport will be absorbed by that joint venture company free of debt?

No. This is -- Aerostar is a new company, and we are not buying shares. We are basically going to sign a long-term lease agreement.

Okay, great. And will you be able to leverage based on -- will that company -- will the new company be able to incur debt?

Yes.

Okay, excellent. And regarding the regulation, Adolfo, is there any guideline on whether there will be a similar structure as there is in Mexico, where there is a formula based on CapEx and OpEx for determining the (inaudible)?

No, it's not and I will recommend you to wait until we can disclose that information.

Okay.

You will not have to wait too much time but you will have to wait.

That's good to know. Thanks.

Our next question comes from Pablo Abraham of BBVA.

Hello, Adolfo, good morning. Thank you for the call. Could you give some color about the traffic trends for the medium and long term, specifically in the following year? And the second question is regarding, what the business you have with either the bus company. Is there any project in mind or something like that? Thank you.

In terms of the traffic, you know that we don't give guidance, but the only thing that I can say to you, then, is that for the moment all the regions are very strong, with exception of the US traffic.

In the case of the domestic, this growth will continue soon as the other airlines are remaining in the country can receive more planes and open or expand their capacity. In terms of [ADR], the business is as it was before they got into the company. Nothing has changed. They continue working in three of our airports with normal operations. Nothing has changed at all.

Thank you very much.

You're welcome.

Our next question comes from Eugenio Amador, Credit Suisse.

Adolfo, thank you very much for the call this morning and congratulations on the Puerto Rico announcement. We have two questions, and we understand the limited information at this point, but wanted to know after the 180 days, when do you estimate that -- how much time after that will it take for ASUR to take control of the asset together with their associate? And, second, do you view that the dividend distribution that is being kept in ASUR currently will be able to be matched in the new project?

In terms of the 180 days, that's what we are estimating. Is not -- could be less, could be more. It's hard to say. As I have mentioned during the initial remarks, there's no track record on this. This is going to be the first one, so it could be less, could be more. After that, we're going to work in a transition plan with the Puerto Rican authorities in terms of taking over the airport.

In terms of the dividend payment, as I said many times, we cannot -- do not want or we do not intend to fund this with ASUR service also we intend to fund our equity participation here with that, so I hope that this will not have an impact on dividends.

Thank you.

You're welcome.

Our next question comes from the line of Stephen Trent, Citi.

Good morning, Adolfo. Two questions from me, the first step, to an extent, is a follow-up to Nick Sebrell's question. Looking at San Juan currently, you mention that it kind of looks and smells like Cancun did 12 years ago. Would you say it's fair to assume that San Juan versus Cancun is more VFR traffic flow, kind of visiting friends and relatives traffic as opposed to tourism traffic and the opportunity is to potentially boost tourism? Is that a fair assessment?

Yes, and also when I was comparing these two situations, I was more inclined in the case of the commercial revenues as well.

Perfect. Great. And just one other thing, Adolfo. Excuse me, just one other question. As we move through time, we are, I guess, coming up to the point where ASUR will be kind of taking a look at the next five-year plan review. Is it your sense kind of -- and I know you don't give guidance on traffic, but is it your sense looking ahead and looking at Mexican airline fleet plans that we could perhaps see -- barring no unforeseen market shocks, relatively steady domestic traffic growth or at least modest domestic traffic growth over the next five years that maybe could positively impact your MDP?

Well, I would say for the moment what we can foresee is it's a modest growth. Of course, if the situation changes and air traffic first changes, you know that there's a huge potential in the domestic market, and we have seen that during 2007, 2008, so I hope that in the future the situation in Mexico will change and we will be able to take all of this potential. For the moment, what I can say to you is what we believe is a moderate growth.

Thank you, Adolfo, and I apologize. Just one more quick follow-up related to this second question. What is your view as to the possibility of the [SDT] establishing a new airport in the Mexico City area in the next five years?

Well, tough question. You know that this airport is something that we as a country, should've decided probably 25 years ago. We have been waiting. It's very urgent that we solve this issue. The Mexico City airport cannot longer too much for the future, so this is the time, because if the new president is Pena Nieto, as we think it's going to be, he will be able to take the decision, because he's coming from the state of Mexico, and that was one of the locations -- the future locations that the previous governments were looking for. So, yes, I see that possibility.

Our next question comes from Luis Willard, GBM.

Thank you. Good morning, Adolfo. Good morning, everyone. Just a quick follow-up and I hope I'm not too repetitive with the Puerto Rico issue. Just talking about your long-term strategy and you said that the strategic upside in Puerto Rico lies in exporting the tourist or having more tourists flying to San Juan. How does this airport in the long run complement your portfolio, because it seems that you're getting to -- you're expecting to get quite relying on tourism?

Well, that's one of the key elements, and the other one, it's, of course, the increase in commission revenue and increasing the standards at the airport. Apart from probably cost reduction and more efficient airport, I would say these are three elements that will drive the growth here in San Juan.

So, in other words, you'd be willing to --

More passengers, more commercial revenues per passenger, and a more efficient airport.

Perfect. Okay that was just about it. Thank you.

Okay.

Our next question comes from the line of Gordon Lee, BTG Pactual.

Hi. Good morning, Adolfo. Just a couple of questions, one of which might have been asked already, and I apologize if it has been. The first is just -- and obviously this revolves around Puerto Rico -- is whether the funding, the debt you intend to take to make the equity contribution, will that be taken by ASUR at the holding level, or will it be taken by one of the operating companies, one of the airports, i.e. Cancun?

The second question is whether you would expect ASUR to obtain some sort of management fee from Aerostar. Presumably ASUR will be managing the airport.

And the third question and this is the one that might have been asked, and, again, apologies -- is if you expect ASUR's dividend policy to be maintained after this transaction is completed? Thank you.

In the case of the debt can be taken by Cancun Airport. For the moment, we cannot answer the second question about management fee, and in terms of ASUR's dividend policy, you know, Gordon, that we do not have [a written] dividend policy. And basically what we do is to review this every year, but our intention is basically to fund all of our equity participation here in San Juan with debt.

Perfect. Thanks very much.

You're welcome.

Our next question comes from Neal Dihora, Morningstar.

Thanks. I was just wondering if you've already been asked to commit to certain capital expenditures at the airport, including the $615 million, anything additional to that?

Sorry?

Have you already -- as part of this agreement for the Luis Munoz Airport, have you already been asked to do more capital expenditures over the life of the lease above and additional to this $615 million?

Well, you know that the $615 million is what we have to pay to the government, and then of course we have to do some -- we will have to spend some CapEx, yes.

Do you guys have a number? I guess I've seen --

(inaudible)

-- the $1.4 billion thrown out there on some press release from the airport operator.

I cannot give you a number for the moment.

Thanks.

You're welcome.

(Operator Instructions). You have a follow-up from Luis Willard, JP -- I'm sorry -- GBM.

Thanks for taking my follow-up. Adolfo, I read there was a statement from a Puerto Rican officer that said that you had to -- of all the investment plan you had to spend a little bit below $200 million over the first three years of the concession in CapEx. Is that right?

Well, I can -- again, I cannot share that information with you for the moment. The only thing that I can say is the commitment we have is not in dollars. It's in [constants].

I'm sorry. I didn't get that.

So, let's say that I have to fix the air conditioner. Then I have to provide Wi-Fi services, that I need to fix the roof of blah, blah, blah, so to change the passenger [breaches]. So it's not an amount.

Okay, it's more like projects?

Exactly.

Okay. Thank you.

You're welcome.

(Operator Instructions). Our next question comes from Vivian Salomon of Itau.

Hi, Adolfo. Can you hear me?

Yes, perfect.

Thank you. Just wondered, do you have an update regarding the tax issue? And you mentioned on the last conference call about the case that Cancun Airport had to pay dividends. Do you have any -- because you were not paying corporate tax, do you have any update on this and regarding the legal issue about the other two airports?

Well, what I can say to you are these kind of matters or these kind of trials last four two to three years, so for the moment nothing has changed, and that's why I have not included any information in the earnings release, nor in the conference, so for one it's at the same stats.

Okay, great. Thank you, Adolfo.

You're welcome.

And at this time there are no further questions and I'd like to turn the call back over to Mr. Adolfo Castro.

Thank you, Shanelle. Thank you for everybody for joining us today in our conference call for the second quarter of 2012, and as always, do not hesitate to contact me if you have any further questions, and have a great day. Thank you. Bye.

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.