Grupo Aeroportuario del Sureste SAB de CV (ASR) 2012 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the ASUR's Third Quarter 2012 Results Conference Call. My name is [Thedeo] and I'll be your operator.

At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions). For opening remarks and introductions, I would like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please proceed.

Thank you, Thedeo. And good morning, everybody. Thank you for joining us today for the conference call of our third quarter 2012 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 current management expectations and beliefs, and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including those that may be beyond our company's control. For explanation of these risks, please refer to our filings to the Securities and Exchange Commission and the Mexican Stock Exchange.

On today's call, I will provide a brief update on the progress made in connection with LMM airport in San Juan, Puerto Rico, and go over the key highlights of the results for the quarter. As announced mid-September Aerostar, our joint venture with Highstar Capital has made progress on the regulatory, financing and managing funds.

On the regulatory front, the Puerto Rico Ports Authority has submitted an application to the FAA Application Pilot Program. Following the publication, the FAA will open up the application to public comment for a period of 60 days, after which, it will conclude the approval process for the operation, at the same time, Aerostar initiated discussions regarding the application for a Part 139 Operating Certificate.

In terms of financing, ASUR and Highstar Capital have committed to capital contributions of 50% of the $615 million up front free, plus any closing costs, minus any debt incurred by Aerostar to make these payments. At the same time, Aerostar receive a term loan commitment for up to $350 million of the upfront free, plus $50 million for capital expenditure and $10 million for holding credit facility.

In addition, ASUR has agreed to lend Aerostar up to $100 million of the upfront free at LIBOR plus 2%. Note that these loans must be repaid by Aerostar, prior to any equity distribution, and ASUR will receive a 20% share on profit in excess of a 14% annualized return, should Highstar Capital decide to sell its interests in Aerostar.

Finally, a transition management team has been appointed and is actively working towards a smooth transition by the closing of the lease agreement. Agustin Arellano, currently Director of Infrastructure at ASUR has been named CEO of Aerostar. Brent Tasugi, a Highstar principal, has been appointed as interim CFO. For the moment, this is what I can share with you in connection with LMM airport. We look forward to providing additional updates as we move along on this product.

Moving onto results, this was a good quarter. Passenger traffic increased 10.2% year-on-year, and this was mainly driven by a 17% growth in domestic traffic, which reached 2.48 million passengers this quarter, the highest for a third quarter ever. Domestic traffic was particularly strong at Cancun, Cozumel, Minatitlan, Oaxaca, Veracruz, and Villahermosa.

Traffic at Cancun continued at historical peaks, reaching 1.4 million passengers. One of the smaller airports still reflect the impact of lack of airline fleet capacity. International traffic grows 3.5% to 2.3 million passengers. The share of international passenger traffic, however, fell to 48% of the total traffic from the 51% in the third quarter, 2011.

Passenger traffic between Mexico, Canada and the United States represented 86.3% of the total traffic compared with the 87% a year ago. Revenues this quarter rose 16.5%. Excluding construction services, total revenue would have increased 14.4%. Commercial revenues to passenger rose to MXN67.8, a record for a third quarter.

As usual, we remain focused on maximizing commercial revenue opportunities. However, this has not been an easy task, due to the change in the passenger mix and the fact that we are not allowed to sell duty-free items to domestic passengers.

Operating costs and expenses were up 13% year-on-year, reflecting higher construction costs and costs of services. Excluding construction costs, operating costs will have risen by almost 8% driven by cost of sales from higher revenues at our direct commercial operations and expenses resulting from our participation in international process.

Costs also include fees from the fund required in the appeal of a decision overturning a tax credit at Cancun for 2006 and 2007. EBITDA was up 18% with an EBITDA margin increase of 63 basis points year-on-year, to 56.6%. We made investments of MXN122 million this quarter, as we continued with the terminal expansions in Huatulco, Oaxaca, Veracruz and Villahermosa airports, which are expected to be completed during the year 2013.

An expansion of Merida airport concluded this last September. Our next step is to present our mass development plan proposal for the period 2014-2018 to the federal government, which we will do at the end of the year. Finally, our strong balance sheet remains as strong with cash and cash equivalents, with MXN1.9 billion and bank debt of MXN414 million at the close of the quarter.

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

Thank you. (Operator Instructions). Our first question is from the line of Eduardo Couto, with Goldman Sachs. Please go ahead.

Hi, good morning, Adolfo. Good morning, everyone. I have two questions, Adolfo. The first one on the commercial revenues, actually the non-aeronautical revenues for passengers. This number was growing around I would say in the teens, around 12% in the first half, year-on-year, and then in the third quarter, the non-aeronautical fees per passengers, they're still growing but they decelerated to something around 4% growth year-on-year. I just would like to understand if there is any reason for this deceleration on the growth pace of the non-aeronautical revenues. That's the first question, thank you.

Yes, Eduardo, good morning. Basically, what I was mentioning in the initial remarks, the passenger mix is changing and we're having more domestic passengers, and in the case of domestic passengers, they are not allowed to buy duty-free. This could be probably the main reason why this is decelerating.

Okay, so if you see a reverse in this trend of -- in this mix, your commercial revenues per passengers can boost again. That's possible?

That's possible, yes.

Okay, and just another question, Adolfo, regarding the development plan. You said that you're now delivering, from the new plan for '14-'18. Can you remind us what are the upcoming steps of this process until the final approval, just to clarify what happens from here?

Okay. The process starts around June of last year, when we have to select someone to help us in the process. Then as from October up to May this year -- October last year, May this year, we prepared our proposal. The proposal is now in the hearing process. The users have six months' hearing process, basically the airlines. And they have to provide us their comments during the month of November.

Once we have their comments and we adjust the document accordingly, we will have to present that to the federal authorities, at the latest, the last day of this year, and then they have one year to review the document and to approve -- or to set up a new proposal for the MDP and the new rate that will be [bailing] us from the first day of January '14.

Okay, so the new rates will only be announced by probably the second half of next year, right?

No, in my opinion, if everything goes in accordance with the plan, the announcement will have to be made in let's say, January the 3rd, 2014.

Okay. Thank you.

You're welcome.

Thank you. Our next question is from the line Neal Dihora, with Morningstar. Please go ahead. Neal, your line is open.

Yes, thanks. I think in prior quarters you had said that international traffic had been slow because of some weakness in the US? I guess I was wondering if you had seen any changes, with respect to that. And then the second question was for CapEx. For 2013, I think within the MDP that you filed some time ago, that CapEx number was close to MXN6 billion, and I don't think you've gotten anywhere close to that, so is some of that going to be moved into the next MDP? And those are my questions. Thanks.

Okay, in your first question, nothing has changed. The use traffic is still weak, and the international front, we're seeing growth in Canada, growth in Europe and South America.

In the case of the MDP, we have to comply with the MDP that we have committed with the government. Of course, the numbers that you are seeing have not -- probably are not reflecting the adjustment we made in the case of Veracruz and Villahermosa airports.

Apart from that, we will have to comply with a number, you said MXN6 billion, that number does not ring my head so I will recommend you to go and see the press release we published on April 2009. That's the number, of course that number has to be adjusted with the case of Villahermosa and Veracruz, with a portion of that CapEx in those particular airports, yes, were moved to the next MDP, but apart from that, we will have to comply with the rest.

I guess, just, if I can have another one. Just on that, do you know or have plans for spending for 2013?

I don't have a figure on the top of my head, but it should be close to MXN600 million, MXN700 million.

Okay, that's helpful. Thanks.

Thank you. Our next question is from the line of Nicolai Sebrell with Morgan Stanley. Please go ahead.

Hi Adolfo. I apologize if this has already been discussed, but could you talk a little bit more about how, and when you're going to handle the Puerto Rico airport? For example, accounting I assume is going to be a one-liner as equity income, and two, the financing, I assume it's going to be mostly project level financing and then you have the balance sheet to handle the equity component?

That's the first question. The second question is, as far as I know, you're still the CEO, the CFO, the IRO and you'd said previously that you might consider bringing somebody on board to do some of those responsibilities. Are you looking to hiring somebody?

Hey good morning, Nick. Let me go up to your questions. The first one, accounting on LMM, 99.99% is that we will have to consolidate these on the equity, naturally in accordance with international financial standards, so that means one line in the P&L. That's what you are basically saying.

In the case of financing, basically we will have some debt at the project level, that's Aerostar, and of course, the equity that will have to come from ASUR to Aerostar, it's our intention to fund that with debt. In the case of CEO, CFO and the rest, basically our intention is to have a change in the structure once we receive, and the Puerto Rico airport is a fact. It's not today, you know that we are in the process to get approval from FAA and of course, we cannot assure at this moment that the FAA will approve the operation. So once we have these in operation, then we will have to adjust the structure of the Company accordingly.

Brilliant, thank you.

Thank you.

Thank you, ladies and gentlemen. (Operator Instructions). Our next question is from the line of Bernardo Velez, with GBM. Please go ahead.

Hi, good morning Adolfo. I'd like to ask you if you could give us a little more insight regarding the bonds needed to appeal the tax credit.

In the case of the tax -- good morning, in the case of the tax credit, there's no something to tell you, in terms of progress in the courts. Normally, this process takes two to three years, so there's nothing that I can say to you more than what you know.

Thank you. And this bond is like an insurance for the MXN334 million you stated in potential tenancies and fines in the fourth quarter?

Yes and no. The amount that we have to cover to the federal authorities is around MXN800 million, and this again is from the top of my head. The number that you are talking about probably is the number that could be in risk, is not what we have to cover in terms of the port.

Okay, so the MXN865 million is what the bond is for, right?

Exactly.

Okay, great. Thank you.

You're welcome.

Thank you. Our next question is from the line of [Guadeloupe Villa] with [Mexico Fund]. Please go ahead.

Hi Adolfo, good morning. I just wanted to make sure that the investment Mr. Fernando Chico Pardo is doing in Gruma is totally separated from ASUR and if you see several investments coming also from him?

Hi, good morning, Guadeloupe. What Fernando's intentions are in the case of Gruma does not have anything to do with ASUR. Probably we will send some tortillas at the airports, but apart from that, it doesn't have anything to do with ASUR, at all.

Okay, and that's the plan to keep totally separate from ASUR?

Nothing has to do with us.

Okay, thank you.

You're welcome.

Thank you. (Operator Instructions). I'm showing no additional questions. I'd like to turn to the call back to Adolfo Castro for closing remarks.

Thank you, Thedeo, and thank you everybody. And thanks 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 there and have a good day. Good bye, everybody.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.