Grupo Aeroportuario del Sureste SAB de CV (ASR) 2013 Q1 法說會逐字稿

Please stand-by we're about to begin. Good day ladies and gentlemen and welcome to the ASUR First Quarter 2013 Results Conference Call. My name is [Jaime] 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). As a reminder, today's call is being recorded.

For opening remarks and introductions, I'd like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead sir.

Thank you Jaime and good morning everybody. Thank you for joining us today for the conference call of -- to discuss our first quarter 2013 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's expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially including factors that may be beyond our company's control.

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

On today's call I will provide a brief update on San Juan Puerto Rico Airport and then go over the key highlights of the results of the quarter.

Moving on to San Juan Airport, as you know we were the preferred bidder for these airports and we have obtained the final approval from the FAA to lease and operate this airport for a 40-year period.

This is the first airport on the FAA's privatization pilot program and we believe that these will be seen some years from now as a very important step forward -- a step towards other future privatizations in the United States. We made and equity contribution of $118 million for our 50% share in Aerostar and we provided Aerostar $100 million subordinated loan at the interest rate of LIBOR plus 210 basis points.

This was funded through a credit agreement with BBA Bancomer and Bank of America/Merrill Lynch for $215 million. With a five-year term and an interest rate of LIBOR plus 199 basis points. At the same time our subsidiary Cancun flexed its membership interest in Aerostar to secure the $350 million senior secured notes issued by Aerostar in a private placement.

As Aerostar is a joint venture and not our subsidiary, we do not consolidate Aerostar's assets or liabilities into our financial statements and had both our 50% share in Aerostar under the equity method in accordance with international financial standards.

ASUR's equity in the income of Aerostar for the quarter was a net loss of MXN122 million. To get to day one operations under Aerostar's management, around MXN114 million were spent during the more than two year period in which ASUR was involved in the bidding process for the privatization process of San Juan Puerto Rico Airport.

This included the preparation of all the bidding documentation obtaining the 539 certificate form from the FAA market research, consulting, legal and debt financial piece among others. We also reported an operational loss of MXN8 million from San Juan Puerto Rico Airport generated from the operation of the company as from February 28, 2013 to March 31st, 2013.

In addition, ASUR posted a MXN47 million loss in stock holder's equity resulting from translation effect of Aerostar financial statements in connection with the valuation of the capital stock derived from deprecation of the peso against the US dollar. Results this quarter were also impacted by the investment by Aerostar of MXN20 million in fees paid to third parties in connection with ASUR's participation in San Juan Puerto Rico Airport privatization project.

A foreign exchange gain of MXN66 million resulting from the 3.5% appreciation of the Mexican Peso against the US dollar in connection with increasing foreign currency denominated debt following the $215 million rate agreement with BBA Bancomer and Bank of America/Merrill Lynch I mentioned before. At the same time, total passenger traffic at San Juan airport was 782, 924 from February 28, 2013 to March 31st, 2013.

Our goal now is to transform San Juan Airport into a world-class airport gateway. And while San Juan Airport is the Caribbean business airport and very attractive growth opportunity for us, keep in mind that this is a long-term project. We believe it will require around three to four years to turn around this operation and bring it to the efficiency, profitability and service levels that we have at Cancun today.

In fact, during the next years we will be focusing on completing needed maintenance projects, improved passenger flow, upgrade infrastructure, improve and enhance airport retailing offerings. This also means focusing on driving commercial revenue growth from levels similar to what we had at Cancun 10 years ago to achieve the world-class standards we have at Cancun today. As always we are committed to transparency.

We will provide additional updates as we move along in the transitioning, the operation of San Juan together with the Puerto Rico port authority through a process that will last several months. In terms of our consolidated results, passenger traffic increased 8.5% year-on-year with a 10% expansion in domestic traffic and 2 million passengers this quarter, the highest record for us in a first quarter.

Domestic traffic was particularly strong at Cancun, Veracruz, Oaxaca, Villahermosa, Cozumel, and Minatitlan Airports. Traffic at Cancun remains at historical peaks reaching more than 1 million passengers this quarter, the smaller airports however are still affected by the limited domestic airline fleet capacity. International traffic rose 7.5% to 3.6 million passengers and represented 64.1% of total traffic slightly below the 64.7% share in the first quarter 2012. Passenger traffic between Mexico, Canada, and the United States represented 83.09% of the total traffic compared with a 85.79% a year ago.

Revenues rose 7% this quarter driven by passenger traffic growth and continued expansion in commercial revenues. Commercial revenues to passengers however fell 0.5% to MXN74.24 year-on-year reflect the shift in passenger mix towards domestic traffic which is restricted from purchasing duty-free items and the effect of the 3.5% appreciation of the Mexican peso against the US dollar. Nonetheless this was the second highest value for our first quarter.

Operating cost and expense rose only 0.7% year-on-year as we will reimburse the fees paid to third parties in connection with our participation in the privatization process in San Juan airport. Excluding this reimbursement, total operating cost and expenses would have increased 4.1% mainly reflecting higher maintenance costs.

EBITDA was up 10.7% with an EBITDA margin increase of around 232 basis points year-on-year to 66.74%. We made investments of MXN91 million this quarter as we continue with a terminal expansions in Huatulco, Oaxaca, Villahermosa, and Veracruz Airports. All of which are expected to be completed during the year 2013.

Finally, we maintain a sound balance sheet with cash and cash equivalence of MXN2.7 billion and bank debt of MXN2.9 billion at the close of the quarter.

Before opening the floor for questions, let me note that this coming Thursday we will be holding our general annual ordinary shareholders meeting, among other items, the agenda includes the proposal by the board of directors to pay an ordinary net dividend in cash from accumulated returning in the amount of MXN4 for each of the early A shares and B and BB shares.

Now let me open the floor for questions. Please, Jaime; go ahead. Jaime, please go ahead.

Thank you sir. (Operator Instructions). And we will take our first question from Benjamin Theurer with Barclays.

Hello. Good morning. First of all thanks for the call. I have actually two questions; one is related to the overall operations within Mexico. We've seen this kind of improved international traffic with about 7.5% growth. What's you expectation going forward in terms of international traffic? What have you seen so far? And do you expect a shift more towards international traffic again which should then be positive for commercial revenues which was a little bit weak this quarter just because of the lower level of international traffic?

And then the second question would be related to Puerto Rico. You said already that it will take about three to four years to turn the operations around, but do you expect to become at least in terms of operational profit positive before that time frame, or do you actually expect those three years to be operationally profitable at that airport? Thanks.

Hi. Good morning Benjamin. Thank you for being here with us. In terms of the traffic, yes; you are right. We have seen some improvement in the international traffic. I would say basically from the United States in the past year 2012, all the regions were growing with exception of the United States. Apparently today what we are seeing is a small increase from the US traffic, if this will continue or not it's hard to say. But my expectation is that this year the domestic traffic will be more balanced against what we saw last year.

Also it's important to say that due to the fact that Mexico City Airport is congested or that the Mexican authorities have decelerated these airports as stagnated. And because of these they have decreased the amount of operations that these airports can take in an hour as from October this year probably we will see a small reduction towards the end of the year. Again, this will change a little bit passenger mix that we expect for this year.

In the case of San Juan, yes; we are talking about three to four years to make the turnaround of this airport, and basically to be able to provide the same level of service quality that we are providing today in Cancun. Of course in terms of financials, no; we do not expect three to four years that these airports can report profits. The result we saw for the first 31 days of operation was a small loss in my opinion. And these should be corrected in the years to come because of increase in the commercial revenue per passengers.

Of course this will not happen from day to night. The first thing that we have to do is to prove -- well, first to do the maintenance -- correct maintenance problems these airports have today. Second, to start with the construction of the new layout of the terminal and then we can talk about more growth in terms of commercial revenues. So I would say this will occur one year from now.

Okay. Thank you very much.

You're welcome.

And we'll take our next question from Stephen Trent with Citi.

Good morning Adolfo and thanks for the time. Sorry if I'm repeating something you already said, but I had some trouble dialing in. I just wanted to follow-up on one or two event questions. Looking at Puerto Rico and your outlook on that, I'm wondering sort of what general assumptions you made about sort of recovery of capacity from the likes of American Airlines? And to what extent that FAA budget cuts have impacted your outlook in terms of having this asset become accretive?

Okay. Hi. Good morning Steve. In the case of American Airlines we don't believe that they're going to go back in the strategy they started two years ago basically moving their hub operations from San Juan to Miami. And maybe you know that as from April this year. And American Eagle is not operating there anymore. So we're not focused on that and we don't believe that we're going to be able to convince them once they have invested a lot of money in Miami airport.

I guess these JetBlue is putting a lot of emphasis in the growth of these airports. And I would say this region in the future. In terms of the cutting cost from FAA, well from PSA basically, I would say we do not expect any major impact in the case of San Juan airport. Also one of the projects we have there that we will start constructing us towards the end of this year will be the improvement of the security [fielders] in order they can be more efficient in terms of using their own personnel.

So this will benefit the airport and also this will benefit them in terms of the amount of people they have located to process all of these passengers. So I don't expect any problem with the situation in San Juan. And remember that this airport has extensive capacity, let me put it that way. So it's not a problem.

Great. Thanks Adolfo. And just one other quick thing, I didn't -- I heard you say -- mention the dividend that you've declared this year. But if you could repeat that for me, please. I couldn't hear you so well.

Yes. The proposal is MXN4 per share.

Great. Thanks Adolfo. Let me leave it at that. I'll let someone else ask a question. I appreciate that.

Okay. Thanks.

(Operator Instructions). And we'll go next to Vivian Salomon with Itau.

Hi Adolfo. Good morning. Just wanted to ask you about the tax level that you reported during this quarter; should we be expecting the same levels for the rest of the quarters? And just talking a bit and my second question on the commercial side; what do you -- I mean, I know you don't give guidance, but what are you expecting in terms of what sort of -- what portion of the revenue should we be expecting to go up if we see the same dynamics of passenger mix during this year?

Okay. In terms of taxes, Vivian, more or less the average for the whole year should be an effective rate of 30% which is more or less corporate rate we have in Mexico. The difference could be in the case of the cash that we pay in taxes. But in terms of the P&L, the average for the year should be close to 30% unless something different accuse us. We saw in the fourth quarter last year when two airports shift from one tax to the other.

In the case of commercial, I would say yes; we don't like to send results in terms of commercial revenue to passenger in a negative way. That's clear that we don't like that. And that's not the objective we have as management. But I have to say that during this quarter there were very extreme things that happened. That position of the peso was one of them. Of course the amount of domestic passenger we saw in Cancun terminal was another one. And we are taking the necessary steps to correct the situation.

So probably towards the end of the year we will have to open terminal one that will represent some kind of relief to terminal two. This will give domestic passengers more space and of course more opportunity to buy stock. As I mentioned at the beginning, we expect to change in the passenger mix so that we have more international in comparison of what we saw last year. And so that's what I can say for now.

Thank you Adolfo. Very clearod. Thanks.

And we'll take our next question from Neal Dihora with Morningstar.

Hi. Good morning. Thanks. Two questions; one, you mentioned some reimbursement I guess from the LMM bids in European. I think that was in G&A. Do you have an exact amount or at least a percentage amount? And then two, for the LMM do you -- is there a minimum CapEx amount for the duration of your 40 years there? Thanks.

Okay. In terms of reimbursement these were some expenses that we have been recorded in our P&L for the last two years that basically once the operation was closed and we had the financial closing. This was paid from Aerostar to Cancun airport. The amount of these was -- in terms of round numbers -- MXN20 million. And that was reflected or registered in our books as reduction in the expense in the cost of services.

In terms of your second question, if there's a mean on CapEx requirement. There is two requirements, one from the airlines one from the authority. And in the case of the authority, basically they are requiring project. They're not requiring amounts. In the case of the airlines they are requiring project. And a minimum amount. This is very small of what we really have to do. We have to improve this airport. Today I don't have a specific amount of investment. But what I can say to you is that the investment that we're expecting to put in this airport is by far more than the minimum requirement.

Okay. Thanks. That's helpful.

And we'll take our next question from Luis Willard with GBM.

Thank you. Good morning Adolfo. Thanks for the call. Just a quick question regarding the negotiation of the MDP to the extent that you can comment what can we expect in terms of the distribution of the investment given that it appears that you can continue growing without adding that much capacity to the terminals?

Hi. Good morning Luis, in terms of the MDP I cannot say too much today, what we are doing is basically having the side visits with the authority. Basically going to each one of our airports reviewing each one of the projects we proposed in terms of investment.

My expectation is that the investment for the next five year period will be lower in terms of real terms compared with the previous five year period. That makes the expectation but of course today, we cannot say too much because we will have to see and agree these with the authorities. I believe this will occur more or less in the third quarter this year.

Okay. Thank you.

You're welcome.

(Operator Instruction). We'll go next to Augusto Ensiki with Morgan Stanley.

Hi Adolfo, good morning, just a question on LMM. What is the amount of investment expected for this year? And then how does that -- how is that going to be reflected on your balance sheet and on your P&L? Thank you.

Okay. As I said before, today we do not have a specific amount. As a matter of fact we're working in quotations on both; the design of the project and then the quotations for this construction. This year, probably the amounts are not going to be extremely important because the real construction will start as from October, November this year. And for the project next year is going to be the hard one. How is this going to be reflected in our books? Basically through the equity methods and basically putting a value of our 50% equity stake; and so you will -- again we are not going to consolidate this into our financial.

Okay. So then in the -- the way that it appears this quarter in the asset line?

Exactly in the investment; yes.

Okay perfect. Thank you very much, Adolfo.

You're welcome.

And currently, I'm showing no questions in queue. (Operator Instructions). Then we'll take our next question from Adolfo Ramos with Franklin Templeton.

Hey Adolfo. Good morning everyone. I just wanted to see whether there has been any progress on finding and expanding the organization. You mentioned that you were waiting on the approval of the LMM airport to make any decisions. I was wondering if you're any close to hiring someone?

Yes, and getting closer. I'm glad; probably I'm getting closer to hiring someone. And I hope that by the third quarter you will see someone else here.

Thank you.

(Operator Instructions) And at this time, I am showing no further questions, I'd like to turn the call back to you Mr. Castro for any additional or closing remarks.

Thank you, Jamie. And thank you everybody for joining us today on our conference call. As always do not hesitate to contact me if there's any further questions. Thank you and have a good day. Bye.

And again that does conclude today's conference. We do thank you for your participation.