Grupo Aeroportuario del Sureste SAB de CV (ASR) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ASUR Second Quarter 2013 Results Conference Call.

My name is [Alecia] 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.

If you would like to ask a question, please press star followed by the digit one. You may withdraw your question by pressing star followed the digit two.

If you're using a speakerphone, please lift the handset before making your selection. 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 proceed.

Thank you, Alicia.

Good morning, everybody.

Thank you for joining us today for the conference call to discuss our second 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 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 with the Securities and Exchange Commission and the Mexican Stock Exchange.

I will start today's call by providing an update on San Juan, Puerto Rico International Airport and afterwards, I will briefly review the results for the quarter.

Total passenger traffic at San Juan airport was 2.1 million during the quarter, reaching an accumulated 2.9 million since February 28, 2013.

On the financial front, Aerostar net income contribution for ASUR's 50% ownership stake for the quarter was a net gain of MXN26.8 million, equivalent to approximately $2 million.

Results were also impacted by a foreign exchange loss of MXN76.5 million and a MXN77.1 million gain in the stockholders' equity. These reflect the impact of depreciation of the Mexican peso against the US dollar during the quarter, and devaluation of Aerostar capital stock, Aerostar (inaudible) with Cancun Airport as well on Cancun Airport's higher volume currency denominated bank debt.

In terms of the work being done at Aerostar, during the quarter we focused on repairing, cleaning, and performing maintenance of a sizable portion of San Juan Airport's infrastructure.

We also begun preparation work in connection with the remodeling of San Juan terminals which is expected to begin this November and continue for approximately three years.

Moving on to our consolidated results, after the traffic increase almost 10% year on year, with a 6% expansion in domestic traffic to 2.3 million passengers this quarter, a record for us in the second quarter.

Domestic traffic was particularly strong at Cancun, Veracruz, Merida, Minatitlan, Oaxaca, and Villahermosa airports. Cancun continues to post strong growth, again, posting a record traffic figure with more than 1.2 million passengers this quarter.

As we have seen since the third quarter 20111, the small airports remain affected by the limited domestic airline fleet capacity, although the situation is getting better.

International traffic performed very well this quarter, up by 12.9% year on year reaching 2.9 million passengers, a record for a second quarter. The share of international traffic rose to 56.1% of total traffic up from 54.6% in the second quarter 2012.

Passenger traffic between Mexico, Canada, and the United States represented 87.81% of the total traffic compared with the 88.61% a year ago.

Revenue rose 0.6% as higher passenger traffic and the continued expansion in commercial revenues was a large part offset by the 49% decline in construction service revenues. Commercial revenues per passenger however fell 1.3% to MXN74.08 year on year.

Two factors affected the growth on our commercial revenues per passenger. One was the depreciation of the Mexican peso on the US dollar and the other one was capacity constraints at Cancun's terminal in line of the continuous (inaudible) traffic growth.

As always, we remain focused on maximizing commercial revenue and growth opportunities and are actively working to change the negative trend we have seen in the beginning of the year.

For example, we are finalizing work at the Cancun airport Terminal 1 and we expect to open this terminal by October this year, which will allow us to better sense domestic passenger traffic and will improve the shopping experience in Terminal 2 of this airport.

Operating costs and expenses declined 8.4% year on year, reflecting the 49% reduction in construction costs. Excluding construction costs, operating costs and expenses have increased 6%.

EBITDA was up by 8.8% with an EBITDA margin increase of around 470 basis points year on year to 62.70%. We made investments of MXN102 million this quarter as we continue with the terminal expansion in Huatulco, Oaxaca, Villahermosa, and Veracruz airports, all of which are expected to be completed during the year 2013.

In terms of our balance sheet, we closed the quarter with cash and cash equivalents of MXN1.9 billion and bank debt of MXN2.9 billion. During the quarter, we also paid an ordinary cash dividend of MXN4 per share.

Now, let me open the floor for questions.

Please, Alicia, go ahead.

(Operator Instructions)

We'll go first to Eduardo Couto from Morgan Stanley.

Hi. Good morning, Adolfo. Congratulations on the results. I have two questions if I may. The first one regarding Puerto Rico.

In the first quarter, excluding the one-off expense that you had there, you're reporting losses around MXN8 million per month, more or less, if I'm not wrong.

And now in the second quarter, you had the same value but more or less the same value but it was a gain, so can you explain a little bit if this gain from Puerto Rico is recurrent or if there's any effects impact there? Just to clarify.

Well, first of all, thank you for words. It's hard for me to say what will be the future in terms of the rest of the year for Puerto Rico because as you may recall, we do not have a clear history of what has happened last year in terms of the passenger traffic so we do not have exact or accurate figures for the last year of operations.

That means that we do not have the exact seasonality of the airport down there so it's hard for me to forecast for the moment what will be the rest of the year.

What I believe is that the seasonality of Puerto Rico should be more or less the same as the one that we have in Cancun which the first part of the year is the most important so the first quarter is higher than the second one, the second one higher than the third one and the third one higher than the fourth one.

To be honest, I am not sure if this is the case or not and what will be the result of the rest of the year. It's very hard for me to forecast that. What I can say to you is that the second quarter in terms of the operational costs was better than the first one and of course, the revenue in terms of the commercial revenue down in Puerto Rico was better, revenue per passenger.

So I hope that the numbers we saw during the second quarter will be more or less what we expect for the following quarters, but it's very hard to have a precise one.

Okay, but the FX impact of the dollar assets that you have there, they go directly to equity, right? They don't pass on the equity income line, is that right?

Okay. That's right. Let me talk about the exchange loss or gain and the effect in the case of ASUR. As you may recall, investments we made in San Juan, Puerto Rico was $118 million. Also, we gave -- Cancun Airport gave San Juan, Puerto Rico a loan of $100 million.

So on the equity side, you have $218 million and on the debt side, we requested a loan to BBVA Bancomer and Merrill Lynch a loan of total $215 million. So more or less you have the same on the equity -- well, on the asset side and in the case of the loan on the equity side.

But the difference in terms of how the gain is applied is that the case of the investment, the impact of investment is in the equity contribution directly and the case of the debt goes into the P&L of ASUR. So that's why you can see a loss in the P&L of ASUR during this quarter. And on the other side, again you see it on the capital contribution.

Okay. So the effects impact on Puerto Rico, this effect impact goes in your results. That's your point.

Well, the effects for an extreme loss or exchange gain in the case of San Juan Puerto Rico, the most important goes into the finance of -- financial (inaudible) of ASUR.

Okay. And what's your net debt position in Puerto Rico right now? Do you have this number?

Yes. On top of the $100 million, remember that we issued bonds it was a private placement of $350 million.

Okay. $350 million.

$350 million and (inaudible).

Okay. And just a second question now on ASUR's operations, especially in the case of Cancun. Can you remind us what is the current capacity that you have -- terminal capacity -- that you have in Cancun including this reopen of Terminal 1 that you mentioned that could happen in October?

And also you know, it's still on the back of investments for Cancun, when do you seen the need for a new terminal or the expansions of the existing ones? When does the company see maybe the requirement of additional investments in terms of terminal capacity?

In terms of -- let me start with passenger traffic more or less what we have for the last 12 months is more than 15 million passengers.

If we talk about runway capacity, we have one more or less 13 million. If we talk about terminal capacity, we have more or less a 17 million. Of this a 17 million, Terminal 1, which is the one that that we intend to open during October this year, it's more or less 2 million.

So the other two terminals are basically reaching their full capacity. That is why you probably one of the reasons why we are not enabled to convert all the passengers traffic into commercial revenues per passenger because of these congestions.

So the intention is to open Terminal 1 in October that will give us some kind of relief to Terminal 2, then we will start at the beginning of next year with the expansion of terminal three and we intend -- it depends quarters in the future passenger traffic growth if we intend to start the beginning of the work for terminal for during the year 2017 four 2018.

Okay, so it can still be included on your next investment cycle, let's put this way?

For sure. At least the new terminal for is going to be included in our next five-year period.

And the capacity, any idea in terms of the terminal capacities for this new one?

It will depend again on what will be the expansion on Terminal 3, but if we say that the expansion in Terminal 3 is 6 million, the new Terminal 4, Phase 1, should be more or less the same as the capacity we have been Terminal 3 today, which is more or less 6 million passengers.

Okay. Thanks, Adolfo. Very, very helpful.

You're welcome.

We'll go next to Bernardo Velez of GBM.

Good morning. I was wondering if you could provide us with a little bit more insight regarding the tax reimbursement.

The tax reimbursement?

Yes, the tax reimbursement that you received this quarter regarding the change in the concessions amortization rates?

It's not exactly a tax reimbursement. It's basically a tax on the P&L. It does not have to do with the cash, but basically, what we decided using the program that was presented by the Ministry of Finance was to change the position rate and to reduce that and basically to be able to have that expense for the future.

And that created the effect that you are seeing in the P&L that must be reflected on the taxes and also together with the positive effect on deferred tax.

Okay, perfect. And you mentioned in your press release that you were active on new international bidding projects. Could you give us a bit more insight on this?

Well, we are working in one specific project, we are trying to be a participant there which is the central terminal of the airport in (inaudible).

Okay, thank you.

We'll go next to Stephen Trent of Citi.

Good morning and thank you as always for the time.

Just two or three from me, some quick ones. I think the first is with respect to President Pena Nieto infrastructure plans, there seems to be a lot out there including some potential news of Merida to Riviera Maya train and maybe some more airports.

I'm wondering if you could give us your broader view as to how you see ASUR either participating in these plans or what could be the general impact on the business, that'll be great.

Okay. Good morning, Steve. The projects that we are mentioning, the one that is clear is the train that goes from Punta Venado to Merida. This is a project that has been announced by the president and they are talking about that project as a phase 1 project. That's the one that is closest to our region.

In terms of airports, with the have announced in basically the remodeling of six airports in the completion of one which is Palenque the previous [world] government was working in the new Palenque airport which is close to Villahermosa.

What they are expecting with this plan is to conclude with that airport. It's an airport that was in the tourists region of Palenque.

Those two are the most important airport projects that I see in their plans but I have to say that I was at the meeting where they announced this plan and the words from the secretary of communications and transport were as well in terms of Mexico City airport and basically the extent that they are working as well to solve the congestion these airports have.

That's basically the important projects for the moment. I do not expect a major impact on our company results.

Okay, great. Thank you, Adolfo. In just one or two questions on San Juan. I guess the first is from a disclosure perspective, some of your peers of course as you guys are adhering to IFRS rules on accounting for some items under the equity method, but some of that those peers are also providing data on a proportionally consolidated basis. Do you think this is something that ASUR might go to moving forward especially if you guys decide to buy some of [Aerostar] stakes in San Juan?

Too many questions there, but basically, I would say we need to understand what the [true] institution of San Juan. First, as I said before, we do not have these results. It's hard for me to present numbers and then to try to compare that with a previous ones because I don't have the previous numbers.

The second comment is that today, as we speak, we have no financial statements audited so we do not have that, it's hard to think about the next step.

And the third one is as you have mentioned that we have a (inaudible) and then we will have to talk about the disclosure we may have on San Juan Puerto Rico's numbers because they would have to include our disclosure first.

If we are going to buy Aerostar's capitals what I can say to you is probably in the future that (inaudible) participation because they are (inaudible). That future may be between seven to 10 years.

Understood. I appreciate your candor as always, Adolfo, and I'll let somebody else ask a question.

Okay, thank you too.

Thank you.

(Operator Instructions)

We'll go next to (inaudible) from Credit Suisse.

Yes, good morning, Adolfo, thank you for the call.

My question is regarding your -- the insight if you could provide it regarding your next (inaudible) CapEx plan. In your year-end report, you have an indicative investment of MXN2.2 billion for the 2014/2018 five-year plan which is about 51% below the MXN4.785 billion of 2009/2013.

Do you still, in the ongoing negotiations, is this still an indicative number? And second, how do you feel this could impact maximum tariffs going forward for your next (inaudible) plan?

The number that you have mentioned is indicative and that was the one that wasn't (inaudible) in the year 2006 more or less. Also, the number that you are mentioning is in pesos of December 2006 so you can add inflation on top of that number.

We are -- as we speak, we are working with the government to review the proposal we presented last year. I have to say to you that the government will conclude its visits to our nine airports next week. There's one that is pending. Once they conclude, then we will be able to talk in more detail about investment plans.

For the moment, we do not have any comment or anything different than the plan we presented to them. If this is going to affect the rates, of course, the rates are the result of the numbers we put in terms of investment plans.

If the final number of the maximum rates for the next five years are going to be more than what we have today or less than what we have today, that is something that we will have to see by the end of the year and I hope that we will be able to share that information with you at the beginning of next year. So the first week of January next year.

Thank you, Adolfo.

You're welcome.

We'll go next to Eduardo Couto of Morgan Stanley.

Hi, Adolfo. Just a follow-up question on the income tax side. Now on your financial statement, you reported almost something close to zero in terms of income taxes. I was just wondering what is your actual cash tax payments, I don't know if you have this number in the top of your head, but something to share with that cash tax instead of the income tax that we see on the results.

I don't have it on the top of my head, but what I recommend to you is to see the financial statements of last year and to see specifically in the cash flow the cash tax payment there.

But you are paying taxes, right in terms of cash outflow?

Absolutely.

Okay, thanks.

You're welcome.

(Operator Instructions).

At this time, I would like to turn the call back over to Mr. Castro since we have no further questions.

Thank you, Alicia. And thank you everybody for joining us today on our conference call. As always, do not hesitate to contact me if there are any other questions and think you all of you and have a good day. Goodbye.

That does conclude today's conference. We thank you for your participation.