Grupo Aeroportuario del Sureste SAB de CV (ASR) 2013 Q3 法說會逐字稿

Please stand by, we're about to begin. Good day ladies and gentlemen and welcome to the ASUR Third Quarter 2013 Results Conference Call. My name is Aaron and I will 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 proceed, sir.

Thank you, Aaron and good morning everybody. Thank you for joining us today for our conference call to discuss our third 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.

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

Passenger traffic at San Juan Airport remained unchanged quarter to quarter at 2.1 million passengers, which is quite (inaudible) since February 28, 2013.

On the financial front, I'll start with income contribution for ASUR's 50% ownership stake for the quarter was a net gain of MXN0.3 million.

In terms of the work being done Aerostar, we remain focused on repairing, cleaning and performing maintenance work of Cancun airport infrastructure. We also continue the [procreation] of work for the remodeling of Terminal San Juan airport which we expect to being next month and continue for approximately three years.

Now, in terms of our consolidated results, passenger traffic increased almost 11% year on year. The domestic traffic up about 9%, to 2.7 million passengers, all time high. Domestic traffic was particularly strong at Cancun, Veracruz, Merida, Minatitlan, Oaxaca and Villahermosa airports. Cancun continue to post strong growth, again, achieving record traffic of more than 1.5 million passengers for this quarter. And those are situations that smaller airports continue improve, traffic remained affected by the limited domestic airlines seat capacity.

International traffic are also performing well, up by 12% year on year, reaching 3.6 million passengers, a record for our third quarter. A share of international traffic rose slightly to 48.7% of the total traffic, from domestic, 48.1 in the first quarter of 2012.

Passenger traffic between Mexico, Canada and the United States represented 84.12% of the total traffic compared with an 84.88% a year a go. Revenues were up by 7.3% as higher passenger traffic and the continued expansion international revenues. More than else, we have the 22.5% (inaudible) infrastructure revenue in construction service revenue.

Commercial revenues per passenger increased 5.1% to MXN731.25 year on year. And we'd remain focused on maximizing commercial revenue growth. As you have seen during this year, everyday is getting harder to get -- with the amount of passengers moving.

Operating costs and expenses declined 3.4% year on year reflecting the 22.5% reduction in construction cost. Excluding construction cost, operating costs and expenses have increased 2%.

In (inaudible) of our time to (inaudible) operations in terminal 1, are [concomitant]. And which should act some operating [prop] the fourth quarter. EBITDA was up by 16.44% with an EBITDA margin increase of around 4.89 basis points year on year to 61.5%.

We invested MXN130 million this quarter in connection with expansion work in terminals of what [precorp] will have to at Villahermosa and Veracruz airports. Work at (inaudible) have been (inaudible) completed this quarter and we are about to finalize expenses at the end the Villahermosa and Veracruz.

In terms about the balance sheet, we closed up this quarter with cash and cash equivalents of MXN2.4 million and a bank debt of MXN2.9 million.

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

(Operatior Instructions). And we'll take our first question from Eduardo Couto with Morgan Stanley.

Congratulations on your results. I have two questions, Adolfo. The first one regarding Puerto Rico. Now, when you look the equity income contribution now that you have been reporting, now on the first quarter, it was, I think negative MXN8 million. Second quarter was positive MXN27 million, and this quarter was breakeven.

So, looking at that, it gives an impression that every time the peso gets weaker, you have a positive contribution and when the peso gets stronger, the number is negative. So, is there really -- my question is, is there really an (inaudible) effect on this equity income contribution from Puerto Rico? That's the first question.

Yes, of course there's an effect when you translate the U.S. dollar financial statements of Puerto Rico to peso, of course if the peso gets weaker, you get more pesos per dollar in terms of the financial statements. So, that's very clear that you won't have a [mean] back when you [translates] Puerto Rico airport operations to ASUR's financial statement.

Also, keep in mind that in the case of Puerto Rico, we had debts and you can see that into our balance sheet. We had (inaudible) 18 million bank debt that would (inaudible). And yet, on the tax side, you have the relation of the stock and also you have the loan that we gave to San Juan, Puerto Rico. So, (inaudible) three elements in consideration when you are making your progress.

So, what is the net dollar exposure, Adolfo, that you say?

The net dollar exposure that you see in the balance sheet basically is breakeven because on the other side, you have the equity contribution which originally it was MXN180 million plus the loan which was MXN100 million and on the liability is almost the same amount.

The problem is that the effect of the equity contributions does not go up with [PNN]. That's goes into the equity. So if you can see in the report that we presented MXN16 million in fees and equity because of this situation. And the other effect was in the (inaudible).

Okay. And just another question, Adolfo, regarding the Cancun airport, can you give us an updates where -- regarding the terminal capacity from the operations there and the commercial revenues. Did you opened the old terminal or you're operating with the two terminals?

If we access operating in terminal 2 and terminal 3. In the (inaudible), I'd said that we'd at lease operating terminal 1 as from the end of this month. And that of course will generate some impacting news coincides to the fourth quarter.

And the San Juan will have to [beat] some kind of the limits to terminal 2 because of the (inaudible) that -- or part of the traffic that we had seen in the last two years.

Okay, what's the three terminals here capacity would be how much?

Well, if you want a number, I can say at least MXN17 million.

Okay, thank you.

You're welcome.

We'll take our next question from Bernardo Velez with GBM.

My first question is regarding the [NDP] negotiation and maximum tariff. Could you give us an update how are the negotiation is going and what can we expect of on the new tariff?

Well, what you can expect is that we will be in [round] once we finish the negotiations. And I expect this to happen at the end of this quarter and it's really, really important that we begin with (inaudible). So, that's what I can share with you. (inaudible), we're not having any other account.

Okay, and in your annual report, you mentioned a negative investment for the next 5 years. Can we expect -- can we still expect this round or are you planning on making another major investment?

Well, this is probably something that we do (inaudible) given the authority because with strong traffic growth that we are having (inaudible) in some airports. As I said in the previous conference call, some of our work, it can close and closer because of a growth we're seeing. So that maybe could give some additional CapEx for the next five years.

Okay, thank you. And regarding the fiscal reform, have you been thinking about probably anticipating next year's dividend payment?

Not as of the moment.

Okay, thanks for answering my questions.

You're welcome.

(Operator Instructions). We'll go to the next to Stephen Trent with Citi.

This is (inaudible) on Stephen Trent's team (inaudible). Now, I guess, I got three questions. The first one, can you guys quantify how much of the year ago EBITDA growth have resulted from 3Q '12 like one-timers, like (inaudible) our Brazilian and Puerto Rican airport projects.

Well, I don't have the tier on top of my head. Probably, if you're referring to the fund that was at the third quarter -- the one we are presenting today, you will see there the difference. But the amount is not really important even though that's one of the reason we are presenting as a result of the decrease in the operating growth and expenses is this one. It's must (inaudible), I would say.

Okay. Now as my second question I guess would come from I guess some news about Vivaaerobus facing a large aircraft order. Can you tell us like what are they or one of the other American airlines announced any growth plans which would solve any flight -- any more flights to any ASUR airport installations?

Well, you know that -- well, I heard the announcement of Vivaaerobus. We have seen the orders in the [jet] with some situation that they (inaudible) situations. And so that is this, it was well -- basically we have to bear in mind that the capacity -- the (inaudible) capacity we have in (inaudible) was around 307 aircrafts.

And today, we are 1 point below that amount of planes. So, basically, all of these airlines are catching up of what we lost as a system some years ago. Of course I feel it's very positive because at the end of the day, this will allow the passengers to fly. It's true that in some cases, there were some passengers to fly because there was no capacity.

Let me give you a clear example that you can see today in the report we are presenting. And that's the case of Minatitlan. The question is why Minatitlan is growing in (inaudible) is some concern. The answer is very simple because someone said add another flight (inaudible). And this gave the opportunity to all the passengers to fly. So I think that is a positive news. Of course, as well, in my team and in the future, incentivized in (inaudible) and lowered price -- lower air ticket price.

Okay, okay. Thank you so much for answering our questions, Adolfo. And I guess the last question, what is your thinking about potential airport trends inside and outside of Mexico, like Mexico City, Central America, Colombia and other (inaudible) in Mexico, do you think, sir, will consider participating. And if you were, I was [working] about bearing thoughts around what sort of -- it would be an effective like IRR.

Well, today as we speak, we are seeing projects that are, I would say, on the market. There are some merges focusing in one in terms of speeding processes. And that's the airport of Laguardia we have been short listed. And that's the only one that we have to participate within.

And in the future, of course, we will have to wait and see the new projects and we would be and I think those that if they have their own merits, we'll participate. I cannot give you an IRR because every single project have some [particularities]. Every single project that we sign with it soon, concessions (inaudible) or/and lease agreements. I have to (inaudible) in that way.

Okay, fair enough. Now, could you use -- I guess I missed it, could you repeat that -- what was that airport project?

Yes, the one we have -- it's in New York, it's Laguardia.

Oh, Laguardia, okay. Excellent performance. Okay, thank you very much.

You're welcome.

(Operator Instructions). Over to the next to Neal Dihora with Morningstar.

I guess I wanted to go back to San Juan. It looks like third quarter, you have an operating loss at San Juan, is that -- well, I guess that's correct. And two, is there a lot of seasonality that's causing this? It looks like [Tucci], you had a large operating gain that you -- that's (inaudible).

Okay, let me sort of start for a moment. First, if you look at (inaudible) as your stakeholder. These (inaudible) are 3027 BCF. Second, it is important to understand that for the moment, we have to work very hard on maintaining and basically cooperating that the same thing we have is (inaudible).

It's going to [bag] some waters until [Yuan] and we can find some kind of stability in terms of where we show some [of that water]. And of course the fluctuation of the Mexican peso and the dollar has an impact on the number into (inaudible) financial statements.

But probably the most important comeback I can say is of course, during the second quarter, we have -- not exactly term but the one that we are having right now. So, we are gearing up with the process of maintaining this or upgrading these facilities, and as I said during the (inaudible) as from the month of November, we will begin the process of -- reminding the process of the terminal buildings bound for a period of three years.

Just a follow up. Is that -- so the work date is going to start in November and it's going to last three years. Is that also considered maintenance? Or does that include capital investments?

No, but I would say that is capital end.

Okay, all right. Thanks.

You're welcome.

We'll take our next question from [Gabriel Cadaleza] with Goldman Sachs.

Question, just to have your view on -- with the Mexican City International Airport reaching full capacity. I'm curious to hear from what would be expected in your view from -- potential impact for your -- any kind of potential -- decrease on volumes going to Cancun or something like that. Thank you.

Yes, you're right. Some months ago, the Mexican government officially declared -- saturated these airports. And basically, they refuse the month of operations per hour that we got for sending (inaudible). And I don't have an exact figure of the number but the number that I heard was from 81 air traffic movements per hour to 61 to air traffic movements.

When the 8 hours on daily basis that the airport is full and adjusted. That will represent 4 to 4.5 million passengers that will have to be relocated. Some will get credit in terms of the (inaudible) to pay or will have to be relocated to some of other airports. And of course, the one that I believe will play the most important part of this so-called (inaudible) passenger system is the airport.

And one consideration is that not all we're flying to this, not all of (inaudible) go from (inaudible) will be willing to fly from [Tuluca] with the possibility of losing some of them is very high. And of course, some of them will be or should be or will be willing to travel again.

Okay, thank you.

You're welcome.

I'll take our next question from [Ellen Ladaly] with [Georgia Bank].

The question that I had that I was hoping you could explain a little bit more actual results that we've done revenue for passenger which was up 5.1% and put that in contact with the second quarter where we saw that declined 1.3. What's changed in the quarter? Is that one-off or how would you actually look at that?

Well, what have changed in my opinion is the amount of passengers. Of course we have a great (inaudible) but of course a little budget will increase (inaudible) low. In other words, as you know what terminals 2 or 3 in Cancun are very congested during the second quarter. And that is why we are up in terminal 1 to keep some kind of relief to terminal 2 in terms of the months of passengers are back into the (inaudible) terminals every single day.

And you cannot (inaudible) when you have lights in some what way with the lodge or when -- just the (inaudible) is, it's full of people, okay? So, that is probably one of the most important thing that can say in (inaudible) with passengers at this -- and the correlation of these with the commercial revenue.

If you can remember, in the first quarter, we had the same situation and that gave a very clear indication why we have -- knowing on that the census for passenger has include the previous year. And one of that -- and one of those was to -- for to (inaudible) the exchange rate, the other one was -- and this is from the top of my head. They're changing the mix of passengers so you have more domestics in comparison with previous years. And domestic of course, they don't have the opportunity to buy (inaudible).

So that's that [one] situation and that is why I had said in the initial, we met again. But everyday is getting harder and harder to get more [commercials] revenue on (inaudible) passengers we are receiving today. And, in the future, as I have said before, what we expect is to expand terminal 3 to construct terminal 4.

Sorry, if you could say that last sentence what you expect in the future is?

Sorry?

I didn't follow the last sentence, what you expect in the future is what?

Okay. In the future is to expand terminal 3, to have more (inaudible) and to construct terminal 4.

So, would it be fair then to assess in quarter 3 you have lower growth or a lower profit, we can expect better regional upside.

Well, at the present, (inaudible), I would say yes

Okay. Thank you, that's helpful.

You're welcome.

(Operator Instructions). It appears there are no more questions in queue. I'd like to turn the call back over to Mr. Castro for any additional or closing remarks.

Thanks, Aaron and thank you everybody for joining us today in our conference call. I have to say that in November 27th, in order to celebrate [air trend] and ASUR's (inaudible) spectacle, some of [accounts] will be honored to receive the third [commissional] landing up on [8380] in Latin America.

Please contact your travel agency for this unique opportunity, that is (inaudible). And (inaudible) and anticipate if in fact if there's any further questions and thank you all. Hope you have a good day. Good-bye.

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