Grupo Aeroportuario del Sureste SAB de CV (ASR) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ASUR Second Quarter 2014 Results Conference Call. My name is Jennifer 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 would now like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please proceed.

Thank you, Jennifer, and good morning, everybody. Thank you for joining us today for a conference call to discuss our second quarter 2014 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 conference with an update on San Juan, Puerto Rico International Airport. Afterwards, I will briefly review the results for the quarter. Passenger traffic at San Juan Airport was 2.2 million, up 6.4% year-on-year and 4.7% sequentially. This quarter, Aerostar contributed with a gain of MXN21.9 million, [with] ASUR's [50%] ownership stake, compared with a MXN26.8 million gain in second quarter 2013. Note, we also reported a MXN9.1 million loss in stockholders' equity from the impact of [the position] of the pesos during the period.

In terms of the upgrading of some airport facilities, we remain on track with the remodeling of Terminal D, which is expected to be completed by November this year. Following that, we will start remodeling process for Terminal C and we were almost concluding minor adjustment that we are making on Terminal 1, or Terminal A.

Moving on to the results of the quarter, passenger traffic increased 10.7% year-on-year to 3.2 million, the highest level for a second quarter. Remember that Holy Week was in April this quarter compared to March last year, facilitating [compass]. Domestic traffic was up 11.82% from last year's levels to 2.6 million passengers, a record for the second quarter, with increases across all of the airports. Traffic at Cancun was strong, up by 12% to 1.4 million passengers.

International traffic rose 9.7% year-on-year to 3.2 million passengers, the highest for a second quarter. The share of international traffic [fell point basis points] to 55.7% of the total traffic, reflecting the strong growth in the domestic market. [I think the] traffic between Mexico, Canada and the United States represented 88% of the total traffic, compared with 88.8% a year ago.

Total revenues, excluding the 47.1% decline in construction services, increased 8.1% year-on-year, reflecting the 3% reduction in aeronautical [tires] this year. As anticipated, commercial revenues per passenger fell 1.4% year-on-year to MXN73.03, still affected by capacity constraints. Despite the opening of Terminal 1, [as concluded last] November, as discussing [the path that was] contemplated in the new MBP should contribute to [add to this situation].

Operating costs and expenses fell 0.4% during the quarter, but increased 7.6% when excluding the [full 7]% decline in construction costs. In addition, two additional expenses resulting from the reopening of Terminal 1 at Cancun last November, costs were affected by higher direct cost of sales from the 15% increase in revenues from direct operations.

EBITDA was up 8.6% year-on-year to MXN874 million, resulting in an EBITDA margin of 65.18%, an expansion of 248 basis points. In addition, this quarter we invested MXN49 million mainly to complete expansion work in the Veracruz Terminal. On this front, you will see a very strong pick-up in CapEx in the second half of the year as we complete the committed investments for the year. Finally, on the balance sheet front, we closed the quarter with cash and cash equivalents of MXN2.4 billion, while bank debt stood at MXN2.8 billion at the quarter end.

Now let me open the floor for questions. Please, Jennifer, go ahead. Hello, Jennifer?

Thank you. (Operator Instructions). We'll take our first question from Santiago Perez Teuffer from Credit Suisse.

Hi, Adolfo. Thanks a lot for the call. I wanted to ask you on Cancun, can you please give us more color on Cancun's profitability? We saw a 450 -- 430 basis points margin contraction year-on-year on this airport. Was [this fully] related to the increase in your [own retail activity], and how do you see this margin evolving throughout the rest of the year? Thanks.

Santiago, good morning. Well, basically you know that the contraction has resulted from the additional costs we've had since November last year from Terminal 1. Terminal 1 was opened in November, and this is generating costs because we have to spend some money on lighting, security, maintenance, etc. So, you will see contraction up to the third quarter this year when you complete one year as from the day this terminal was opened.

Perfect. Thanks, Adolfo.

You're welcome.

Thank you. We'll go next to Stephen Trent from Citi.

Good morning, Adolfo. This is [Kevin Kasneeka] stepping in for Stephen Trent (inaudible). I guess the first question, earlier in the call you gave the progress report on the facility upgrades and I kind of didn't catch it. If you could just run that by us again, that would be great.

[Probably] I couldn't hear you well.

Earlier in the call you gave us an update on like the -- on terminal -- on the proposed terminals, I think, in Cancun or something. I just -- I didn't catch it on my line, so I was just wondering if you could just give us -- repeat that color for us.

So, you're asking about the terminals in Cancun? Well, what we are doing today is we've started with expansion of Terminal 3. That expansion should be completed by the end of -- during mid-year. This expansion is to take Terminal 3 capacity from 6 million passengers on a yearly basis to 10 million. And after that, we will be working on the construction of Terminal 4, that we expect to have ready by 2017. Today we are in the process of designing this terminal, but I believe this terminal should at least have 6 million passenger capacity.

And for Terminal 3, when should that be completed by, mid next year?

I would say -- let's say [February].

Okay, okay, that was very clear. All right. I guess [maybe on the meat], we just really were a little concerned about like what's happening in San Juan. Actually, your earnings fell almost 20% even though traffic increased 6% and we see that Puerto Rico has had a credit downgrade -- a credit rating downgrade, so could you give us some color on that, on what's going on there?

Okay. In the case of San Juan, let me talk about the numbers. It is important to understand that we closed Terminal B for remodeling process in November last year, so that, of course, had an impact on commercial revenues, and, of course, this has an impact on margins. And that's why you can see the margin decrease or the net profit decrease from the second quarter of this year against last year. That's the first step. The second part is we are glad to see a nice number in the passenger traffic growth.

And the third one, the downgrade, it resulted from the downgrade for the state. You know that the economy in San Juan -- in Puerto Rico is not going well and they were downgraded. And because of this, Moody's did the same with the Company. I don't see any major impact from the downgrade on the financials of the Company.

Okay.

Please remember that most of the traffic comes [New York]. Most of the people that goes to San Juan leaves around New York.

All right, that's very helpful. I guess our next question would be, so, on the quarter's decline in duty-free sales, like how much of this impact came from [mix] and what happened to, I guess -- I don't know if you guys track same store sales in Cancun year-over-year?

Well, we have said this many times. Capacity constraints are having an impact on the commercial sales. It is strange to see a duty-free decrease this year, but the decrease you are seeing is basically the same situation. The pattern of traffic growth, it's so strong that we are taking [up to a little bit this building's abiddeeco].

Okay. So, it's not like a decrease in like the quality of the passenger, like [low costs per passenger] not spending money versus, I guess, vacationers spending money in the terminals? It's more of like a volume over capacity issue?

Well, we are seeing -- the [comparison], it's same kind of passengers. You have different passengers through the year. The passengers in June as not the same as the ones in December. But the comparison you are seeing, it's second quarter with second quarter, so the only difference is the Holy Week, a little change in the passenger mix. But I don't see that's the main reason.

Okay. Okay. No, fair enough. Thank you. And just finally, do you have any thoughts on potential airport investments outside of Mexico, like a diversification? And to what extent would you guys consider purchasing some portion of a [high star] stake in San Juan Airport?

I don't see that for the moment.

Okay, perfect. Thank you very much for the call.

You're welcome.

Thank you. We'll go next to Benjamin Theurer from Barclays.

Good morning, Adolfo. So, thanks for the call. I have one question, just on the CapEx. And you mentioned as clearly we've seen the first half of construction activity CapEx itself was relatively low. So, the MDP for this year was somewhere a little bit over north MXN1.2 million. So does that mean that we basically get a run rate of about equal, MXN600,000, for the next two quarters, or is it even more inclined towards the fourth quarter just to get a little bit of a sense on where construction revenues, etc. and more construction spending is going for the rest of the year?

And how do you see, actually, the CapEx into next year's split-out? Because clearly next year is some sort of a peak of the MDP you agreed a couple of months ago, so that would be interesting just to get a little bit of a sense of when the money is actually going to be dispersed. Thanks.

Okay. Good morning. Of course, it's almost impossible for us to control the speed of the construction process, but let me say why this year in particular is very slow. The program was approved at the end of December last year, so the first quarter basically was to make the design of each one of the projects, and then the second quarter is the one that we are using to make the bidding process or in order to have a contractor.

Yes.

Third quarter and fourth quarter is going to be the beginning of the work, the real work. I truly believe that second quarter -- sorry, fourth quarter is going to be higher than third quarter, and we will have to spend the MXN1.1 billion we have committed [withouttalking] no matter what. So, the MXN1.2 billion you mentioned, you have to deduct the MXN140 million we have --.

Correct.

-- invested in Terminal 3.

Yes.

So, [in cash] in reality it's MXN1.1 billion, and that has to be spent during this year.

Okay. So, there's no way you're going to get that [posted on some more] into 2015 for whichever reason, right? You have to spend that, correct?

[No].

Okay.

[Anything].

All right. Perfect. That's it from my side. Thank you.

You're welcome.

(Operator Instructions). And we'll go next to Neal Dihora from Morningstar.

Good morning. Thanks. I guess any detail on LMM sort of split out by Aeronautical and non-Aeronautical revenue, I guess, would be interesting to hear what you've seen over the last year.

Neal, hi, good morning. We do have some numbers in the [20F] report for last year, but basically from the top of my head I will comment to you what the numbers are. First of all, the regulated side is a fixed amount of MXN62 million every year. Of course, last year we started on February 28 and we cannot [say] the MXN62 million in terms of proportion of the amount of work we have been doing for that year. In terms of commercial revenue, the number is very close to $4.00 per passenger, and that's more or less the numbers we had for last year. I don't know if that's what you really wanted.

Yes. No, I think the Aeronautical is fixed for five years. Is that right, that MXN62 million that you mentioned?

It's fixed for five years, then it will be adjusted for inflation after the year '15, and then we can renegotiate or remain the same.

And then, when did you say Terminal C was going to be up and ready?

Okay. Once we conclude with Terminal B, let's say that we conclude Terminal B in November --.

Yes.

-- once it's open we will have to move some [erlands] to Terminal B and then some of it from Terminal C to Terminal B close to Terminal C. Probably, we will be closing Terminal C by January or December.

Okay. Thanks a lot.

You're welcome.

Thank you. (Operator Instructions). And we'll go next to [Carla Pena] from (inaudible) Bank.

Hi, good morning. Thanks for the call. I was wondering if you could tell us -- [well, you had like an easy comp] this year on G&A because of the expenses you were talking about on the MDP and some of the related to the Puerto Rico project. I was wondering if you have some of these expenses that were made last year in the following quarters. And also, regarding the closing of the Terminal C in Puerto Rico, should this put more pressure into the costs and maybe into the bottom line [which are] that you are showing? Or should we expect this to even out in the following quarters? Thank you very much.

Carla, good morning. Yes, we will have the same kind of expense during the following quarters, the same indication for Puerto Rico in the same case as the case of the MDP. The MDP expenses were during the fourth quarter last year.

In the case of your question for San Juan, I don't know what was your question.

Because you were explaining that part of the pressure, you had a decline in the [results that you showed] --.

Okay.

-- right, for -- and you were explaining that part of it was because some expenses regarding the closing of the terminal, so I was wondering that now you're going to close the next terminal maybe you might have a little bit more expenses? Or they should even out because you already closed one terminal, so you already had those expenses?

No, it's not expenses, it's commercial revenues. So, just imagine that you have --.

Oh, [right], okay.

Yes, you had [a space] open and you had to close that, so all the people that was working there have to leave.

Oh, okay. Okay. So, it's related more to revenues than expenses in Puerto Rico.

Yes.

Okay.

Yes, (inaudible - multiple speakers). Yes. I would recommend you to see the specific page we have in the presentation that talks about commercial revenues per passenger and [the fees that we have to see in the year 2000].

Okay. Thank you very much.

You're welcome, Carla.

(Operator Instructions). And we'll go to Jean Bruny from BBVA.

Hello, Adolfo. Good morning and thanks for the conference call. I just have one question. I know you're not giving any guidance, but just to add your point of view on the traffic going forward in the second semester, you've had a good start of the year, do you think the trend of the rates that you've been reporting the first half would be sustainable in the second half? Thanks.

Hi, good morning. Very tough question. Again, the year has been very good so far. Comparables are very hard for the remaining of the year. Numbers of second quarter and fourth quarters last year -- third quarter and fourth quarter last year were very strong as well. Hard to say, but I'd have to say that [domestic in Mexico have expanded] their capacity, they're reducing the prices, and this is increasing demand. And that's why we're seeing very good domestic figures. On the international front, US traffic has been very strong as well and the European traffic has been strong.

I believe for the second half of the year we will see growth. I do not expect to be as strong as it has been for the first half. That's what I can say to you.

Thank you very much, Adolfo.

You're welcome.

(Operator Instructions). And there are no other questions in the queue at this time. And I'll turn it back over to Mr. Castro for any closing or additional remarks.

Thank you, Jennifer. And thank you, everybody, for joining us today on our conference call. And so do not hesitate to contact me if there's any further questions and then you for being here today and have a good day. Goodbye.

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