Grupo Aeroportuario del Sureste SAB de CV (ASR) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ASUR third quarter 2014 results conference call. My name is Taylor, 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 today's conference. (Operator Instructions). As a reminder, today's call is being recorded.

For opening remarks and introductions, I'd like to turn this call over to Mr. Adolfo Castro, Chief Executive Officer. Please proceed.

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

Let me start by providing a brief update on San Juan, Puerto Rico, International Airport, and afterwards I will go over the results for the quarter.

Passenger traffic at San Juan Airport was 2.2 million, up 3.7% year on year. This quarter (inaudible) contributed with MXN21.3 million gained, for the ASUR's 50% ownership stake, compared with MXN0.3 million gain in third quarter 2013. We also reported at MXN51.2 million gained in stockholders' equity this quarter from the impact of the depreciation of the peso during the period.

We continue to make progress upgrading San Juan Airport facilities. The remodeling of Terminal B is almost complete, and we expect to finalize it in next month in line with our original plan. We also conducted some minor adjustments at Terminal A. The next major step will be remodeling work at Terminal C, which we expect to close one or two months after Terminal B is reopened.

Now, moving onto ASUR's results for the quarter, passenger traffic rose 8.9% year on year to 5.8 million, the highest level for a third quarter. Domestic traffic continuing its recovery trend, increasing 8% to 2.9 million passengers, the highest level for a third quarter. All passengers (inaudible) traffic increases (inaudible) traffic at Cancun rose 5.4%, reaching a high of 1.7 million passengers. International traffic was up 9.9% year on year to 2.8 million passengers, a record for the third quarter and up 40 basis points to 49.1% as a percentage of total traffic.

Passenger traffic between Mexico, Canada and the United States represented 86.7% of the total traffic compared with 86.3% a year ago. Total revenues, excluding the 48% increase in construction services, rose 8.8% year over year, despite the 3.4% reduction in aeronautical tariffs earlier this year. Despite the capacity constraints at Cancun Airport, commercial revenues for passengers rose 0.27% year over year to 71.4 pesos. The investment established our [mass] development plan should contribute to drive further commercial revenue growth as we continue to add the space to improve the traffic flow.

In fact, we invested MXN235 million this quarter, as we work towards meeting our committed investments for the year. This quarter, we continued with expansion of Terminal 3 that we expect to conclude by the third quarter 2015. The remodeling should contribute to increased add-on capacity of these terminals to 10 million from the current 6 million passengers. We are also in the process of designed Terminal 4 at Cancun Airport, which we expect to have ready by the year 2017.

Moving into cost, operating costs and expenses rose 7.9%, when excluding the 48.7% increase in construction costs. Higher costs resulted mainly from the reopening of Terminal 1 at Cancun last November. Higher direct cost of sales from 3.9% increase in revenues from direct operations. EBITDA was up 9.2% year on year to MXN880 million, with EBITDA margin adjusted by excluding commercial revenue, construction revenue of 67.6% compared with the 67.3% in third quarter 2013.

Finally, we maintain a healthy balance sheet with cash and cash equivalents of MXN3.1 billion and bank debt of MXN2.9 billion at the quarter end.

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

Thank you. (Operator Instructions). And we'll take our first question from Santiago Perez Tueffer with Credit Suisse.

Hi, Adolfo. Thanks a lot for your time. My first question is regarding CAPEX deployment. It seems that you are slightly behind your (inaudible) investment goal for this year. First of all, do you think you're going to make the investment committed on the fourth quarter? And also, if this has any impact on the expansion planning Cancun?

Good morning, Santiago. Thank you for your question. We are not behind in our plans. You should remember that we started with the approval of this plan at the last day of last year, so the first part of the year was basically to design the projects, have executive projects, signing contractors, hiring them, and then the beginning of the process of the construction.

In terms of the amount, the committed investment from a cash flow perspective for this year is MXN1.1 billion, and we are going to compete -- and we're going to comply with that by the end of the year. So you will see a huge increase in terms of the investment that you have seen for the last couple of quarters during the fourth quarter.

Perfect, thanks. Then, I have a follow-up on the San Juan -- on your comments on San Juan. Is there any chance you can give us some light on the commercial revenues on that airport, if you have it consolidated or per passenger or some color on that front?

Yes, you can find numbers in the 20-F reports on commercial revenues that we published April this year. The number -- I don't have an exact figure in the top of my head, but the number that I have is that, for last year, the number was lower than MXN4 per passenger.

It's important to say that Terminal B was closed in November last year, so this year, it's not exactly the best in terms of commercial revenue increase per passenger. What is going to be very important to see is when we open Terminal B and see the real potential of San Juan, Puerto Rico, Airport in terms of commercial revenues. And, of course, finally, once we open Terminal C, we're going to do the same process as we did in Terminal B for Terminal C. So that means that we're going to close the terminal and refurbish completely the space there, redesign it in the traffic flow, find the new operators redesigning basically, the commercial offer for the entire space.

So that's what I can say to you for the moment.

Thanks, Adolfo.

You're welcome.

And we'll go next to Bernardo Velez with GBM.

Hi, good morning, Adolfo. Thanks for the time. You mentioned you're not behind your MDP plans for the year, but could you walk us through the seasonality and through the main investments of ASUR's MDP CAPEX for the next year?

Absolutely. In terms of (inaudible) once again, you know that we do our plan every five years. So we were not ready to do anything about the projects for this year until this plan was approved, and it was approved the last day of last year. So as I said before, you saw very low number during the first quarter, because basically we were designing or hiring the design of the projects.

As we go further, you will see an increase on speed of the spending. The most important project we have on hand today is Terminal 3. Terminal 3 should be ready by the end of next year. Construction in Terminal 3 is to increase the capacity from six to 10, so it's an increasing capacity of 4 million. It's around 30,000 square meters that we're going to construct that. So basically, what you are going to see is around MXN700 million investment during the fourth quarter.

Apart from these, the other project -- which is, of course, not the same size, but it's also very important is the case of Veracruz. We should conclude the first phase of expansion of this terminal, and the expansion is around 150% of what we have today. And that should be concluded by the second half of the month of November. We are going to have some event there during that period, and the airport has to be ready for that, so we're going to comply with the date, as well.

That's the two most important projects we are in construction process. The other project we are working -- and, of course, investing -- is the design of Terminal 4. The conceptual design has been concluded, and we are now in the process for the executive project for Terminal 4. And construction for that should start, I hope, by the second half of next year.

OK, thanks a lot, Adolfo. And also, I would like to ask you if you have any updates regarding the -- any bidding processes that you guys are currently working on?

The only process that we are registered now is the case of Santiago de Chile. Santiago de Chile also today, the offer should be presented November the 18th. We're analyzing these projects, but I don't see -- I don't see a huge potential on it. Maybe we will not be at the end presenting an offer.

And we'll take our next question from Ravi Jain with HSBC.

Hi, Adolfo. Thank you for your time. My first question was on the commercial revenue per passenger. Do you expect with the expansion of the third terminal, will there be any meaningful increase in the revenue per passenger? Or will that happen only with the fourth terminal coming in at Cancun?

Hi, good morning. Well, I expect an increase in the commercial revenue of the passenger once the expansion of Terminal 3 is concluded, basically because that will give a relief on Terminal 2, a small relief because Terminal 3 is just international. Terminal 2 is domestic and international.

The major effects that I'm -- that we're expecting is once Terminal 4 is completed. So that's what I can say.

Sure, thanks. And second question was, as we look at the traffic expectations for next year, do you expect the airlines to continue to add capacity at your airports? I mean, just to get a feel as to -- we have seen a huge increase in capacity in the last 12 to 18 months. Do you see that continuing into 2015? Or are you seeing that slowing down in 2015, in addition to the airline capacity?

Well, let me tell you, I have been always the pessimistic guy here. And what we have seen over the last 30 months is it's been too high. It's -- if you see the last 30 months, it's almost 10% per year.

In the case of domestic airlines, they are -- they will continue adding capacity next year. That should give us some kind of potential for more flights to our airports. Of course, these goes against the situation with Mexico City. Mexico City has been declared two, three weeks ago completely saturated, 16 hours a day, 365 days of the year.

So that will place a restriction for the airlines. But they will -- they should start flying somewhere else. They should start using Toluca from now on. And at the end of the day, they need a place to fly for the new (inaudible) adding.

So in the case of domestic, I'm positive. But of course, I should recommend some cautious -- [the 9.7 that] we saw last year and the 8.9 we're seeing this quarter, in my opinion, is extremely high.

That's very helpful. Thank you, Adolfo. Thank you for that.

You're welcome.

And we'll go next to Steven Trent with Citi.

Hi, good morning. It's Kevin Kaznica in the place of Steven Trent. Just a couple questions. First, can you tell us what's the status of the vacant CFO slot? Is there an active search underway for you to get some help on that side?

Sure. At the moment, I don't see any change on the current [dispatches] we are following. I don't see any particular problem in the CEO position, so for the moment, I don't see any change in the short term.

OK. And also, at one point you'd floated the idea of launching a hotel near some of your airports, like (inaudible) seems to be one of the areas that comes to mind. Are you considering launching airport projects in Cancun or anywhere else or Huatulco?

Well, in the case of Cancun, we have analyzed the situation for many years. Finally, during the second quarter of this year, the state governments authorized us the possibility of having installations inside the premises of the airports.

Once this is published -- this has not been published yet or has not been official. It will be official once it is published. That will represent an opportunity for us in terms of someone constructing that and we basically leasing the sales to them. We do not expect to operate that facility.

OK. Thank you, very helpful. And then just, finally, what's the status -- I think somebody mentioned it earlier, but of your (inaudible) consideration for bidding on the airport (inaudible) Santiago? I think you might have mentioned -- is that the one project you said you were considering (inaudible)

That is the only one where we are registered now as we speak.

And you said it doesn't seem very attractive at this point.

No, I'm not going to -- I would not be very positive.

OK. Thank you very much.

You're welcome.

And we'll take our next question from [Anna Sensor] with Credit Suisse.

Good morning, Adolfo. Thank you for the call. Could you elaborate a bit more on Cancun margin contraction? When do you see this stabilizing? And (inaudible)

Well, margin contraction (inaudible) I don't like to talk about margins. I like to talk about revenues, and I like to talk about costs, because those are in a major proposal independent. The increase costs that we are seeing today is the result of opening Terminal 1 last year that was a facility that was close. Today we have to operate that because of the huge increase in passenger traffic we have seen recently.

That facilities around 20,000 square meters that we have to eliminate, place air conditioner, secure, maintain, blah, blah, blah. So as from November last year when we opened this facility, the operations cost in Cancun increased.

Also, if you remember, of course, not at the same time, but you remember that at the end of last year, as part of [our mass] development plan, we increased some of the terminal buildings at the regional airports. That was for Villahermosa, Merida and Oaxaca, with the same kind of consideration. Of course, proportionally, in terms of (inaudible) each one, OK?

Once this has been done, if we talk about next year, you, of course, will not see again the same kind of cost increase, because Terminal 1 will be open. You will see again a cost increase once Terminal 3 expansion is completed, of course, not in the same proportion. It's not the same to expand a building that -- to open one.

And finally, you will see that again once we compete or open Terminal 4. I will recommend you to go and see what happened in May 2007 when we opened Terminal 3 and what kind of cost increases you see there.

Thank you, Adolfo. And one last question. What's your view on price -- the airlines' price war? And do you see it continuing in 2015?

Price from the airlines or...

Yeah, the price war that's been going on between the airlines.

Well, that in my opinion will continue, because they will be adding capacity and, of course, that should, of course, put pressure on prices. As I said before, they will need a place to have their planes in operation, and that contribution should -- should increase.

OK, thank you very much.

You're welcome.

(Operator Instructions). And we have no further questions. And I'd like to turn the conference back over to Adolfo Castro with any closing and additional remarks.

Thank you, Taylor. And thank you, everybody, for joining us today on the conference call. As always, do not hesitate to contact me if there is any further question. Thank you for being here today. Goodbye.

And this concludes today's conference. Thank you for your participation.