Grupo Aeroportuario del Sureste SAB de CV (ASR) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ASUR fourth quarter 2014 results conference call. My name is Catherine, and I'll be your Operator. (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 go ahead, sir.

Thank you, Catherine, and good morning, everybody. Thank you for joining us today for the conference call to discuss our fourth 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 begin today by providing a brief update on San Juan, Puerto Rico international airport, followed by an overview of the results for the quarter.

Passenger traffic at San Juan's airport rose 2.4% year on year, to 2 million in the quarter, reaching a total of 8.6 million passengers in 2014.

Aerostar contributed with a MXN17.3 million loss for ASUR's 50% ownership stake, compared to a MXN45.5 million (sic - see press release, "MXN48.5 million") loss in fourth quarter 2013. During the quarter, we also reported MXN144.7 million gain in stockholders' equity, resulted from the valuation of the investment made on this company divided by the appreciation of the dollar versus the peso during the period.

Full-year results also reflect a MXN36.5 million equity gain from ASUR's equity participation in Aerostar and MXN183.6 million gain in stockholders' equity from the appreciation of the dollar versus the peso during the year.

We also made significant process this year with remodeling the facilities of San Juan airport. On November 20, 2014, we inaugurated Terminal B according to plan. We remodeled 150,000 square foot terminal and added a new passenger inspection center, an automated baggage handling system, and 10 new aircraft boarding bridges. The commercial offering was also upgraded, and today this terminal counts with seven new food and drink concessions, another seven retail stores and bank [branches]. The terminal will eventually house United Airlines, Southwest Airlines, Delta, and Spirit.

Minor improvements were also made this year to Terminal A.

We should begin remodeling Terminal B (sic - see press release, "C") in March 2015, which is planned to be finalized one year after. This entails closing the terminal and undertaking a complete refurbishing of the space. We plan to redesign the traffic flow, bring in new operators, and renew the commercial offering for this terminal.

Now, moving on ASUR's Mexican operations, passenger traffic remained strong during the quarter, up 14.1% year on year, to 5.8 million passengers, the highest for a fourth quarter. Both domestic and international traffic posted record levels for a fourth quarter.

Domestic traffic showed a good performance across all the airports, principally driven by competitive [dynamism in airfares], with Cancun in particular posting a 13.1% increase. Passenger traffic between Mexico, Canada, and the United States represented 86.8% of total traffic, compared with 86.5% a year ago.

Looking at the P&L, total revenues, excluding the 16.1% increase in construction services, rose 13.5% from fourth quarter, despite the 3.4% reduction in aeronautical targets earlier this year. Commercial revenues per passenger were up 1.2% year on year, to MXN76.3 (sic - see press release, "MXN76.3 million"), the highest for a fourth quarter.

We invested MXN836 million during the quarter, as we moved ahead in meeting the commitments for the year under our master development plan. An important part of this was invested in the expansion of Terminal 3, our most important project to date. The expansion is expected to be ready by the end of this year and should increase capacity by 4 million, to 10 million passengers.

During the quarter, we also completed the first phase of the expansion work at Veracruz airport, which increased capacity at this facility by 150%.

We also continued to make progress with Terminal 4 at Cancun airport. We are now focused on [the executive] design, with construction anticipated to begin in the second half of this year and conclude by the end of the year 2017.

Total CapEx for the year was [MXN1.2 billion], in line with our committed investments under the master development plan.

Operating costs and expenses for the quarter, excluding the 16.1% increase in construction costs, were up 3.6%, substantially below our revenue growth.

EBITDA was up by 19.5% year on year, to MXN910.5 million. The EBITDA margin, adjusted by excluding construction revenue, of 67.9% compared with the 64.5% in fourth quarter 2013.

Results this quarter were also affected by a non-cash foreign exchange loss of MXN126.96 million, resulting from the impact of the 9.74% devaluation of the peso on our foreign currency net liability position. This compares to a 13.5 million foreign exchange gain in fourth quarter 2013.

Finally, our balance sheet remains solid, with cash and cash equivalents of MXN2.9 billion and bank debt of MXN3.2 billion at year-end.

Before moving on to the Q&A, let me mention that as anticipated we didn't present an offer for the Santiago, Chile airport.

Now, let me open the floor for questions. Catherine, please go ahead.

(Operator Instructions) Santiago Perez Teuffer, Credit Suisse.

Congratulations on these results. I have two questions, if I may? The first one, could you comment on the traffic trends that you expect for 2015? And also a little bit on the opening of Terminal 3?

And then, if you could share some numbers on Puerto Rico? If you could share how did sales, EBITDA, and net income excluding the FX effects how did they perform?

Thank you for your comments. Traffic trends, well, you have seen the numbers for the month of January, an increase of 12.2%. Remember that January is a very important month for us. First quarter is always higher than in comparison with the second one, and the second one higher than the third one, and the third one higher than the fourth one. So, the first one, it's really important.

What we are seeing to date, it's a very strong traffic flow basically coming from the international part supported basically, in my opinion, by the peso devolution against the dollar, so that the US traffic it's particularly strong right now.

On the domestic front, you have seen also a very strong traffic. This in my opinion is resulting from the additional capacity that the Mexican airlines are adding to the system. That of course is producing a reduction in the air traffic fares. So, this is basically improving the demand.

So, we are seeing a very good beginning of the year 2015. I don't know, of course, if this is sustainable again at these levels. I believe that the levels we are seeing today are extremely high, and the comparison numbers going forward in the year are going to be tougher. So, I don't believe that the numbers that we are seeing for the first month of the year will remain during the entire year.

Your second question was the opening of Terminal 3. It's expansion of Terminal 3. This expansion must be concluded by the year-end. I would say to be ready during the second half of the month of December this year.

And your third question was numbers of San Juan. The numbers that I have shared with you are the ones that are in the report. I will recommend you to see once the 20-F reports is filed. I believe, as we did last year, we will be publishing condensed financial statements of this Company, and then you will be able to see the numbers of San Juan.

Okay. And just one last one. Do you have any tax rate expectation for 2015?

We should not expect any tax changes during 2015. The authorities have said that they will not modify the laws. So, I would say the rate that you have been seeing in the P&L should be something between 28% to 30%.

Perfect. Thanks, Adolfo, and congratulations.

Bernardo Velez, GBM.

Congrats on the results. I was wondering if you could comment a bit on how your non-aeronautical revenues should behave? And coming from this Terminal 3 opening in mid-December, how do you -- could you give us a number on how much or how many commercial spaces are you hoping to open, or any figure in that matter?

Okay. Let me talk about non-commercial revenues. I would say commercial; non-aeronautical, it's basically commercial revenues.

As I have said many quarters ago, we do not expect a major improvement on the commercial revenue per passenger. If you see, the results of last year was just a 1.2% increase. So, very small in comparison of how it was in the past. And this is because of the constraints in the capacity of Cancun terminals, and that is the reason why we are expanding Terminal 3 and beginning of the construction of Terminal 4.

If the opening of Terminal 3 will have an impact on commercial revenues per passenger this year? In my opinion, the answer is, no, because as I said before, the opening of these new spaces are going to be at the end of the year. So, the impact in that case would be seen as from the year 2016.

And what I believe is that the expansion of Terminal 3 will give additional space to mitigate the effect that we are having today in Terminal 2 in terms of passenger congestion. So, that will alleviate Terminal 2, and I hope that with the better service and better space we will see some kind of effect during next year in commercial revenue per passenger.

Okay. Perfect. And also, Adolfo, could you comment on Cancun's connectivity with Cuba? Meaning, how could we expect passenger traffic to behave? Or, what will be the impact of this new opening with relationships between Cuba and the US?

Well, if you go back 15 years ago when we made the IPO process -- that was September 28, 2000 -- you can see in the prospectus that Cuba was one of the largest threats that we were seeing as a competitor of Cancun. Fifteen years after, I would say that the threat is still there. I believe, in the future, Cuba will be a competitor for Cancun, but of course a lot of things will have to happen before this occurs, and I don't believe that this will happen in the short term.

So, yes, it's a threat, but it's a long-term threat. It's, in my opinion, very far away from now.

Okay. Thanks a lot, Adolfo, and congrats on the results, again.

Stephen Trent, Citi.

Just two or three quick ones for me. The first is, I didn't hear you so well in your closing comment. You mentioned something about an offer for an airport, and I wasn't sure if you were talking about the one in Santiago, Chile?

Basically, what I said is that we didn't present an offer for Santiago, Chile airport.

Okay. Perfect. I didn't hear you so well.

And in terms of other foreign airports, or at least foreign airport potential, are there possibilities that ASUR directly or ASUR/Highstar might be considering other opportunities in the region? You maybe took a look at Chile and passed. You've got San Juan going. Just curious.

At the moment, I don't have any.

Okay. Great. Great. Great.

And then, in terms of Terminal 4 in Cancun, and I think you said it's going to be ready by the end of 2017. Any ballpark idea what the capacity increase would be there?

What I believe for the moment -- and as I said before, we are in the final design process -- but I believe it's going to be around 7 million additional capacity.

Okay. Great. Great. Great.

And just one last question -- and I'll let somebody else ask -- in the quarter itself, you mentioned on the commercial revenue increase that the retail areas and one other component of commercial revs per passenger went down, but then other commercial areas picked up the slack. And in terms of the trend going forward, I'm wondering if these other commercial areas -- maybe some hotels you guys might plan -- if you're maybe planning for more growth, on a per-passenger basis, outside of your retail areas?

In the case of the hotel that you are mentioning, we have been thinking that this airport the size of Cancun airport should have a hotel service. I believe you are based in New York. So, you know what I'm talking about. So, from time to time, there's people that needs to take a plan from Cancun to New York, and there's problems with the winter season there. So, they need a place to stay. So, this is a kind of service that we believe we should be adding to the airport facilities.

Because of this, we have requested an approval that this hotel can be constructed within the facilities of the airport. The approvals have been granted during the fourth quarter last year, and today we are in the process of finding a place and the correct design for this facility.

It is important to say that we are not going to construct not to operate this hotel. What we are looking for is someone else to provide this kind of service inside the facility of Cancun airport, and we will be basically leasing the land space for them. So, that is what we believe in the case of the hotel. And I don't see any other development around the -- outside the terminal buildings.

Okay. Got it. Let me let someone else ask a question.

Ravi Jain, HSBC Capital.

I had a quick question on the dividend and the leverage strategy of ASUR. For this year, as the CapEx needs are pretty high, do you expect to maintain the same level of dividends that we've seen in the past couple of years?

And on the leverage front, in absence of any growth opportunities, how do you see ASUR's leverage three to five years from today?

Okay, Ravi. Well, in the case of the cash position we have today, as I said during the remarks, it's MXN2.9 billion. And what we have to invest for this year, let me round this number to MXN3 billion. So, we have more or less the same amount.

Once the results are over and once we can see what has happened during 2014, we can then try to decide what are we going to propose in terms of dividends to the Board of Directors and then to the shareholders' assembly, and that is something that we will be doing during the month of February.

So, as I have been saying in the past, what we normally do is see the results, see what the tax situation, see what we have in cash in hand, and see what kind of projects do we have in front. What I believe is that we will be making this proposal during this month of February and then to expect what the Board of Directors says.

So, what is clear to me is that we cannot [be bold] if we do not take some leverage. In terms of leverage levels, it's hard to say or to put a number, an exact number, for that. Companies like these can be leveraged with three to four times EBITDA. Of course, that will depend on the quality of the projects they handle.

Three to four years, five years, I will be glad to see a lot of projects into this Company, and as we have said before, the strategy we have is to grow with leverage. So, that is why we are looking for new opportunities and then to do the same as we did in San Juan, to basically invest [there] with getting the results (inaudible) from a loan.

That's helpful.

[Nava Solberger], Goldman Sachs.

Congratulations on the results. Most of my questions here, they were already answered. So, I was just wondering if you could comment a little bit for short-term dynamics on new route openings from the Mexican airlines in your airports?

Well, short-term dynamics in routes, normally I don't talk about routes, because in the case of Cancun we have close to 200 routes and I would be driving you crazy if we talk about the new routes we got during the quarter and the new airlines that are coming.

The only thing that I can say to you in that front is that if we talk about regions, one of the regions that it's weak and that has resulted from the exchange rate loss, that is Russia. So, today, we have of course less Russians than in comparison of what we had last year. And I believe that that is going to be something that probably we will be losing during the remaining of the year.

On the other front, in the case of Mexico, in the case of the domestic traffic, what we are seeing is that the airlines have decided to start more routes point to point and not passing through Mexico City airport, because of the situation there. And then, because of this, what I believe is that we're going to be having new points of entrance to the region, basically to Cancun, from the north of the country, as we have seen in the third and fourth quarter.

Apart from that, we opened a new, direct flight at the end of last year; it was in December. It was a Sao Paulo-Cancun airport. This is just once a week. So, it's small in terms of the amount of passengers this new route will bring, but of course this is a new opportunity that we didn't have in the past. It was probably 10 to 12 years without the right connection from Brazil to Cancun. That's a new opportunity.

Something else, probably we will have new flights into the regional airports from other places, basically South America, and we are working on that.

That's what I can share with you.

That's perfect. I was just wondering if Mauricio, who is here on the line, could also jump in and ask another question?

Congrats on the results. Just a quick question regarding the Cancun capacity. You've mentioned that the current growth pace has been really strong and you expect some deceleration over the year. Just would like you to comment if we continue having the same sort of double-digit growth, if we could have some difficults in terms of capacity in Cancun? If you could just evolve on that, please?

Well, the capacity of the airport is not reducing the amount of passengers this airport can handle for the moment. The reduction in capacity that I have been mentioning, it's basically the reduction in level of services not yet today -- let me put it that way -- enough to stop the growth in the region. The region has been growing very fast and really nice, and we have been able to handle these additional demands.

Let me give you one clear example of this. At the end of the year 2013, we had to open, and we opened, Terminal 1 for that situation. That will give us additional space.

So, today, yes, there is some capacity constraint, but this capacity constraint has to be seen as a level service. It's not in terms of forecast. So, you should not be saying that we will not be having more passengers because of the capacity of the airport; that is not the case.

That's very clear.

(Operator Instructions) Jean Bruny, BBVA.

Just one question left. It's regarding the [IESM] airports. We've seen last year about 34.5 million passengers using the Mexico City airports. It's clearly saturated. It managed to improve another 8% or 9% last year. Do you think it will be manageable still to work with an airport of that size which is saturated? Do you see still some growth in Mexico City airport? Do you think it can be a threat for the growth in other Mexico airports coming from the Mexico City airport?

Mexico City airport has been having troubles many years ago. Nevertheless, it has been growing in terms of the amount of passengers they can handle year on year. I remember a few years ago it was 24 million; today, it's 35 million.

What I believe is that the people there it's using the airspace, or the runways, in a better way, and they have improved also the capacity of the airplanes that are landing or taking off from the airport. And that is why we have seen growth in the last year.

Of course, it is a restriction. Around 70% of our domestic traffic goes or comes from Mexico City, and if this airport cannot grow, of course that will have an impact. The other possibility of having more passengers coming from the metropolitan area of Mexico City is the airport of Toluca. Toluca airport has a lot of capacity and I hope that this capacity will be used in the short-term future, and this will allow us to have more passengers in the entire system.

Having said that, it's true that if we see how many years are in front before we have a new Mexico City airport in place, it could be some kind of restriction if Toluca airport does not help on the process.

Apart from this, as I said before, more airlines are deciding to go point to point and to increasing connectivity between the cities. And this is helping of course the passenger traffic figures of the system. The clear example is the case of Cancun. Cancun has 23 points of entrance from the country. If we see this some years ago, it was probably four to five. So, this has helped a lot to be able to increase passenger traffics in Cancun.

Thank you very much, Adolfo.

Neal Dihora, Morningstar.

I'm just hoping you can comment on whether the lower jet fuel prices have helped your discussions with airlines to go to either Cancun or a lot of your other airports?

Lower prices, of course it's a blessing for the airlines. They are having a benefit because of this. Not all the airlines are having the same kind of effect, because if we think in the domestic airlines and considering that the fuel price is in dollars, they saw some kind of depreciation of the peso during the fourth quarter last year.

But nevertheless, including the depreciation, this is positive for the domestic airlines and of course positive for international airlines. And finally, this is good news for the entire system and also, I would say, for the economy, the world.

Okay.

(Operator Instructions) And with noting additional in the queue, I'd like to go ahead and turn things back over to today's CEO. Please go ahead, sir.

Thank you, Catherine. 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. And thank you for being here today.

Thank you. And ladies and gentlemen, once again, that does conclude today's conference call. Thank you all, again, for your participation.