Grupo Aeroportuario del Sureste SAB de CV (ASR) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ASUR First Quarter 2016 Results Conference Call. My name is Katherine, 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, Katherine. And good morning, everybody. Thank you for joining us today on our conference call to disclose our first quarter 2016 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.

Moving on to the results, we had a strong start to the year, delivering solid topline and profitability growth. We're also on track with our expansion plans, both at our Mexican airports, as well at San Juan Puerto Rico International Airport.

Beginning with San Juan Puerto Rico International Airport, passenger traffic at the airport was up 2.5% year-on-year, reaching 2.3 million passengers in the quarter. This is above the 1% year-on-year that's been reported in the first quarter 2015, despite the challenging economic conditions in Puerto Rico.

Consolidated results for the quarter benefited from a MXN49.85 million equity gain from ASUR's equity participation in Aerostar. The stockholders' equity was impacted by a MXN3.45 million loss from the translation of the dollar against the peso.

This quarter, as expected, we completed the remodeling of Terminal C at San Juan International Puerto Rico Airport, which now offers revamped commercial offerings and more efficient layout for traffic flow.

Moving on to our Mexican operations, as anticipated, both domestic and international passenger traffic growth continued to accelerate this quarter, as we (inaudible) difficult comparable period, given the strong growth achieved in 2015.

Total traffic was up 8.9% and reached a record high of [7.0 million] passengers. Note that the traffic benefited from the Holy Week place a week earlier this year compared to 2015. Domestic traffic rose 13% year-on-year to 2.5 million -- 2.7 million passengers, a record for the first quarter. The majority of ASUR's airport contributed to this growth, driven by more affordable rates resulting from lower oil prices and as well as greater airline capacity and connectivity throughout the country. [Oaxaca and] Villahermosa, however, are affected by the difficult conditions facing the whole industry. Despite the strong growth in domestic traffic, we remain cautious going forward.

International traffic increased 6.5% year-on-year, to a record high of 4.5 million passengers, as the depreciation of the Mexican peso against the US dollar continues to support positive traffic dynamics, although at a slower growth rate than 2015. Passenger traffic in Mexico, Canada, and the United States represented 87.6% of the total, compared to 87.5% a year ago.

Moving on to the income statement, total revenues excluding construction services rose [20.6%] year-on-year. Commercial revenues per passenger remained strong, up 20.3% year-on-year, again, reaching a record high of (inaudible). The expansion of Terminal 3 at Cancun Airport last December, which allowed for lower congestion in Terminal 2 was one of the key drivers of increased commercial revenues per passenger. This performance was also supported by solid passenger traffic [flows] and ongoing efforts of our (inaudible) commercial revenues.

Moving down the P&L, operating cost and expenses excluding construction costs rose 12.5% year-on-year, principally reflecting higher cost of services resulting from the opening of Terminal 3 expansion. EBITDA rose 23.7% year-on-year to MXN1.5 billion, as we continue leveraging our high fixed-cost base. Excluding the impact of construction revenues, adjusted EBITDA margin increased 257 basis points to 73.2% from 71.3% in the first quarter 2015.

Results for the quarter also reflect an MXN18.58 million foreign exchange loss, almost the same amount reported in the first quarter of 2015 when the pesos depreciated.

Moving on to the capital expenditures, we remain on track with our plans. We invested [MXN157 million] this quarter, mainly on the construction of Terminal 4. As usual, we maintain a strong balance sheet, closing the quarter with cash and cash equivalents of MXN2.9 billion and bank debt of MXN3.7 billion.

Before opening the floor for questions, let me add that today we are holding our Annual Shareholders' Meeting and we expect to (inaudible) later today.

Now, Katherine, let me open the floor for questions. Go ahead.

(Operator Instructions) Pablo Barroso, Credit Suisse.

Congratulation on the results. I have a couple of questions. My first question is regarding the astonishing performance (inaudible) related revenues. Should we continue to expect these along the year or maybe a slowdown, as the quarter had a calendar effect?

First of all, it is important to say that the passengers are not exactly the same during the whole year. So we cannot expect the same spending behavior. The first quarter was really nice. You should remember that the international traffic is an important piece in terms of the passenger [growth during] the first quarter in comparison with the rest of the year. Nevertheless, we're very positive on the results we've got. And apparently, the change we did with the expansion of Terminal C is working well.

And my next question is regarding the [56%] increase in interest expenses. Could you give me more color, the reason behind this?

Well, basically, the interest payments we are making are the result of the credit we have with Bank of America and Bancomer. You know that the rate is within this LIBOR plus 1.80% to 1.85%, and LIBOR is [it's repeating] against how it was last year. That's probably the main reason why you are seeing an increase in the interest payments.

(inaudible), Santander.

It's actually Pedro Balcao here from Santander. Adolfo, congratulations on these results, in particular the performance of commercial revenues was really impressive. And in particular the number you highlighted, the MXN100 per PAX is indeed truly impressive. My question is to what extent is this the result of the peso depreciation and what really what we should expect for this number going forward? Thank you.

My personal view of this is, of course, a piece of this has to do with the peso depreciation. But I have to say that we're seeing better results from our concessioners. And you can even analyze that the case that it's completely US dollar denominated activity, which is duty free. So try to see how it was during the previous year and how it's this year and you will see that the increase we got this year is significantly higher than the one we got last year. And I'll have to say that the peso depreciation last year was higher in that sense. So, on one side the answer is yes, the peso difference is higher (inaudible) from the US guys. So, on the other side, I've to say that we are seeing better results from the concessioners and better results in terms of the new area that we're operating since December 18 last year.

Pablo Zaldivar, GBM.

Could you give us an update regarding Puerto Rico's terminals? I believe the last time we spoke the remodeling of Terminal C was to be finished by the end of the quarter. So could you just give us an update of how things are going in the airport?

Terminal C has been remodeled completely, now it's opened. And the next step we have is to move people from -- passengers from Terminal D to Terminal C and basically to close the last piece of Terminal D, which we're expecting to during the second quarter of this year. So I have to say that basically our base case designed three years ago would be completed during the second quarter this year. And that is a major achievement because that's exactly how we expected three years ago. So, things in Puerto Rico are going well.

And starting after the second quarter when the movement of the passenger is done is when we can expect a more normalized behavior in the performance of Puerto Rico, right?

Yes, remember that the objectives in Puerto Rico are the increase in commercial revenue per passenger (inaudible) cost. So the first part will be completed, I would say, at the end of this quarter. And the second one will start from the beginning of third quarter.

Rogerio Araujo, UBS.

Congratulations for the results. I have a follow-up question on commercial revenues. We saw this increase in 18% per passenger, due to the seven times inflation. In the past three years we saw a one times inflation (inaudible) in the commercial revenue. So in the commercial revenue. So this was significantly higher. I would like to know more details on this expansion of the Terminal 3. What do you think drove the most this commercial revenues expansion, within this expansion of Terminal 3? And also if you could say your opinion if this is a good indication that commercial revenue should boost when Terminal 4 inaugurates? And if you could compare a little bit the Terminal 4 inauguration with this Terminal 3 expansion, in terms of commercial revenues, this would be great. Thank you very much.

So, once again, we are still working with the expansion of Terminal 3, it's a good one. And you can see in the reports, newer spaces added from this expansion were very small. Basically some ATMs from Banamex and two stores there. So what I want to say is that the expansion of Terminal 3 was just an expansion in terms of -- or mainly an expansion in terms of operational space. It was not an expansion of commercial space. But the effect that we're seeing for this quarter is the result of moving people, moving passengers from Terminal 2 to Terminal 3, where they have a better commercial layout and a better commercial office. Also, it's important to say that the big movement we're having, some kind of de-congesting in Terminal 2 is, one, a passenger pays the people to give a better service. And then, of course, this is translated into a better shopping.

And in terms of Terminal 4, we're expecting this terminal to be better than the Terminal 3 of course, basically because it has been designed 10 years later. So whatever we have learned as from the year 2006 up to the year 2015 is something that we're implementing in the design of Terminal 4. Of course Terminal 4, it would be different with Terminal 3, because Terminal 3 is just international, and Terminal 4 would be domestic and international. Nevertheless, what we believe is when we open Terminal 4 we should see -- we're expecting to see an increase in the commercial revenue per passenger, given the [tag] that they'll have a better space, in comparison to what we have. And finally, my comment is once Terminal 4 is open, we should close Terminal 1 again and we will move these passengers from Terminal 1 to Terminal 2 and once again the passengers will experience a better commercial offer of the one that they today in Terminal 1.

If you could just tell what's the current expectation on the consecutive quarter that Terminal 4 is expected to inaugurate, would be great?

As of today, it should be open before [next year is over].

(Operator Instructions) Stephen Trent, Citi.

Just two from me. One, when we think about this pending adjustment to the US-Mexico bilateral air agreement, I think you'd mentioned previously that there was maybe one airline out of O'Hare that was maybe looking to launch service in that state. Has your thinking or your view changed from that previous comment to now?

Yes, that agreement was approved yesterday by the Mexican Congress. In terms of what you're saying, you're right, what we expect from this agreement is just an additional airline flying from O'Hare to Cancun. Apart from that I do not see any other effect. So, I'm not so positive about what would be the final impact on this re-agreement in the case of ASUR.

And I only got part of your earlier opening comment, there was some trouble with my line, but I heard you say something about the domestic traffic growth, and I was wondering if I could ask you to just repeat that as I didn't catch everything.

Well, basically what I'm trying to say in the case of passenger traffic is once again be careful, be cautious, last year, the growth we saw was very strong, almost 13%. So, compared with previous [year we] are getting stronger as we grow along the year. So once again be cautious.

And then, sorry, just one more quick question. When we think about Puerto Rico and everything that's going on right now on a political and economic level, do you have some base case in mind regarding where that island Commonwealth goes over the long term, or do you think your [opt] there are largely insulated from the bad macro?

Well, in the case of the passenger traffic there we saw a very nice first quarter, a [2-point something percent] is a very positive figure in our view, given the fact of the current conditions down there. And going forward, I can say that our base case is not [something] need to be done in terms of passenger traffic. The base case we have is basically the possibility of increasing commercial revenue per passenger and to decreasing the operational costs, given the fact that we should be more efficient operating with three terminals instead of four.

And in terms of the possibility in the long term, yes, we see some potential in terms of tourism. I believe that they can do better of what they're doing today. And they have more things to offer to the tourism. But I don't believe that this is going to be the nature or a significant change in the future to the passenger traffic we have (inaudible).

(Operator Instructions) Robert Crimes, Insight.

Just looking for a bit more color on retail potential at Terminal 4 Cancun. How many square meters of retail space is coming on with T4 and how many square meters you're operating at the moment at the end of 2015? Thanks.

Well, first of all, I have to say that our business is not something that we see on a per square meter basis. What we see is the potential of using every square meter up to the pattern. I don't remember how many square meters, how many commercial square meters the new Terminal 4 will have. What I can say to you is that the new terminal building is around [67,000] square meters. The additional space we added to Terminal 3 last December was 25,000, close to 25,000. So it's almost three times the size of the expansion we had in Terminal 4 -- sorry, the expansion we had in Terminal 3. But this is a complete different new layout, or a complete different new space. It's something that we're using in a better way. Just to give you an idea, Terminal 1 and Terminal 2 were designed in a complete different environment, they were designed before the effects of September 11. So some of the spaces they have today are not in accordance with the current additional conditions. So (inaudible) just by square meter, because what we believe is not -- is that just adding the square meters -- commercial square meters will not increase revenues or should not increase the commercial revenues. What we see is or what is important for us is the commercial revenue per passenger and that's our approach.

I think I've missed what you said in terms of -- with Terminal 3 -- you said there was 25,000 square meters when Terminal 3 opened, I think that was back in 2007, is that right?

Terminal 3 originally was around close to 45,000 square meters. We added today -- well December 18, 25,000. And Terminal 4 should be around [67,000 square meters].

And then, sorry, I didn't catch your answer to the earlier question in terms of which month Terminal 4 is going to open in 2017?

Well, as of today it should be before next year is over.

It's more like to be in the second half then I guess.

Well, before the year is over, it could be December 31 next year.

So, you mean December 31, 2017, before then?

Before the year -- the next year is over.

And then just one unrelated question. I was just reading the 20-F and on page 41, it mentions that the car parking business could be regulated by [Cafezee], if they find there is no alternative parking arrangements at the airport. I mean, can we have a bit more color on the process and the timing that you think it's likely and the type of regulation that could be introduced for the car parking business? Thanks.

Well, first of all, I have to say congratulations, because you have aware that document, and not too many people read that document. My second comment (inaudible). My second comment -- in the case of parking, that's how the law has been written in Mexico, and that is why we're writing the comment into the 20-F Report. And this comment has been there for the last 15 years. There is no current action, there is no comment or anything that will tell me that [Cafezee] will do that today. But nevertheless, they can or they could do it. So for the moment I don't think that as the major route.

(Operator Instructions) And it means we have no further questions at this time. Mr. Castro, I'd like to turn the conference back over to you for any additional or closing remarks.

Well, thank you, Katherine. Again to the audience, thank you for joining us today on this conference call. And also do not hesitate to contact me if there's any further questions. Have a great day. And we we'll be telling you the results of the shareholders assembly during the rest of the day. Thank you. And Goodbye.

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