Grupo Aeroportuario del Sureste SAB de CV (ASR) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ASUR third quarter 2016 results conference call. My name is Misty 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 the call over to Mr. Adolfo Castro, Chief Executive Officer. Please proceed.

Thank you, Misty, and good morning, everybody. Thank you for joining us today on our conference call to discuss our third 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 results. Total passenger traffic growth of ASUR rebounded this quarter increasing by 8.6% and totaling 7.2 million passengers. Growth was mainly driven by seasonality and higher domestic traffic, which was up by 10.2% year-on-year reaching all-time high of 3.7 million passengers. In brief, airline capacity and connectivity throughout Mexico together with low oil prices continued to support affordable air fares driving domestic traffic at the majority of ASUR's airports. Traffic at Minatitlan and Villahermosa airports however remain affected by the same conditions facing the oil industry. International traffic increased 6.9% year-on-year to a total of 3.5 million passengers. The depreciation of the Mexican peso against the US dollar continued to support positive traffic dynamics.

Passenger traffic between Mexico, Canada, and the United States represented 86.9% of total traffic; unchanged from the third quarter last year. Moving into income statement. Total revenue, excluding construction services, posted a strong performance up 18.8% from the third quarter last year. Commercial revenues per passenger rose 14.2% year-on-year reaching MXN94.57 and reflecting the expansion of Terminal 3 last December and decongesting of Terminal 2, which offer a better shopping experience. Operating costs and expenses excluding construction cost increased 16% year-on-year principally reflecting higher cost of services resulting from the opening of Terminal 3 expansion, which added additional 25,000 square meters and increasing cost of services due to the higher sales from direct operations that rose nearly 20%.

EBITDA was up by 19.9% year-on-year to MXN1.4 billion as we continue to leverage our highly fixed cost base. Excluding construction revenue, adjusted EBITDA margin expanded 88 basis points to 71.1%. Results also benefit from a lower foreign exchange loss this quarter about MXN14 million compared with MXN74 million in the same quarter last year. ASUR's consolidated results for the quarter benefited from a MXN29.2 million equity gain from our participation in Aerostar. The stockholders' equity was impacted by a MXN110.6 million gain due to the translation effect of Aerostar's US dollar denominated financials against the peso. Let me provide some color on San Juan, Puerto Rico operations. Passenger traffic at this airport was up 2.3% year-on-year reaching 2.3 million passengers this quarter.

Note this is the first quarter of good operations after completing the remodeling process this time to drive commercial value for the passenger and to reduce operational costs. The net result was switching back [within] this concession increased 187% reflecting the commercial effects from the opening of Terminal C and better operational performance resulting from effective traffic flow in Terminal D. Now moving into CapEx. In line with our massive development plan, we invested MXN410 million this quarter mainly allocated to advancing the construction of Terminal 4, which is on track to open in the fourth quarter 2017. Capital expenditures for the first nine months totaled MXN807 million. In terms of our balance sheet, we closed the quarter with cash and cash equivalents of MXN3.5 billion and bank debt of MXN4.2 billion.

Finally, before opening the floor for questions, I am pleased to report that this quarter ASUR was recognized as one of the Top 4 emerging market sustainability leaders in the transportation and infrastructure sector and is one of the five Mexican companies selected for inclusion in the Dow Jones Sustainability Emerging Markets Index. This is the third year that our Company is included in this index and we remain committed to further driving sustainability in the development of ASUR. Now Misty, let me open the floor for questions. Please go ahead.

Thank you. (Operator Instructions) Ravi Jain, HSBC.

One on Puerto Rico, can you give us some color on where are the current commercial revenues per passenger and what is the potential that you see in the next two to three years? And my second question is more on the strategic M&A part of ASUR. Can you update us on your thoughts of how you're looking at new projects or your thoughts on M&A and correspondingly the capital structure for ASUR? Thank you.

Puerto Rico's commercial revenues per passenger, I would say are not public information so I cannot give you the exact number we have there today. But what I can say to you is that we have not reached yet what we are expecting and what we said three-and-a-half years ago. If you remember, what we had said basically was that we were expecting each airport to produce more commercial revenues per passenger in comparison with Cancun. We are not yet there. As I said during the second quarter, we completed the remodelation of Terminal C and that has boosted our commercial revenue per passenger, but it's not yet there where we want to be.

So, 2017 is going to be for us a very important year to see if we were able to generate what we were expecting three-and-a-half years ago. In terms of M&A, we are seeing some projects today, I cannot share those projects with you. What I expect is that some of these projects would have results before this year is over and probably there is one that will be for the first quarter next year. So, we are still trying to look for our expansion outside the airports we currently have and basically we're looking in the region, in some places in Latin America, and the US and Canada. That's what I can share with you.

Lucas Barbosa, UBS.

Congratulations for the results. My question is regarding commercial revenues per passenger. We saw a low single-digit decline since the beginning of the year, I just wanted to hear what you believe to have caused that and what are the expectations for the coming quarters? Thanks very much.

What we reported in this quarter was an increasing 14% commercial revenues per passenger. So if you are telling me that you are seeing a decrease from the first quarter this year, probably that's right because what I have said during our previous conference calls is that you have to remember that we have seasonality. Let me try to explain what I'm talking about. So, in the third quarter basically what we have is families traveling together and normally families traveling together are spending less than just traveling alone. You can see every year that we have some kind of seasonality in terms of commercial revenues per passenger. So if you compare the third quarter against third quarter last year, you can see the 14% point something increase per passenger. So, probably that is why you are seeing that decrease because you are comparing this with the first quarter.

Okay. And for the coming quarters looking at on year-over-year basis, what do you expect after the fourth quarter after the consolidation of Terminal 3? For the first quarter next year, what do you expect in terms of commercial revenues per pax expansion?

Basically what we have said in the first quarter was that we can support the limit or the levels we found there of course together with the seasonality. So, we look at [forward]. I believe that we can more or less sustain the same level we have today again with the seasonality up to the moment when we open Terminal 4 where we are expecting basically an increase there.

Lucia Tamez, Signum Research.

Congratulations on the results, I think it was a marvelous third quarter. The first one is although Merida is not the most important booster in ASUR's growth, what would you say is the reason for the aggressive growth in Merida? And also if you could please give us some guidance in pax expansion towards the end of the year?

In the case of Merida and you're absolutely right, the growth that we have seen over the recent quarters is extremely high. I would like to say that one of the main reasons of this is choosing authorities of state, choosing authorities that are working really hard to increase the passenger traffic to the region. And the second one, I am seeing some kind of migration from the north part of the country to the south to basically Merida. Merida is known as one of the most safety cities of the country. Probably in terms of numbers, this city has the level of crime that Switzerland can have. So, that is probably one of the reasons why people are moving towards Merida. Merida is a very nice colonial city. In terms of --.

Can I ask you something? So would you say that if once like the migration is completed, then these growth rates are going to start to decrease, right?

No, I'm not saying that it's completed. I'm saying one of the reasons that I'm seeing right now is the migration. So in other words, this is partially not the result of more tourism. The effect of tourism is coming from these authorities promoting the sites and bringing or supporting some airlines to go there. But basically the other thing that I'm seeing is some kind of migration from the north of the country to this city and basically I would say because of the safety or security things that you can find there. And also in terms of real estate, it's a very cheap city compared with the north of the country.

Mauricio Martinez, GBM Investment Bank.

I was wondering if you can share with us your thoughts about the higher cost of service per passenger as we've seen it increasing after Terminal 3 expansion and I would like to know when do you expect this to normalize.

Mauricio, one of the main reasons of course is Terminal 3 expansion and the second one has to do with the cost of services from direct commercial operations. If you heard the initial remarks, I was saying commercial direct operations increased by nearly 20%. Of course the cost related to this is also the same number. So, this is an important element into the equation. In terms of Terminal 3, of course normalization will be first quarter next year.

And also I have a second question. If you have any update on the probable sale of Oaktree is taking in Puerto Rico's airport, you can give us any thought on that?

Basically as of today I don't know if they have started with their process to sell. I believe everybody was aware of the situation because of Reuters. I cannot confirm the situation yet, but what I believe is if there is a rumor means that they are going to sell. It's not a surprise for us because we knew that they are a firm and they will be selling some day since the first day of the process. So in that sense what I believe is if it happens, it will occur from now until the first quarter next year.

(Operator Instructions) Madeline Santana, Citi.

This is Maria from Citi. There was some news out that the government plans to privatize other airports including Playa del Carmen. What is your view regarding whether this happens and will ASUR be interested in going after any of these assets? Would you expect antitrust authorities to allow ASUR to participate in Playa del Carmen this time? And also have your views changed regarding the relaxation of the USA Mexico Aviation Treaty regarding growth potential? And also I want to ask you whether you will open a hotel at your Cancun facility?

What was your third question?

Whether you will open a hotel at your Cancun facility?

In terms of the privatization of other airports in Mexico, the ones that remain in the hands of the government, the thing you have heard is what I have heard. They are trying or they are saying that they want to let's say privatize these other airports. But as of today, I have not seen any document or any prospectus on how they are going to do this. If we are interested on those, yes, of course we will see one day to find how they are going to do this. But of course what I can say to you is that most of the airports they have are very tiny little airports that at the end they do not generate profit. So, it's not going to be easy to privatize those. In the case of the one you were talking about, Playa del Carmen, I will not call that an airport because in fact it is not.

The size of the runway they have there is just for airplanes type A so very small airplanes. And in the case of that particular property, what I have heard is that they want to take out this property from the center of Playa del Carmen. The size of the land they have there is 100 hectares in the middle of a city that is growing really nice from a tourist perspective. So, the value of this piece of land is important. So, I have not heard anything about privatization of Playa del Carmen on one side and on the other side if they do so, I will not be interested in that particular project even if the commission says yes or no. And in the case of the last one, yes, we have worked a lot in the case of a hotel in Cancun airport.

But basically the way that we see this is that this airport needs to provide the service of a hotel for many reasons. People that is just stuck in the middle of January and February due to a weather storm and winter storm in the case of the north of the United States or people that is traveling very early in the morning from Riviera Maya and they prefer to stay the last night close to the airport or people like myself that goes to the airport and doesn't have to pay the fare of a hotel in the front of the beach can take the opportunity to get closer to the airport. So yes, we're working that. But basically what we are trying to do here is to have a project and then to lease the land to someone to construct and operate this hotel and I believe this could start very soon.

I just want to make sure that you say about the Terminal 4, you expect to open it in the last quarter of the next year, right?

Exactly.

(Operator Instructions) Lucia Tamez, Signum Research.

It's just that I didn't get an answer on the guidance for the pax expansion towards the end of the year, please?

What we have seen in August and September in my opinion is not exactly comparable with August and September of the previous year because in the case of August this year, this month has four weekends and the previous one had five weekends. In the case of September, we saw an extraordinary effect because of the national holiday of September 15. So, my best advice to you would be to put these two months together and try to see what is the real number. In terms of the future, more or less what I have said is that the ASUR traffic should be normalized so no more huge growths of 10%, 13% we saw last year. So, for the rest of the year and for next year what I expect is a more normalized traffic.

(Operator Instructions) Francisco Suarez, Scotiabank.

Congrats on the great results. Just a follow-up question on San Juan, Puerto Rico. Are you actually interested in buying out your partner, the participation of your partner over there?

The simple answer is yes. The question is how are they going to do this or what is the kind of expectation they have.

(Operator Instructions) And it appears there are no further questions. I would like to turn the conference back over to Mr. Castro.

Thank you, Misty. And thank you everybody for joining us today on this conference call. Do not hesitate to contact me if there's any further question and have a great day. Goodbye.

And that does conclude today's conference. Thank you for your participation, you may now disconnect.