Grupo Aeroportuario del Sureste SAB de CV (ASR) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ASUR Second Quarter 2017 Results Conference Call.

My name is Denise, and I'll be your operator today.

(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 go ahead, sir.

Thank you, Denise.

Thank you, everybody, and good morning.

Thank you for joining us on our conference call to discuss our second quarter 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's expectations and beliefs and are subject to a number of risk 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 risk, please refer to our filings with the Securities and Exchange Commission and the Mexican Stock Exchange.

Now on to the results.

We reported a strong 2 quarter driven by strong results in both our Mexican and Puerto Rican operations.

Starting with traffic, which was strong this quarter, a total of 10.4 million passengers traveled through our airports, up 12.3% year-on-year, driven by solid growth in Mexico and Puerto Rico.

Traffic in Mexico was up 14.6%, benefiting from the positive impact of the Easter holiday in April and the depreciation of the peso.

This brought domestic traffic up 18% reaching 3.6 million passengers.

As more people are traveling to leisure destinations in the country, we can -- have been posting an impressive 24% increase.

International traffic growth remained strong at 12%, also supported by the attractive exchange rates.

In general, traffic at our Mexican airports was healthy, while Minatitlán continued to face the challenging oil industry environment.

Passenger traffic between Mexico, Canada and the United States represents 88% of the total traffic.

Puerto Rico also reported solid traffic growth in the quarter, up 5%, driven by the good performance in both international and domestic traffic.

Now moving to the financials.

An important event during the quarter was our increased ownership in Aerostar to 60% from our prior 50% stake.

Accordingly, starting June 1, we began to fully consolidate our results on a line by line basis, where prior the ASUR's ownership in Aerostar was accounted by the equity method.

As you read in the press release published yesterday, we provided both as reported consolidated results as well as a standalone result for Aerostar for June 2017 and for the full quarter and for the first half of the year.

This should better help you understand the impact and assist you with modeling purposes.

In the interest of time, I will go off -- over our consolidated results and then review the performance of Aerostar for this whole second quarter of 2017 compared to the second quarter 2016 to give you a better perspective on these operations.

Consolidated revenues for the quarter excluding construction services rose 35% year-on-year, with Aerostar June results representing 12% of revenues ex construction.

Aeronautical revenues were also strong, up 37% year-on-year, reflecting traffic growth and inclusion of 1 month of aeronautical revenues from Aerostar, which represented 10% of total aeronautical revenues for the quarter.

We posted another quarter of strong commercial revenue growth, up 34%, with Aerostar June results representing 7% of consolidated commercial revenues.

Consolidated commercial revenues per passenger increased 5% to MXN 102.

In Mexico, where we have been operating our airports for a much longer time, commercial revenues per passenger were approximately MXN 105.

Note that this was a slight decline from the first quarter 2017 levels, which has to do with the spending behavior of the passenger traffic traveled in the second quarter, which includes a large number of families and children that spends on a per passenger basis less.

We believe we have found the new level for commercial revenues per passenger and expect the opening of Terminal 4 at Cancun Airport to give this another boost.

Do not forget to apply the seasonality to commercial revenues per passenger.

Commercial revenues per passenger at Aerostar in June were slightly over MXN 80.

Operating costs and expenses, ex construction, were up 36% year-on-year, with Aerostar operations in June representing 19% of cost of services.

In Mexico, cost ex construction rose 17%, mainly driven by cost of services as a result of higher energy costs, as the cost per kilowatt hour increased by 46% year-on-year.

Also, during the quarter, we have higher maintenance expenses as well as additional costs in connection with acquisitions we are making.

Higher costs of sales from the 21% increase in revenues from commercial revenues from direct operations also contributed to the increase in cost of sales.

Looking ahead, we expect cost in Mexico to increase further in the third quarter as we will begin the hiring process in anticipation of the opening of Terminal 4 planned for the fourth quarter of the year.

These new employees will need training prior to the opening of our terminals.

Consolidated EBITDA was up 34% year-on-year, reaching MXN 1.8 billion, which -- with Aerostar June results contributing 7% of the EBITDA.

Adjusted EBITDA margin, which excludes construction revenue and cost, declined roughly 50 basis points year-on-year to 71.3%, reflecting the lower comparative EBITDA margin of Aerostar.

Note, however, that EBITDA margin at Aerostar has improved year-to-date.

EBITDA, our Mexican operations in turn posted a strong performance, up 24% year-on-year, with adjusted EBITDA increasing to MXN 1,658 million.

Our participation in Aerostar in April and May resulted in a gain of MXN 44 million, down 25% from the MXN 58 million in the full second quarter 2016.

Moving in to capital expenditures.

ASUR invested a total of MXN 308 million in the quarter, of which MXN 276 million were allocated to our Mexican operations, in particular, the construction of Terminal 4, which we expected to open in the fourth quarter this year.

The remaining MXN 33 million were invested in San Juan Puerto Rico Airport in June.

In terms of our financial position, total debt increased to MXN 11 billion in the quarter from MXN 4 billion in the second quarter 2016, mainly reflecting the debt held at Aerostar.

As a result, we closed the quarter with a healthy balance sheet with a net debt to last 12 months EBITDA ratio of 1.3x compared with the 0.3x at the close of the second quarter 2016.

Note that 100% of our debt is denominated in dollars for a total of $634 million, with no major maturities until the year 2020.

Of these, 60% represent senior secured notes at Aerostar and the remainder 40% are syndicated credit facilities at Cancun.

Now let me review the key highlights of Aerostar's standalone results for the second quarter.

To put results in perspective, this is the first full year of operations after completing the strategic plan that we began to implement when we were awarded the concession 4 years ago.

The implementation of our regional concept concluded in the second quarter 2016.

This plan was centered on 2 key objectives.

The first was to increase commercial revenue per passenger and bring it closer to the levels at Cancun Airport, where we have made significant progress to date.

We continue to fine-tune the operations to get closer to our goal.

The second objective was to reduce operational costs.

We have achieved a 14% cost reduction in dollar terms and a 60% increase in commercial revenues, taking into account the last 12 months of Aerostar's results against the first 12 months after we took over.

Revenues at LMM Airport rose by slightly over 4% year-on-year to MXN 667 million, mainly due to the 4% growth in our aeronautical revenues, where represented [67] of LMM's top line.

Commercial revenues, in turn, rose around 5% in the quarter, reflecting the positive impact from the remodeling completed last year and traffic growth.

In the first half, revenues of LMM were up 8% year-on-year.

Commercial revenues per passenger for the quarter rose 10 basis points to MXN 89.8.

Note that in the first half of the year, commercial revenues per passenger rose an impressive 730 basis points to almost MXN 98 from MXN 91 in the first half of 2016.

Operating costs were up 3% year-on-year, driven mainly by higher cost of services, which represented 72% of total costs, while concession fees paid to the Puerto Rican government rose 10%.

Finally, Aerostar EBITDA rose 4% year-on-year to MXN 385 million, with EBITDA margin up 7 basis points to 57.8% in the second quarter, reflecting higher operating leverage and the benefit from the completion of the remodeling plan last year.

Notably in the first half of the year, Aerostar posted a 204 basis points year-on-year improvement in EBITDA margin.

Before we open the floor for questions, note that we are still waiting for the approval from the Colombian government to conclude acquisition of a majority interest of 2 airport groups in that country.

We expect to receive such approval during the third quarter this year.

And if that occurs, we will consolidate financial results of these operations into the third quarter financial reports.

Denise, please open the floor for questions.

(Operator Instructions) And we'll take our first question from Mauricio Martinez with GBM.

My question would be on the acquisition of Aerostar, specifically in the cash base for this business.

Should we expect that the MXN 726 million is the [straw] amount that should pay for the 10% of the business?

(technical difficulty)

Please stand by, ladies and gentlemen.

Please stand by as we reconnect our presenter.

Señor Castro?

Sorry, I'm here.

Sorry.

It's okay.

Mr. Martinez, if you would repeat your question.

Sure.

Sure.

Sorry, I don't know why, but the phones are not working properly.

Mauricio, I was saying that the price for the 50% of the equity in LMM was $430 million and also in the case of the 10% is something that you can see in our financials.

And my second question would be in the working capital changes.

If you can elaborate on the main effects within the hike in accounts payable and if this has anything to do with the Aerostar consolidation?

Well, a piece of that is the consolidation, of course, but the other piece is reflecting the high volumes during the first quarter of the year.

Higher volumes in terms of sales.

Okay.

Perfect.

And my last question would be regarding EBITDA margins in Puerto Rico.

You just reported a margin closer to 56% for the first half of 2016.

Is that level fair to assume margin level for the second half of 2016 or should be lower?

Or what kind of normalized margin should we expect in that business?

Okay.

Let me try to elaborate on that one.

The second half of Puerto Rico is, in terms of margins, is lower because of seasonality things.

So in the -- if you go back and see the quarters in terms of passenger traffic of last year, you will be able to see the same seasonality this year.

So during the second quarter, the margin decreases significantly against the first quarter.

That's the first piece.

The second piece is that, in terms of the concession fee, we have to pay for the government in the future.

Not the second quarter but in the future, it will increase because the first 5 years it took $2.5 million and then it's going to be 5% of the revenues.

So that is important for next year.

But in terms of a normal operation, yes, we have a normalized operation if you consider the seasonality for the second quarter.

Our next question today comes from Lucas Barbosa.

My question is just regarding the airline situation.

We have seen Mexican airlines losing profitability in first half.

Airlines are now starting to talk about capacity discipline in Mexico.

Do you expect traffic growth to decelerate in the coming quarters?

That's my question.

Well, I have not seen any reduction in terms of capacity for the moment.

Of course, what you are saying it's going to be important for them in some of the flights they have.

As of today, the load factor we have seen in most of our domestic traffic has been more than 80%, which is extremely good.

So I don't believe that with these load factor, they will disconnect or cancel some of the capacity they have with us.

Of course, there are some specific routes that are suffering, small ones in terms of the overall, but I do not expect a major reduction in terms of capacity for the second quarter.

(Operator Instructions) We'll take another question.

Our next question comes from Magdalena Santana.

I just have one question.

Do you have any insight regarding the next massive development plan review that you will have the next year?

Well, the only thing that I can say to you is that I will have to present my proposal to the government at the end of this year.

At the end of this year, okay.

Exactly.

And do you see that -- do you have any estimate that probably they can cut you the tariff or they will do something with the tariff?

What is your expectation on that review?

I do not have any comment for that at the moment.

Our next question comes from Francisco Suarez.

Sorry, if this was asked earlier.

I just arrived to the call.

I was curious, Adolfo, on the commercial revenues per passenger in San Juan Puerto Rico.

What are the chances to increase the overall revenues per passenger on commercial revenues -- sorry, per passenger on San Juan?

Well, I would say there are some chances to increase that, that's for sure.

We're still working on that.

The other, probably, important thing to see in San Juan Airport is the other activities that are not related strictly to commercial revenues or the commercial revenues definition we have in the case of Cancun.

Let me explain myself there.

Some of our activities that we have or that would receive revenue in the case of San Juan Puerto Rico, that we do not receive in the case of the Mexican airports, and those are basically cargo activities and -- well, the most important, cargo activities, and the fuel.

Those are things that are also important in the case of San Juan Puerto Rico.

So I will recommend you to see or to try to divide the revenue in San Juan Puerto Rico and as regulated and the other, okay.

So if we think about regulated revenue, that is the $62 million we are allowed to charge every year, plus something that is called passenger charges, that is roughly numbers around $3.9 per in plane passenger, so departing passengers, $3.9 departing passengers.

Those should be regulated revenues as a concept, okay.

Rent is, of course, commercial activities plus what I was mentioning.

So if you make these numbers, you will get the number of non-regulated revenues per passenger of MXN 112.8 per passenger.

Now that makes more sense, because I was really surprised to see the low figure of the 88 figure, if I'm -- correctly.

That's very helpful, Adolfo.

(Operator Instructions) And there appear to be no further questions at this time.

I turn the conference back over to Mr. Castro.

Thank you, Denise, and thank you, everybody, for joining us today on this conference call for the second quarter results.

Have a great weekend.

Ladies and gentlemen, that does conclude today's conference.

Thank you for your participation.

You may now disconnect.