Grupo Aeroportuario del Pacifico SAB de CV (PAC) 2013 Q1 法說會逐字稿

Good morning. My name is Katie Lockwood and I will be your conference operator. At this time I would like to welcome everyone to the GAP's first-quarter 2013 earnings conference call. (Operator Instructions.)

Thank you. I would now like to turn the call over to Maria Barona of i-advize Corporate Communications. Ma'am, please begin.

Thank you. And welcome to Grupo Aeroportuario del Pacifico's first quarter conference call. Today from the Company we have Mr. Fernando Bosque, Chief Executive Officer; Mr. Rodrigo Guzman, Chief Financial Officer; Mr. Miguel Aliaga, Institutional and Public Relations Officer; and Mr. Raul Revuelta, Chief Commercial Officer.

Please be advised that forward-looking statements made today, may be made during this conference call do not account for future economic circumstances, industry conditions, the Company's future performance or financial results. These are forward-looking statements based on several assumptions and factors that could change, causing actual results to materially differ from the current expectation. For a complete note on forward-looking results, please refer to the quarterly report which was issued yesterday.

At this point, I would like to turn the call over to Mr. Fernando Bosque for his remarks. Mr. Bosque, please begin, sir.

Good morning and thank you for accompanying us today. It has been a short time since our previous conference call, so I will keep my comments on this quarter brief. I will start with the traffic growth, which reached a total increase of the quarter of 5.5%, driven by the 10.4% increase in domestic traffic, representing 235,000 additional passengers.

In terms of domestic, we continue seeing important strengthening at the four largest airport; at our main tourist destination, Los Cabos and Puerto Vallarta, experiencing a 12.2% and 11.7% increases respectively, and our main metropolitan areas, Guadalajara and Tijuana, experiencing 8.2% and 9.4% increases respectively, representing 91.1% of our total domestic traffic growth compared to first-quarter 2012 and driven by new routes and other frequencies.

Internationally, we continue to reach slow but steady growth with solid increases at our main tourist airport of Los Cabos, which show an increase of 10.2% passengers, due to the addition of several new routes and various down frequencies were increased by US carries to American cities as well as Canada.

Raul will give further detail of who did what, but in big picture the recovery here is very exciting and continues to strengthen quarter to quarter as the domestic and international market routes continue expanding.

Thus, we show important increases in total revenue, mainly non-aeronautical revenues, which grow over 21% as a result of important revenue increases in duty-free, car parking, leasing of space, time sharing, advertising, VIP lounges directly operated by GAP and food and beverage operation, which together rose 29% and represented 89% of the total increases of non-aeronautical revenues. The opening in November 1st, 2012 of the Terminal 2 in Los Cabos was certainly among the main factor of the previously mentioned increases.

Aeronautical revenues also increased 5.6% due to the added traffic, as Rodrigo will explain later. EBITDA margin without the effect of IFRIC 12 rose from 66.8% to 69.9%, will nominally be the value, increased 14.1% or MXN102 million. Performance of EBITDA per pass is very encouraging, increasing 8.4% up to MXN146 for the quarter. CapEx evolved as scheduled with steady progress in Guadalajara and some of the medium-sized airports. We are ready and very excited about undertaking the Tijuana cross-border as soon as we obtain the signature between both countries in May.

All in all, we are quite pleased with the beginning of 2013 and consider that we are financially on the right track for the remaining of the year, all variables being equal.

In terms of the recent management of GAP, in March we held a very successful annual GAP Day at the Los Cabos international airport, with over 18 investor and analysts in attendance. I want to take this opportunity to thank those of you who attend, once again for coming out to the beautiful city of Los Cabos and joining us as we started the new Terminal 2.

Unfortunately, I don't have an update of the reduction of equity payment that is held up at Indeval at the request of one of our principal shareholders. The matter is still pending. However, we are working hard to resolve the issue soon.

On April 11th, we issued a press release in which we announced that we had been notified that regarding the Company's appeal related with the suggested validity of the Company by-law. The court granted GAP's petition for a suspension of the intermediate court's decision that had declared invalid articles 10 and 12 of the Company's by-law. As a result, articles 10 and 12 with regard by-law remain valid and binding, and consequently GAP's shareholders are required to adhere to them.

Later on April 15, we were notified that the federal court of last resort upheld the decision rendered by the Fifth Mercantile Court prohibiting brokerage firm on acquiring over 10% of the Company shares on behalf of any entity that is part or is related to business Group in question; again, reactivating the validity of the Company's by-law.

On April 16, the Company's shareholders meeting was held. Among other items that was approved was the aggregate financial statement for 2012, the increase of the Company legal reserve by MXN82.4 million and a dividend payment of MXN1.2 billion, which means roughly MXN28 per share, excluding the shares purchased by the Company or 3.4% dividend yield adjusted to date prices.

The first disbursements of the dividend took place yesterday, while the second disbursement remain pending for November. The Company's General Annual Ordinary Shareholders Meeting also designate the members of the GAP's corporate governance bodies.

As I mentioned in the past discussion, we remain committed to [accounting] the Company's by-law under regulation of corporate law and to keeping the market posted of any new developments in the situation. As you can imagine, this is a challenging moment for the Company and there is quite a bit of media coverage about -- that is being said by Grupo Mexico at this time.

At this point, I will turn the call over to Raul Revuelta for his comments. Raul, please go ahead.

Thank you, Fernando. Good morning, everyone. I'm pleased to have the opportunity to further discuss the traffic and revenue figures mentioned by Mr. Bosque. First, with regards to the traffic, during the first quarter of 2013 GAP growth of 294,000 passengers was mainly on account to the domestic and international passenger's traffic growth of 7.4% and 2.7% respectively.

As Fernando probably mentioned, during the first quarter of 2013 GAP experienced an important growth of domestic passengers in our four main airports that was driven mainly by Volaris, Interjet, VivaAerobus and Aeromexico.

On the international side, it is very important to mention that the first-quarter 2013 was the best quarter in the history of Los Cabos in terms of international and total passengers. We saw the opening of new routes into Orange County and Denver operated by AirTran Airways and San Diego operated by Spirit Airlines. Additionally, the increase of frequencies by American, Alaska and United into San Jose, California, Dallas and Denver respectively and by the growth of Canadian traffic mainly from the cities of Winnipeg, Kelowna and Toronto.

Outside of Los Cabos, Volaris began the routes of Guanajuato-Chicago and Guadalajara-Sacramento during October 2012 and November 2012 respectively. And WestJet began operations in the route Mazatlan-Vancouver in November 2012.

Now regarding non-aeronautical revenues, this grew 21.5% or MXN51 million during the first quarter in comparison with the first quarter of 2012 and commercial revenue grew 24.5% or MXN52 million, mainly caused by the following commercial developments; higher revenue for duty-free, time share developers and food beverage, which rose 39%, 24% and 23% respectively, driven mainly by the new Terminal 2 in Los Cabos as well as the negotiation of the new contracts.

Parking lot revenue rose 15% compared to the first quarter of 2012 as a result of the traffic increase as well as the new parking fees (inaudible) implemented at the beginning of 2013. This effect, along with the new marketing strategy such as promotional package, tend to encourage more frequent and longer use of the parking lots.

In terms of business directly operated by GAP, advertising revenue rose 36%, mainly caused by the growth in sales in Guadalajara and Tijuana. VIP lounges increased 156% or MXN4 million, driven mainly by the new Los Cabos, Guadalajara, Puerto Vallarta, Hermosillo VIP lounges that were launched during 2012.

Revenue from convenience stores grew MXN3.8 million as a result of the opening of two new stores fully managed and operated by -- at the airport. Additionally, I want to point out that as a result of the opening of the T2 at Los Cabos, commercial revenue at that airport increased 49%, equivalent of MXN20 million, brining total commercial revenue per passenger to MXN86.5, an increase of 35%.

As for the rest of the year, we expect to see consistency. I want to share with you some of the strategies we have in motion. On the aeronautical side, we expect increase in the domestic market mainly driven by the new openings such as VivaAerobus from Guadalajara to Reynosa, Guadalajara to [Wathata], La Paz to Mazatlan, La Paz to Monterrey. From Volaris, Guadalajara to (inaudible), Morelia to Cancun, Tijuana to Manzanillo and increase of frequency of the route to Guadalajara program.

Also we expect increase of seats of domestic market by the Interjet due to the incorporation of the super jet during the summer month. Also for 2013, we expect the continued increase of frequencies and opening of the new international routes by several of the airlines. Some examples are; Southwest Airlines will begin to operate a second daily frequency from Los Cabos to Orange County and will open a new route from Austin to Los Cabos.

The Spirit Airlines announced they will open a new route from Los Cabos to Dallas during June 2013. WestJet is planning to expand its operation at Manzanillo airport. Currently, it is operating to Calgary during November 2013, will begin operations to Vancouver. Delta Airlines will increase its frequencies from Puerto Vallarta to Los Angeles this coming July. American Airlines will increase frequencies from Los Cabos to Chicago, Dallas and Los Angeles. Also American Airlines will begin operations at Hermosillo airport in December.

Finally, Aeromexico will open two new routes, La Paz to Lusaka during June 2013 and Los Cabos to New York during November 2013.

In terms of non-aeronautical revenue for 2013, we are foreseeing growth mainly originated by the following factors. In Los Cabos, commercial development in the new terminal quickly proved to be quite successful and faster than we expected. The terminal layout as well as the portfolio branch for the passengers now are fully operational. Our goal is to reach a ratio of MXN90 revenue per passenger at Los Cabos by year end. This will be the best ratio in the entire Mexican airport network.

For Guadalajara the growth will come from parking business, which attracts additional long-term users everyday and will be complimented by other major increases in the commercial revenue of the airport, such as the VIP lounge.

Regarding the business lines for the entire network, most of this year growth will be driven by the duty-free loyalty services, sales in our directly operated convenience stores and the renegotiations timeshares contract.

Additionally, at other airports, we are willing to implement different strategies to improve commercial revenue per passengers; for example, the redesign of commercial area in Puerto Vallarta to take advantage of the expansion in satellite departures building. The opening of our six VIP lounge at the end of the second quarter now in Tijuana, making GAP the largest VIP operator in Mexico.

Also in Tijuana, we are in the process of converting old tenant spaces into recognized global brands in travel, retail and food and beverage. We will see the effects of the Hermosillo renovated commercial offering, which is include new retail and food brands as well as the recently opened VIP lounge.

As you can see these projects will take advantage of the huge potential of our airports and to further drive commercial revenues for the coming years.

Thank you for your attention. And now Rodrigo Guzman, our CFO, will review the financial highlights.

Thank you, Raul. Good morning, everyone. This is Rodrigo Guzman, GAP's Chief Financial Officer. The sum of aeronautical and non-aeronautical revenues increased MXN98 million or 9%, highlighting the fact that during the first quarter in '13 aeronautical revenues increased 6% or MXN47 million and non-aeronautical revenues increased 21% or MXN51 million.

This means that the aeronautical revenues and non-aeronautical revenues increase represented 48% and 52% respectively of the total of aeronautical and non-aeronautical revenues increases, which further enhances the profitability of the Company as roughly 90% of non-aeronautical goes straight to the bottom line. It also demonstrates the Company commitment of increasing non-aeronautical revenues more at higher rates than the traffic loads.

Aeronautical services revenues increased mainly as a result of the increase in 5.3% in passengers that paid passenger charges and the increase in that specific charge in June 2012, which resulted in a total passenger charges increase of MXN48.5 million or 6.5%.

Non-aeronautical services revenues increased MXN51 million or 21.5%, due to the causes previously explained by Raul. And it is important to mention that the business directly operated by the Company such as parking lots, advertising and VIP lounges contributed with MXN17 million to the total increase in non-aeronautical revenues, representing 34%.

The sum of aeronautical and non-aeronautical revenues was offset by a decline in revenues from improvement to concession assets related with IFRIC 12, for MXN42.1 million or 26.2%. This resulted from a decrease in committed investments on the Master Development Program for 2013, which was 27.9% lower than the investments committed and were taken in 2012.

It is important to remember that revenue costs from improvement to concession assets did not have a cash impact nor an impact on the Company's operating results. Thus, total revenue grew MXN56 million or 4.5%.

Total cost of service decreased MXN14.5 million or 5.4% despite higher employee, security and insurance costs. The decline was mainly due to a decline in MXN13.6 million in maintenance since certain expenses are stable for the second-quarter 2013, whereas in 2012 occurred in the first quarter.

A decline in MXN4.6 million in other operating expenses due to lower professional fees rendered during the first quarter of '13 compared with the first quarter of '12. An increase of MXN3 million in employee costs as a result of the completion of the restructuring project of the personnel from the security checkpoints during the first quarter of '13 and an increase of MXN0.7 million in security and insurance costs due to the contracting of additional personnel from the security checkpoints of GAP's airports.

The decline in cost of service was partially offset by increases in government concession taxes and technical assistance fees, which together increased MXN10.2 million or 11.1%.

As a result, as was previously mentioned, EBITDA margin without the effect of IFRIC 12 increased 2010 basis points from 66.8% in the first quarter in '12 to 69.9% in the first quarter in '13, with nominal EBITDA value increase of MXN102.2 million or 14%.

Depreciation and amortization for assets -- on intangible assets decreased MXN21 million or 10.7%, as a result of the fulfillment of our Master Development Program. Operating margin remained strong, increasing without the effect of IFRIC 12 280 basis points from 48.4% to 51.3%, with a nominal value increase of MXN81 million or 15.4%.

Net comprehensive financial costs increased MXN16.4 million or 74%, due to an increase in interest expenses of MXN15.1 million as a consequence of lower capitalization of interest bank loans in 2013 which increased financial expenses by MXN7.8 million and a MXN7.7 million decline in the price of bonds backed by the Mexican government.

The (inaudible) decline of MXN47.8 million was due to the fact that during the first quarter in '12 inflation measured in terms of the variation in the national consumer price index was 0.97%, while during the first quarter in '13 it was 1.64%. Therefore, that increased the benefit for deferred taxes by MXN70 million.

The positive effect in deferred taxes was offset by an increase in current taxes of MXN22.4 million. It is important to mention that deferred taxes do not affect the cash flow of the Company while current taxes do. We must point out that GAP's cash tax rate was 30%. As a result of the above, net income and comprehensive income for the first quarter in '13 increased by MXN112 million or 26% compared with the first quarter in '12.

Finally, I want to mention that, as we have previously stated, one of the elements of GAP'S success has been its dividend policy and its financial strategy. As we released some days ago, we recently closed a new credit facility for a total of MXN459.4 million, with which we cover our need to finance our Master Development Program for the year 2013 and 19% of 2014 in the airports of Guadalajara, Los Cabos, Puerto Vallarta, Hermosillo and Guanajuato under very good conditions.

The first disbursement of that credit facility was taken for a total of MXN70.1 million. With this credit facility, we can see the fulfillment of the Company's financial strategy for coming years until the new Master Development Program is set, with the exception of the strategy we are following to look for outside opportunities.

Thank you for your attention. I will now turn the call over to Miguel Aliaga for final comments.

Thank you very much, Rodrigo. This is Miguel Aliaga, Institutional and Public Relations Officer. I'm very happy to announce that the Board also approved the social item which was a GAP foundation. Thus, among the other smaller programs that GAP has at the airports to raise money for the local communities, this foundation firm highlights GAP's involvement in some social causes that are very needed in Mexico. GAP has actually been donating resources for local causes during the past three years for a total of approximately MXN20 million over the course of that timeframe.

Now with the foundation, GAP will begin a new chapter where we will more visibly participate in the social responsibility platform in the short term on children's projects and also with other non-profit organizations that we deem to be a good fit for our organization.

Yesterday, as Fernando mentioned, we also issued a press release in which we paid out the first portion of the dividend payment that was approved in the April shareholder's meeting. This was for MXN907 million or MXN1.70 per outstanding share. The second part of this payment is expected for or before November 30 of this year.

Finally, we reiterate our guidance figures as we announced them in January; in terms of profit, an increase of 4.5% to 5.5%; aeronautical revenues, an increase of 6% to 7%; non-aeronautical revenues, an increase of 10.5% to 13.5%; with an increase in commercial revenues of 11.5% to 13%; as a result a total revenue increase of 7% to 8.5%. In terms of cost of services, we expect an increase of 8.5% to 9.5% and EBITDA margin of 66.5% to 67.5% and increase in EBITDA of 6% to 8.5%. Cash tax 30% and finally a total CapEx of MXN655 million.

Thank you for your attention. Operator, we may proceed with Q&A.

(Operator Instructions)

Neal Dihora, Morningstar.

I guess you guys are really busy, lots of activities in the first quarter. I had two questions. One is, as the commercial or non-aeronautical services grows as a percent of total revenues and if you think longer term, do you think EBITDA margins can grow beyond the 66% to 67% level that you guys have posted already? How you guys thinking about that?

And then second one was kind of just for the first quarter. I know the traffic increased right around where your aeronautical service revenue growth was. I'm just wondering on a per passenger base if there is anything -- any reason why that would not have grown with this inflation? Thanks

Raul, do first, with the commercial.

Okay. I mean we think that our strategy for the growth on the future of commercial revenue, that includes the continue expanding our -- on operating business will have some -- in the future will continue with the growth of the revenue. But, of course, is going to have some impact on the margins due to the cost of operating. But the important thing is that we are pushing our own business to GAP's EBITDA's margin in line with the margins that all the company had. So we will -- we expect that we could continue in the long-term with margins in the same line that all the company already had.

On the traffic.

In terms of traffic and guidance, for the moment we are --- we do not believe that we are going to have additional or different figures, but all the figures that we had already announced. Especially that we are seeing in this quarter in relation with traffic and with aeronautical revenue, as you can see, it's -- we have an increase of traffic in 5.5% and also we have an increase in aeronautical revenues in 5.3%.

The situation with that theory is that we normally increase our aeronautical revenue between 100 basis points and 200 basis points more than the traffic. But in this case the issue was that the inflation -- if we compare inflation -- make sure in terms of [those] price index for this quarter was less than the one that we have in the last -- in the first quarter of 2012. And the difference was like 0.25%.

So that was the reason why we didn't increase in the --- at the same --- with that 100 basis points and 200 basis points. And also the issue was that we increase our traffic in the airport with the 9 and 11 much higher maximum charge among the airports that we have. So that produces that increase in line with the traffic.

Okay, thanks.

(Operator Instructions).

Stephen Trent, Citi.

Two questions from me if I may. The first is if you could provide any color with respect to what was the approximate size of the scheduled maintenance that you did in 1Q last year that you'll do in 2Q this year. And the second question, and I know it's a little early at this point, but from the Master Development Plan perspective how are you thinking about sort of required investments or what could be required investments in your airports over the next five-year period versus what you've done over the current five-year period? Thank you.

Okay. The first question is related with the maintenance cost in the balance sheet -- sorry, in the income statement. In this industry this (inaudible) is not always the same. The last year we did some things in the beginning of the year mainly because we have some events during the year that we -- which we needed to have everything done prior to those days. Two examples of those was the (inaudible) in the airports of Los Cabos and also some events that happened in the airport of Vallarta that forced us to do the things differently than the things that we are doing in this year.

So in the first quarter of 2012 everything was scaled to -- everything -- I mean many things were scaled to advance in the first quarter. But in this year those things are going to happen in the second quarter. So the difference in maintenance is a difficult issue. Not always the scale is the same. And we planned since the beginning of the year in parts since the last quarter of the last year, we've done the things in the way in which they are right now. Also in the same line, we planned in the last quarter of 201l the things that happened during the first quarter of 2012 in line in which we have planned. And that is the issue in relation with maintenance.

Okay. Great.

Hello, Steve. This is Fernando.

Hi, Fernando.

I will try to answer your question about the Master Plan Development. Of course now we are in the first stage to know how will be the need for the next five years. As you remember, for the period of 2010 to '14, the total amount that was committed was MXN3.5 billion approximately in terms of 2009's currency. For the next five years beginning 2015, we are considering similarly the investment that was discussed with the secretary of communication in 2009. However, we are thinking that we will try to increase the comfort and the quality of the service in some of the airport and also taking in consideration the need to do the second runway in Guadalajara airport. This MXN3.5 billion will be increased. I think it will be moved in the range of the MXN4 billion to MXN5 billion.

Okay, very helpful. I will leave it at that. Thanks for the color, guys.

Thank you.

Thank you.

(Operator Instructions).

Lewis Willard, GBM.

This is Bernardo Villas. Just a couple of questions. When you look at the aeronautical revenues per passenger, the sort of figure remained flat during the quarter. And how much would you say it's been from an FX effect and how would it look like at a constant currency basis?

It's in (inaudible) cost side you mean, right?

In the aeronautical side?

Okay, in aeronautical side, as you know, we can fill our maximum target at any time. So it's not important if it comes or goes through the FX rate. The fact is that we reached the maximum target, and that's it. It is not important if we charge for international passengers in a different way. But once saying that, the formula to charge international passengers with international tariffs is that we invoice them in Mexican pesos, not in dollars. So -- and a number -- for example, if the operation happens today, we average the FX rate for the last month and we invoice it in pesos. So we don't really have an impact of -- on FX effects in our income statement.

Okay. Got it, thanks. And --

The same thing happens with all the Group. I mean we are -- we need to hit the maximum tariff at any time. The first condition and the second one is that we need to invoice it in Mexican pesos. It's a question of law. It's not a matter of if I want to invoice it in dollars or in Mexican pesos.

Okay, perfect. And I was wondering what has to happen in order for you to go for a shareholder's meeting in order to discuss the new 790 million equity reduction already approved by the Board?

Yes, Bernardo. This is Miguel Aliaga. The total equity reduction, as Fernando mentioned, unfortunately there is no update. As we all know, it's still trapped in Indeval via request of one of the shareholders, Grupo Mexico. We expect that because we finally distributed it to Indeval yesterday the dividend payment, and it was distributed among all shareholders, exactly what it means that all the legal processes involved in this payment in the shareholder meeting will lead to finally soon -- very soon we can see this rest of total security being distributed from Indeval to the shareholders. But again, we don't know exactly a date, but this should happen sooner than -- of course than before because of this recent dividend payment.

Okay. So the first equity reduction, the MXN870 million has to be released in order for the new reduction, the MXN790 million to be discussed in the shareholders meeting?

Yes, of course. That's still not in discussion. That should be -- if that's the decision finally it should be called for a new extraordinary shareholders meeting. Only the reduction from stockholder's equity in GAP should be approved by an extraordinary shareholders meeting. So of course if that's the case, that should be a new call for a new meeting.

For the moment it's not --

For the moment it's not in the agenda, no. Of course you already know when this will happen because that usually happens 45 days before the shareholders meeting when we usually announce it.

Yes, it is important to mention, Bernardo, also that the money will go to the shareholder that was released in the record day of the -- after the extraordinary shareholder meeting in September, last September.

MXN870 million?

Yes, of this amount are approved in that meeting.

Okay, prefect. Thanks very much and congrats on the results.

Thank you.

Thank you.

(Operator Instructions).

[Miguel Eskergo], GAP.

Regarding the reduction of capital, which was decreased some time ago, and I understand you are going to make a new reduction of capital in the same manner. And my feeling is that we are going to run into exactly the same problems as we had with Grupo Mexico last time. I don't really see any point in making reductions of capital the way how you are doing them, if we are going to end up in a lawsuit and several billion pesos are going to remain in the Indeval.

Why don't you just simply repurchase the shares on a -- giving priority right to the existing shareholders instead of doing it the way how you were doing it before? In this way you would not have the problem with GAP -- with Grupo Mexico?

Thank you, Miguel. It's Fernando. I will take in account your suggestion and we will discuss this internally and with the Board of Director in the next meeting.

As I mentioned to you before, my feeling is that you should revert the last resolution of the reduction of capital. The money should be recuperated from the Indeval and you should use that money to repurchase the shares on a pro rata basis on all the shareholders. It produces exactly the same effect without a legal problem.

Of course, Miguel. But we have now a different situation. We perceive -- as I mentioned in my presentation in April 15, you were notified that there was confirmed the way to calculate the quorum for the meetings. So it's clear that the decision taken in September, last September, in the general -- extraordinary meeting, it was agreed with the same rules, considering only for the quorum to take agreements only the registered shareholders that not exceed the article 10 and 12 of the by-law; that is 10%. So it's clear now that is the reason. Because what's paid yesterday, they -- what -- did the distribution of the dividend without any troubles, any problem. And that will be the same, one time that the Board of Director agreed to do another equity resolution.

But we will take in consideration your suggestion. Of course, we will discuss that internally and with the Board of Directors.

Thank you, sir. At this time we have no further questions. I would like to turn the call back over to Mr. Bosque for closing remarks.

Thank you all for your interest in GAP. We look forward to speaking with you again soon. Have a good day.

Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect your lines.