Grupo Aeroportuario del Pacifico SAB de CV (PAC) 2015 Q1 法說會逐字稿

Good morning. My name is Katie, and I will be your conference operator. At this time, I would like to welcome everyone to the GAP first-quarter 2015 earnings conference call. (Operator Instructions) Thank you. I would now like to turn the call over to Maria Barona of i-advize Communications. Please go ahead.

Good morning, and welcome to Grupo Aeroportuario de Pacifico's first-quarter conference call. Today from the Company we have Mr. Fernando Bosque, Chief Executive Officer, and Mr. Saul Villarreal, Chief Financial Officer, as well as Ms. Paulina Sanchez, Investor Relations Manager.

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

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

Good day, and thank you to everyone for your participation here today as we discuss our results for the first quarter 2015. We have quite a bit to cover today. I am sure you have a lot of questions, so I will try to be brief.

For the first quarter 2015, GAP experienced an increase of 241.3 thousand passengers, mainly driven by higher traffic in Puerto Vallarta, Guadalajara, and Guanajuato, in that order, which jointly represents 71% of the increase. Domestic passenger traffic increased by 149.1 thousand passengers, while international passenger traffic grew by 92.2 thousand, representing an overall increase of almost 4% compared to the same period of the previous year.

It is worth mentioning that during the quarter, 13 new routes opened, benefiting GAP's network. From Guadalajara, there were 2 new routes to Torreon and to Dallas-Fort Worth by VivaAerobus. From Tijuana, there were several new routes, including Torreon by Volaris, Acapulco by Interjet, and to Oakland by Volaris. In Los Cabos, there was a lot of activity also, with 5 new routes to Culiacan, to San Diego, [Hiral], as well as to Toronto by Air Transat and Washington, DC, by United. La Paz has one new route to the city of Culiacan. And finally, in Montenegro, there were 2 new routes: to Minneapolis by Delta and to Minneapolis by Sun Country.

As you can see, there was a lot of activity across quite a few of our airports within this quarter, with new ones announcement for the rest of the year. Volaris announced that it will be opening the Tijuana-to-Durango routes, and Aeromexico announced a new route from Guadalajara to the city of Mexicali.

International routes have also been announced to begin at various points of the year. For example, Volaris announced 4 new flights from Guadalajara to New York, JFK, Guatemala, Houston, and Dallas-Fort Worth, as well as a fly from Guanajuato to Los Angeles. While American announced a route from Guadalajara to Los Angeles, Spirit announced Puerto Vallarta to Orange County and Los Cabos to Houston. And Southwest announced Los Cabos to Baltimore.

In terms of the individual airports, I wish to highlight some of the developments that we are seeing in each. Starting in Guadalajara, as you can see from the new route breakout, airport connectivity is at an all-time high. During March, the airport served 51 destinations: 27 domestic and 24 international. These airports have also registered a record quarter in terms of passenger transported in [this story], reaching 6% growth in total.

In Puerto Vallarta, there is a continued expansion into the international market due to a higher number of available seats offered by American, Alaska, United, and [Transat]. Domestic routes, on the other hand, have benefited from new short-range routes to Aguascalientes, [Pajillo], Guadalajara and Queretaro.

In Los Cabos, the recurring of international traffic is at 85% to 90% versus the same time as last year. (technical difficulty). At this point, [all sales] capacity is 83% of the total rooms available at the destination, which we believe has been the key factor limiting our traffic flow during the first quarter of the year.

Moving on to Tijuana, despite the decrease in the number of seats offered, demand has remained stable during the first quarter. Interjet has been the main drop generator due to the opening of five routes within the six months from October 2014 to March of this year. Additionally, the average growth factor rose by 7.2% compared to 2014, which we believe is a positive trend of the demand of flights at this airport.

Lastly, in Guanajuato, as you can see in the report, passenger traffic rose over 23% this quarter, driven by the important industrial development in the entire Bajio region. Delta, Volaris, and Interjet have led in traffic growth to reach the best quarter in terms of the traffic and the story of the Guanajuato International Airport.

Commercially, non-aeronautical revenues rose 10.8% versus first-quarter 2014, primarily from duty-free stores, land transportation, car rental companies, time shares, and food and beverage.

I will let Saul go through in this more detail in the financial section to the presentation, but I do want to go into some of -- to the highlights, starting with the largest airport.

First, in Terminal 1 of Los Cabos, the commercial area has been fully redesigned in order to improve the passenger experience and drive sales. The renovation has already begun and is expected to be complete by the second quarter of this year.

On March 3, we announced our general extraordinary and ordinary shareholders' meeting, which took place on April 21, when we approved various items, among them the most relevant being the approval of the financial statement for the period that concluded December 2014; a dividend payment of MXN3.32 per standing share payable no later than August for MXN1.82, and no later than December for MXN1.50 per share.

The continuity of the Company's current independent Board members were also approved, as well as the appointment of Ms. Laura Diez Barroso Azcarraga as the Board of Directors Chairman, and ratification of the Audit and Corporate Practices Committee. And finally, in the general shareholders' meeting, a capital reduction -- equity reduction of MXN2.68 per standing share was approved.

Saul can update the Grupo Mexico situation because I know that this of interest of our investors. At this point, there is no additional news about the Supreme Court resolution, and there is no date for this resolution as for this moment, for which we will get you update.

Moving on to the CapEx program, I just want to mention that that was requested in generally in proposal from several companies for the expansion of the Tijuana terminal as well as for the expansion in Guadalajara and Elmosiyo. Therefore, at this time, we would benefit in this period during the fourth quarter of 2015. This period are very important for GAP in terms of the development of the airport, particularly because of the expected growth at the (inaudible) project in Tijuana we generate as well as the traffic increase from the higher number of routes in Guadalajara. Additionally, in this quarter, we are in the process of remain the aircraft rescue and (inaudible) equipment for all of our airports with 17 new engines.

Additionally, we have started some work in the air side of Elmosiyo in La Paz airport in order to fulfill the regulation of the Civil Aviation Organization, as well as the immediate work for the Runway de Morelia. And finally, through the network, we will continue updating the (inaudible) equipment in (inaudible) of our effort during the third and fourth quarter of the year.

And I would like to mention all the following. As we mentioned in the press release, as the result of the activate and confidential bidding process, GAP concluded agreement with (inaudible) for the acquisition of (inaudible) for a total of $190.8 million. As you know, BCA has a 74.5% stake in MVJF Unlimited, which operates Sangster International Airport in Montego Bay in Jamaica, which are 30-year concessions. Sangster is Jamaica's main airport, located in the tourist corridor between (inaudible) where 90% of the island's hotel capacity is located. This airport served a total of 3.6 million terminal passengers in 2014. 99% of it is international and experiences total revenue of $59 million.

It is also important to mention that in the month of November, [talis] for the (inaudible) service were approved for this airport pertaining to the 2015/2020 period. The new talis regulation will (inaudible) benefit EBITDA and cash flow for the coming year. The airport of Chohetta, net debt of $60 million as of the close of (technical difficulty) long-term loans from (inaudible). Therefore, GAP would be consolidating $27 million debt. This acquisition was financed entirely via bridge loans provided by the Scotia and (inaudible), which will be (technical difficulty) with short- and long-term loans.

It is worth mentioning that DTA also has a 14.77% stake in Santiago de Chile terminal aero, which is the operator of the international terminal in Santiago de Chile until September 30, 2015. This concession will not be renewed, which we know will be part of the agreement that a short-term (inaudible) amount was already asserted during the due diligence process. This is a very exciting acquisition for GAP that generates continued value for our shareholders. The acquisition will certainly improve our portfolio of airports, adding more international personnel to the mix and capitalizing on the popular Caridian market potential. It also brings size consolidation and extends passenger traffic, revenue, EBITDA, and shareholder value.

It is also important to know that this airport has similar passengers, commercial apparatus, and airline profile similar to that of Los Cabos and Vallarta, so it is a market we have worked -- we're familiar with and one that we are quite comfortable with Jamaica. I don't know if any of you are aware of this, but I was a chief executive officer of that airport from 2007 to 2010, so not only do personally I know that airport well, I am actually quite excited to be working again with the management and staff at this operation.

Thank you so much for your attention. I hope I covered everything, but I look forward to your questions and any other items I might not have covered. I will now turn the call over to Saul for his part of the presentation.

Thank you, Fernando. Good morning, everyone. I will briefly review the financial highlights for the (inaudible) quarter 2015. Financial revenues increased almost MXN100 million, or 9.9% quarter over quarter, driven by higher income from passenger charges as a result of the total passenger traffic growth and the higher maximum rate during the quarter.

In terms of non-aeronautical revenues, this increased MXN57.5 million, or 10.8%, as seen mainly from the business lines operated by this party which grew 8.6%. These were the (inaudible) from revenues of (inaudible), land transportation, (inaudible) rental timeshares, as well as food and beverage, which generally contribute an increase of MXN23.1 million, or 17.2%. This increase was partially offset by a 30% decline in other commercial revenues.

Revenues from business lines directly operated by the Company increased by MXN30 million -- MXN13 million, or 13.2%, mainly due to an increase in revenue from convenience stores of MXN8 million, or 79.6%, from the opening of new stores in several of GAP's airports. It is important to note that aeronautical revenues represent 64% of total revenues, non-aeronautical revenues 22%, and improvements to concession assets, 14%. In terms of the total operating expenses, these increased 30.4% compared to first-quarter 2014.

Due to our cost of service increase of 11% from an increase of 20.4% in other operating expenses related to professional services fees and supply for convenience stores, as well as an increase of 22% in maintenance costs mainly to (inaudible) inspection and equipment platforms and airport runways, and 8.2% increase in employee costs mainly due to severance payments and an increase of MXN3.4 million in safety, security, and insurance costs due to the contracting operational (inaudible) and higher cost of services.

(inaudible) EBITDA increased 11.7% to [1000 92 million] in first-quarter 2015, reaching an EBITDA margin excluding the effect of (inaudible) of 73.3% for first-quarter 2015. Financial income for the quarter decreased by $22.8 million, mainly due to an increase in interest payments from the issuance of (inaudible) certificates and a decrease in interest gains as a result of our lower Mexican (inaudible) rates in 2015 compared to 2014.

Additionally, in first-quarter 2015, the Company registered a decline in the net point of changed gain. Roughly, net income in first-quarter 2015 increased MXN18.4 million, or 2.8% compared to first-quarter 2014. Earnings before income taxes increased MXN81.3 million, or 10%. Income taxes increased MXN62.9 million in first-quarter 2015, primarily due to the fact that deferred income taxes were MXN$91.8 million higher in first-quarter 2014 as a result of a high inflation rate in first-quarter 2014. Therefore, resulting in an increased expense in 2015.

Moving on to an update on the Los Cabos International Airport, following the effect of the hurricane that took place last year, this airport has achieved important progress in the (inaudible) repairs and replacement of the structures and damaged equipment. The two airport terminals are now mostly operating but are expected to be clearly operating in the second quarter of this year. The total cost of the airport refurbish and replacement of the damaged equipment is estimated to be approximately MXN300 million. As of March (technical difficulty), 2015, the Company has (inaudible) MXN99.5 million in disbursements from the insurance company, and we estimate a recovery of approximately 90% of the total claim to be cashed during the second quarter.

Before I move on to the Q&A session, I want to mention that the acquisition of TCA that Fernando reviewed did affect the 2015 guidance. We are happy to say that this was the important manner from the (inaudible) originally announced in January of this year. (inaudible) guidance (inaudible) but just to review it.

Expected traffic is now 20% for the full year. Total revenues will be [52%] and turning 24%. EBITDA is now from 23% to 25%, and EBITDA margin will be 65% through 66%. And total CapEx will be [1000 MXN500 million]. These are just expectations, and we will be updating them accordingly to the year. It would be (inaudible) sorry.

And with that, I conclude my comments and ask the operator to please open the floor for your questions. Fernando.

(Operator Instructions) Ana Zinser, Credit Suisse.

Congratulations on the results and on the transaction. My first question is regarding how (inaudible) Jamaica. And also do you have any movements planned for the year forward? And if you do, how would this impact the future (inaudible)? Thank you.

Hi, Ana. Good morning. Thank you for your comments. (inaudible) was a very important transaction for GAP -- for all the shareholders. That transaction means that the important increase as was mentioned by Saul in the middle guidance. In terms of the consolidation of the total traffic (technical difficulty).

Your line (technical difficulty). Please continue.

Okay, thank you. Ana, sorry. I think that was connected, the line.

So mentioned that it is so important for shareholders, for GAP because it is an important increase. When you do the consolidation of the total traffic and also the revenue on EBITDA margin. On the -- our expectation during the current 2015 in Jamaica would be the -- in the continuity of the plan that was agreed between the old shareholders averted with advantage. We have to now sit down with the shareholders of the management of the Company to review and to check how we sold the plans in the CapEx program and also how will be the evolution of the traffic for the second half of the year.

That is all for the moment. I think during the next weeks, we would prefer a pro forma projection to integrate both Jamaica or MBJ in GAP. And that will be the opportunity to show to everybody how will be the benefit for the Company.

Thank you very much, Fernando. That was very good.

(Operator Instructions) Neal Dihora, Morningstar.

Thanks for taking the question. One is on the operating or EBITDA margins that you posted in your press release for MBJ airport, that's around 40%. Is that similar to where it was when you were there, Fernando, or is it vastly different? And then second question was on Tijuana. Noticed the last three quarters of traffic has been difficult, I guess. I was just wondering if there was any issues that you have seen in the last nine months or if it's just normal plus and minus. Thanks.

Thank you, Neal. The first question about MBJ Limited is a quite different profile with -- to GAP because the concession fees that are paid to the authorities are quite different than we have in Mexico. So at the time that (inaudible) CEO the company, the EBITDA margin was in the range of the 48%. I think as we (inaudible) regulation for the tariff and with some of the changes that what's happened in the cost side, we will move very shortly in the range of the 50%. That is our expectation. But we have to sit down with the management and the other shareholders in order to review all these plans. But this is very healthy Company, and if it's in the -- there is now (inaudible) for 15 years to show a very profitable operation.

Talking about Tijuana, Tijuana is now during the first and will continue during the second quarter of 2015, a short reduction in the capacity offered by Volaris and Aeromexico. However, we are looking at important increase in the capacity offered by Interjet. They are taking the portion of the market. It's growing.

And also, for the second half of the year, we will expect that the cross-border project and expectation of all the airlines to recover this market. Because now, the low factor in all the lines of (inaudible) operation in this airport is growing. In short term, I think it's for the last quarter of the year, they will need to put more capacity. And at the end of the year, that expectation will be very, very positive once you compare it to the last year, 2014.

So we are not concerned. We know that we are completely, very optimistic that how will be the impact of the cross-border facility and also how is the (inaudible) of the market.

People live in the area of Tijuana, and they are using this airport, and this area is growing. The economy of this area is very positive. So I think it's -- that was only a transition via process by Aeromexico and Volaris deciding to reduce the capacity in all their airports. It's only a temporary situation.

Okay. Thank you very much.

(Operator Instructions) Pablo Balthazar, GBM.

I have a couple of questions. The first one, regarding your own convenience stores operation, where we saw an almost 80% year-over-year increase, could you give us a little bit of detail on what was the cost of that important increase on those stores?

Okay, Pablo. The program for the convenience store in all of our airports is now in the second full year. And now we are in the -- we have 16 stores. It's growing in the secondary airport. And within 2014, we are very positive the increase in the sale in Guadalajara and other secondary airports. And our expectation for the continue during the year is completely opening. I think that the process and the project will conclude in 2016 and will be, in total, around 20 shops (inaudible) stores. And be increasing in very positive way their revenue and the EBITDA. The EBITDA margin in the upper range of the total store, one time that they are in the process of consolidation will be in the range of 80%. So this is a very positive experience for us.

Okay --

That answered your question? Do you need any other details?

I just -- the 20 stores that you plan to open are additional to the 16 or are total?

So in total, we will raise the number of 20 that (technical difficulty) total because now we are in the process of -- the last will be the (inaudible) airport.

Okay, perfect. Thank you. The other one on the other income increase you registered this quarter that was, like, over 300% year over year, could you give us a little bit more detail on that cost of decrease, too, increased too, please?

So Pablo, are you talking about other revenues -- other kind of revenue? That is an important (inaudible) related to the insurance payment that was happened during the first quarter. (inaudible) from the (inaudible) that will receive some payment from the insurance company, and they are counting the register required to do in this item. And second, it was also the recovery of any quarter insurance recoveries coming from the DNO insurance quality. That was certain also during the first quarter of the year.

Okay, perfect. Thank you very much.

Jean Bruny, BBVA.

Just a couple of questions related to the Jamaican acquisition. First of all, just from a practical point of view, it's when you will start to report MBJ into your results and the traffic of the airport. It will be from entry or from May?

The second question is related to Vantage. It's a new minority to others you have. What is your relation with the company? Do you think you can work with them not only in Jamaica but in the other property they are managing? That will be the second question.

The third question is related to the guidance due to increasing your guidance, integrating Jamaica. I just want to know if it's purely with the Jamaican acquisition that you've been increasing although also some improvement of your guidance from the Mexican airport after a very strong first quarter.

And lastly, the question relating to Santiago airport, you have a small stake, that basically the concession is over in September. I just want to know if you are just waiting to receive the value -- the original value of this concession or if you want to do something else in Santiago. Thank you very much.

Okay. Juan, thank you very much for the question. Let me answer -- the first thing is related to the traffic of MBJ. The expectation for 2014 is to move to around to MXN3.7 million, MXN3.8 million (technical difficulty) management for the project 2015.

(inaudible) your third question on the guidance -- the guidance is affecting mainly by the impact of MBJ. As you know, the consolidation for (technical difficulty) of traffic revenue EBITDA. It is evident that it is the main responsible of the important increase. Currently, our guidance for 2015 for GAP, for the 12 airports, for the Mexican airports continue in the same amount -- same projection that were (inaudible) communicating in January.

About Vantage, Vantage is the minority shareholder, but it's during the last (inaudible) was doing very important work with the other piece. And we will continue working very closely with them in order to expand the traffic or to improve the performance of the old (inaudible), as you are looking in the Mexican side of GAP. I think it could be (inaudible) could be (inaudible) related to the (inaudible) of MBJ or the guidance.

I just want to add the modification to the GAAP. So guidance was -- according to the acquisition of MBJ, we are not currently modifying something additional for the Air Force in Mexico.

Regarding to SCL, the airport of Chilean, the concession will finish on September 13, and we will announce the news. And therefore, we are waiting for the (inaudible) volume from that airport. That's it. And it's not included in the guidance (inaudible). That is a one-time revenue or return for GAP because the Company now is just in the process of liquidation. It's only and the review, the stage (inaudible) been with the ministry of the (inaudible) of Chile to be sure that the concession will be delivered to the authorities in good condition.

So the end of the concession is September 13, and at this time, will be the open process to return the money to the shareholders in our projection for the value of -- and the consolidation of GAP plus into the small portion -- that is the amount to be recovered by the liquidation of Santiago de Chile concession.

And related to the issue of any other information (inaudible) financial statement, I think that the operation or the transaction (inaudible) just one time that was preferred for the (inaudible) the financial statement of the first quarter was not timed to include the financial statement of MBJ. That will be delivered to us during the weekend. So now we are in the -- we have the (inaudible) to prefer a pro forma consolidated statement related to the first quarter to show -- on the first complete information will be with the second quarter of the year, that will be included full consolidation of (inaudible).

Okay. Thank you very much.

(Operator Instructions) Neal Dihora, Morningstar.

I just had one question on the acquisition. It said you paid $191 million (multiple speakers).

Mr. Dihora, can you please speak louder?

Yes, I just had one follow-up question on the acquisition from MBJ. You paid $191 million, and then there's some debt at the MBJ airport. So is the total of that -- are you including all that debt in the $191 million, or is it that MBJ on top of the $191 million? Thanks.

In (inaudible) to that (inaudible) we made for the share stop BCA, so you have to consider the $99 million. And additionally, you have to put $27 million of debt. So the full payment to our (inaudible) is exactly $190.8 million, Neal. And now we have to review with Vantage how will be the reconciliation of (inaudible) to the finance of the Company if it could be necessary. But we are going forward with the level of the (inaudible) if there are in the Company by both the shareholders and also by the international finance corporation that is the original issuer of the debt.

Okay. Thank you very much.

Francisco Suarez, Scotiabank.

Two questions. One related with your overall projections on your effective tax rates because it seems that your effective taxes is a little bit lower at this moment and if that is -- the question is if that is sustainable at this moment going forward or if you expect the tax rate -- effective tax rate to increase over time.

And the second question relates with taking advantage of your experiencing in (inaudible), if I may. It seems that the -- just recently the overall maximum (inaudible) increased considerably for this airport. So just want to check if the -- as your overall guidance that you shared to the market was -- when you close the transaction, that includes the full potential of the increase in the tariffs or just a partial increase of the tariffs going forward for this year? Thank you.

Thank you, Francisco. I will answer your second question, and Saul will answer the first one related to the taxation. The (inaudible) issue in Jamaica is similar that there are in many other airports in the UK. And that has some kind of differences with the Mexico regulation. The regulation was approved in November. It stopped being (inaudible) in 2015 is for five years. During these five years, the tariff will be -- increases every year related to the inflection in the United States.

However, for the beginning of this period, that is first of April -- 20 days ago, few weeks ago, they may increase (technical difficulty) tariff in the passenger fees. Passenger fees that rest increasing more than $10 per unit. And the rest of the tariff related to the airport services will -- was frozen but will be updated every year but inflation (inaudible) mentioned before.

Our guidance of today is only for 2015, and that was including the total effect of the tariff for the year 2015. The adjustment of the tariff will happen every year in April. So we are looking at every period of income (inaudible) will increase in the range of inflection -- could be in the range of the 2%.

Okay. Your second question about the tax rate -- the tax rate in Jamaica is clearly 5%. Therefore, our projections will not be modified in -- regarding to the Mexican airport. We will have the same length including obviously the difference with Jamaica that is 25%.

Okay. If I may, Saul, any (inaudible) of the Mexican operations, your current effective tax rate, is that sustainable going forward for the rest of the year?

Yes. We will be almost the same than the other years.

So the main changes in the taxation -- the effect is the inflection, because that's effect to the first income tax, yes. So currently, it's 30%, the taxation in Mexico, and our projection is for the (inaudible) with 30%. However, the inflection could be changed (inaudible) and (inaudible) remember idea what happened (inaudible) was approved by the government changes in the future of the taxation. And that let them -- in 2015 and beyond, I don't believe that they will be impacts again with these kinds of changes.

Okay. Thank you very much. Take care of yourself.

Thank you. At this time, I'm showing no further questions. I would now like to turn the call over to Mr. Bosque for closing remarks.

Thank you so much for your attention today. Please contact us with any further questions or concerns you may have. It have a good day. Thank you.

Take care, everyone.

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