Grupo Aeroportuario del Sureste SAB de CV
BMV:ASURB
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Grupo Aeroportuario del Sureste SAB de CV
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Good day, ladies and gentlemen, and welcome to the ASUR First Quarter 2018 Results Conference Call. My name is Abby, and I will be your operator. [Operator Instructions] As a reminder, today's call is being recorded.
For opening remarks and introductions, I would like to turn this call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead.
Thank you, Abby, and good morning, everybody. Thank you for joining us on our conference call to discuss our first 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 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 our performance. We started the year on a solid footing, although we continued to face some external headwinds, including the Hurricane Wilma and Hurricane Maria in Puerto Rico and the impact [indiscernible] the [ Visa carry ] in Colombia that is impacting domestic traffic in the country. While overall performance is not what we like to be because of these events, we are pleased with the strong result reported in Mexico and are confident that we are on the right path to continue driving long-term shareholders value.
Moving into our results. A total of 12.8 million passengers traveled through our city network during the quarter. The strong growth in Mexico was partially offset by declines in Puerto Rico and Colombia, which remain impacted by external factors resulting in overall traffic growing 1.2% in the quarter, an improvement from the minus 4% year-on-year decline posted in the fourth quarter.
Traffic in Mexico, which represents 67% of the total traffic in the quarter, was up over 9%, benefiting from Easter, which this quarter fell on March, while last year fell on April. We saw good performance across the board, all the domestic traffic increasing 12% and international traffic up by 7%. Cancun remains the main driver behind the traffic growth, posting increases of 10% and 16% in the Mexican and international traffic respectively.
Looking ahead, however, we do not expect to achieve single-digit traffic figures for this year at our airports located in Mexico.
Puerto Rico, which accounted 15% of the total traffic, posted a 19% year-on-year decline in passenger traffic as [ slow progress ] in both domestic and international traffic remain impacted by the aftermath of Hurricane Maria, which made landfall in September. Given our experience with devastating climate events, the effect of Hurricane Maria will be felt well into 2018, and we do not expect Puerto Rican traffic figures to pick up until fourth quarter 2018.
Colombia, which represents 19% of our total traffic, reported a 5% decline, driven by continued weakening in domestic traffic, down almost 9% on capacity adjustments at the leading carrier, which more than offset the solid performance in international traffic, which was up 20% year-on-year. Looking ahead, we should expect positive quarterly figures starting in the third quarter.
Moving on to the financial results for the quarter. Note that the results for the quarter reflect the consolidation of Aerostar in Puerto Rico starting June 1 of last year and Airplan in Colombia starting October 19 last year.
Consolidating revenues, excluding construction services, were up 52% year-on-year to MXN 3.6 billion. Mexico posted a 9% increase, while Puerto Rico contributed with 18% and Colombia with 11% of total revenues ex construction.
Aeronautical revenues continued to post strong growth, up 64% year-on-year, reflecting solid traffic growth in Mexico and inclusion of Aerostar in Colombia.
Commercial revenues rose 39% in the period, reaching MXN 1.3 billion. Mexico reported a 6% increase in commercial revenues, reaching over MXN 1 billion, further supported by the contributions of MXN 220 million from Puerto Rico and MXN 91 million from Colombia.
Commercial revenues per passenger increased 0.66% in the quarter, including both revenues and passengers for the 3 regions into the comparison. In Mexico, commercial revenues per passenger fell 3% to MXN 114 due to several factors. First, while we opened 73 new commercial spaces at Cancun Terminal 4, we still have to finalize some details, such as VIP lounges and banks [ branch ] among others of the new terminal, which have been -- since been completed.
Revenues were also affected by the 7.6% appreciation of the Mexican peso against the U.S. dollar in the period. At the same time, advertising revenues were also lower across all airports in Mexico. And finally, commercial revenues at Terminal 2 in Cancun Airport declined faster than the reduction in passenger traffic. We will have to adjust our commercial offer, and we stand now to improve the actual results.
We are working on improving performance in the last 2 items, mainly taking steps to drive higher commercial revenue at Terminal 2 at these terminal satellites following their recent shift in having and enhancing direct advertising operations following the termination of the concessionaire last September.
Puerto Rico, in turn, posted an 11% increase in commercial revenue per passenger, reaching almost MXN 118, mainly reflecting higher demand [ for capital results ] from the teams undertaking the reconstruction efforts in the airline.
In Colombia, we saw a 4% increase, reaching MXN 37 per passenger, driven by good performance in retail and car rentals, which more than offset the closing of Duty Free operation after the nature of the contract. We are relocating and upgrading that commercial space while undergoing a bidding process to select the new operator. We expect this process to be completed within the second half of the year with a much better estate and contract terms.
Looking ahead, we anticipate product growth in Mexico's Terminal 4 at Cancun as it continues to ramp up and results in Colombia improve as well as we move ahead with the upgrading of these operations.
Consolidated EBITDA increased 51% year-on-year to MXN 2.7 billion in the quarter, with Puerto Rico contributing 12% of the EBITDA and Colombia with 16%. In Mexico, EBITDA was up almost 9% year-on-year.
Adjusted EBITDA margin, which excludes construction in Mexico, Colombia and Puerto Rico, contracted 60 basis points to 74.1% from 71.7% (sic) [ 74.7% ] a year ago quarter, mainly reflecting the lower comparative adjustment EBITDA margin in Puerto Rico and Colombia. By region, adjusted EBITDA margin in Mexico fell 30 basis points to 74.4%, while Puerto Rico posted a decline of over 800 basis points to 49.3%. While Colombia experienced an improvement of over 300 basis points, reaching 56.9%.
Operating results, however, were negatively impacted by the recognition of amortization from the valuation of Puerto Rico and Colombia subsidiaries under IFRS 3, which resulted in additional depreciation of MXN 42.2 million in Puerto Rico and MXN 24 million in Colombia. Excluding these effects, operating results would have increased by [ 14.5% ].
Moving into the balance sheet. We closed the quarter with a healthy financial position, with net debt of last 12 months EBITDA ratio of 2x compared with the 2.3x in the previous quarter.
Total debt stood at over MXN 16 billion compared with MXN 17.3 million at the year-end of 2017. We also made capital investments of MXN 600 million during the quarter to modernize our airports. Of these, MXN 96 million relate to the final payments for the construction of Terminal 4. We also invested almost MXN 200 million in Puerto Rico for the construction of the Federal Inspection Station and equipment. In Colombia, we invested over MXN 300 million modernizing and expanding the Quibdo and Rionegro airports.
Before opening the floor to questions, let me note that this coming Thursday, we will hold our General Ordinary Shareholders' Meeting. Among other items, the agenda includes a proposal by the Board of Directors to pay an ordinary cash dividend from retained earnings in the amount of MXN 6.78 per share.
This completes my prepared remarks, and I will open the call for questions. Abby, please go ahead.
[Operator Instructions] And we will take our first question from Stephen Trent with Citi.
Just some quick ones for you. The first thing is if I could trouble you to clarify the EBITDA that you reported from Colombia. It looks like a piece of it -- a big piece of it was related to estimated revenue or the present value of estimated revenue, and I just wanted to get some color on that.
Okay, Steve. Yes, you're right, there is an accounting effect for the relation of the concession in the case of Colombia and that is providing, let's say, additional EBITDA because of this accounting effect. This is a result of the valuation of the contract. Remember that the contract terms in Colombia are different than the others. What we have is a variable term [indiscernible], and this term depends on how fast we'll be incorporated and make that investment. So that is the reason why you see that effect on the results.
Okay, very helpful, Adolfo. I just wanted a quick one. I know, I mean, it's kind of not a fair question to ask you, just kind of want to get your view as to then -- still pretty solid traffic results but kind of more worrisome news headlines related to security and alleged drug cartel violence in Quintana Roo. And I'm kind of wondering if you're seeing or hearing anything from any of your constituents with respect to charter companies thinking twice about taking people to vacation down there? Or anything along those lines?
Well, as I said during the initial remarks, the numbers in Cancun are still growing very healthy. And of course, we had, in this quarter, some kind of effect because of the Holy Week. But nevertheless, you can see the numbers are still strong. It's clear that we do not like events that you are mentioning. But if we see really the numbers in full, this region, it's a very safe region. And I mean, we can feel that in the case of tourists there. Some of the problems you see or you hear are related to the people that live there. Remember, this city is now a city of 1.6 million people. So it's not a small city anymore.
And we will take our next question from Leandro Fontanesi with Bradesco.
I have 2 questions. I couldn't hear very well the conference call, so sorry if you already clarified this point. So the first one is, in Mexico, if you could explain the decreasing advertising revenue. I was wondering if you're changing the contract or is there anything specific that you could mention? And the second point relates to the reduction in cost of services for Colombia. So you mentioned in the press release there were lower maintenance and security expenses. If you could explain a little bit further this reduction. And if this is the level that we can see in the following quarters?
Okay, Leandro, in the case of our advertising in Mexico, and as you may remember that during the third quarter of last year, we decided to cancel the contract with our concessionaire basically because this company was not paying to us. As a result of this, we have to start redoing the whole area again. So as from October last year, we are taking these operations directly again, as we did from the year 2014 up to year 2013. But of course, it's not easy, and it's not fast to redo the whole thing again because we have to hire people, train them, start making contacts again with the client, with the customers and so on. So that is why you see these effects all across all the airports in Mexico. In terms of the cost of services in Colombia, it's hard to say that the numbers we are showing in the first quarter line here are numbers that were absolutely normalized or controlled by the company. So when we are seeing comparisons, we cannot yet say that the numbers are equal in terms of the functions and equal in all the terms. So we'll be cautious on the comparison. What I can say to you is that the level of cost of service that you are seeing today is the level that you may see in the future.
Perfect. And just on the first point, you mentioned you are adjusting advertisement. And also I understand you are making some adjustment in Terminal 2. When do you expect to finish all these adjustments? Is it third quarter or fourth quarter of 2018?
Well, in the case of Terminal 2, we will have to readjust the offer -- or products we are offering there because of the important change in the mix of passengers resulted from the passengers that were transferred to Terminal 4. So we are in the process now to talk and discuss the situation with our concessionaires to see what changes we have to make with the new passenger mix we have there and to offer basically what these new passenger [ needs ] -- is willing to buy or it's really looking for. So it will take some time, yes.
[Operator Instructions] And we will take our next question from Bruno Amorim with Goldman Sachs.
Adolfo, just going back to the [indiscernible] returns revenues in Colombia. Two questions. The first one, when will it translate into cash if not yet? And the second point, will this imply a recurring impact going forward? Or should we assume that the MXN 215 million recognized in the first quarter are enough to balance the contract with the visibility that we have now?
Bruno, well, basically what this accounting effect is reflecting, I would say, is the result of the decreasing in traffic we are seeing today in comparison of how it was expected in the past. So going forward, it's hard to say we are going to see these effects all the time. But of course, due to the accounting rules, we have to evaluate this quarter-by-quarter. So you may see during the time things going up or things going down depending on what the results of the quarter were in terms of the operation of the regulated investment. So for the moment, if the thing continues in the sense that we see traffic decreasing, probably you will see the same kind of effect we are seeing to date. When is this going to be transferred into money? It's along the contracts during the entire year, during the entire life of the contract is not something that will appear to [ our model ].
Okay. So just to make sure, the MXN 215 million, they will be -- they will imply at some point if there are no further changes in the expected traffic curve, an extension of the concession, is that correct?
Yes. But also remember that these have to be valued in terms of network and values and the other variable piece in the calculation is the rates, the fiscal rate we use, essentially, you see a large movement, and the rates during '18 also have the same impact.
And we will take our next question from Rogério Araújo with UBS.
Adolfo, I have a couple of questions. The first one is on non-Aeronautical revenue per passenger, we saw a drop year-over-year in Cancun of about 3%. I suspect that it may be related either to a high comparable base in last year. If this is the case, could you give more color on what happened last year? Or if this is not the case, is this related to somewhat not the advertisement that you already spoke before? This is the first question. And my second question is regarding Aeronautical tariffs. I had an impression we had increased below PPI [indiscernible] in Mexico. So my question is will you still have room to expand those tariffs above inflation in the upcoming quarters because of that?
Well, in the case of the commercial revenues in Cancun, you are mentioning, yes, that we saw the 3% increase, and this is not enough. And this is not enough for me as well. In my initial remarks, basically, what I've said was that this was a result of several effects. One was the case of advertising. You can see the line -- [ actual ] decrease there we are putting in Mexico. The second one was the appreciation of the Mexican peso. We compared the average exchange rate for the first quarter 2017 against the first quarter 2018. We've had an appreciation of 7.6%. And finally, the case that I already mentioned in Terminal 2. In terms of the Aeronautical revenue and your comment about the PPI, basically, this comment is because in some of the groups, you saw an increase, very extraordinary increase, which is not the case of ASUR. The PPI increased roughly, round numbers, around 5% in the case of last year. If you were to add foot traffic and the efficiency [ partner ], you are very close to the number we are showing. In that sense, be careful because if you just see Aeronautical revenue, you should consider the probability there is a non-Aeronautical revenue. So regulated revenue, it's really total revenue ex construction minus commercial revenue. And that's what you should be comparing.
And our next question comes from Stephen Trent with Citi.
Adolfo, just one other quick one for me. When we think about your Master Development Plan review, and I imagine you are in the thick of the process right now, and the Mexican presidential election's on July 1, with the new President taking office on December 1, do you think it's possible or at least within the rules that your MDP could be approved even before December 1?
Well, we are in the process and working with authorities to achieve that goal. We have 11 months for that purpose in accordance with the calendar we have. And I hope that we can, that's basically what I expect. Otherwise, what I expect is that this will not be approved this year because 30 days will not be enough for the new government to approve this information and that then maybe they request an extension as they did in the year 2009. If you go back to that year, you can see that MDP was approved at the end of March the year after.
Perfect. And in 2009, if I remember correctly, that was still the point where they were trying to launch the Riviera Maya airport.
Exactly, that was the case of the Riviera Maya airport, but the problem was that the 3 people in charge of this review or this update were changed at the end of the month of November. So I'm talking about the Minister of Communications and Transport, the undersecretary of communications and transport and the head of the DGAC, the 3 people were removed at the moment. So the new ones didn't approve this in 30 days, that's why they asked for an extension.
Our next question comes from Mauricio Martinez with GBM.
Adolfo, my question is regarding the increase in cost of services per passenger, especially in Mexico. So probably you can share with us what are your expectations on this matter and if we should expect a decrease going forward throughout the year because of the high cost registered in the second half of the 2017 due to the construction of Terminal 4?
Mauricio, well, basically the level you are seeing today is reflecting almost all the cost resulting from Terminal 4. I'm saying almost all because some of the equipment that is included in the new building is today under guarantee. That equipment is passenger [indiscernible], electrical stairs, elevator. So we are in the third year, the maintenance is included into the guarantee from the vendors. So as from, I would say, first quarter next year, we will have to start paying maintenance for this equipment. So from now until that moment, you will not see any more increases resulting from Terminal 4.
Our next question comes from Pablo Monsivais with Barclays.
Adolfo, just maybe a follow-up on the commercial revenues in Cancun. How Terminal 4 is performing compared to your expectations? How's the ramp-up period evolving? Can we expect much higher commercial revenue per passenger in the coming quarters?
Well, as far as I know, we [ were that ], so we shall build it. There's some easing parts, as I mentioned during the initial remarks. I would say, in general terms, it's working well. There are some stalls that are not doing perfectly. There is one that is not doing well, it's one store that sells Italian clothes, they sell actually anything. So they -- probably, they will leave the premises. So in general, I would say, yes, there are some easing parts, and I hope these will show better results in the coming months. But I believe that by the [ third ] quarter, all the operation should be completed.
Okay. So until October, we will see -- or later on now the full impact of this new terminal?
Absolutely.
[Operator Instructions] And we have no additional phone questions at this time, so I would like to turn the call back to Mr. Adolfo Castro for any additional or closing remarks.
Thank you, Abby, and thank you, everybody, for joining us today on this conference call for our first quarter results 2018. Have a great week. Goodbye.
Ladies and gentlemen, once again, this concludes today's conference, and we thank you for your participation. You may now disconnect.