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 ASUR's First Quarter 2020 Results Conference Call. My name is Kathy, and I'll be your operator. [Operator Instructions] As a reminder, today's call is being recorded. Now I would like to turn this call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir.
Thank you, Kathy, and good morning, everyone. Thank you for joining us on our conference call to discuss ASUR's first quarter financial and operating results.
Before starting the call, I would like to express my hope that you and your families are healthy and safe in these uncertain times.
As a reminder, please note that certain statements made during the course of our discussion today may constitute forward-looking statements, which are based on our current management expectations and beliefs, and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including factors that may be beyond our company's control, including the impact from COVID-19. For an explanation of these risks, please refer to our filings with the U.S. Securities and Exchange Commission and the Mexican Stock Exchange.
Overall, our first quarter results were good. The year began on strong footing before we started to see the impact of COVID-19 pandemic in the second half of March. This resulted in the disruption of the global travel industry. Importantly, in the end of the first quarter we have a healthy balance sheet, which I will come back and disclose in more detail later in my presentation.
I'm going to start today's presentation with some comments regarding COVID-19 and the impact on the industry, on our business and steps we are taking to mitigate the disruption to the best we can in this rapidly changing environment.
From an industry perspective, since mid-March, many companies have issued flight restrictions in an effort to mitigate the spread of COVID-19 virus. In turn, capacity has been very severely reduced and very few people are booking flights as most are in some quarantine lockdown around the world and not traveling.
With respect to our airports, the situation varies by country, and could be subject to change depending upon how fast or slow the pandemic is brought under control. Colombia has been the most active and had suspended operations at all 6 of our airports since the third week of March, with domestic flights suspended until March -- until April 27 in accordance with the government's decree, and most recently extended to -- up to May 11. International travel has been suspended through May 13.
By contrast in our airports in Puerto Rico and Mexico remain open, although with significant reduced flights and passenger traffic. As a result, total passenger traffic declined sharply in the second half of March, down nearly 9% year-over-year between March 16 and 31st.
By country, we saw the largest decline in Colombia, down 77%, followed by Puerto Rico, down 73% and Mexico with a 63% decrease during this period. Additionally, starting in mid-March, some of the airlines as well as some tenants that operate in our airports began asking for assistance either through discounts on payments owed to ASUR or by extension of payment terms. This resulted in a higher accounts receivables in March in Mexico and Colombia, up 54% and 78% year-over-year. We are having ongoing commercial discussions with these companies with respect to their payments.
Moving next to actions we have taken, starting with health and safety, following the guidelines of the relevant health agencies, we have implemented health and safety protocols for both our airport employees and passengers traveling through our airports. For example protective gear such as wearing masks is required for airport staff. We have also stepped up disinfecting and sanitization practices. Once again, in accordance with the guidelines of local health authorities. Lastly where possible, we have also implemented a remote working policy.
Moving next to ensuring continuity of our business. We have introduced cost reduction initiatives across our airports. The impact of these initiatives, however, is not expected to be significant vis-a-vis the potential decline in passenger traffic as the majority of our cost structure is fixed except for concession fees and technical assistance fees in Mexico, which are variable cost. We are prepared to take additional steps if needed to respond to the evolving business environment.
Now let me talk about our financial situation. We entered this crisis in a position of strength with a strong liquidity and very low principal payments required through the year-end. Additionally, we believe the company has sufficient liquidity to meet its obligations and continue operating in the normal course of business. Our cash position ended at MXN 7.8 billion, which was up from MXN 6.2 billion at the year-end 2019. And subsequent to the quarter end, we further strengthened our financial position as our subsidiary in Puerto Rico drove down an additional USD 10 million of its committed line of credit. The line of credit serves as support for the concept projects we have under construction at LMM Airport in Puerto Rico.
We closed the quarter with total debt of MXN 15.3 billion, although 11% higher than the year-end 2019. This was due to the conversion effect from the depreciation of the peso against the dollar. As a reminder, the majority of our debt, 54%, is denominated in U.S. dollars, which is at Aerostar subsidiary in Puerto Rico. 26% of total debt was denominated in Mexican pesos and 20% in Colombian pesos.
We have principal payments of only MXN 432 million coming due over the next 3 quarters. This represents less than 3% of ASUR's total debt. With respect to debt ratios, net debt to the last 12 months EBITDA stood at 0.7x at the close of first quarter '20, you can see the interest coverage ratios by country in the table we have included in the end for this quarter.
Now stepping back for a moment. Since we began operations over 20 years ago, we have successfully navigated 3 main very significant challenges. From the 9/11 event in 2001 to major hurricanes in 2005 and the 2008 and '09 global financial crisis [indiscernible] and the bankruptcy over 50% of the [indiscernible] capacity in Mexico was more than half. Following each of these events passenger traffic recovered, although recovery time varied from 13 to 26 months and then continued to grow. Between 2000 and 2019 annual passenger traffic increased at a compounded annual growth rate of 6.6%, up from slightly over 10 million to historical high to over 34 million last January. We believe the COVID-19 pandemic is unique, in that sense, it is global event and with it brought disruption in travel and economies worldwide. And could change the way of traveling in the future while a vaccine or a cure is found.
Summing up this section, we have a strong balance sheet. We have generated years of consistent profitability as a result of prudent approach of management. In this sense, we believe that we can be very prepared for an event of this magnitude. But of course, there is great uncertainty, uncertainty on the final effects in the worldwide economies and the travel behavior inactive.
Now turning to our first quarter results. More details can be found in the press release issued last evening. As I mentioned, in the part of my presentation, notwithstanding the effects of the business in late March, we delivered solid results in the first quarter 2020. Total passenger traffic was down in all 3 airports, which leads to a total passenger decrease of slightly 6% year-over-year. This was primarily due to the fallout from COVID-19 and the impact of the global travel industry began in the second half of March. Our efforts in all 3 countries experienced total passengers decline from a low of nearly 3% in Colombia to a high 8% in Mexico. Puerto Rico passenger traffic was down 4%. All 3 countries reported the trends in both domestic and international traffic.
Moving next to the P&L elements. Revenues ex-construction were relatively unchanged at a 4% increase in revenues from non-aeronautical services was offset by a 3% decline in aeronautical revenues. Commercial revenues per passenger increased 11% year-over-year, reaching MXN 116.2. This was driven by a strong performance across the region.
Mexico posted a good performance with an increase of 11% on a per passenger basis, benefiting from the currency peso devaluation and did improve revenues.
Puerto Rico posted a 7% increase per passenger benefiting from the peso depreciation. And finally, Colombia saw a 33% increase on a per passenger basis, reflecting the 43 new stores opened over the last year, and currency depreciation. The main drivers were ground transportation and parking lots.
Moving on to profitability. Reported consolidated EBITDA increased 3% from the same period from prior year. Both periods benefited from insurance recoveries related to the Hurricane Maria. In the first quarter '20, this amounts nearly MXN 124 million. While last year, the number was exactly over MXN 41 million. Excluding these recoveries, consolidated EBITDA was essentially flat year-over-year at MXN 2.7 billion. Ex IFRIC 12 and without taking into account these insurance recoveries in both quarters, adjusted EBITDA margin increased 20 basis points to 66.7% in this quarter.
A few comments about capital allocation. Capital expenditures were MXN 303 million and MXN 53 million ( sic ) [ MXN 353 million ] in the quarter. Of these, nearly MXN 68 million was allocated in Mexico due to the terminal expansion of Merida airport. For the full year, and as we have discussed before, our Master Development Plan in Mexico calls for investments of approximately MXN 5.3 billion for the full year.
At the current time, there are no changes to the planned continuation of the parallel taxiway of the second runway at Cancun airport and the beginning of the first expansion of Terminal 4. Our plans call for the inclusion of Phase 1 of the Merida terminal expansion and to begin the second phase this year. Nevertheless, due to the COVID-19 health crisis, we may see some disruption on the construction projects, attributable to the stay-at-home recommendation and we have informed the government about the situation.
In Puerto Rico, we have made investments of MXN 114 million this quarter, mainly in connection with some major maintenance referred in the press release.
Finally, CapEx in Colombia amounted to MXN 1 million related to maintenance. But last year, we completed our committed CapEx for that country. And going forward, we all expect to incur a major maintenance CapEx in Colombia.
Next our Annual General Meeting we had yesterday, shareholders approved an ordinary net cash dividend of MXN 0.081 per share to be paid subject to the Board approval on or after May 11, 2021 in a single installment.
In conclusion, we are proactively responding to the development of situation. No one can control the virus or even the economic fallout, but we can control how we react to the crisis. I am optimistic about the prospects for the future, both navigating through the current crisis and in the long term recovery. I believe that we are well positioned with a healthy balance sheet. We have a solid first quarter results maintaining the strategies that we are executing.
This ends my prepared remarks. Kathy, please open the lines for questions.
[Operator Instructions] We'll go first to Alejandro Zamacona of Crédit Suisse.
Thank you. 2 questions on our side. The first 1 is on the aeronautical maximum tariff. So considering that the airlines have been negotiating with most of airports. And in some cases, some fees have been not been charging. What could we expect for maximum tariffs in the short term, meaning in the second quarter? And in the medium term, meaning year-end 2020? Could we still expect tariffs to be close to the maximum level?
Alejandro. Well, basically, what we are seeing today is a very reduced demand. So we believe that there is no effect if we try to reduce our fees for the month of April or the month of May. So we have maintained our tariffs, and we believe that we can comply with the regulatory type compliance towards the year-end.
Okay. And my second question is on the non-aeronautical business. In the same context, what could we expect in the short-term and medium-term for commercial revenues per passenger. Have you grant any rent payment facilities to tenants or any deferrals?
Most of our contracts as you may know, they have to pay the higher of minimum guarantee payment per passenger or a percentage on sales. So if we do not have passengers, they will not have to pay rent. So adjustment is made automatically. So in that sense, we have -- and we are not reducing or adjusting the contract.
We will now take a question from Fernando Sanchez of Bradesco BBI.
My question is in light of the likelihood of the GDP contraction beyond 5%. I just wanted to ask if you have had the opportunity to discuss with the authorities the possibility of delaying the 2021 MDP mandatory Capex.
Well, as you are aware, the contract clause that says that the maximum tariff can be reviewed in the case of Mexico in the [indiscernible] when the Mexican GDP drops by more than 5% in the year, and that has an impact on traffic. Of course, with the current circumstance and the current expectations from analysts, it is possible that the Mexican GDP will drop by more than 5% this year. So in that sense, we will be -- and the possibility of the review of a maximum [indiscernible] is for next year, but not this year.
And now we'll take a question from Carlos Peyrelongue of Bank of America.
On the dividend, you mentioned that something -- I couldn't hear well because of the connection. But can you comment as to whether the dividend will be kept or there's the possibility of cutting the dividend until we have more sense about passenger traffic? That would be the first question.
And the second would be related to cash burn. If you could give us an idea of what your cash burn is on a quarterly basis, just to get a sense of compare that a little to your strong cash position?
Yes, of course. In the case of the dividend yesterday, we held our annual shareholder meeting. We have finally approved the dividend that it was proposed MXN 0.081 per share. But it was -- this was subject to the approval from the Board to the moment of the payment as from May 11, 2021. So the Board will have to approve when this dividend will be paid.
In the case of the cash burn, what I said to you during the initial remarks is that our cost structure is basically fixed. The only parts repeated are the technical assistance fee and the concession fees we pay to the governments we are working in. Just to remember, in the case of Mexico it is 5%, same as in Puerto Rico. And in the case of Colombia it is 19%, 1-9. So this, of course, will be reduced as our passenger traffic fee is reduced and our income is reduced. The remaining, of course, we are taking measures to try to reduce as much as we can all the expenses in the company. But as I said, at the end, in the overall picture, the cost reduction will not be significant in comparison with the reduction in the revenues of the company.
And we'll move on to our next question, and that will come from Andressa Varotto of UBS.
So my question is, if you have plans to negotiate with the government for postponement of mandatory CapEx and its specific possibility?
Would you repeat the question, I couldn't hear you?
Yes. So my question is if you plan to negotiate with government the postponement of mandatory CapEx?
As I had said before, in accordance with the contract, we do not have that possibility this year. But of course, with the given triple standard and as I stated in my initial remarks based on the present situation, and that present situation is that some companies have reduced or stopped operations, particularly cement, but it was reactivated later on. But there was a decree in the Mexican government that also made the steel and glass that is produced in the country will be used for the projects. In that sense, for the moment, it's almost impossible for us to expand our tenure buildings without these materials. So we have reported the situation to the government. So for the moment, what we see is that we will see some disruption in our construction process for some months. And then we will have to talk about these with the government later. That's what I can share with you for the moment on this respect.
Our next question will come from Stephen Trent of Citi.
Just 1 quick 1 for me. I know that it seems that Mexico's government apparently have not been that active like offering any assistance to the corporate sector. What are you hearing from Colombia, kind of any indications from them with respect to whether aviation industry gets some sort of relief?
Steve, thank you for your question, and we are all healthy. So in the case of Colombia, in comparison with Mexico, they have been more active in the measures that they have been taking. As I said during the report, they were very strict basically closing or shutting down everything as from March 23. And that can be seen in terms of results, in the case they -- in the active cases they have in comparison with the active cases we have in Mexico. So their curve is decreasing or at least flattening while the Mexican curve is still increasing. In terms of what they have said for our industry, we have been closed since March 23rd and they have issued decrees in that respect. Maybe this week, there was a new announcement from the President extending the process of shutting down everything. As I said in my remarks, for the case of the domestic operation, that will be closed up to May 11, and in the case of international up to May 30. It is important to remember that in the case of Colombia, 85% of the patients is domestic and 15% is international. That's what we know as of today, of course, all of these may change depending on how fast or how slow, they can control the virus in the country.
Thank you very much, Adolfo and I apologize, I couldn't hear all of your remarks so well. But no indication at this point, for example, that Colombia is planning any kind of tax relief for aviation or something along those lines offering kind of financial support?
No, we have not heard anything about that yet.
And next, we will go to Gabriel Himelfarb of Scotiabank.
I have 2 questions. The first 1 is concerning about account receivables. Can you give us like a number or approximate number about what's the total withdrawal coming from airlines and specific from Interjet and American Airlines? And my second question is, do you think you could obtain some waivers in OpEx or CapEx from your current MDP in Mexico? And could you be able to extend the life of the concession in Colombia?
In terms of account receivables, you can see those things in our report, they have increased in the case of Mexico and Colombia. Most of the increase is coming from the airline industry. I do not have the details of American Airlines and Interjet's you are requesting. In terms of the CapEx, as I said before, we have informed the government about this current situation. We really don't know if they are going to react in that respect. But of course, it's going to be almost impossible for us to construct or expand our buildings without the materials. So that's more or less what I can say to you.
And now we will go to Ruben López of Santander.
My question is on commercial revenues. Sorry if you commented on this, but I understand in Cancun you're operating in just 1 terminal. So I want to confirm you how are your operations there in Cancun? And what are the implications on commercial operations. Are there any penalties with the tenants, what are the negotiations here? That's the first one.
And the second one is related with the same topic. When we see commercial revenues and we kind of try to compare current levels versus what would be the fixed amount or the fixed part of the minimum payment? I mean can you give us any sense of the gap here?
As you have said, yes, in the case of Cancun, we have closed 2 terminals, and we are just operating today in terminal 4. So all the operations of the airports have been concentrated there. It is in order to reduce on one side, the expenses. And of course, on the other side, to be better prepared in the case of these reduced demand. All the stores are working in the case of terminal 4. So terminal 4 is operating as it was before the event. As I said before, most of the contracts, the financial contracts we have with the tenants are related to a minimum guarantee payment per passenger. So once again they do not have, let's talk about one of the building that is closed. So if they do not have passenger traffic in Terminal 2, they do not have to pay the rent. Of course, when they operate in Terminal 4, the operations will be in accordance with amount of passengers we are having in that facility. So I would say, Terminal 4 is operating normally.
Can you compare -- sorry, the current level of commercial revenues versus what would be the minimum payment from the contract. Can you give us any idea on that?
It will depend on minimum payment of the contract fees on a per passenger basis.
[Operator Instructions] And we will now go to Jorge Lourenção of Morgan Stanley.
A quick question, actually, a pretty general question. I was just wondering if you could provide more color on what are the main initiatives regarding our cost reduction efforts. How are those working down to payment reductions and paid leave of absence, maintenance costs, utility costs, et cetera, and how are those playing out so far?
The main initiatives, of course, are related to in the case of Cancun in terms of amounts [indiscernible] these 2 terminals closed, we are not burning the same amount of energy as if they were open. Also, in the case of Cancun, we are in the process to shut down one of the runway because to gain accordance to the [indiscernible], it's not needed. So runway will be turned off in terms of light at night also reducing the amount of energy we will have to pay. In terms of some other measures we are taking, it's adjusting some of the contracts of major maintenance in the case of the buildings that are closed and to try as much as possible to reduce the operating cost and expenses. But once again, at the end, most of our cost is fixed. So if we apply the cost structure of the company, the most important lines are personnel and utilities, as you have said. So in the case of personnel, we are maintaining the personnel for the event or the crisis. And in the case of utilities, we are trying as much as we can to try to reduce that burn.
And with that, that does conclude the question-and-answer portion of today's conference call. I would like to turn the call back over to Mr. Castro for closing remarks.
Thank you, Kathy, and thank you again for participating in our first quarter results conference call. On behalf of ASUR, we wish you a good day and continue to stay safe. Good bye.
And ladies and gentlemen, that concludes ASUR's first quarter 2020 results conference call. We'd like to thank you again for your participation. You may now disconnect.