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 Second Quarter 2018 Results Conference Call. My name is Kathy, and I will your operator. [Operator Instructions] As a reminder, today's call is being recorded.
For opening remarks and introduction, I'd like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir.
Thank you, Kathy, and good morning, everybody. Thank you for joining us on our conference call to discuss our second quarter results. Allow me to remind you that certain statements made during the course of our discussion today may constitute forward-looking statements, which are based on current management's expectations and beliefs, and are subject to a number of 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.
I will start today's conference call with an overview of the key recent events, followed by a brief review of our operations and financial results for the quarter.
As you know, on June 24 and after an extensive 3 months' process, we received approval from Secretary of Communications and Transportation for our Master Development Programs, including efficiency factor and maximum tariffs for our Mexican airport concessions for the 2019 to 2023. The approved plan contemplates a 28% increase in committed investments in comparison with the previous 5 years. Our main project commitments for the next 5 years include: first, a parallel taxiway for the second runway at Cancun Airport; second, the first expansion of Terminal 4 at Cancun Airport; third, a major expansion of the terminal building at Merida airport.
Master development plan negotiations also included a 0.1% increase in the weighted average maximum rate for the regulated revenues. Based on workload units for 2017, after the application of efficiency factor, which was maintained at 0.7%. Note these will remain the lowest weighted average maximum rate among the 3 airport groups in Mexico.
As part of the MDP negotiations, we also renewed the 10 constituents agreement for a 5-year period. In addition, this quarter, we also paid an ordinary cash dividend of MXN 6.78 per share, for a total amount of MXN 1.8 billion. Finally, last May, we acquired an additional 7.58% of Airplan in Colombia bringing our share ownership of the subsidiary to 100%.
Now moving to our performance. We continue to face some external headwinds, including the ongoing fallout from Hurricane Maria in Puerto Rico, and capacity adjustments at the leading carrier in Colombia that affected domestic traffic in the country. While we face Easter year-on-year comparison in these 2 countries, each event have had an impact on overall performance. In contrast, in Mexico, continues to post solid results despite more difficult comps from Easter effect, an increase in the cost base due to the opening of Terminal 4 at the end of last year.
We saw a total of 13.1 million passengers across our airports over the course of the second quarter. Mexico remains a solid performer more than offsetting traffic declines in Colombia and Puerto Rico. Overall, passenger traffic rose by 1%, slightly below the 1.2% increase in the first quarter of the year.
Traffic in Mexico rose 4.8% year-on-year to 8.3 million passengers facing more difficult comps as Easter this year fell in March, while last year fell on April. Domestic traffic was up almost 8%, while international traffic rose slightly over 2%. Cancun remains the main growth driver with increases of over 9% in domestic traffic and 2% in international traffic.
Puerto Rico is still recovering from the effects of Hurricane Maria, which hit last September, and continues to impact load factors for both international and domestic traffic. As a result, traffic was down almost 6% year-on-year to 2.3 million passengers for the quarter. While this was a significant improvement from the 19% decline posted in the first quarter of the year, we expect traffic growth to remain in negative territory until this coming August.
Colombia posted mixed results. We achieved 12% increase in international traffic, more than offset by a decline of almost 7% in domestic traffic. Overall, this resulted in a 4% year-on-year decline in total traffic to 2.5 million passengers in the quarter. Looking ahead, we expect to see a slightly positive quarterly figures starting in the fourth quarter 2018.
Moving on to the financial results. Remember 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. Consolidated revenues ex construction rose 57% to MXN 3.7 billion compared to the year before. This was driven by a 12% increase in Mexico, while Puerto Rico contributed with MXN 482 million, and Colombia with MXN 415 million in revenue ex construction.
Aeronautical revenues remain strong, up 50% year-on-year to MXN 2.3 billion, driven by the growth of almost 10% in Mexico and inclusion of Puerto Rico and Colombia, which contributed with MXN 452 million and MXN 318 million, respectively.
Commercial revenues increased 45% year-on-year to MXN 1.3 billion. We're pleased with the strong pickup in commercial revenues in Mexico, up almost 15% year-on-year compared with a 6% reported in the prior quarter, as we continue to ramp up operations for the new opening of Terminal 4 at Cancun Airport in late 2017.
Puerto Rico contributed with commercial revenues of MXN 250 million and Colombia with MXN 98.3 million. Commercial revenues for -- passenger fell to MXN 99.7 this quarter from MXN 102.3 in second quarter 2017, reflecting the consolidated effect.
On a standalone basis, however, commercial revenues for passenger increased across our 3 countries of operation. Mexico posted a 10.12% increase in commercial revenues for passenger to MXN 115.5, driven by several factors, including continued ramp up along with a completion of VIP lounges in Terminal 4 at Cancun Airport. The 7.3% quarterly peso appreciation -- depreciation in the period and improved performance for our retail operations.
In Puerto Rico, commercial revenues per passenger rose 22.2% to MXN 109.8 as we continue to experience increasing demand for car rentals and parking lots from teams undertaking their reconstruction effects on the [ island ].
Finally, Colombia posted a 49.9% increase, reaching MXN 38.7 per passenger, as we continue to operate these operations.
Moving down the P&L, consolidated EBITDA rose 32% year-on-year to MXN 2.4 billion. Mexican operations reported a 10.3% year-on-year increase in EBITDA while Puerto Rico contributed with MXN 340 million in EBITDA and Colombia with MXN 192 million.
Adjusted EBITDA margin, excluding IFRIC 12 contracted to 64.1% from the 71.3% a year ago, mainly reflecting the lower comparative adjustment -- adjusted EBITDA margin in Puerto Rico and Colombia that were not fully consolidated a year ago.
By region, on a standalone basis, adjusted EBITDA margin in Mexico fell 109 basis points to 75 -- 71.5, reflecting, principally, additional cost from the new Terminal 4 opened at the end of last year. In addition, the 0.4% decline in net income includes effect of 21.6% increase in depreciation resulting from the investment on these terminal. Please note that the depreciation for the second quarter was almost the same amount recorded during the first quarter this year.
In Puerto Rico, adjusted EBITDA margin declined 48.2% from the 57.8% in second quarter 2017, mainly reflecting higher concession fees at the starting of the year fix of the concession, the calculation of the fee changed to 5% of the revenues for the period from the prior MXN 0.5 million fixed payment.
In addition, insurance costs increased almost 70% year-on-year. Furthermore, depreciation rose 50% year-on-year, reflecting the increases in the evaluation of concession asset made at the end of last year. By contrast, Colombia posted an 18%-basis-point increase in adjusted EBITDA margin reaching 46.1%. This was achieved despite a 55% increase in amortization of the concession, mainly resulting from the concession terms. Excluding the valuation loss of the intangible asset, EBITDA in Colombia would have increased by 35.5% during the quarter.
Moving on to the balance sheet, we closed the second quarter in a healthy financial position with a net debt to last 12 months EBITDA ratio of 1.3x, and total debt stood about MXN 16.6 billion. These includes a $72 million paid during the quarter. In addition, we also made MXN 407 million worth of capital investments over the course of the quarter. Of these, MXN 130.6 million went over to Cancun's Terminal 4, as well as the modernization of the airports in Mexico. In addition, Aerostar invested MXN 201 million in Puerto Rico's LMM Airport, where Airplan invested a further MXN 75.6 million in Colombia.
This completes my prepared remarks. I will now open the call for questions. Please, Kathy, go ahead.
[Operator Instructions] And we'll go first to Ricardo Alves of Morgan Stanley.
I have a couple of questions, starting in Colombia, maybe just a little bit of guidance, if you can provide that going forward for the second half, profitability has been a little bit volatile. So any color you can give us to kind of guide us a little bit better on the -- on what's to come in terms of profitability in Colombia? And the second part of this question, also in Colombia, you had a pretty strong commercial performance there on a per passenger basis. I think you highlighted this before. So just wanted you to talk a little bit or more about that, you mentioned in the release that 30 new commercial spaces you opened over the past 12 months, if I'm not mistaken. So maybe the question would be, is there further room for more expansion on that front? I'll have just another follow-up after that.
Ricardo, thank you for your questions. In the case of profitability, it's important to say that we are for indicative purposes comparing with quarters that we were not in the head of the company yet. So we are not sure of the way that this was recorded in the previous quarters where we were not there. In that sense, I cannot comment too much about the comparisons of the quarters. What I can say to you is that profitability in the case of Colombia has increased, due to the fact of the increasing commercial revenues, which is our main objective in that project. It's nice to see the second half of the year, I would say, the most important space that we will have to wait there is related to Duty Free. I have to say that the Duty Free contract expired third quarter last year, and we were in the process of getting a better space, a better location, better passenger flow. And now we're in the process to sign the contract with the new concessionaire. I believe we will be providing the service to the passengers during the fourth quarter of this year. And that, of course, will meant an important improvement for the commercial revenues per passenger during the second -- fourth quarter of this year.
All right. That's clear. And the last one, very quickly. In Mexico, you had higher year-over-year traffic and a very solid commercial activity in Cancun as well. And your margin was a little bit down on year-over-year. I'm sorry, maybe just more of a clarification because I know you mentioned, higher cost in Terminal 4. So the question is, can we expect even higher margins going forward? We saw a year-over-year contraction, but, I guess, this is just as you ramp up that terminal. Just what we think a little bit of on how Mexico operations are going to be maybe 12 months from now?
Ricardo, in the case of margins, you know, in the case of airports, most of the cost is fixed. As you have seen, we have important increase in our cost resulted from the opening of Terminal 4. So we have to separate the cost from the revenue. So going forward, what I can see is that the cost of the operations in Mexico should remain more as a stable, probably a slight increase first quarter -- as from the first quarter next year due to the fact that some of the equipment that was installed in Terminal 4 is a deal in the guarantee from the original vendor, let's say, passenger bridges, electrical stairs, elevators. As from the first quarter next year, we'll have to start paying maintenance for these equipment. But in the case of what you're seeing today in the second quarter, that should remain more or less the same. Of course, if we look at the line of depreciation that was almost exactly the same amount of the first quarter that we see that had an impact -- an important impact on the net income for the case of Mexico this year. And I'm sure that not all the -- not all of you thought about this situation. So one thing is the cost, the additional security, additional cleaning, additional personnel, and the other thing depreciation. Also please remember that the additional capacity that this Terminal added to Cancun Airport was around 38%. So this is an important building. So from now on, what I believe is that if we have more passengers passing through Cancun Airport, we will see better results.
We will now go to Alejandro Zamacona from Crédit Suisse.
I just have one follow-up question on Ricardo's questions. Regarding the Colombia, I don't know if you can give us more color on the significant increase of the cost of service. When we compare it to the first quarter of '18, we saw a significant increase, so I don't know if you can give us more color on this?
Yes. Of course, Colombia was not in terms of the way to record the operations and blah blah blah. So they were not in compliance with [indiscernible] is obviously low. So some of the things that you are seeing today as an expense are, I would say, onetime events because we have to upgrade their administration and their accounts systems. So that will be one piece of the puzzle. The other piece could be additional legal fees that are expended there in order to review all the process of acquisition we have recently made, the final 7.58%. That's the only 2 things that I see as things that could be considered extraordinary or not equal to previous quarters.
Okay, Adolfo. And regarding the commercial revenues per passenger, I know that you -- that Ricardo already asked that but, I mean, do you attribute the 50% increase to this new contract in the Duty Free also in Colombia?
No, no. What I was saying about Duty Free, it was at the end of the third quarter last year, the -- the contract expired. So today, we do not have Duty Free operations and we are in the process to have those up to fourth quarter this year. So those -- the months that you are seeing in commercial revenues for the second quarter does not include Duty Free. That was an important element in the equation, if you see the report of the third quarter last year. And of course, some of the things that we are doing there are basically to have a better operation and a more efficient commercial operation for the company.
And now we'll take a question from Natalia Zamora of GBM.
The first question is regarding the cost of services in Mexico. If I understood correctly, you said, we can expect it to remain around the same level during the rest of the year or even increase beginning in 2019. Could you provide cost of service level on a per passenger basis for this year or even for 2019? That was my first question.
Well, I cannot give you passenger -- cost per passenger because I really don't know what the amount of passengers we will have in the future. But in order to try to give you a hint of that, I will recommend you to see the presentation we have in our webpage, where we basically present the control -- the costs that is not related to revenues for the last around 12 years on a quarterly basis. So you can see the number there. If I don't remember wrong from the top of my head because I don't have that report in front of me right now, it should be around MXN 47, MXN 48 per passenger. And basically, during these 12 years, have been remained more or less the same on nominal terms. So please refer to that report.
Okay. Perfect. Will do. And my second question would be, I recall on -- on the previous conference call, you mentioned, you're directly taking on the operation regarding advertising in Mexico. Could you please give us an update on this?
Yes, you're absolutely, right. On September last year, we had to cancel the contract to the concessionaire that we have because he was not paying the fees that he has to. If you remember, if you go back in time, we were providing the service directly since the year 2004 up to the year 2013 -- April 2013, if I don't remember wrong. Today, we are in the process to recuperate or to redo the whole thing because when we gave the contract to the concessionaire, we gave the contract also including or trespassing the personnel we have to take care of this business line. So as from the month of December, we have being hiring people to take the necessary attention on this particular line of business. Also it's important to say that due to the fact that Terminal 4 opened in November last year, and the contract was canceled in September last year. Terminal 4 basically, as of today, does not have advertising spaces. So we're also in the process to add these to Terminal 4. Basically, we have hired someone to -- in order to provide us the furniture for the commercial -- the advertising spaces in Terminal 4. I hope that, very soon, we will be able to provide the service again in Terminal 4. The thing is improving. If you see the decreases we have in the full quarter, this quarter are lower than what we presented in the second quarter this year. And I have to say that, month by month, we are doing the things better to try to recuperate what this concessionaire didn't make during last year.
Now we'll go to Pablo Monsivais with Barclays.
No. My questions have been answered.
And we'll go next to then to Ramon Obeso from Scotiabank.
I have just one question. What levels of CapEx should we expect in Puerto Rico and Colombia for the next couple of years? And if you could give us a breakdown between the CapEx-related regulated activities and the CapEx allocated to improve the commercial business, could be great.
Okay. In the case of Puerto Rico, let me start with it. Yesterday, it was inaugurated the last project that we originally committed in the contract 5 years ago. And that is [indiscernible] that was the project that was ongoing, let's say, expansions for the case of Puerto Rico. So in the case of Puerto Rico, expansion projects have been completed and we do not expect to see any more in the coming years. The other thing that we will see in CapEx for Puerto Rico will be the reconstruction process. Around $60 million was the total damage from Hurricane Maria in last September. We are estimating that of the $60 million, $10 million should be paid by the company and the other $50 million should be paid by the insurance company. Of course, as we reconstruct the thing, we will present the necessary documents to the insurance company, and then we will -- they will be paying us. In this, probably you will see some CapEx, I would say, temporary CapEx as the company pays in advance and then we receive the rewards from the insurance company. Apart from that, the thing that we will see there, probably, it's going to be just major maintenance CapEx. So it's not expansion, it's not MDPs as we have here in Mexico. In the case of Colombia, last year, we completed the important expansion in the terminal building of Rionegro that was in the international zone. Today, we are also working on the cargo area that will have to be completed at the end of the year. You can see these figures in the 20th report, and we do not have too much projects in the future as well in Colombia. So basically, it will be again major maintenance CapEx. Commercial projects or commercial CapEx in both cases are basically on a case-by-case basis. The one that I remember in the case of Puerto Rico, we're in the process to construct a terminal -- a cargo terminal for FedEx that will have to be completed during the next 12 months. And this is basically a space that we will be renting them. And in the case of Colombia, we are making some investments to adjust the passenger flow in the commercial area, but not significant in comparison with the other major maintenance CapEx.
[Operator Instructions] We will now go back to Ruben Lopez of Santander.
Adolfo, my first question is on commercial revenues in Mexico. We saw a strong acceleration of growth in second Q, and just wanted to get a sense of how do you see the ramp-up process of Terminal 4? And if this growth rate could continue going forward? And also if you could give us some color on where do you stand on the adjustments you have to make to Terminal 2 given the change of mix on passengers?
Good questions. Well, Terminal 4, it's basically completed. The only space that we've not been able to rent is, it's the space we have for a bank branch. So that's the only one that's still pending for the moment. And basically, all rest of those spaces have been rented. The next process in the case of Terminal 4 is basically what we call the fine-tuning. So really to understand what the passengers are looking for in terms of [indiscernible] something that we will have to figure out with the quarterly service we do in the case of Cancun. You're right, in the sense of something that I mentioned during the first quarter last -- this year, related to Terminal 2, we're still on the process to adjust that. We are in talks with the concessionaires to see which spaces are not working as they should be working. And to see, we have to change the concept there. Basically, I will be in front of the Food and Beverage guy next week to review in detail what is working there and what is not working. And if we have to change the concept in order to improve sales in this terminal building. But that will have to be, I will say, during the remaining of this year.
And now we'll go back to Natalia Zamora of GBM.
Could you please let us know what you expect for traffic in Colombia going forward?
Well, that's a tough question because as I said in my initial remarks, what I expect to start seeing slight positive figures during the fourth quarter, but what I have seen during the last 2 months is a slight recovery. So I hope that for the fourth quarter it would be positive -- slight positive figures. And I hope a normalized year for next year.
Our next question will come from Stephen Trent with Citi.
Just want 1 or 2 from me. If you could refresh my memory, I didn't remember where you guys are with respect to the other potential Colombian acquisition, there was Airplan and another one. And if you could just remind me what's the status of the other concession?
Yes, absolutely. If you remember, basically, we closed the regional deal in April last year. And we have around 6 months to receive approval from the federal government. This approval took more than 6 months. And let's say, the regional agreement basically expired. This agreement was to buy both companies, Airplan and Aeropuertos de Oriente. After that, we decided to go forward with Airplan and to try to, I would say, renegotiate the terms of the second airport group. We tried several times. And we made our last offer, I would say, at the end of 3rd week of April this year, and apparently, this offer was not what the company was expecting. So for the moment, I would say, this acquisition is, in my opinion, "I would not say, canceled." But of course, from our side, as all what we had to say has been set, so we're waiting if they want us to go back to the table to renegotiate or not the offer we made in April this year.
Okay. Adolfo, and related to that, as you think about the advantages and drawbacks of these overseas acquisitions that you've done, do you envision going after assets in other markets? I know there's a small one in Jamaica becoming available or anything else or any other regions you might consider?
So for the moment, as we speak, we do not have anything. But of course, we continue to see if we -- if there is any other attractive investment opportunity.
Got it. Adolfo, and just one last one for me. I remember, in a previous call you mentioned in Puerto Rico that some other commercial revenue growth have been above trend partially because other retail establishments were -- have been offline as a consequence of the hurricane. I'm just kind of wondering where they stand now, if you think we're kind of back to a more normalized trend in San Juan's commercial.
Well, I think, except San Juan commercial everything -- every space is in place there. So nothing -- none in commercial space has been affected to date by the -- let's say, the hurricane or the disruption. So the case of the commercial spaces are basically working. And that is basically something that you can see in the numbers we publish with the 22% increase on a per passenger basis.
Great. I guess what I was asking is, you previously said that or at least implied that Puerto Rico was getting, at least, somewhat of a temporary boost in commercial because surrounding retail in the area was off-line, and maybe there were a dearth of places to shop. I'm not sure if this is still the case or if it's more of a normalized situation now?
Well, what I said about Puerto Rico in the initial remarks was that car rental and car parking, in my opinion, are extremely strong, and this is basically, I believe, from the people that were sent from the Federal U.S. Government to support the reconstruction process of the island. And probably in the future, we will not see that.
We will go now to Mauricio Arellano of HSBC.
I was wondering if you would consider bidding for the concession for the Mexico City Airport, if it's decided to be auctioned. If you could give us any color into that?
Well, we will have to wait until they decide to what they're going to do for this project. What I had heard in the latest news for the last week is that they will take the decision in October this year. So we will have to wait for that.
Is it something that you would be interested in though, assuming that it is decided to be auctioned?
In the case, of course, first of all, we will have to see what are the terms and the conditions of the proposal. But of course, what I believe is that the entire world will be interested in that project in the case that is auctioned.
[Operator Instructions] And it appears that we have no further questions. Adolfo Castro, I'd like to turn the call back to you for any additional or closing comments.
Thank you, Kathy. And thank you, everybody, for joining us today on this conference call for our second quarter results of 2018. Have a great week. Goodbye.
And again, ladies and gentlemen, that does conclude today's call. We would like to thank you again for your participation. You may now disconnect.