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 Second Quarter 2020 Results Conference Call. My name is Hannah, and I'll be your operator. [Operator Instructions] As a reminder, today's call is being recorded.
Now I'd like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir.
Thank you, Hannah, and good morning, everybody. Thank you for joining us on our conference call to discuss ASUR's second quarter 2020 financial and operating results. I hope each of you and your families have managed to stay healthy and safe since our previous earnings call.
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 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, 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.
As anticipated, results this quarter were significantly impacted by COVID-19 pandemic, which disrupted global channel trends starting mid-March. However, we closed the quarter with a strong balance sheet, which I will discuss this in more detail shortly.
Starting with related traffic conditions worldwide. Since mid-March, various government-mandated flight restrictions have been placed to help prevent the spread of COVID-19 virus. Consequently, airlines across the world continued to operate in severe limited capacity, and few people are booking flights, either due to COVID restrictions or out of concern for their and their family's health.
At ASUR's airports, Mexico and Puerto Rico have remained open to date although operating with significant fewer flights and much lower passenger traffic. At the same time, due to COVID restrictions, only essential commercial spaces in Puerto Rico are open to the public, affected our non-aeronautical revenue in this market. Restrictions have been higher in Colombia, where the government suspended domestic and international commercial air travel since the third week of March, with international flights expected to resume on September 1.
In terms of domestic traffic, on July 1, Colombia government launched a pilot program for flights between cities with low levels of contagions. Under this program, each local municipality have the authority to restart domestic-bound flights as long as their counterpart in the other municipality is also in agreement to resume these flights. Given the complexity of this process, our 6 airports in Colombia have not restarted operations. All of these factors resulted in a 94% decline in passenger traffic during the second quarter, with decreases of nearly 100% in Colombia, 94% in Mexico and 86% in Puerto Rico. All 3 countries reported declines both in domestic and international passengers. On a cumulative basis, passenger traffic was down almost 51% year-on-year during the first 6 months of the year. In addition, starting March, certain airlines as well as some commercial tenants have -- that operate in our airports began asking us for assistance, either through discounts on payments owed to ASUR or by an extension of the payment terms. Beginning in June, we initiated some initiatives to support the recovery process. As a reminder, most of the commercial agreements with our tenants include a minimum guarantee payment per passenger. So in those cases, if no passengers, our tenants do not have to pay rent.
In addition, we have 3 ASUR's main airline customers, Aeromexico, Avianca Holdings and LATAM Airlines Group, recently filed for Chapter 11 bankruptcy protection in the United States. These companies have continued to make regular payments as allowed by the relevant courts. As such, we believe, ASUR has sufficient liquidity to meet its obligations and continue to operating normally.
Let me now quickly go to the steps we have been taking so far to mitigate the various risks related to COVID-19. Starting with health and safety. In accordance with the guidance of the relevant health authorities, health and safety protocols remain effective for both employees and passengers at our airports, in addition to preventive measures, such as wearing face masks and hand sanitizing practice continues.
On the expense front, while our cost structure is largely fixed, we've rapidly implemented cost reduction measures across ASUR's operation to reduce cash burn, where possible, with personnel and utilities representing the highest share of expenses. We mainly focus on lowering maintenance and energy cost. For example, in Mexico, we temporarily closed Terminals 2 and 3 at Cancun Airport in April. In July, we reopened Terminal 2 and now operating Terminals 4 and 2 to ensure social distancing in support of the current passenger levels. We also shut down one of the airports [ to runways ]. We take similar steps across our operations, as necessary.
Now moving on to ASUR's financial position. Although ASUR's performance continue to be impacted by a very weak travel demand, we're still operating from a position of financial strength, with ample liquidity and very low principal payments to be paid in the near term. In other words, we continue to meet all financial obligations, and we will be able to effectively ramp up our operations when travel demands picks up. I would like to note that even though the second quarter was ASUR's worst quarter ever, we saw a slight improvement in traffic performance in May comparison with -- April and June comparison with May. We closed the third (sic) [ second ] quarter with cash and cash equivalents of MXN 7.1 billion, up 15% from the MXN 6.2 billion at the end of the year. Mexico contributed slightly over MXN 650 million to the increase in our cash position, while Puerto Rico and Colombia contributed nearly MXN 330 million and MXN 49 million, respectively.
Total debt at the quarter end was MXN 15.5 billion, up 13% from year-end 2019. This was mainly due to depreciation of the peso against the U.S. dollar and a drawdown of $10 million from a commitment line of credit to support CapEx projects under construction at LMM Airport in Puerto Rico.
We have a healthy debt maturity profile, with principal payments of only MXN 388 million or 2.5% of ASUR's total debt maturing in the second half of the year. Also note that only MXN 830 million in principal payments or slightly over 5% of total debt matures in 2021. The majority of our debt, 54%, is denominated in U.S. dollars, which is at the Aerostar subsidiary in Puerto Rico, while nearly 26% of remaining debt is denominated in Mexican pesos and 20% in Colombian pesos.
In summary, ASUR has maintained a solid balance sheet with net debt to last 12 months EBITDA at 1.1x at the close of second quarter '20 compared with the 0.7x reported at the close of first quarter, mainly reflecting weaker EBITDA as a result of the impact of COVID-19.
I would like to emphasize once again that the current crisis affecting ASUR's performance is not the best. We have succeeded in navigating and overcoming others over the past 2 decades, from the impact of 9/11, to the 2008 financial crisis and the H1N1 flu. In all cases, passenger traffic eventually recovered. In fact, between -- in 2019, Mexico's annual traffic increased at a compound annual growth rate of 6% to historical high over 34 million passengers in January this year. And following each crisis, we quickly resumed delivering consistent profits for our shareholders. Of course, this situation we are passing through is worst ever. While travel demand is expected to remain depressed for the foreseeable future, ASUR maintains a strong balance sheet, and we continue to manage cash and cash and expenses prudently.
Now let me touch upon the other key highlights of the second quarter results. More details can be found in the press release issued yesterday evening. Revenues ex construction were down 77% year-on-year driven by a similar declines in our aeronautical and non-aeronautical revenues. Puerto Rico was the main contributor to revenues, accounting for nearly 61% of the revenues this quarter, followed by Mexico with a share of almost 34%, and lastly, Colombia, representing 5% of the total, reflecting a strict travel bans in that country.
Consolidated commercial revenues per passenger were slightly over MXN 350 compared to nearly MXN 100 per passenger in the same period last year. However, the increase mainly reflects the sharp contraction in our passenger traffic, supported by basically new commercial spaces with fixed rents per square meter.
On the expense front, operating cost and expenses, excluding construction costs, were down 24% year-on-year, with scaled back airport operations and maintenance as energy consumption decreased, mostly in Mexico and Colombia. Mexico posted a 34% decline in costs, reflecting lower maintenance and energy expenses, along with a lower cost of sales related to directly operated convenience stores. Technical and concession fees, both variable costs, also declined during the period. The lower costs were partially offset by high provisions of doubtful collection accounts that we booked, given the impact of low demand levels we are having on our commercial clients.
Cost in Colombia was down 41%, mostly the result of savings in maintenance, energy and security expenses as well as lower professional fees. By contrast, cost in Puerto Rico was up nearly 6% year-on-year, mainly resulting from the FX conversion impact, which more than offset declines in cost of services and concession fees. In dollar terms, total cost in Puerto Rico was down 17% year-on-year.
Moving on to profitability. Reported consolidated EBITDA was down 98% year-on-year to MXN 51 million, impacted by the COVID-19 pandemic. Both periods benefited from insurance recoveries related to Hurricane Maria. In the second quarter of '20, this amounted to MXN 35 million, where last year, the amount was nearly MXN 163 million.
Excluding these recoveries, consolidated EBITDA would have declined 99% year-over-year to MXN 16 million. EBITDA of MXN 203 million (sic) [ MXN 238 million ] in Puerto Rico was offset by the EBITDA losses of MXN 140 million in Mexico and MXN 47 million in Colombia. Ex IFRIC 12 and excluding the insurance recovery in both quarters, adjusted EBITDA margin declined to 1.8% this quarter from 65.4% in the same quarter last year.
In terms of capital allocation, we made capital contribute -- capital expenditures of MXN 615 million in the second quarter. Of this amount, 77% was invested in Mexico to continue executing Phase 1 expansion of the Merida Airport terminals. Remember that for the full year of our Master Development Plan in Mexico calls for investments of approximately MXN 5.3 billion. During the first half of the year, we invested a total of MXN 714 million in this country and will remain on schedule with building the parallel taxiway to the second runway at Cancun Airport and with the beginning of the first expansion phase of Terminal 4. We also expect to conclude Phase 1 of Merida terminals expansion and start the second phase this year. That said, there were disruptions at each of these development projects due to the stay-at-home orders in Mexico, and we have kept in the government apprised to the related delays.
CapEx in Puerto Rico totaled MXN 138 million this quarter, mainly reflecting some major maintenance repairs of taxis. Finally, we invested slightly 1 -- over MXN 1 million related to major maintenance in Colombia as our CapEx commitment for that operation was concluded last year. Looking ahead, we only expect to invest in major maintenance in Colombia.
I would like to conclude by reiterating that ASUR continues to operate from a position of financial strength and that we are carefully managing cash while calibrating variable cost to align them as best as we can with the current demand conditions in order to successfully navigate the current crisis. We remain confident that we can.
That ends my prepared remarks. Hannah, please open the line for questions.
[Operator Instructions] And we'll go first to Alejandro Zamacona with Credit Suisse.
Our first question is on the renegotiation of the MDP process. So on that context, how many times are you expecting for this renegotiation? And what would be the expected CapEx for this renegotiation or the expected outcome for this renegotiation?
Well, as you may know, the only way to revise our maximum tariff in an extraordinary way on the current conditions is once the Mexican GDP drops by more than 5% during the last 12 months. I estimate that, that will occur during this year. And once the final number is published by the official authorities, we will be able to file our request to the authorities. Having said that, what I expect is that we will be able to file that on the first quarter next year. How much time it will take? I really don't know. There is no time line for that, but I would expect at least 3 months. So during the second quarter of next year, we would be able to know more or less what was the outcome of the negotiation process.
In terms of the numbers, of course, today, we cannot give you a precise or an accurate number of how much the CapEx will be reduced because the CapEx is not reduced because we want. It's basically reduced as a result of the low demand. So once we know the outcome of the low demand for the year, we will be able to make the necessary calculations to see which projects are no longer needed because of this low demand. And those are going to be the ones that will have to be postponed. It's not canceled, it's postponed or deferred until the demand is there again. So 1 year from now, we will be able, more or less, to tell you the outcome of that process.
Okay. So I guess it's just a delay on CapEx rather than a reduction on the total amount that you are willing to negotiate, right?
Okay. Let me explain again. So let's talk about the expansion today of Terminal 4, okay? That expansion is needed or was needed because the demand was growing. There are certain standards that we have to comply in accordance with our concession package. So a certain amount of square meters of terminal every peak hour passenger traffic. So if the passenger traffic demand decreases, that work is not necessary, or for the moment, is not necessary, and we will have to find the point in the future where these will have to be made. So that is the origin of this process, to review what is needed and what is not in accordance with the demand we have. So once we know what was the effect on the demand because of this situation, we will be able to calculate these numbers again and to say if this is going to be deferred 1 year, 2 years or 3 years.
Okay. And my second question, if I may. It's on the aeronautical business for Puerto Rico. So is there any possibility for airlines to renegotiate the fixed payment contract?
Well, the contract has been written, and the contract can be renegotiated, of course, in accordance with the contract, but I do not see any chance for now to see that renegotiation process.
We'll go next to Mauricio Martinez with GBM.
My question is kind of a follow-up to the past one on CapEx. Do you expect to -- well, knowing that you already have some delays in CapEx deployment probably for this year, what is the amount that you expect to deploy for that MXN 5 billion that you committed in the current Master Development Plan? And do you expect any deferral pushing it forward for the next year?
I do not have yet a final figure that I can share with you at the moment. It's clear that there were around 3 months where there were no construction in the country. And you know there was a decree by the -- issued by the government where they said that all cement, steel and glass in the country had to be used in their programs, in their works. So because of that, we were not able to continue the process of our expansion. You cannot construct or you cannot expand the building without these elements. So we're in that process, and I do not have a figure yet.
But the chances that maybe it will be lower than that, the MXN 5 billion?
No, no. The chances that the MXN 5.3 billion is lowered are very hard.
Perfect. And maybe a second question, if I may, regarding the accounts receivables. Practically, we didn't see any change, if not reduce -- a reduction from the previous quarter. Maybe if you can give us more color on that. How negotiations with the -- especially with the payments at the airport, how was that negotiation? And if you can give us a color on the shape of your tenants going forward.
Okay. As I said during the initial remarks, most of the commercial contracts have a clause where they have to pay the higher amount of a minimum currency payment per passenger or a percentage in sales. Because of the low traffic, of course, they were not selling too much, it's clear. But in that case, what applies is the minimum payment per passenger. So as I said during the initial remarks, if there is no passengers, they do not have to pay rent because sales are 0 and the minimum guarantee payment per passenger is -- or have -- will have to be multiplied by the amount of passengers. So in that sense, we have not been renegotiating or negotiating with all the commercial tenants. So in most of the cases, the adjustment is automatically, no?
It is clear that some are suffering a lot and some of them are not paying, but the case is that they are not paying is because they are working in some other airports where they have to pay a fixed rent. And of course, let's say, they are using the money from here to put it there, no? In some cases, we are renegotiating with some commercial tenants. But in some others, basically, the adjustment is made automatic.
We'll go next to Rodolfo Ramos with Bradesco BBI.
My first one is on traffic. I was wondering if you can give us a little bit of color of how are you seeing traffic so far. If you have the number handy up until the 20th of the month? Whether -- how are you seeing the decline progress?
And a follow up on the previous question on Puerto Rico. I mean a renegotiation of the contract is not on the cards at the moment, but have you seen or do you expect any airlines to stop serving Puerto Rico, which would then preclude them to -- from making a payment? Or how do you see the stability of all these revenues going forward?
In the case of the traffic, the only thing that I can say to you is that, as I said during the remarks, May was better than April, June was better than May, and July, I believe, it's going to be better than May. But nevertheless, the amount of traffic we are seeing today is extremely low. This situation is not going to recuperate fast. What we have seen in the past, going back to 2008 with the financial crisis plus the cycle effect plus the bankruptcy of airlines here in Mexico, it took us 36 months to go back to the previous levels.
This could be worse if the vaccine has not been found or a cure has not been found, no? We have seen recent developments in terms of the vaccine. That's a very positive news. So I believe the vaccine is going to be ready by the end of this year. So in that sense, maybe we can see some recuperation process the next year. But of course, the final recuperation process is not going to be there until more or less a cure has been found. So I don't believe that the world will go back to normal just with vaccine.
In terms of Puerto Rico, this is not the first time. You can go back and see what has happened during the Hurricane Maria in September 2017. There was a sharp decline in passenger traffic. And of course, you can trace the comparison between aeronautical revenues and these sharp declines. So that's what we are experiencing today as well. And I don't see any difference from that.
Just if I may squeeze in a last one. We saw Quintana Roo going back to, let's say, a maximum red alert in terms of COVID. In Cancun, the services sector seems to continue operating as they have been since the middle of June. I'm wondering if there's anything to update on that front and whether you're seeing any businesses or sectors, in particular, follow this federal directive.
Yes. What is red is the south of the state. It's not the case in Cancun. Cancun is -- it's still orange. So Cancun is still in normal operation. When I'm saying south of the state, it's basically South Tulum and [indiscernible].
[Operator Instructions] We'll go next to Roberta Versiani with Citi.
Just a quick question. What are your thoughts on the development of the Maya train? And just another one, I know you mentioned this already, but could you give me some more color on international traffic since the infection rates are rising in Mexico? And if you could push back the timetable on normalization?
Well, in the case of the Maya train, what I understand is it's the project that is ongoing. In the case of the Cancun airport, what has been announced last week, it's a light train that goes from the city to the airport, connecting also with the Maya train. And basically, what I understand is that this project is ongoing.
In terms of the international traffic, today, we're just having international traffic to and from the United States, and there is some flights -- few flights from Canada. In the case of the United States, which is the most important for us today, there's a very low factor in that sense. So still, we have some flights with a very low factor because of lower demand. And that, of course, will depend on how the situation evolves in the United States. United States, it's a very large country. Not -- we cannot say the same in terms of what is happening today in New York or in comparison with California. California, today, has exceeded the cases in New York. New Jersey is basically controlled. And in terms of proportion of the traffic, New York is more important to us than what California is. So in that sense, I'm not so afraid of that situation. Of course, we really don't know what can happen there. If there's another rebound, it could affect our traffic for the third quarter.
[Operator Instructions] We'll go next to Alan Macias with Bank of America.
Just one question on traffic in Colombia and what you're seeing there regarding the pandemic. I understand that domestic flights can reinitiate. Just can you give us further color?
Well, the process, as I mentioned during the remarks, is now more complicated than what it was in the past because now even though that the federal government has said that the municipality can approve this, it has been very complicated to find 2 mayors or a pair of cities of these 2 mayors to approve the case. And the most important one is the case of Bogotá, and the mayor of Bogotá is very reluctant to open the airport again. So in that sense, I don't know what would be the outcome, but I still believe that, for some time, the airports in Colombia will be closed.
We'll go next to Pablo Monsivais with Barclays.
I have one question. Do you mind sharing your opinion on the status of Mexican airlines? Because we have Interjet, so they just received fresh capital from private investors. And on the other hand, Aeromexico is going through a restructuring process. So that might likely mean that they will reduce capacity overall. What are your thoughts in the medium term of the impact of this?
Well, the most important example is to go back again to this period of June 2008 up to August 2010. If you see our presentation, on Page 17, you can find the history of this. More than 50% of the aircrafts were lost during this period. So around 8 or 9 airlines in Mexico, bankrupt, no? So of course, there was an impact on our passenger traffic. There was an impact, an important impact, I would say, 3 months, 4 months from August to December 2010 when the large one, which was Mexicana, the largest one, bankrupt.
The situation today is different in terms of the offer because what is low is the demand. There is no demand. So even though that we can say that in the case we loses some of these elements because of the situation, the problem is not how many planes they will have. So the problem is how many people they would like to travel and be transported with them. So today, I don't see too much trouble in the reduced capacity. The reduced capacity is the result of the low demand. What is important to recover is the demand.
[Operator Instructions] And that concludes the question-and-answer portion of today's conference call. I would like to turn it back over to Mr. Castro for closing remarks.
Thank you, Hannah, and thank you again for participating in our first -- in our second quarter results conference. On behalf of ASUR, we wish you a good day, and please stay safe. Goodbye.
Ladies and gentlemen, that concludes ASUR's Second Quarter 2020 Results Conference Call. We would like to thank you again for your participation. You may now disconnect.