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 Third Quarter 2018 Results Conference Call. My name is Kathy, and I'll be your operator. [Operator Instructions] As a reminder, today's call is being recorded.
For opening remarks and introductions, I would like to turn things 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 third 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.
Before entering into the discussion of our results for the quarter, let me make a brief comment about the potential Riviera Maya train. Over the past months, we have met on several occasions with the transition team of the new covenant that has presented these projects, which includes an origination station at Cancun Airport. We will continue to work with them to establish the most effective way in which our Cancun Airport subsidiary can participate in the coordination of this project, and it moves ahead in the construction of these train terminals.
Moving on our performance. Our Mexican operations posted another quarter of solid results with a strong passenger traffic growth. Despite the higher cost base as we continue to ramp up Terminal 4, opened towards the close of last year, we saw positive traffic growth in Puerto Rico this quarter, following the impact of Hurricane Maria last year; and improved overall dynamics in Columbia, particularly a sharp pickup in domestic traffic following capacity adjustments at the leading carrier. More than 13.3 million passengers traveled across our 16 airports during the third quarter, with total traffic peaking up to almost 7% year-on-year, driven by growth in our 3 countries of operation.
In Mexico, traffic increased 6.7% year-on-year, reaching 8.3 million passengers. Domestic traffic rose almost 11%, while international traffic rose close to 3%. Growth was driven by a solid performance at Cancun and further supported by traffic growth across all of our airports.
Traffic in Puerto Rico continues to recover, up almost 4% to 2.2 million passengers, although total traffic remains impacted by airline capacity reduction following the effects of Hurricane Maria last year. Domestic traffic rose 5%, while international traffic continues to post negative comps, down almost 6%.
Colombia posted a strong recovery, up over 7% year-on-year, reaching 2.8 million passengers, up from a 4% decline in prior quarter. Domestic traffic rose over 6%, while international traffic growth remained stable at 12%. Looking ahead, we expect traffic in Colombia to continue recovering gradually, reaching normalized levels next year.
Moving on to our financial results. Remember that financials for the quarter reflect the full consolidation of our Puerto Rico operations in third quarter 2017 and third quarter 2018, while we began consolidating Colombia starting October 19 last year. Consolidated revenues, excluding constructions, was up over 20% year-on-year to MXN 3.7 billion, driven by positive contribution across all our operations.
Revenues ex construction increased 14% in Mexico and 9% in Puerto Rico, while Colombia contributed over MXN 480 million. On a stand-alone basis, revenues ex construction in Columbia increased 19% year-on-year.
Aeronautical revenues remained strong, up 30% year-on-year, reaching MXN 2.3 billion, reflecting growth of almost 14% in Mexico, 4% in Puerto Rico, while Colombia contributed with over MXN 320 million in aeronautical revenues in the quarter, representing a 16% increase on a stand-alone basis.
We remain focused on driving growth in commercial revenues, which increased 25% year-on-year to MXN 1.2 billion, reflecting a robust performance across the board. Mexico continues to post solid commercial revenue growth, up 15%, as we continue to ramp up operations of Terminal 4 at Cancun Airport. We are also pleased with the 17% increase in commercial revenues achieved in Puerto Rico, while Colombia contributed with MXN 100 million in commercial revenues. On a stand-alone basis, commercial revenues in Columbia increased 28% year-on-year.
Commercial revenues per passenger fell to MXN 92.5 this quarter from MXN 99.5 in the same quarter last year, reflecting the consolidating effect. On a stand-alone basis, however, we deliver another quarter with higher commercial revenues per passenger across our 3 countries of operation. Mexico posted a 7.6% increase in commercial revenues per passenger, reaching MXN 108. This was mainly driven by the continued ramp-up of Terminal 4 at Cancun Airport and a strong performance of our retail operations.
With Terminal 4 basically completed and almost all commercial spaces rented, we're now focused on fine-tuning operations there to better understand passenger needs as we strive to maximize commercial revenues per passenger. We are also working with the concessionaires of Terminal 2 to adjust the offering for the new mix of passengers at these terminals.
Commercial revenues per passenger rose 13% in Puerto Rico to MXN 108. Commercial revenues increased across all categories, with growth mainly driven by a strong performance in ground transportation, advertising, car rentals and parking lots. We believe the reconstruction efforts in the island are driving a great part of this increase in the transportation-related categories.
Finally, Colombia reported a 20% increase, reaching MXN 35 per passengers as we continue to make headway in upgrading these operations. As you know, increasing commercial revenues is our main objective in Colombia. We expect to establish Duty Free operations at Rionegro airport before year end, which should continue to drive higher commercial revenues per passenger going forward.
Moving down the P&L. Consolidated EBITDA increased 19% year-on-year
[Audio Gap]
as it's mainly driven by a 12% increase in EBITDA in our Mexican operations and a contribution of MXN 246 million from the consolidation of Colombia, starting October last year. While results at our Puerto Rico operations are slowly improving, EBITDA at this operation declined 6% year-on-year, still impacted by higher costs and expense.
Consolidated adjusted EBITDA margin, which excludes the effects of IFRIC 12 with the respect of the construction of or improvements to the concession assets in Mexico, Puerto Rico and Colombia was 63% in third quarter '18 compared with the 68% in the third quarter '17 due to the consolidation effects.
Regionally, on a stand-alone basis, adjusted EBITDA margin in Mexico declined by 122 basis points to 70%, mainly impacted by the additional cost from the new Terminal 4 as we continue to ramp up operations as well as an average increase of 63% in the price per kilowatt hour compared with the same period of last year.
In Puerto Rico, adjusted EBITDA margin decline to 48% from 56% in the same quarter of last year. This resulted mainly from a concession fee of MXN 32 million this quarter, equal to 5% of revenues, up from a fixed MXN 2.5 million during the first 5 years of the concession. A 70% increase in the insurance costs, along with higher security expenses to meet authorities' request, also impacted adjusted EBITDA in Puerto Rico.
Adjusted EBITDA margin in Columbia in turn declined 360 basis points to 48%, mainly impacted by higher cost of services resulted from the new areas we opened at the end of last year at Rionegro airport and concessions fees originating from the increase in revenues.
Note that our bottom line for the third quarter was impacted 125% year-on-year increase in depreciation and amortization. This was mainly driven by a higher depreciation in Colombia, resulting from an increase concession value in the new areas opened at Rionegro airport, and to a lower extent, from the impact of IFRS 3 on the valuation of our investment in concessions in Colombia and Puerto Rico.
Results for the quarter were also impacted by higher consolidated comprehensive financing costs of MXN 280 million compared to MXN 103 million loss in the year ago quarter. This resulted mainly from a higher noncash foreign exchange loss in the quarter, to a lesser extent due to an increase in the interest expenses.
Now turning to the balance sheet. We maintained a solid financial position with net debt of -- down by MXN 1.2 billion sequentially and a net debt to the last 12 months EBITDA ratio of 1.2x. During the course of our 9 months, we made capital expenditures close to MXN 1.4 billion. Of these, over MXN 640 million were invested in Puerto Rico and more than MXN 390 million in Colombia. In addition, we also invested almost MXN 330 million in Mexico, mainly in Cancun's Terminal 4 and major maintenance works at the other 8 airports.
In Puerto Rico, we're taking care of major maintenance works, like the change from asphalt to concrete in the taxiway as well as making investments in connection with the reconstruction process following Hurricane Maria and the construction of a building for cargo activities. We estimate that total damages amount to approximately $60 million, of which $50 million should be reimbursed by the insurance company. So we will see some temporary CapEx as we receive the reimbursements. In Colombia, we continue with the mandatory works, like the cargo area expansion at Rionegro airport.
This completes my prepared remarks, and I will open the call for questions. Kathy, please go ahead.
[Operator Instructions] We will now go first to Mauricio Martinez of GBM.
My first question will be on commercial revenues per passenger in Mexico as we only saw a mid-single-digit growth there. I'm wondering if you can share with us your thoughts regarding such performance and your expectations for next quarters. And also, the second question will be -- I mean, having a steeper slowdown for international passenger in Cancun, it is well known that security issues have been one of the drivers there. But if you can give us any color on what are you seeing for the full quarter, and if we should expect a recovery on that front.
Mauricio, well, you are also answering your first question because if you see the passenger mix for the third quarter against last year, you'll clearly see that there was a huge increase in domestic traffic against international traffic, and of course, they spend more -- international will spend more in comparison with domestic. So that is probably why we are just seeing a 7% increase on the commercial revenue per passenger. In terms of what you are mentioning, basically what we are seeing is a decrease in the case of the traffic going from the United States to Cancun Airport. It could be the security. It could be the warnings. It could be restructuring capacity from the airlines basically in the region of L.A. And that restructuring process is also for the entire country. It's not just for Cancun, it's also for Mexico City. Going forward, what we see is a strong domestic traffic and probably the same trend for the international.
Okay. So we can expect a recovery on the international front for next quarters, probably going back to mid-single?
[ I don't want to ] -- what we can expect it to see is what we're seeing during the third quarter.
We will now go to Josh Milberg of Morgan Stanley.
My first question also relates to international traffic and the slowdown there. And you touched on the point about security and the travel warnings, and I was hoping you could sort of elaborate on that. And also, just touch on the issue of this year's seaweed outbreak in the region. We had understood that, that was also something that might be pressuring your traffic. And just wanted to understand this, if this year's infestation is -- how that compares to, I think, what was the prior big one that you had in 2015 and just understand your thinking about how both of those issues can play out from here.
Josh, in terms of international traffic, basically, as I said, what we are seeing is a decrease in the case of the U.S. traffic. It's not the case for the rest of the regions we are working in. So Canada is well. Europe is well, and also Latin America. So in the case of the U.S., I believe this has to do with bad press and all the things that have happened in terms of the relation of these 2 countries. The other thing that we are seeing is a reduction, specifically in the region of L.A., and this has to do with the restructuring process of the capacity of the airlines that work there. The seaweed, I don't see this as a reason why the U.S. traffic is not coming. This may affect all the regions if they are aware of the situation before they make their reservations, which I believe, in the case of international traffic, it's harder because normally, they book in advance 2 to 3 months. This is a natural situation basically originated for change in the temperature of the water of the Atlantic sea between the United States and Europe. And it's not something that we can call -- that is cyclical. It goes and it comes. I believe it's now almost ending because of the time of the year. And we don't know when this will come again. But again, I don't see this as the major reason why the U.S. traffic is changing.
Okay, got it. That was very helpful color, Adolfo. My second question was just on your Mexico margins. I think you indicated that would explain this moderate contraction, about 120 bps, year-over-year was, one, the ramp-up of Terminal 4 and also the issue of higher electricity costs. Should we expect those 2 variables to continue to weigh on your profitability in the fourth quarter and early next year? Or do you think that by next year, we should start seeing kind of turnaround in profitability and a resumption of an upward trend?
I mean, the case of the Terminal 4, of course, those are going to stay there forever. But in the case of the 63% increase in the price of per kilowatt hour that we're suffering now, it's something that I really do not understand. It's not coming from a peso devaluation. It's not coming from a huge oil price increase. So this is something that is in the hands of the government, and of course, I do not expect this to continue in the coming quarters. But of course, we do not control these, and we do not know what or how they're going to react. It is clear for me, with the change in government, that he will receive a lot of complaints of what is happening today in the cost of energy for the entire country, and moreover, in the commercial activities.
And we will now take a question from Alejandro Zamacona of Credit Suisse.
So we were wondering what's behind the difference between the construction revenues and the construction costs for Airplan. I don't know if you can give us more color on these difference.
Alejandro, that's a good question. As you can see in the document, we are presenting, roughly speaking, MXN 17 million negative for the construction revenue during the quarter and a cost of construction of MXN 63 million. Normally speaking, these numbers should be equal if we just talk about construction costs and construction revenue in terms of the improvements of our CapEx that we construct during the period. But the point is that in the case of Airplan, we have to evaluate the contract every quarter. And what we are seeing here is a negative result of around MXN 80 something million, so the sum of the MXN 17 million plus the MXN 63 million in the construction costs, as a negative impact in the evaluation of the contract. And this has to do with basically 2 things: one is the change in the rates and the other one has to do with the comparison of expected income from one quarter to the other. So this is something that will be there forever. So we will have to evaluate this every quarter, and you will see from time to time positive and negative things there. It's important that you understand that this is noncash. So be careful when you are making your calculations on the EBITDA work.
Okay. Just a second question, if I may. According to the Future Director of Fonatur, the plan is that ASUR deals with train station of the Maya train in the Cancun International Airport, and the plan is also for ASUR to operate the terminal station. So what's your sense on these thoughts? And what about the Merida station? Can we think about the same as you guys being the operator and the constructor, or just in Cancun?
Well, in the case of Cancun, as I started my initial remarks, I said that we are working to coordinate the efforts of these projects. This project originates in Cancun Airport, and because of that, we believe that we will have to construct the train station. The train station means the point where passengers from the airport and from the sea will originate their journey or will end their journey. And this is an important point for us because we believe we need to control the situation, and that is why we will construct -- I believe, we will construct the train station. When you are saying operationally speaking, basically, if there is any commercial space with, yes, we will control those. But basically, the train operation will be controlled by them.
Okay. And what about Merida station?
Well, I really don't know what will happen with Merida, and we are not yet there in terms of the design of the project or they have not shared with us all the details of that.
Our next question will come from Samuel Alves of BTG.
My question is regarding the level of CapEx, especially looking at non-Mexican assets. We noted an acceleration on investments in Colombian assets and in Puerto Rico this quarter. The question is if you could recall the level of investments that you should disburse in those assets over the next 2 quarters, I mean, net of reimbursements from the insurance company. And when, well, do you expect to complete the mandatory investments there?
Samuel, basically, in the case of Colombia, we were almost completing the mandatory CapEx. This mandatory CapEx is related to a cargo area that we are constructing at Rionegro airport, and we're almost completing that project. After that, it will be just major maintenance CapEx. In the case of Puerto Rico, we have basically 3 elements. One has to do with the reconstruction process that we will have to recover later on from the insurance company. The second one is a major maintenance that has to do with the reconstruction of the taxiway. We are changing the surface of the taxiway from asphalt to concrete. And we are also constructing a building for cargo activities that will be leased once this is completed, and we will have to complete that during the coming months. So the number you are seeing there is not something that will occur next year.
We will now take a question from Alberto Valerio of UBS.
Adolfo, this is actually Rogério speaking. I have a couple of questions. One is regarding consensus opinion of probable liability, which is already a monopolist practice in Cancun on the ground transportation. So if I'm not mistaken, I think 2 investigations on the same matter already took place in Cancun the beginning of 2000s, but there was no fine at the time. So my question is, is this correct? And also, how this case, currently copacetic, is different from before? And could you give me a little more details on this matter specifically? This the first question.
Well, it's not exactly the same as the one you mentioned. I really don't know if this is -- if this will end up in a fine or not. If that is the case, we will, of course, try to defend our intent with the legal process. We have given the answer of what they said. I believe this will take some time. So probably, for the first quarter next year, we will see what they say about what we responded . And that's, for the moment, what I can say to you.
Pretty fair. And my next second question is a follow-up on the commercial revenue. So in terms of the stores opened, so how can we think about the ramp-up? Are there still stores that weren't opened in the third quarter and should be opened in the fourth or going forward? Or can we think outright about, in terms of commercial airway, to read at normalized level, and the only thing that is affecting commercial revenue is the mix of international passengers?
Well, in the case of Terminal 4, there's one space that is not open, and I believe it's not going to be open, which is the bank branch. We will have to, probably, to change the nature of this space because apparently, banks are not willing to spend money on branches. And also, we are in the process to open VIP lounges. Excluding these, everything is up and running.
We will now take a question from Stephen Trent of Citi.
The first one, to some extent, a follow-up on Rogério's question on the Maya train. Could give us a sense as well, if you happen to know, what sort of approvals are needed, regulatory, environmental, et cetera, where the project is in this sense?
Well, basically, Steve, we are not making and we are not participating on the construction process of the train itself. When we are seeing a station, that is the point where the train connects to our airport. So basically, we will have to do the necessary works in order that the people, our passengers, can take the train or to go from the train to their planes. So that is basically what we will be participating in.
Okay. Appreciate that. And also, if I could just get a little color, I mean, if -- and I appreciate if you are not allowed to say, but a little color on this investigation, if this is something that pertains to the taxis or to the ADO bus operators or something else. I wasn't quite clear.
Well, this is related to taxis.
Got it. And just final question. At this very early stage, do you see any risk that this Coseco investigation touches on the Mayan train? Or this is something that, in your mind, should be entirely separate?
No, this is 2 separate things.
We will now take a question from Manuela Echavarría of CrediCorp Capital.
Adolfo, can you expand a little bit on the increase in the concession fee paid to the Puerto Rican government and what can we expect going forward?
Of course. That was originally in the -- stated in the contract we've signed with the government 5.5 years ago. So the change is that -- instead of a fixed amount of MXN 2.5 million per year, it's now and from now on, 5% of the revenues. And that will go up to the year 30, where that will increase from 5% to 10% of the revenues.
And now we'll go to a question from Alan Macias of Merrill Lynch.
Just one question on the Riviera Maya train. What is your perception of how advanced is the project and if you have any time frame, any estimate of when we could see the beginning of the building of the train? Or is this still further down the line?
Alan, well basically what I can comment to you is what I have heard from the people I have met. Basically what I understand is they are working on the studies for the train. The train, what I understand, will have to be constructed in phases. It's not that from one day to the other you will open the 1,600 kilometers of the train. In these spaces, there are pieces that have to be basically refurbished. There is an original train that goes from, more or less, Merida to Campeche, and you have a right of way. There was a rail there. So basically, they have to refurbish that and to correct some pieces. It's not like the other -- rest of the train, where they have to construct everything. In the case of the, I would say, Cancun up to Tulum, I believe that will be the first phase of the train, and that may occur between 2 to 3 years.
[Operator Instructions] We will move now back to Mauricio Martinez with GBM.
Adolfo, just a follow-up question, if I may, on Puerto Rico's aeronautical revenues in dollar terms, as it accumulated more than $60 million now by this quarter. I know there are other services included there apart from the airline fees, but maybe you can tell us what is the main driver there and how much could it be above that $60 million going forward.
Mauricio , in the case of aeronautical revenues, you have one piece which is the $62 million fixed amount that the contract states. Probably what you are talking about is the PFC, which is the passenger facility charge. That is like the TUA here in Mexico. And that more or less is $2.08 for the parking passenger. So roughly speaking, between $15 million to $16 million a year. So probably that is what you are seeing.
We will now take a question from Pedro Pascoal of JP Morgan.
A quick one from my end. We'll probably have the auction of a few airports in Brazil in the beginning of next year. I was wondering if you guys would have an interest in these assets or if there are any other inorganic growth opportunity that you are seeking at this point?
I would say a very simple answer. Not for the moment.
[Operator Instructions] And with that, that does conclude today's question and answer session. I would like to turn things back to Adolfo Castro for closing remarks.
Thank you, Kathy, and thank you, everybody, for joining us today on this Conference Call for our Third Quarter Results of 2018. Have a great week. Goodbye.
And with that, ladies and gentlemen, that does conclude today's call. We'd like to thank you again for your participation. You may now disconnect.