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 Fourth Quarter 2017 Results Conference. My name is Ebony, and I'll be your operator today. [Operator Instructions] As a reminder, today's call is being recorded.
For opening remarks and introductions, I'd like to turn this call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir.
Thank you, Ebony, and good morning, everybody. Thank you for joining us on our conference call to discuss our fourth 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.
Now moving on our performance. Last year was an eventful year for ASUR as we discussed throughout the year, we have increased our level of investment to accelerate growth and made significant progress in increasing our potential, both in Mexico, our core market, as well as 2 other markets outside Mexico. Importantly, we further diversified our operations and improved the equity structure of the company, which I will discuss in a moment.
A key event for us was the opening of Terminal 4 at Cancun Airport last November, which has increased our capacity at the airport by close to 40%, allowing us to serve an additional 9 million passengers annually. In May, we increased our ownership in taking the Aerostar, operator of San Juan Airport in Puerto Rico from 50% to 60% and most recently in October, we acquired 92.42% ownership stake in Airplan, which operates its airports in Colombia, a new market for us.
While all of these actions have us better positioned for future growth, we did face some external headwinds, including the Hurricane Maria in Puerto Rico and the lengthy local pilot strike in Colombia that impacted our financial results last year. So although results were not that we would like them to be, because of these events, we are confident that the newish initiatives we have undertaken are the right actions to drive long-term shareholders' value.
Moving on to the passenger traffic. Over 11 million passengers traveled to our airports in Mexico, Colombia and Puerto Rico this quarter. Traffic in Mexico, our main market, increased 6% year-on-year but was more than offset by the weak performance in Puerto Rico and Colombia as traffic remains impacted by external factors. Traffic in Mexico, which represents 66% of the total traffic in the quarter, shows similar growth rates around 6% in domestic and international traffic. Cancun remains the main driver behind the traffic growth, reporting increases of almost 10% and 6% in domestic and international traffic, respectively, which -- with most of our airports in Mexico, also contributing to higher traffic.
Recent passenger traffic figures are around middle single digits and the significance of the first quarter, given the seasonality, indicates that we should not expect to achieve high single-digit traffic figures this year.
In Puerto Rico, 13.5% of the total traffic in the quarter fell 27% year-on-year, as load factors in both domestic and international travel remain impacted by the aftermath of Hurricane Maria, which hit the island last September. Keep in mind that when Hurricane Wilma hit Cancun in 2005, it took us 16 months to return to where we were before that catastrophic event. Based on our experience, we should not expect positive traffic figures in Puerto Rico this year.
Traffic in Colombia, 20.4% of the total traffic in the quarter declined 13% as domestic traffic fell almost 17%, reflecting a local pilot strike that began in October and lasted until early last year. This more than offset low double-digit international traffic growth. The pilot strike is over, but collateral effects remain in effect, which we expect to be diluted as the year goes on.
Turning to the P&L for the quarter. On June 1, we began consolidating Aerostar as a result of acquisition and in accordance with IFRS 3, ASUR's business combination financial statement for the fourth quarter reflected the following effects: in the income statement a gain of MXN 7 billion reported under the line came from business combinations; partially offset by a 9 -- MXN 98.8 million in amortization of the concession and MXN 2.8 billion in recognition of the minority interest in Aerostar.
In the balance sheet, the recognition of a net intangible asset worth MXN 5.9 billion, goodwill of MXN 5.6 billion, deferred taxes for MXN 605 million and minority interest for MXN 4.4 billion in the stockholders' equity.
ASUR out -- carried out the deterioration test of the long-term assets in accordance with the International Accounting Standard 36, as a result of the effects of Hurricane Maria in Puerto Rico and, determined an impairment of MXN 4.7 billion, which impacted depreciation and amortization line in the income statement, and reduced goodwill by the same amount in the balance sheet. The net effect of these noncash records in the P&L was a positive effect of MXN 2.2 billion.
Consolidated revenues, excluding construction revenues, were up 59% year-on-year to MXN 3.1 billion. In Mexico, revenues x construction increased by 14%, while Aerostar contributed with 19% of the total ex construction revenues and Colombia with 10%.
Aeronautical remained strong, up 66% year-on-year, driven by the traffic growth in Mexico and inclusion of Aerostar and Colombia.
Commercial revenues increased 53% to MXN 1.1 billion year-on-year, driven by the 6% growth in Mexico, along with a contribution of MXN 200 million from Aerostar and MXN 68 million in Colombia. Commercial revenues per passenger, however, fell 1% to MXN 95.4 in the quarter, reaching MXN 103.7 per passenger in Mexico, MXN 130 in Puerto Rico and MXN 35.3 in Colombia. Looking ahead, we expect to continue driving further growth at Terminal 4 as Cancun Airport continues to ramp up and we start to see improved results in Colombia.
Consolidated EBITDA increased 44% year-on-year to MXN 1.9 billion in fourth quarter. With Aerostar contributing 16% of the EBITDA, Colombia with 3%, Mexico in turn, posted a 17% year-on-year increase in EBITDA, adjusted EBITDA margin, which excludes construction revenue and costs in Mexico, Colombia contracted 63% from 70% in fourth quarter last year, reflecting the lower comparative EBITDA margin of Aerostar and Colombia.
Operating results, however, were affected by the effects of the total impairment by MXN 4.9 billion and inclusion of depreciation in Colombia, starting fourth quarter 2017, which amounted MXN 55 million. Excluding these effects, operating results would have increased 23.9%.
Moving on to the balance sheet, we remain -- we maintained a solid financial position, with net debt to last 12 months EBITDA ratio of 1.7x compared with 0.2x a year ago and the 2.2x in the previous quarter. Total debt increased to over MXN 13.4 billion during the year from almost MXN 4.2 billion a year ago, mainly reflecting the MXN 7.8 billion debt held at Aerostar; MXN 3.0 billion from Airplan in Colombia; MXN 4 billion loan at Cancun Airport to finance the acquisition of the Colombian airports; and the Cancun's prepayment of $1.4 billion in the U.S. denominated debt.
In terms of CapEx, ASUR invested a total MXN 766 million in the quarter. Of these, MXN 465 million were allocated to our Mexican airports, mainly to finalize the construction of Terminal 4 that opened during the fourth quarter. We expect to make the final payments related to this building during the first quarter of the year.
We also invested over MXN 200 million in Colombia and almost MXN 90 million in Puerto Rico. This brought a total CapEx for the year 2017 to MXN 1.5 billion. We have submitted our updated MDP proposal to authorities during the fourth quarter and this may result in a new investment program and a new maximum rate for the period 2019 to 2023.
This completes my remarks. And I will now open the call for questions. Operator, please go ahead.
[Operator Instructions] And we will take our first question from Pablo Monsivais with Barclays.
I have a few question. The first one is how construction revenues work in Colombia? And what could drive profit in this line item? Also, when we should expect Airplan to normalize? You mentioned some collateral effects of this but what should we expect to see normalized operations? Also, I have a question on what investment opportunities you have in Cancun for next MDP. And lastly, and I'm sorry for these questions, is if you can elaborate a bit more on the MXN 7 billion gain in business combination that you posted in this quarter?
Pablo, thank you for your questions. Construction revenue in Colombia, that does not work in the same way as it works in Mexico. The main difference is that the amount that was authorized by the government is not exactly a mandate with the company. In other words, if there's reduction in the cost of constructing something and once this construction is approved by the government with all the requirements they requested, the difference can be recorded as profit, which is not the case in Mexico, because in Mexico, the commitment is not just the concept or the project itself, but it's also the amount. So that is why in the case of Mexico, you never see a profit in that sense. In the case of Airplan to normalize, hard to say. I hope that in the first half of the year, we will see the effects of this strike diluted and that the capacity from this main airline there is recovered. Investment in Cancun for the next MDP, of course, today, what we have presented is our proposal. We cannot say that this is -- these projects may be or will be authorized by the government, but the main 2 projects in the case of that airport we have presented to the authorities are the first expansion of Terminal 4 and also the construction of a taxiway for the second runway we have there. Remember that this runway was constructed in 2009 and at the moment we were not needing the taxiway. So now with the current situation and the growth in traffic we have seen as for the year 2009, we are considering that we now require -- we'll require a taxiway. So those are the main projects we have presented to the authority for the next year.
Do we have a ballpark idea of this size, the amount of money invested, ballparking?
Well, I have, of course. I have presented those amounts to the authority, but I will not like to start playing with numbers today because we are at the early stage of this process. This process may take one year. So better not to start shooting the numbers until the authority can say something else. In the case of the business combination, basically, let me try not to be technical in order to be more clear on the explanation. If you recall, the original equity we have invested in the case of Puerto Rico, in February 2013, was $116 million and that was the same amount that our partner invested in the company. So the equity, the common stock of the company was $232 million. In May last year, our partners sold its 50% equity stake in $430 million. So if we just try to use simple math, which is not the case on all of what we have done, but we just do simple math, we can say that the equity of the company with that purchase price was $860 million compared with the $232 million in the case of the contributed equity. So the difference between the book value and the purchase price is what we call goodwill. The procedure in accordance with the IFRS 3 is to make a lot of analysis and to try to allocate the real balance for this goodwill and to try to identify if there is any other assets that can be recorded differently. So in the case of these $632 million, $326 million were allocated to goodwill and $302 million were allocated differently. What we have assigned as commercial rights, so that was the result of the process we have made. So in that sense, we have increased our assets to $632 million and then to assign the correspondent in the other side of the balance sheet. I don't know if I was able to answer your question.
We will take our next question from Leandro Fontanesi with Bradesco Corporation.
My first question is regarding Cancun. So you opened a new terminal in the fourth quarter and you opened close to 60 stores right, in November? So we saw a big increase in terms of the aeronautical and non-aeronautical revenue, but we do not see a big increase in terms of cost of services. So I was wondering if as these stores ramp up, if we could see a spike in cost that we do not see in the fourth quarter of the results.
Leandro, so I will -- I would say most of the cost is there in the fourth quarter. We do not expect additional or significant additional cost for the year. Of course, the additional cost we will see in the future for this building, it will be 1 year after the opening of the building in terms of major maintenance cost. Let me explain myself. If we have installed elevators, electrical stairs, passenger bridges, x-ray machines, all of these, all of them have, in general, 1 year guarantee for the case of maintenance. So once this 1 year is over, then we will have to pay for the normal major maintenance of these items. So for the case of now or for the case of, I would say, the year 2018, we should not expect more increases in cost of services as a result of these infrastructure. That will happen, let's say, in the year 2019, once the guarantee of these equipments is over.
Okay. Got it. And if I may, a question on Colombia? So you mentioned that you had a contract expired with Duty Free. If you could mention how relevant is this? And if you plan to sign a new contract or renew it? And also if you could give an update on the acquisition of Oriente?
Okay. Let me talk about the Duty Free contract. It expired. So we're in the process to relocate this unit and we are in the process also to make a bidding process for the new concessionaire there. In terms of when do we expect to restart operations of this unit, I believe it will be in the second half of the year with better layout, better space and better conditions for the contract. In terms of relevance, of course, for the company itself, it's relevant as it is in the case of Mexico and it is in the case of Puerto Rico. In the case of the other 6 airports, we're in the process -- we're still in the process to try to reach a new agreement with the vendors and then to go for approval of that with the Antitrust Commission, the real name of that unit in Colombia, Superintendencia de Comercio. So I believe we're going to try to reach an agreement very soon and then to go and proceed with approval once this is completed. But just to be clear, the approval may take a year, so I do not expect to see that into our financial statements for the year.
Okay, got it. But with regards to Oriente?
Yes, that's Oriente.
Okay. And just a last very quick question in regards to Puerto Rico because your non-aeronautical revenue that you hold up very well, so I was just wondering if there is -- you could see some impact in terms lower non-aeronautical revenue due to a steep decrease that you have been seeing in terms of traffic there. Or if we could continue to see this non-aeronautical revenue holding well?
Okay. The non-aeronautical revenues were kept really well because of the same events, so some of the people that were sent from the Federal U.S. government there expanded in things that were not normally expanded. So let me be clear, so if you see the lines of -- the business lines of revenue in Puerto Rico, you will see a very nice spike in the case of car rental and indication of parking lots. So in the future, once these people are out of the island, so they have completed their work and we will have to go back to a normal revenue. So something was good, something was wrong. So that's what I can say for the moment.
Our next question will come from Ramon Obeso with Scotiabank.
I just have one question on Colombia. What specific actions are you taking to improve margins? And what levels of EBITDA margin should we expect for the year-end?
Okay. In the case of the initial actions, because I will call those in that way. Just to review commercial contract and basically to upgrade or update those contracts to international standards. That's going to be the first place. Second one is finalize the passenger flow and the locations of some of these units and then to try to improve these to provide better service for the passenger. These -- the numbers you are seeing in the case of Colombia are the beginning troughs. So let's say -- let's call those day 1. In the case of Colombia, and I have said that before, this is not a 1 year project. This is a 3, 4 year project in order to get or to try to subtract the real potential this place has. So I hope that in the future, you will see how it is improving and better numbers, quarter-to-quarter, in terms of commercial revenue per passenger. But if not, I will not suggest to try to say that this is going to be fixed in 1 year, no. This is a long way to go. As it was in the case of [indiscernible].
We'll move next to Stephen Trent with Citi.
Just a follow-up on the question on the MDP for Cancun. So you mentioned an expansion of Terminal 4 and I believe a taxi that's going to connect to the second runway, is it -- I mean, a kind of a dumb question on my part, but is it fair to say that the CapEx for those projects should be considerably lower than what you invested in Cancun over the current 5-year period?
Stephen, thank you for your question. If you want to get the raw figure of the whole thing. Of course, this is preliminary and without commitment, without anything and we have to talk with the government and to review every single project for the 9 airports we have. But the most important thing is to understand the concept of the MDP. So if we go back 5 years ago, I would say roughly numbers again, 50% of that was major maintenance and 50% was expansions. So for the next MDP, of course, we will have the 50%, originally 50% major expansion, so cost plus inflation plus the major expansion for the other 50% that we added during this MDP. So in other words, the major maintenance for Terminal 4 and all the projects we have developed, expansion of Terminal 3 and so on, plus expansions. In the case of expansions, as I said before, we are proposing the first expansion for Terminal 4, we are proposing a taxiway for the second runway in the case of Cancun Airport. And we -- and we're proposing as well a major expansion of the airport of Merida. Those are the main and most significant projects in terms of expansion. So total figures, I do not expect to see reduction in the case of the total amount in comparison with what we have in the previous MDP. Another important consideration is that, as you have seen, inflation in Mexico has increased and also exchange rate has changed. So if we go back 5 years ago, when we presented and when it was approved, our MDP -- the exchange rate was between MXN 13 to MXN 14 per dollar. Today, we are talking about MXN 18.5. So all the companies that we have to invest, that are denominated in U.S. dollars, of course, will not cost the same. So don't try to say or don't try to think that if you don't see too many projects that we will not be investing a significant amount of money.
Okay. Very helpful color, Adolfo, appreciate that. And just 2 more for me. Regarding Airplan in Colombia versus your airport in San Juan, can you give us a sense as to how much Airplan's traffic relies on a single airline versus the air traffic diversity you have in San Juan, with respect to whether there's a big percentage reliance on just one carrier?
In the case of Colombia, of course, we are more concentrated because there's less number of airlines there. I would say and I don't have the exact or precise number in the top of my head, but it could be 50% for the case of Avianca.
Got it, and any kind of broad ballpark and in San Juan's case? Let's say, under normalized circumstances, I mean, I know it's not normalized at the moment.
In the case of San Juan, when is this going to be back, I really don't know. As I mentioned in my initial remarks, it took us 16 months in the case of Wilma. It could take more in the case of Puerto Rico. That will depend on how fast the energy could be recovered. This is not a precise number, but probably today, after almost 120 days from the event, there -- apparently, there's still 25% without energy. And the situation of the energy company is not the best. As you have seen, the governor has said that they will start the process to sell the assets of this company and to probably, let's say, privatize, which is probably not the right legal word for that, but this may take longer because of this situation. In terms of reconstruction, it's not that easy in the case of an island because all of the things will have to be brimmed into the -- into the island. So the reconstruction may take longer. Some of the hotels are going to be closed, I believe, for more than a year. So hard to say or to give you precise moment where we are going to go back to the 9.6 million passengers we have there, but for sure this year we will not see positive numbers compared with those last year.
Got it. Very helpful, Adolfo. Just one last one for me. When I think about where ASUR, GAP and OMA were in the late '90s with European airport operators that received a fee for their strategic advice and where I think about where you guys are now, kind of any broad thoughts with respect to the usefulness of the current technical assistance fee?
I would say, you remember, in the '90s, that is 18 years ago, but I have to say that same kind of companies are still around us, and you could see those or some of those today in Colombia, trying to help us in that process as well. So you may understand very clear that this is a very thin company in terms of management and we have decided to keep that in that way. We are 5 -- we have a company of 5 directors, so there's many things that these people do and some other people as well and there are many, many, many projects that during the year, they support this company. And I don't know if that answers your question.
We'll now take a follow up from Pablo Monsivais with Barclays.
Just a follow up on the Puerto Rico commercial revenues, can we -- or can you share with us the percentage of commercial revenues that are fixed versus variable and how this compares to Cancun?
My God, tough question, because I don't have the exact figure, but, in general, I would say that we do not like to work with a fixed amount. So to translate in a clear concept, rent by square meter, fixed amount by square meter, probably the only cases we have for those kinds of activities is banks because they don't want to give us a percentage on their deposits. And so in that sense, the contract is flat rent per square meter, but this is not significant in terms of the total of the company. So I would say, most of our commercial revenues are basically a percentage on what these people get in both cases. So most of the things of the commercial revenues are basically variable.
Okay. Yes, I mean, I basically wanted to have a sense of how actually traffic affects Puerto Rico because as we have seen a very good numbers in [indiscernible]
Yes, as we have seen, we still have very good numbers in the case of Puerto Rico and that is because of what I already mentioned in terms of all of these people that was there to help the recuperation of the reconstruction process.
Our next question will come from Mauricio Martinez with GBM.
So I was wondering if you can share with us an estimate for how long do you expect the concession in Colombia would last. And if this would be in the low end of the range or in the high? And also if you can share with us how much has the asset captured in terms of regulated revenues from through -- expect that for the life of the concession? That will be...
In the case of Colombia, the moving piece is the term of the concession. As we have announced in our previous release, the concession can go today for the 2033 up to 2049. In accordance with our own calculations, and of course, we do not have a crystal ball for the future, the term of the concession are closer to the 2033 than the 2049.
[Operator Instructions] And it looks like there are no further telephone questions at this time. So I'd like to turn it back over to you, Mr. Adolfo, for any additional or closing remarks.
Thank you, Ebony. And thank you, everybody, for joining us today in this conference call for the fourth quarter results. Have a great weekend. Goodbye.
This concludes today's call. Thank you for your participation, you may now disconnect.