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 Fourth Quarter 2019 Results Conference Call. My name is Lauren, and I'll be your operator. [Operator Instructions] As a reminder, today's call is being recorded.
Now I'd like to turn this call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead.
Thank you, Lauren, and good morning, everybody. Thank you for joining us -- our conference call to discuss ASUR's Fourth Quarter 2019 Financial and Operating Results. 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 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 explanation of these risks, please refer to our filings with the Securities and Exchange Commission and the Mexican Stock Exchange.
As you read news from around the world these days, it's clear that many economies and countries are facing virus disruptions, challenges and uncertainties. Thus, we are pleased to report solid results during the fourth quarter and full year. Our diverse portfolio of airports is driving our good financial results, which show a 6.3% increase in revenues, excluding construction in the quarter, driven by strong performance in Puerto Rico, followed by Colombia.
Now let me walk you through some of the specifics for the quarter. Total passenger traffic accelerated to 7.1% year-over-year in the quarter, up from 4.1% year-over-year growth in the prior quarter with 14 million passenger traveling across our airports. This brought the total traffic for the year nearly to 56 million, a 6.5% increase from 2018 levels. The good performance during the quarter was due to increased passenger traffic year-over-year in our 3 key matters -- key markets, which I'll follow in our discussion in more detail.
Starting with Mexico, which accounted for 60% of total traffic in the quarter, was up nearly 3.6% year-over-year, driven mainly by domestic traffic, which rose close to 4.7%. On a positive note, we've seen growth in international traffic up slightly over 2.3% year-over-year compared to a similar decrease in the prior quarter.
International traffic was affected during the quarter by the bankruptcy of Thomas Cook and XL Airways, which significantly impacted traffic from Europe, while traffic from the U.S. remained stable. For the full year, Canada posted a 10% year-over-year increase in traffic; followed by the South America traffic that was up 8%; and Europe, 3%, more than offsetting the 4% decline in the U.S. traffic. As we enter 2020, we anticipate that the negative of weaker traffic from Europe will continue to weight on international traffic through the year. During the second half of 2020, we expect to see an improvement from the negative impact on capacity from the 737 MAX with the U.S. traffic improving year-over-year.
Moving on to Puerto Rico, which accounted for the 17% of total traffic, was our strongest performing market in the quarter. Traffic growth accelerated to 18% year-on-year from 6% in the third quarter with traffic recovering from the levels of [ served before ] Hurricane Maria in Puerto Rico in September 2017. This was mainly driven by domestic traffic which rose 19% doubling the international traffic growth. We expect domestic traffic growth to normalize throughout this year.
Finally in Colombia, traffic was up slightly over 9% year-over-year. It's accelerating slightly from the 14% growth rate experienced in the third quarter and accounted for 23% of ASUR's total traffic in the quarter. Domestic traffic was -- domestic traffic growth was up 9% year-over-year with international traffic increasing 11%.
Now turning to the financial results for the quarter. Consolidated revenues, ex construction, were up slightly 6% year-on-year to MXN 3.8 billion. Mexico accounted 68% of revenues ex construction; Puerto Rico, nearly 20%; and Colombia, close to 12%. Puerto Rico delivered the strongest growth in this quarter, up 15%; followed by Colombia with 9%; and Mexico, up 4%. Aeronautical revenues increased 8% year-on-year with Mexico up nearly 5%. Puerto Rico saw a 23% increase in aeronautical revenues, while Colombia rose just 3%. Commercial revenues were up slightly over 3% year-on-year, reaching MXN 1.3 billion in the quarter. On a per-passenger basis, commercial revenues were down 3% to MXN 92.3 impacted by the change in passenger mix, particularly the drop in higher spending European traffic in Mexico.
Now I will revert -- review commercial revenues by country, starting with Mexico, which represented 70% of ASUR's commercial revenues. Commercial revenues increased low single digits below the traffic growth. On a per-passenger basis, commercial traffic declined 2.5% to MXN 108.8 despite the opening of 7 new commercial spaces over the past 12 months. This partially reflects the 60 basis points mix shift to domestic traffic from international traffic in the quarter and a 10% decrease in the European traffic, particularly in duty free and foreign exchange services. Lower duty free revenues also reflect the impact on peso appreciation, while we saw difficult comps in advertising revenue as the year ago quarter benefited from a recovery in account payables of MXN 37 million.
Next, Puerto Rico, which accounted -- which also posted commercial revenues growth of nearly 2% despite the 18% increase in passenger traffic and opening of 16 new commercial spaces in the year. While advertising revenues continued to show a strong performance this quarter, along with retail operations and ground transportation, we saw declines in duty free and car rental operations. On a per-passenger basis, commercial revenues declined 14% to MXN 105 as a result of higher mix of flights during the night hours.
Finally, Colombia, again, posted strong commercial revenues, up 27% year-on-year and 17% on a per-passenger basis, reaching MXN 41. We opened additional new commercial stores during the quarter for a total of 36 new stores opened during 2019. We also saw sustained strong growth revenue across most business lines, particularly retail, car rentals, parking lot revenues. This quarter also included full impact from duty free operations that resumed last September.
Moving on to profitability. EBITDA growth this quarter was impacted by nonrecurring insurance recovery of MXN 134 million in the fourth quarter 2018 in connection with Hurricane Maria. Excluding the recovery, EBITDA would have increased 5% to MXN 2.4 billion versus a reported decline of 1% year-on-year. Ex IFRIC 12 and without taking into account insurance recovery in fourth quarter 2018, adjusted EBITDA margin declined 19 basis points to 63.7% this quarter from the 64.6% in the year ago quarter.
Note that this was mainly due to a 22% increase in operating costs and expenses, excluding construction, this quarter as fourth quarter 2018 results, including certain items that were a benefit to the cost for a total of MXN 281 million. Of these, MXN 108 million were reported in Mexico in connection with a tax refund at Cancun Airport and a reversal of provision bad debt of MXN 78 million in Puerto Rico related to a reduction in valuation of maintenance reserve as per IFRIC 12; and MXN 95 million in Colombia due to a reversal of bad debt provision, a high provision for the future replacement of fixed assets as per IFRS 12. A detailed explanation of these items can be found in the release published yesterday.
Fourth quarter 2018 also benefited from several items, including an asset tax refund, reduction in the valuation of the maintenance reserves as per IFRIC, among others. Including these specific items, operating cost and expenses, including construction, in fourth quarter 2019 would have increased 3% year-on-year, below the 6% year-on-year increase in revenues, ex construction.
By region, starting with Mexico, our largest country of operations, EBITDA was down 0.5% year-on-year, and the margin, excluding IFRIC 12, declined 299 basis points. However, excluding the reversal of provision for uncollectible accounts and the asset tax refund that benefited fourth quarter 2018 results for a total of MXN 108 million, adjusted EBITDA margin would have increased 70 basis points to 70.3% from 59% in fourth quarter 2018. In Puerto Rico, EBITDA declined 27% year-on-year to MXN 400 million, while the margin, excluding IFRIC 12, declined to 54% in fourth quarter 2019 compared to the 84% in the fourth quarter 2018.
However, excluding the nonrecurring insurance recovery last year, EBITDA would have decreased 3% year-over-year. Finally, Colombia reported 167% year-on-year increase in EBITDA with adjusted EBITDA margin, excluding IFRIC, expanding to 38% from 19% in the year-ago quarter. Note that fourth quarter 2019 results benefited from higher maintenance provision versus the same period in 2018 and the effect of the change in how we calculate depreciation.
Moving to the bottom line, majority of net income was MXN 1.3 billion, down 15% year-over-year. However, excluding the benefit from the insurance recovery last year, majority of net income for the quarter would have declined 5%, mainly reflecting the specific items I just discussed, as well as FX loss this quarter versus FX gain in the same period previous year.
Now looking at the balance sheet. Net debt was down 25% year-over-year to MXN 7.5 billion with a net debt of last 12 months EBITDA of 0.7x and interest coverage ratio of 10.8x. We remain committed to making the required investments to help position us for our long-term growth and success.
To that end, we invested over MXN 1.7 billion during fourth quarter 2019. Of these, over MXN 1.5 billion were allocated to the Master Development Program in Mexico, in particular the expansion of Mérida Airport, advances for the parallel taxiway to the second runway at Cancun and the first expansion of Terminal 4. In addition, we invested MXN 138 million in Puerto Rico for major maintenance work on taxiways and MXN 70 million in Colombia to finalize the cargo terminal at Rionegro Airport. Those concluded committed works at this country. During the full year, we made capital investments of MXN 2.6 billion, of which MXN 2 billion were allocated to Master Development Program of our airports in Mexico, nearly MXN 380 million in Puerto Rico, and MXN 176 million were invested in Colombia.
Looking into 2020, our Master Development Plan in Mexico total investments of approximately MXN 5.3 billion. The most relevant projects this year are the continuation of the parallel taxiway of the second runway at Cancun Airport and the beginning of the first expansion of Terminal 4. We plan to conclude the Phase 1 of expansion of the Mérida terminals and begin the second phase this year. The second and third phases at these airports are expected to be concluded in 2021.
As we have consistently stated, we take a long-term view of our business, and we continue to be well positioned for the long-term growth.
This concludes my preparation remarks. Lauren, please open the floor for questions.
[Operator Instructions] We'll take our first question from Mauricio Martinez with GBM.
My first question will be on commercial -- on the commercial revenues front in Mexico and Colombia. So in your remarks, you said that the deceleration or drop in commercial revenues in Mexico comes from a change in the mix in passengers. So maybe if you can elaborate a little bit more there. And also, what are your expectations now that, well, starting for 2020 for these brackets in Mexico and Colombia? That will be great.
Mauricio, as we have said before, the passenger mix was affecting the possibility or the potential in commercial revenues, the passenger, for the case of Mexico. During the year, if you see our passenger mix, 48% was domestic 2018, and now more than 50% is domestic. Also, we had an impact during the fourth quarter due to the bankruptcy of Thomas Cook and XL Airways, which had a significant impact on our traffic from Europe with a decline of 10%.
As I have said during the initial remarks, what I expect for this year is the continuation of the effect from the European traffic and probably a slight improvement in the case of the U.S. traffic. The combined effect of these 2 things will still have some pressure on our commercial revenues per passenger during the first -- at least during the first half of the year, while I believe we will see a better second half.
Perfect. And if I may, a second question on the -- on Colombia. Well, first, the -- how commercial revenue should perform going ahead there? And also, on the CapEx front, if you -- well now that you finished the committed investments there, what should we expect in terms of CapEx in Colombia?
Okay. In the case of commercial revenues, you are seeing very positive numbers despite the huge growth in passenger traffic we saw last year. What I believe for the future is that we will continue improving those in terms of commercial revenues per passenger. It is important to say that we saw an 11% Colombian peso depreciation against the Mexican peso. So if you evaluate those in Colombian pesos, you can add this 11% to the comparisons.
In terms of the CapEx, what I have said during the initial remarks is that once we completed the Terminal -- the cargo terminal at Rionegro Airport, this concludes the committed CapEx for the case of this country. So for the future, what we should expect is basically major maintenance CapEx.
Our next question comes from Alejandro Zamacona with Crédit Suisse.
Just a follow-up question on commercial revenues per passenger. This time in Puerto Rico, we saw a 14% decline on a per-passenger basis. So could you please give more color on what was behind that drop?
Yes, of course. During the fourth quarter, we saw a very important increase in passenger traffic, but a lot of this traffic is traffic that we receive at night. And of course, passengers are not big spenders at those times of the day. So what we need to do is to try to find how to improve sales with these passengers that now represent around 15% of our total passenger during the quarter. It's hard to say how we will be able to convince them to buy because, as I said before, these times -- these flight times are very difficult in -- towards that situation.
And just to have a context, previously to that 15% of passengers flying during the night, what was that number before this change?
It was around 60%.
Our next question comes from Rodolfo Ramos with Bradesco BBI.
My question is regarding cost. I mean what -- can you talk a little bit about your expectation? You saw a very muted growth this fourth quarter in terms of cost in Mexico. Can you talk a little bit about your expectations for cost in Mexico? And perhaps how this CapEx plan that you have, how could that push that upwards?
Well, in the case of cost, if you read the whole document, you will see that there was no major impact in cost during the quarter, and I do not expect any surprises during the year. In terms of what will be the impact of the new CapEx in terms of cost, once it is completed, I would say we probably will see some slight growth in cost for the case of Mérida Airport once the terminal -- once the Phase 1 of the terminal expansion is completed, which I believe will be completed during the month of July. But in general, this will be a very, very minor effect in the overall theme in Mexico. So we do not expect any major surprises through the whole year.
And if I may, a follow-up. Can you -- I don't know if I missed that. But can you remind us on Puerto Rico what are your -- what is your expected CapEx for this year?
We do not have any guidance in terms of the amount. But basically, what we are doing today is major maintenance repairs, basically in taxiways. And we will have some minor spending in the remodeling for a piece of Terminal B, but that's it.
[Operator Instructions] Our next question comes from Stephen Trent with Citi.
I have 2 for you. First off, when we think about Coronavirus and some of the major network carriers rotating capacity out of Asia, any indication whether you've seen any of that capacity come into your airports?
We do not have any direct flights from Asia. Most of the people that come from Asia basically connect in L.A., so we do not -- we are not seeing any impact from this.
Appreciate it, and I probably didn't phrase my question very well. But I was curious if you've seen any of the U.S. airlines, for example, taking some of their transpacific capacity out of that market and sending it U.S. to Mexico? Have you maybe seen any trends like that at all or haven't?
These are 2 different markets. People that travels from the U.S. to China is not people that travels all the way to Cancun. So once again, I do not see any impact from this.
Okay, appreciate that. And just one other for me. Was there any -- the major maintenance that's occurring in Puerto Rico, was any of that at all related to any minor damage from the earthquake felt at Mérida earlier this year?
Good question, Steve. The earthquake basically was on the south of the island. San Juan, Puerto Rico, is exactly at the north piece of the island. So if we think about it, we didn't have any impact at all in San Juan, Puerto Rico because of the earthquakes.
[Operator Instructions] We'll take our next question from Gabriel Himelfarb with Scotiabank.
My question is about the commercial revenue. We are seeing the -- in your results that there's like a decline in Mexico's revenue from duty free and banking and currency exchange services. Can you give us a bit of color what's the -- like the trend or what's happening in the sector?
I think I said during the remarks, the effects that we are seeing is because of the passenger mix of more domestic, less international. And that's exactly what you are saying. Internationals are the ones that buy duty free and also the ones that have FX exchange, so it's clear that the 2 main lines that are most -- are more effective are those because of this.
[Operator Instructions] We'll take our next question from Alan Macias with Bank of America.
Just one quick question. At this point, do you have any insight into the Sargassum season? Will it be lower or higher versus last year? Any insight into that?
Well, what I have seen in terms of the reports, and there's one from the -- one university in South Florida is that we are seeing a lot less Sargassum in comparison with the 2 previous years. So my expectation for this year in terms of that is that it will be significantly lower than how it was in the past.
[Operator Instructions] Our next question comes from Andy Jones with AMP Capital.
Two things. Firstly, can you comment on the degree of guaranteed revenues or the minimum guarantees within some of the duty free and the foreign exchange contracts that we have which might mitigate further downside risk there; and secondly, how you're currently thinking about dividends?
Sorry. I cannot hear you very well.
Sorry. My first question was around the level of minimum guarantees within some of the commercial contracts, i.e., is there any protection or mitigation for the downside from further declines. And secondly, how you're thinking about the dividend policy at the moment.
Okay. So in the case of minimum guarantee payment per passenger, almost all the contracts we have, in the case of Mexico, have the number as a protection. Today, the -- in the case of duty free, which are the most important activity in terms of revenue, they are not paying us minimum guarantee payment per passenger, so they are still in the concession fee payment.
So your second question is what?
The second question was around what are your current thoughts are on the dividend policy given the result of the year. But could I just follow up on the second one, though? Can you comment on how far from the minimum guaranteed levels we might be in that duty free contract?
I don't really have...
One way or...
No, no. I don't remember exactly how far we're from the minimum guarantee per passenger, but that should be -- we are, let's say, not charging them that amount.
In the case of dividend policy, we do not have a regular dividend policy, and we review this every year, depending on the result of the year, the tax position we have and the investment projects we have in front. Remember, as I have said during the initial remarks, that we have MXN 5.3 billion to invest in Mexico this year, which is the highest ever for us during these almost 20 years. But nevertheless, we will propose something next week to the Board of Directors in terms of dividend payment.
[Operator Instructions] Thank you. 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, Lauren, and thank you again for everybody for participating in our fourth quarter results conference call. On behalf of ASUR, we wish you a good day. Goodbye.
That does conclude today's conference. We thank you for your participation. You may now disconnect.