Grupo Aeroportuario del Sureste, S. A. B. de C. V. Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 24, 2023

There are 9 speakers on the call.

Operator

Ladies and gentlemen, and welcome to Assur's Third Quarter 2023 Results Conference Call. My name is Ryan and I will be your operator. At this time, all participants are in listen only mode. We will conduct a question and answer session towards the end of today's conference. If you are using a speakerphone, please lift a handset before making a selection.

Operator

As a reminder, today's call is being recorded. I'd now turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir.

Speaker 1

Thank you, Ryan, and good morning, everyone. Before I begin discussing our results, let me remind you that certain statements made during This call may constitute forward looking statements, which are based on current management expectations and beliefs and are subject to several risks and uncertainties that could cause actual results to differ materially, including factors that may be beyond our company's control. As usual, additional details about our quarterly results can be found in our press release, which was issued yesterday after market closed and is available on our website Investor Relations Sector. Following my presentation, I will be available for Q and A. Before getting into a discussion of the quarterly results, let me start today's call with a recap The recent developments in connection with the concession agreements of our Mexican operations as recently announced.

Speaker 1

On October 4, as we received a notification from the Mexican Federal Civil Aviation Agency That has decided to amend with immediate effect the terms of the tariff base regulation. These terms were laid out In the exhibit 7 of the concession agreements established in 1998 and then amended in 1999. On October 19, ASU received a notification from the Mexican Third Hand Civil Aviation Agency, which modified the document received on October 4. The full text of the amendment exceeds 7 was filed with the Mexican Volsa and the Securities and Exchange Commission. On October 2018, the lower hands of the Mexican Congress approved the initiative to increase the concession fee from 5% to 9%, which is now under review by the Senate.

Speaker 1

We do not know when this may be approved and when the change in the case will be effective. Asurion is currently evaluating the charges the changes implemented by the Mexican Federal Civil Aviation Agency and the potential impact that it may have on its business including its financials. Now moving on to Azur's operating and financial performance for the quarter. Before starting, Note that all comparisons are year on year unless Obam White noted. Starting with traffic.

Speaker 1

On a consolidated basis, 17,600,000 passengers traveled to our airports in the 3rd quarter, A record high for the 3rd quarter. We accomplished these even as the proved rated slowed to 3.4%. Additional traffic trends by country were mixed. As in the prior quarter, the suspension of 2 Colombian airlines earlier in this year Together, the increase in the value added taxes resulted in a construction of nearly 15% in total traffic in Colombia. By contrast, Puerto Rico again delivered the fastest growth, up nearly 25% driven by solid performance in both domestic Lastly, traffic in Mexico was up close to 6%, driven by domestic traffic that offset Fees in the passenger traffic to and from Europe, South America offset by higher traffic from the U.

Speaker 1

S. And Canada. Moving into the P and L. As a reminder, all reference to revenue and cost excludes construction and cost revenues. Also note that Puerto Rico and Colombia figures reflect the strong Mexican peso, which appreciated over 13% and 2% versus the U.

Speaker 1

S. Dollar and the With these revenues increased over 3% to just over MXN 6,000,000,000 in the 3rd quarter, mainly driven by growth in Aeronautical and Revenues in Mexico, while Puerto Rico and Colombia posted declines at nearly 1% and 16% respectively. However, measured in local currencies, revenues increased 18.6% in Puerto Rico and 3.4% in Colombia. Overall, Mexico represented 73% of total revenues, while Puerto Rico and Colombia accounted for nearly 16% 11%, respectively. Commercial revenues were up 3% In line with passenger traffic growth, driven by increases of 2% in Mexico, 8% in Puerto Rico, partially offset by a 1% decline in Colombia.

Speaker 1

On a per passenger basis, commercial revenues remained flat at MXN 116.5 with Mexico and Puerto Rico contracting MXN 200 and MXN 36 and MXN 139 per passenger respectively. While Colombia posted a midterm increase to MXN 43. In local currency, Puerto Rico and Colombia posted increases in commercial revenue per passenger approximately 2.5% and 27.3 percent respectively. These increases were partially driven by actions we have undertaken to further encase Our passenger traffic experience, this includes 66 new commercial spaces open across all Our airport network during the last 12 months, of these 16% have been in Mexico, 4 in Puerto Rico and 4 in 6 in Colombia. Consolidated EBITDA for the quarter increased year over year 3% to MXN 4,200,000,000 in Mexico, remaining the main contributor to profitability, both in the 3% increase to MXN 3,300,000,000, fueled by a recovery in Puerto Rico with EBITDA up 8% to just over MXN 500,000,000.

Speaker 1

The performance in Colombia also improved with EBITDA of MXN 411 1,000,000. Although this represented a decline of nearly 10%, It was better than the 20 1st percent decrease reported in the Q2 2023. In turn, consolidated adjusted EBITDA margin, which excludes construction, remained relatively flat to 69.6% year over year. As strong performance in Puerto Rico, which delivered a 400 basis Points margin increase offset declines of 90 300 basis points in Mexico and Colombia respectively. In summary, we delivered another good quarter despite the strong peso.

Speaker 1

Good results in Mexico were further supported by strong performance in Puerto Rico An improving profitability in Colombia reflecting the suspension of operations of 2 Colombian airlines Earlier in the year at higher value added taxes. We remain strong in healthy balance sheet With cash and cash equivalents over MXN 16,900,000,000 and a healthy debt profile, our strong financial position enables to We turned cash to shareholders in 1 of EBIT. Specifically, in May, we paid an ordinary dividend that amounted of nearly MXN 3,000,000,000 and in November we will be paying an extraordinary cash dividend of MXN 10 per share equivalent to approximately ARS 3,000,000,000. Finally, capital expenditures in the quarter Total MXN 3.67 million of each 64% was allocated to Mexico, Thank you very much to thank Puerto Rico and the remainer in Colombia. This concludes my presentation.

Speaker 1

Brandon, please open the There's

Speaker 2

no

Operator

Our first question comes from Juan Ponce with Bradesco BBI. Please go ahead.

Speaker 2

Hi, Alonzo. Good morning. Good morning, everybody. Thank you for taking my question. Considering that the MDP negotiation is a long process And the fact that you are now in the last stretch of the tariff negotiation, what are the implications from the regulatory changes On your NBP negotiating process, that's my first question.

Speaker 2

And my second question would be, do you agree that perhaps The initial tariff impact could be around 10%, which is what some members of the S and T have mentioned. And if the impact if the financial impact is unknown or if we get an even greater negative impact, Are there any legal avenues you can take to curtail these measures? Thank you very, very much. Good

Speaker 1

morning. In the case of the MDP process, as you have mentioned, this is almost 2 years process. We were almost at the end of the process. And now with this document, we will have to restart again in terms of the document that we will have to present to authorities In the coming days, I would say. As we speak, we are adjusting the document in accordance with the new Regulation that we have received last week.

Speaker 1

So we are now in the process to evaluate what the impacts Maybe on this respect. In terms of what you're saying of the 10% tariff reduction etcetera, It's not something that we are at the moment available to answer. We will have to see and wait Until these new basis of regulations are applied in the numbers of the company And that I believe is going to be towards the end of the year, probably the 1st week of January, when we are going to be able to say What was the implication of this new base tariff regulation on the non Saudi company?

Speaker 2

Okay. Thank you very much, Adolfo. And regarding the any legal avenues you can take to So these measures is a possibility or not at all? Not in the cards. Thank you.

Speaker 1

For the moment, we are not considering any legal Action on this respect.

Speaker 2

Got it. Thank you very much, Orithel.

Operator

Thank you. Our next question comes from the line of Guilherme Mendez with JPMorgan. Please go ahead.

Speaker 3

Good morning, Adolfo, and thanks for taking my question. I have a follow-up on the MDP and the regulatory changes, which is related to the concession fees. On the old contract, there used to be a compensation on tariffs regarding any potential increase in production fees. Just wondering how should we think about this going forward? So this increase from 5% to 9% On the exercise fee should be fully incorporated by companies or there may be some kind of compensation on the new contract?

Speaker 3

And the second question is regarding to On the Dominican Republic, if there's any update on that front, if you could share any details in terms of timing or potential differentials of the project? Thank you.

Speaker 1

Hi, good morning. In the case of the 529 as I have mentioned during the initial remarks, This has not been approved yet. On the first place, it's subject to setup approval. And second, we don't know when this is going to be applicable or as from when in the case senate Approved. So in that sense, we don't know yet how the new document The new types of regulations are going to treat these charts.

Speaker 1

In the case of your second question, could you repeat that again?

Speaker 3

Yes, sure. It's regarding the investments on the Dominican Republic that you announced on the previous quarter, if there's any updated on this project or if you could share something in terms of timing or the financials of the investment? Thank you.

Speaker 1

Yes. We are in the process today as we speak finalizing the design of the buildings. And we believe that we will initiate construction in the first half of next year.

Speaker 3

Thank you, Adolfo.

Speaker 1

You're welcome.

Operator

Thank you. Our next question comes from the line of Fernanda Raykar with BTG Pactual. Please go ahead.

Speaker 4

Hey, Adolphe. Good morning. Thank you for taking my question. I have 2. First on the truck and windmill issue that we saw that might impact the Volaris and VIVA growth base.

Speaker 4

Just wondering how are you expecting the impact on Osu? I know it maybe could be early, but we know that Cancun has a great Exposure to Volaris. So if you could give us your opinion any thoughts if you expect this capacity to be absorbed by other airlines Or it could impact us through? And second, on traffic evolution, as you mentioned on your remarks, Puerto Rico is doing very well. So just wondering your forecast for Puerto Rico going forward.

Speaker 4

In Colombia, they are down by more than 10% more or less. I think the last time we spoke you mentioned a 20% drop fall that you were expecting. So just wondering if you're still For addressing this number and when should we start to see growth patient or more like? Thank you.

Speaker 1

You're welcome. Well, in the case of your first question that has to do with Bretton Whitney engines. It is not just Viva and Volaris. This is all around the world. It's 3,000 engines that we recall that's 1500 airplanes.

Speaker 1

And that accounts for many other airlines. I know that JetBlue had some, Spirit had some American Airlines, very few of them. So to be honest, today we do not have Enough information to say what the implication is going to be in the traffic of the world. In the case of VIVA and Volaris, VIVA has said to us that they do not see a major implication with this situation. In the case of Volaris, what I understand is that around 60% of their fleet has this kind of engine.

Speaker 1

So We are expecting a major impact from Volaris and I agree with you that Encun has A lot of flights with these airlines. So the best way to evaluate this situation would be to hear Volaris and to see what they're going to say during their conference. But yes, we do expect some effects of these next year That will of course depend on how fast and how the manufacturer Because the engines of Polaroids that have to do with the cycles they have with their engines And it's something that we don't know yet. In the case of Colombia, the 20% was what we have Said that these 2 airlines meant 20% of our traffic last year. So whatever number is Better than the 20%.

Speaker 1

That means that the other 2 airlines, Bianca and LATAM are recuperating From these two airlines that disappear or that went in stop operations. So the number we have Recently published is in my opinion a good number because it's lower than the 20%. Remember that these airlines were out since February this year. So as from February next year, We will see the traffic start growing again.

Speaker 4

Thank you. And just a follow-up on Puerto Rico. Do you expect to keep this double digit growth pace going forward?

Speaker 1

The growth that the extraordinary growth we are seeing in Puerto Rico right now has to come with a new airline Ultra low cost carrier that started operations in Puerto Rico and they have increased our traffic substantially. So this is good news for Puerto Rico. We don't know how much or how long is this going to last. But for the moment, we are very happy to see this 20

Speaker 4

Thank you, all those for having a good day.

Speaker 1

Thank you.

Operator

Thank you. Our next question comes from the line of Bruno Amorim with Goldman Sachs. Please go ahead.

Speaker 5

Yes. Good morning. Thank you for taking my questions. I have 2. The first one, I just wanted to Reconcile the big picture here.

Speaker 5

The direction that the government is increasing the concession fee, they have Stated that they want to lower tariffs. So if you want to keep the contract balanced, meaning allowing for the private operators to earn The allowed return on invested capital, I guess, you could extend the life of the concession or eventually postpone CapEx. So The question is, are those the 2 levers still on the table? And are you in talks with the government to eventually postpone CapEx or to Extend the life of the concession. So that's the first question.

Speaker 5

And the follow-up on that is, If we get to a situation where it's not possible to square all those variables, if the contract is not Balance, if the concession is not earning the allowed return, is it still an option to go to the court or not? How do you think about this trade off going to the courts or not? What could trigger this decision? Thank you.

Speaker 1

Well, in the case of your first question extending the concession or diminishing CapEx, well, first of all, I have say that CapEx is not because we want the CapEx is the mathematical relation in terms of the demand. So if demand Increases of course CapEx increases, so we will have to construct whatever is necessary to support The level of service for the demand that's coming. We are not in talks about extending the concession contract. And in terms of the balance, I do agree with your question about how to reduce rates if you're increasing fees. It's something that we will have to see once we apply this new regulation document in our numbers So in our MVP towards the end of the year.

Speaker 5

Thank you, Adolfo. And so if at the end of the day, there is no offset for the higher concession fees for the lower tariffs, Is it fair to say the returns would likely be lower than what they should be? And in that case, Could the company go to the court?

Speaker 1

Well, Bruno, in the case of the document, you already have the full text of the document. So In terms of discount rate, I do believe that you all have all the necessary information to calculate What is that number today? So it's now more than ever Completely transparency for you to calculate this number.

Speaker 5

Thank you, Adolfo. We can follow-up offline, Mr. Seck. Thank you.

Speaker 1

You're welcome.

Operator

Thank you. Our next question comes from the line of Alberto Valerio with UBS. Please go ahead.

Speaker 5

Hi. Thank you all for taking my question. My first one, I would like to if you could Provide us some details on Mexican traffic. We see a resilient domestic demand and Stockton International, this is a trend. It's something that we should see recovering next quarter and next year.

Speaker 5

And my second one, if you could give it some color as well on Mexicana de Abiacion, how should we treat it? Could we see firstly some increase in supply and then we might see some companies struggling to follow the price? What is your color on it? Thank you.

Speaker 1

You're welcome. In the case of the Mexican traffic, As I have said, yes, we do expect some negative effects next year Due to the fact of these threatened Whitney engines in the case of Polis. Of course, on the other side, as you have mentioned, the government has announced that they will initiate operations with Mexicana Airlines. This Mexico, well, what we have heard from them is that they will initiate with 10 aircrafts. Just to give you an idea today the Mexican fleet is around 3 56 aircrafts.

Speaker 1

So if we add 10, it is not an important effect on the whole scenario. In the case of Pratt and Whitney engines for Volaris that means more or less 60 Aircraft that could be stopped for 200 or 250 days. So the negative effect It's offsetting these new addition airline of Medicana, I assume what We say what we know is that they have not received as of today The license to start operations even though they were saying that they will be initiating flights December 1 this year. So that maybe it will take more time.

Operator

Thank you. Our next question comes from the line of Anton Modenkotier with GBM. Please go ahead.

Speaker 6

Hi, Adolfo. Thank you for taking my question. Without getting much into details, I understand you're still evaluating the effects that the Regulatory change will have, but thinking on a more strategic way and knowing the most relevant changes of these amendments, What would you say are the main ways that these modifications could affect your way of looking at the path and decisions taken as we're going forward?

Speaker 1

Well, again, in that sense, Anton, we are transporting or updating or adjusting our documents To these new regulatory days that we have received last Thursday, so it's too early to tell. Once they apply this new regulatory regime, we will be able to say what the effects were in the case of our MDP.

Speaker 5

Okay. Thank you. And also just

Speaker 6

a quick follow-up. I didn't get I'm not sure if I got it right. But given that this was such that adjustment were so quickly and you were already at the end of the MVP, is it possible for you to delay The final outcome of the MDP or it has to be ready for the beginning of the next year?

Speaker 1

I do believe that it has to be ready by the end of the year unless They say that they are not ready. So we will I do believe that we will deliver our documents Updated with these new regulatory base in the coming days and we will take it from there.

Speaker 5

Perfect. Thank you.

Speaker 1

You're welcome.

Operator

Thank you. Our next question comes from the line of Stephen Trent with Citi. Please go ahead.

Speaker 7

Good morning, Adolfo. And thanks very much for taking my question. The first is actually a follow-up from Alberto Valerio on AMLO's new airline. Are you hearing anything at all Pushback wise with respect to the government arguably having control of some airports And an airline in the same market?

Speaker 1

Well, As far as I understand, they have adjusted the law because in the past that was not possible. There was no way that someone will have Airports and airlines in both centers of more than 5% From one to the other, no. So I do believe that they adjusted the law in order that they can have this.

Speaker 7

Wow! Okay. Appreciate that Adolfo. Just one other very quick one for me. I know that Amluz also has this Tulum airport that seems to be in the works.

Speaker 7

Do you have any high level view with respect to whether the risk to charter traffic could impact Your absolute maximum tariff?

Speaker 1

Well, in the case of Tulum Airport and that's a good question. Aeromexico, Enviva started to sell tickets as from December 1st From that report, so it's something that you can see in their web page on the reservations page. They will start December 13. In the case of charter flights, I do believe that charter flights that have final destination, let's say, Thank you, Lumen. So I'll apply a del Carmen.

Speaker 1

They should be using to Loom as Airport because their final destination is closer to that airport. That of course will have an impact on Cancun and that has been considered in our NBP and that technically speaking may resulted in the increase of

Speaker 7

Okay, perfect. Appreciate the color, Rodolfo, and thanks for the time.

Speaker 1

Thank you.

Operator

Thank you. Our next question comes from the line of Pablo Italde with Santander. Please go ahead.

Speaker 1

Hi, Adolfo. Thanks for taking my question. I have a question On the relation as well. And now that you have to discount using a WACC, which level of debt you have to use? The one that you have on the Mexico structure or the one that you have consolidated?

Speaker 1

That's my question. Pablo, there is no way to understand what you're saying. Your line is cutting in a very bad way. Are you listening to this should be better now? Good morning, guys.

Speaker 1

I have a question on the debt you have to use to calculate the WACC, Now on the new discount rate, do you have to use the one in Mexico or do you have to use the one consolidated? Well, in the case of that, you can see a part of that in the document we have filed last week That said that in terms of the debt, it should only be included the operations in Because if you are using consolidated and financial statements of Cancun, you must exclude What is related to Puerto Rico and Colombia? Okay, perfect.

Speaker 4

You're welcome.

Operator

Thank you. Our next question comes from the line of Pablo Oncivaris with Barclays. Please go ahead.

Speaker 5

Hi, Alonso. Thanks for taking my question. I just have two quick Questions. The first one is on the commercial revenues per passenger in Mexico. On a dollar basis, it has increased a lot and you just mentioned the opening of new spaces.

Speaker 5

But if you have more detail, it would be good. Also on the expectation For year end, on international travel to Cancun, I mean, international travel has decreased over the last few months. How are you seeing The final stretch of the year. Thank you.

Speaker 1

Well, in the case of commercial revenues, we are having some effect, of course, From the Mexican strong peso that is the case of duty free. No, that is the case of Some of our activities that are related to foreign people. In the case of the traffic, as I have mentioned during the initial remarks, What we saw from the quarter on the first side, we have to understand that there should be a normalization of The numbers. Normalization means that no more double digit numbers, no more extraordinary growth. But in the case Of international, the decrease was related to the traffic to and from Europe and to and from South America.

Speaker 1

The case of the U. S. And Canada was a slight increase That offset these negatives. But the strong peso, of course, is taking And some foreign people are from this country. That's true.

Operator

Thank you. Our next question comes from the line of Arthur Suiroloto with APO Capital. Please go ahead.

Speaker 8

Thank you. Good morning, Adolfo. Just a quick follow-up please regarding the concessions. Are you in talks to extend The terms of your concession at this point, I know that someone asked this previously, but just I couldn't get your answer just to Thank you, if you are discussing this with the government at this point, considering all the changes that were announced recently. Thank you.

Speaker 1

Well, we are exactly at the middle of the term. So the original term was 50 years So we have 25 in front. And as I have mentioned, we are not in talks at all About extension of the concession? Very clear. Thank you.

Speaker 1

You're

Operator

welcome. Thank you. Our next question comes from the line of Luis Llama with BlackRock. Please go ahead.

Speaker 2

Hi, Adolfo. Thanks for taking the question. I'm just trying to clarify something that is a bit ambiguous on the new regulatory document. So are these changes to be applied at the end of this current MDP cycle or only for the next cycle?

Speaker 1

This document is enforceable as we speak. In the case of ROLF, the main implications of course With the next NTP that is in process. So I would say if everything is okay in terms of Fine from the apologies respect. This document will be applied as well Before the year is over with our rates from the 3rd day of next year. Okay.

Speaker 1

Thank you. You're welcome.

Operator

Thank portion of today's conference call. I would now like to turn the call back over to Mr. Castro for closing remarks.

Speaker 1

Thank you, Ryan, and thank you all of you again for participating in our Q3 results conference Thank you.

Operator

Ladies and gentlemen, that concludes Azure's Q3 2023 results conference call. We would like to thank you again for your participation. May now disconnect your lines.

Powered by Quartr
Earnings Conference Call
Grupo Aeroportuario del Sureste, S. A. B. de C. V. Q3 2023
00:00 / 00:00