Grupo Aeroportuario del Sureste, S. A. B. de C. V. Q2 2023 Earnings Call Transcript

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Provided by Quartr
July 25, 2023

There are 7 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to Asserta's Second Quarter 2023 Results Conference Call. My name is Kevin, and I'll be your operator. At this time, all participants are in a listen only mode. We will conduct a question and answer session towards the end of today's conference. As a reminder, today's call is being recorded.

Operator

Now I would like to turn this call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir.

Speaker 1

Thank you, Kevin, 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's close and is available on our website in the Investor Relations section. 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 recent developments in terms of capital allocation.

Speaker 1

Through a U. S. Subsidiary, as Simply enter into a joint business investment agreement with Curupa Arista and CVC. 1, To develop and build a private international airport in the Battle of the American Republic, this entailed an initial investment by Azul of $17,800,000 that was paid in June, funded by internal generated funds. Once the construction of Bisserefo is finalized, we expect to maintain a 25% ownership stake in Venture, Representing a total estimated investment for Assur of $66,000,000 The remaining $48,200,000 The divestiture will be applied to the construction of the airport.

Speaker 1

The Abhishek Group is a well respected and diversified Business Group based information reporting with a leading market position in construction, real estate development, Health and Education. Since its foundation, that is a group that has been committed to helping people acquire basic goods and service Such as housing, health care and education. The Arista Group were the founders of Aerodrome in 2002, Which operated 6 Airports in the Americas before, among them, Latin America's airport in Santo Domingo That was sold to Athens International in 2008. Today, Consecration is the 2nd most important tourism market in Latin America after I'm presenting a very attractive growth opportunity. To put this in perspective, Lodging capacity in Tucano is around 47,000 hotel rooms and is expected to double by 2,040.

Speaker 1

This compares with the 120,000 hotel rooms in Cancun region. In terms of passenger traffic, Cunta Cana receives approximately 8,000,000 passengers annually with traffic expected to expand to 13,000,000 by 2,040. With capacity to serve 18 passengers annually, Bava International Airport will provide modern and efficient facilities offering a superior to both passengers and airlines, while acting as a catalyst for local business. Additionally, the airport will be conveniently located approximately 12 kilometers from the current tourist hotel area I'm 32 kilometers from Ultracan International Airport. The airport will be situated right between Bavaro Beach And the fast growing new tourist area to the north of Tabarro around Playa Macau and UberOwato.

Speaker 1

This area is currently experiencing an increasing hotel development to absorb the sustained growth in tourists expected to continue Over the next three decades in this region. The JV already owns the plant of the land to develop the new airport, Which was approved by the government. At the moment, it is in its initial phase of project planning and development, with the construction To start once this phase is finalized and authorized by the government. We expect the Davao International Airport to begin operations approximately 3 years from now. 2nd, at the Annual General Meeting held on April 26, Shareholders approved the distribution for an ordinary cash dividend of MXN9.93 per share That was paid at the end of May and an extraordinary cash dividend of MXN 10 per share to be paid in November.

Speaker 1

Now moving on to Azul's operating and financial performance for the quarter. Before starting, note that all comparisons are year on year unless otherwise noted. As anticipated in our prior call, we show a slowdown in total passenger traffic growth this quarter, up nearly 4%. Nevertheless, this was a record high for 2nd quarter at 17,300,000 travelers. Recall that in the Q1 of 2023, Traffic benefited from easy comps from Omicron during the 1st months of 2022, while this quarter we are experiencing The negative effect of the suspension of 2 Colombian airlines earlier in the year, which is impacting our operation in that region.

Speaker 1

On a consolidated basis, the share of domestic traffic, our total traffic remains stable year on year at 63% of the total traffic during 2nd quarter. Moving next to a review by country. Starting with Mexico posted 9% growth in passenger traffic. This is elevating from the double digit levels experienced in the Q1 due to the easy comps because of omicron in 2022. Domestic travel was up in the high teens 17%, with traffic that it goes back to pre pandemic levels.

Speaker 1

International traffic was up in the low single digits, mainly driven by Canada, which recovered prepandemic levels during the Q1. Next, Puerto Rico delivered the fastest growth up 15% with domestic traffic up 12% and international up By 44%. Lastly, total passenger traffic in Colombia contracted nearly 18%, With declines of 20% and 2% in domestic and international passengers respectively. As mentioned in our prior call, this reflects the Operations of Piva Air and Ultra Air in the Q1, which represented 17.4% and 1.9% of 2022 passenger traffic in Colombia, respectively. The increase in van letter taxes from 5% to 19% at the beginning of the year also impacted traffic trends.

Speaker 1

Turning to the P and L. Recall all references to revenues and costs exclude construction and cost revenues. Also note that Puerto Rico and Colombia figures reflect the strong Mexican peso, which appreciated 15% 18% Versus the U. S. Dollar and the Colombian peso since the end of the Q2 last year to the end of the Q2 this year, respectively.

Speaker 1

Now starting with the top line. Revenues increased 5% to MXN6 1,000,000,000 in the quarter, mainly driven by growth While Puerto Rico and Colombia posted declines of nearly 1% 16%, respectively. Overall, Mexico represented 74% of total revenues, while Puerto Rico and Colombia accounted 16% 10% respectively. Note that in local currency, revenues were up nearly 13% and 6% in Puerto Rico and Colombia respectively. Commercial revenues were up 6%, doubling passenger traffic growth, driven by increases of 8% in Mexico, 6% in Puerto Rico, more than offsetting the 15% decline in Colombia.

Speaker 1

On a per passenger basis, commercial revenues increased to COP 222, up from nearly COP 120,000,000 in the year ago quarter. At region, figures range from MXN 142 in Mexico to MXN 146 in Puerto Rico And MXN 41 in Colombia. In local currency, Puerto Rico in Colombia posted increases in commercial revenues per passenger 5.1% and 31.3%, respectively. These performance reflect our Staying focused on expanding our commercial offerings to further increase the travel experience of our passengers across our airports. In this respect, during the last of months, we opened 20 new commercial spaces in Mexico, 4 in Puerto Rico and 44 in Colombia.

Speaker 1

Turning to cost, total comparable operating expenses were up 8% compared to 5% revenue growth in the quarter. No debt comparable costs exclude the effect of $252,000,000 expense recovery this quarter, Resulting from the application of the CRRSAA Act in Puerto Rico Compared to the benefit of $175,000,000 in the same quarter last year. In Mexico, expenses rose 16% About 10% revenue growth, while we maintain a time control of expenses, the increase was primarily driven by the higher cost of services, reflected the effect 20% increase in the minimum wage at the beginning of the year. In turn, strong capital investments last year to our prior amortization expenses. In Puerto Rico, cost declined 15%, benefited from a higher expense recovery Under the CRRSAA Act this quarter compared to the Q2 2022.

Speaker 1

Excluding this recovery in both periods, expenses will have increased 11% as higher professional fees and maintenance more than offset savings In personnel and energy cost, cost in Colombia declined 8% as provisions for Paracatu in connection with the Consolidated EBITDA for the quarter was up 3% reaching ARS 4,200,000,000 mainly driven by higher profitability in Mexico of 9% to ARS 3,300,000,000. This performance was partially offset by declines of ARS 5.30 million and twenty four percent in Puerto Rico To over MXN 530 1,000,000 and 24% in Colombia to over MXN 300,000,000. In turn, consolidated adjusted EBITDA margin declined 140 basis points to 69%, Reflecting contractions of 100 basis points in Mexico to 74.3%, four thirty To recap, we delivered another good quarter in Mexico, affected by the strong pressure and the effects of the 2 Colombian airlines that stopped operations during the quarter. Moving to our financial position, we maintain a robust balance sheet with cash and cash equivalents over MXN 14,000,000,000 And a healthy debt profile after paying the ordinary dividend at the end of May, which amounted to a total of nearly MXN 3,000,000,000. The rent receivables increased 7%, driven by half passenger traffic in Mexico and Puerto Rico, together with combined receivables Of MXN 23 from the 2 local areas that were suspended earlier in the year.

Speaker 1

Finally, capital expenditures in the quarter totaled ARS 153,000,000 of these 50% was upgraded to Mexico, 46% to Puerto Rico And the remaining to Colombia. So enough, we are seeing healthy passenger traffic trends. We have a solid financial position, This ends my presentation. Kevin, please open the call for questions.

Operator

Certainly. We will now be conducting a question and answer session. Our first question today is coming from Rodolfo Ramos from Bradesco BBI. Your line is now live.

Speaker 2

Thank you, Alain Faude. Good morning. Thanks for taking my question.

Speaker 3

I have a couple.

Speaker 2

The first one is on the Bavaro Airport. Can you please repeat the level of passenger that you're targeting over the long run and when you expect to conclude that? And also if there is anything you can share on the economics, the amount of income that you expect to attain once it's stabilized? So that would be my first question.

Speaker 1

Okay. What I have said is that we are working in a project that will have And 8,000,000 passengers capacity, day 1 in the infrastructure of the airport. In terms of economics, it's too early to tell. We are 3 years away from that moment.

Speaker 2

Thank you. And the second question I had was On your NDP, I mean, we have seen this administration be more confrontational with concession based businesses. We've seen headlines about some industry players pushing back against the current level of tariffs. I mean, this is not just for you, but for the industry broadly. Can you talk about your expectations on your MDP?

Speaker 2

Anything that you've seen recently? And whether you've seen any changes on whether it's the

Speaker 1

So far, we have not seen anything in comparison With the previous negotiations, as of today, we have a process or we have, together with the authorities, Conducted the process to visit all the airports and review each one of the projects we have proposed. And during the second half of the year, we We'll go to the economics in terms of the passenger traffic, the discount rate and finally, the final calculation. So, so far, I can say to you And I don't see any change in comparison of how it has been in the past. Thank

Operator

you. Our next question is coming from Guillermo Mendez from JPMorgan. Your line is now live.

Speaker 4

Hi, Adolfo. Good morning. Thanks for taking my question. My first question is a follow-up to Previous one on the Dominican Republic and airport. I understand the 8,000,000 passengers a year.

Speaker 4

But just thinking of the ramp up of this operation. So by the time it's concluded 3 years from now, how fast will you reach to this 8,000,000 And how is the competition? You mentioned it's only 30 kilometers from the Pontotecan International Airport. So how should we think about the competition in the region. And the second one is regarding Colombia.

Speaker 4

I mean, how do you see the outlook in terms of traffic performing post the In broadly with the 2 airlines that went bust, I mean how fast would we expect the recovery on traffic in the region? Thank you.

Speaker 1

You're welcome. In the case of Paragas today, the Punta Cana airport is moving approximately 8,000,000 passengers. We are constructing or will be constructing an infrastructure with a capacity of $8,000,000 Normally, I would say, technically speaking, you construct infrastructure day 1 With a target of, let's say, between 5 to 7 years. In the case of Colombia, what I can say to you is that I don't See how the other 2 airlines Avianca and LATAM will be able to recuperate in a fast way But we have lost it from Ultra Air and Viva Colombia. So my expectation is that we will be affected for the rest of the year.

Speaker 4

Okay. Thank you.

Speaker 1

You're welcome.

Operator

Thank you. Next question today is coming from Javier Galle from GBM. Your line is now live.

Speaker 5

Hi, a lot of folks. Thanks for taking my question. I have a follow-up on the Vallejo airport. If you could just help us understand the regulatory framework And is there any at this time in your joint venture, are there any Options that you have to maybe die 100% or is it anything like that structuring to the concept of the joint venture

Speaker 1

For the moment, that's what we have. We have been invited to this We will be working together with them for the design and the future operation of this effort. And as I have said in my initial remarks, what we are expecting to have is 25% of this effort. Of course, in the future, it can grow. But we do not have any option

Speaker 5

Thank you. But on the regulator Like the regulation of the airports, is it similar to what we should expect like Mexico, like Colombia, like Puerto Rico, what sort of scheme are you guys looking at over there?

Speaker 1

It's not equal to Mexico nor to Colombia. The government has the same on the passenger fees and some of our fees. I would say in general terms is a 2 Of course, being a private airport is not exactly the same as what we have in Mexico. So The regulation is not so, I would say, strict in that sense, but it is a 2 oilfield system where the government has Something to say in some specific tariffs. Okay.

Speaker 5

Yes, sir. Thank you.

Speaker 1

You're welcome.

Operator

Thank you. Next question today is coming from Anton Mortenkatesh from GBM. Your line is now live.

Speaker 3

Just two quick ones. One, are you seeing any I mean, besides the Tuesday FX on your peso denominated revenues, have you seen any impact of maybe less consumption of some of your airports or something like that?

Speaker 1

No, I have not seen anything like that. Of course, as I have said into my initial remarks, If you can see the peso appreciation from the U. S. Dollar and the Colombian peso Of 15% 18% during the last year, Of course, that has an implication, an important implication in the results I am presenting Today, when we transform all these to peso, that's what I said to my initial remarks The commercial revenues, the passenger in local currency has increased Significantly, if we see what has happened in the case of Colombia, it was an increase of 31%. When you translate this into Mexican pesos, apparently, this is a PAS.

Speaker 3

Yes. Thank you. That's pretty clear. And the other This is related to the service costs. We saw an increase quarter over quarter.

Speaker 3

Should we expect these levels to be maintained or

Speaker 1

The prudent effect that we saw in the case of Mexico was at the beginning of the year due to the minimum wage increase by 20% that affects basically services like cleaning and security. So some increase in costs of personnel by Xylen increases, of course, in what we decide. But yes, we will be effective from now on in terms of the growth you are seeing during the second quarter.

Speaker 3

Okay. Just another quick one. I also saw some really high cash taxes during the quarter, quite different from previous quarters. You can tell us a little bit about

Operator

Why? Well,

Speaker 1

that has to do with the level of revenues in the case of Mexico now. Probably when you see the consolidation effect, the Shoals are not so well In the other two airports, but they are in the case of Mexico, and that's why you saw an increase in taxes.

Speaker 3

Perfect. Thank you. You're welcome.

Operator

Thank you. Our next question is coming from Jay Singh from Citi. Your line is now live.

Speaker 6

Thank you. This is Jason from Steve Trent's team. My first question is, your Mexico CapEx was very low. Is this due to it being the final year of the master

Speaker 1

Don't worry. It's the last year of the MBB. The expected amount for the year is around 600.

Speaker 6

Thank you. And as a follow-up, is Azure considering any expansion opportunities abroad, maybe airport acquisitions

Speaker 1

Well, the only thing that we have today is what I just mentioned in the case of American

Operator

Thank you. Our next question is coming from Alan Mathias from Bank of America. Your line is now live.

Speaker 6

Hi, good morning, Alvaro and thank you for the call. Just if you could give us a little color on international traffic to Cancun, how U. S. Traffic From visitors from the U. S.

Speaker 6

Has been acting up, has the assets been decreasing And what do you see behind this? And of course, the Canadian traffic has recovered quite well. But Are you seeing any effect in U. S. Visitors besides the strong peso?

Speaker 6

Thank you.

Speaker 1

Alan, and hi, good morning. I don't see any decrease in the U. S. Traffic. I would say It's a more increase if we compare the Q2 with the previous year.

Speaker 1

In the case of international traffic During the quarter, as I mentioned during my initial remarks, most of the growth came from Canada, Some growth from the U. S. And a slight growth from Europe, a decrease in Latin America.

Speaker 6

Thank you, Ed. Just can you give us the level or the average of Mexican Flying from Cancun to the U. S, is that a significant amount of traffic or has that been growing?

Speaker 1

Well, if you are trying to ask about Category 1, the traffic between U. S. And And Cancun mostly is traveling with the U. S. Carrier.

Speaker 1

If we go back in time, May 2020 when Mexico lost to category 1 and it was in category 2, we issued a 6 ks saying that 0.5% of our traffic to and from our airports in Mexico to the U. S. Are Traveling with the domestic carriers of 99.5 is traveling with the U. S. Carrier.

Speaker 1

Thank you. You're welcome.

Operator

Thank you. While we poll for further questions.

Speaker 6

We have

Operator

reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.

Speaker 1

Thank you, Kevin, And thank you all of you again for participating in the Q2 results conference call. On behalf of Assur, we wish you a good day and goodbye.

Operator

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

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Earnings Conference Call
Grupo Aeroportuario del Sureste, S. A. B. de C. V. Q2 2023
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