Grupo Aeroportuario del Sureste, S. A. B. de C. V. Q4 2023 Earnings Call Transcript

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Provided by Quartr
February 27, 2024

There are 8 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to AcelR's 4th Quarter 2023 Results Conference Call. My name is Doug, 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'd like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir.

Speaker 1

Thank you, Tom, 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 markets closed and is available on our website in Investor Relations Sector. Following my presentation, I will be available for Q and A. Before getting into discussion of the quarterly results, let me start today's call with a recap of recent developments.

Speaker 1

A significant milestone for the quarter was December 2023 approval of the 2024, 2028, macroeconomic plan for our Mexican airports. This approval occurred under the government's new regulations and increase of the concession fee to 9% from the 5% of total gross revenues starting from January 3rd this year. Some key highlights of the new MVP include the efficiency factor used to annually adjust the maximum tax increase from 0.7 to 0.8 in the prior NBP. The methodology to calculate the discount rate is now based on weighted average cost per capital compared to cost of equity before. The new MVP 20242028 also calls for a total CapEx commitment of CAD28.5 billion measure in December 2022 terms for the 5 year period.

Speaker 1

Of this 5 year CapEx, 70 5% equivalent to MXN21 billion or approximately MXN1.4 billion will be invested at Cancun Airport, 70% of which will be allocated to expansion works. Key projects include the second phase of expansion of the International Terminal 4, which includes additional 4 boarding gates that have been delayed due to pandemic and new growth connecting the terminals to the major train. We also plan to rebuild and expand Terminal 1 as well to expand airport roads. These investments support a new growth phase for Cancun in the years ahead. The remaining 25% will be allocated across our 8 smaller airports in Mexico, with approximately 7% allocated to Oaxaca, where we plan to reconstruct an expanded 10 new building.

Speaker 1

Finally, minor terminal expansions at 4 of the other efforts. For 2024, we plan to invest a total of ARS3.5 billion, 73% of which will be invested in Cancun. Also note that the new NBP rebalanced the impact of the recent opening of the Tulum airport. We ended the year with a 98.2 percent maximum tariff compliance, which includes the effect of the 10% passenger fee discount granted during November December as a result of the agreement reached with the Mexican government. During the quarter, we conclude negotiations with our strategic partner, ITTA, by which starting January 2024, the technical assistance fees have been reduced to 2.5% from 5% of the EBITDA generated by Mexican operations.

Speaker 1

On December 21 last year, the Supreme Court of Justice rejected the appeal filed by the Aeroportes Internacional Bamaro against judgment that suspended the permit to start construction previously issued by the Civil Aviation Institute. More recently, on January 5, the President of the American Republic issued a decree canceling the previous decree issued by the previous President, which had approved the establishment of Babar International Airport. On January 19, an appeal for constitutional review was bought before the constitutional court against the Supreme Court of Justice notified on December last year. On the sustainability front, during the Q4, we completed the installation of solar partners in the airports of Tachula and Guatulco. Will generate a combined output of 1,500,000 kilowatt hours in the 1st year of operation.

Speaker 1

This, in addition to the solar panel projects already completed in the airports of Cancun, Merida and Oaxaca, we generated a total of nearly 6 132,000 kilowatt hours of solar energy during the 4th quarter. As part of our continued system, WP efforts, our efforts in Mexico renewed their certification at level 2 under the Airport Capital Accreditation Program. This program is organized by the Airport Council International to provide a framework for measuring, reducing and compensating carbon emissions. Also in the Q4, we became signatories of the science based targets initiative with the goal of establishing a roadmap to achieve 0 emissions by 2,050. 50.

Speaker 1

Among the community projects as we're involved in, we provided support to promote ecological tourism activities in the Mayanese speaking rural communities in the northern region of the state of Chucatala. Locals are provided with training and equipment to supplement their income from traditional fishing activity. By close of 2023, 49 tourist types with approximately 100 economic dependents we're provided with training and we intend to scale up these activities to additional communities in 2024. We plan to publish our 2023 annual sustainability report next month and encourage you to read it. Let's review Assurant's operational and financial performance for the quarter.

Speaker 1

As usual, all comparisons discussed will be year

Operator

One moment, ladies and gentlemen, it appears that we have lost Mr. Castro. I'm going to try and reconnect. Rejoining Adolfo Castro.

Speaker 1

Thank you, Dov. Let's review Astur's operational and financial performance for the quarter. As usual, all comparisons this quarter will be year on year unless specified otherwise. Starting with traffic, we show nearly 18,000,000 passengers traveling across our airport network, the highest level for our 4th quarter, even as the crude rate business generated to 1%. This brought total traffic for the year to a total record of high over 70,000,000 passengers, with annual increase of 10% in Mexico, 18% in Puerto Rico and partially offset by a decline of nearly 10% in Colombia.

Speaker 1

Looking at the quarterly performance by region, Puerto Rico delivered the strongest growth with traffic up nearly 13%, driven by a solid performance in both domestic and international traffic. In Mexico, traffic increased 4%, supported by a low single digit growth in domestic and international passengers. Traffic to and from the United States and Canada remain the key growth engine, while domestic traffic has experienced the initial effects of Pratt and Whitney engine problem. Also not working as from January 8, the Mexico City Airport reduced its truck air traffic movements per hour to 43 from 52. This airport accounted for 45% of the domestic passenger traffic in 2023 and those is also expected to negatively impact domestic traffic this year.

Speaker 1

Additionally, the strength of the Mexican peso has been impacting results for the quarter. Lastly, Colombia posted a 13% decline in traffic, so domestic travel remained impacted by the suspension of 2 local airlines in February of last year, partially offset by a 2% increase in international travel. Recall that these two airlines accounted for 20% of our traffic in Colombia in 2022. Avianca and LATAM Airlines have been absorbing some of that traffic. Starting this May, March, we expect to start seeing a recovery traffic growth in Colombia.

Speaker 1

Now turning to the P and L. As a reminder, all reference to revenues and costs exclude construction and coke revenues. Total revenues increased nearly 5% to just over MXN6 1,000,000,000 in the 4th quarter, as growth in Mexico and Colombia was partially offset by a weaker performance in Puerto Rico due to the exchange rate. Mexico, which accounted for 74% of the revenue, posted a 6% increase in the top line, driven by mid to high single digit growth in Aeronautical Services, up 5% and non Aeronautical Services increasing 7%, mainly reflecting higher passenger traffic. Puerto Rico, which accounted for 14% of total revenues, reported a 1% decline in revenues, mainly due to the 4% decrease in Aeronautical revenues, partially offset by a 2% increase in commercial revenues.

Speaker 1

Lastly, Colombia, which represented 11% of revenues, posted a mid single digit top line increase, supported by the growth of 3% in aeronautical revenues and 8% in non aeronautical services. Reflecting our sustained focus on expanding our commercial offering across our airport network, commercial revenues were up 70%, above the 1% increase in passenger traffic, driven by the high single digit increases in Mexico and Colombia, both up 8%, together with a 3% growth in Puerto Rico. On a per passenger basis, commercial revenue reached MXN119, up 6% on a consolidated basis. And per country, in Mexico and Colombia, commercial revenues per passenger increased 4% and 20%, respectively, while Puerto Rico decreased nearly 9%. In local currency, Puerto Rico and Colombia posted increases in commercial revenues of $15,200,000 and $1,200,000 and in commercial revenues per passenger of approximately $2,400,000 and $19,100,000 respectively.

Speaker 1

These increases partially reflect our initiatives to continue in casing passenger travel experience. This includes the opening of 65 new commercial spaces across our airport network during the last 12 months. Of these, 17 were opened in Mexico, 4 in Puerto Rico and 44 in Colombia. Comparable consolidated EBITDA, excluding other non recurring income in the year ago quarter, increased 1% to ARS4.1 billion. Recall that the Q4 2022 results included a one time other income of MXN300 1,000,000 in Puerto Rico in connection with the favorable judgment in connection with the right to charge a fee for each carol of aviation fuel dispatch of the airport between 2013 2021.

Speaker 1

Mexico remains the main driver of profitability with EBITDA up 4%, followed by Puerto Rico with 1% comparable increase. Back for instance, Colombia posted a 23% drop in EBITDA, impacted by disruptive passenger traffic. In turn, comparable adjusted EBITDA margin, which excludes construction as well as the other nonrecurring income in the Q4 in 2022, was nearly $68,000,000 versus a comparable of 20% margin in the Q4 2022. Last, moving on to the balance sheet, we closed the year with a strong cash position of nearly Ps. 16,000,000,000 and a negative leverage ratio of 0.2 times.

Speaker 1

Wrapping up, we finished 2023 on a very solid note, which we believe put us on a solid path going into 2024 2025. Our long term opportunity supported by our ongoing investments to further enhance the travel experience of passenger traveling to our airports, continuing to expand our commercial offerings and extend capacity to support future growth while maintaining a balanced use of cash. This ends my presentation. Doug, please open the

Operator

Our first question

Speaker 2

So I have two questions, 1 on traffic and the other one on expenses. On traffic, how much of an impact are you seeing in domestic traffic from this Pratt and Whitney inspection schedule? We just saw Volaris say that they secured additional capacity to compensate for the impact. So what are you seeing on the ground? How much if you can quantify the impact that you're seeing for domestic traffic in Mexico, that would be great?

Speaker 2

And then my second question would be on operating expenses. We did see them go up more than expected this quarter. I just wanted to get some more color on where you're seeing the margin for this year? Thank you very much.

Speaker 1

Hi, good morning. Thank you for your questions. Well, in the case of Puneet, as I said in the initial remarks, we are seeing a weaker passenger traffic for the domestic side. How can we measure this? It's very clear when we see offered seats and when we see the increase in the load factor.

Speaker 1

It's very clear for me that Volaris has increased their load factor and that they also have increased their rates. And of course, this is creating less amount of passengers in the case of domestic. That is not the case of Viva. So in the case of Viva, they were able to increase the upper seats and also the increase of passenger traffic, but they were not able to offset the decrease of Buenos Aires. The other thing that is extremely important from now on, from January 8 is what I just mentioned in the case of Mexico City.

Speaker 1

The case of Mexico City reducing their air traffic limits per hour from 52 to 43. And of course, that is having also an impact on our passenger traffic. These both things, I believe, will be seen during the Q1 of this year. In terms of expenses, well, the main effect the main increase in expenses was coming from Colombia. And in that sense, it was due to the increase in salaries.

Speaker 1

We adjusted salaries, things that we were not doing or that we stopped doing because of the Taldea situation. So that is why the increase in the case of Colombia is so strong. But of course, together with the passenger traffic decrease, the results in Colombia doesn't look well. What I hope is that this year was the end of this situation with the 2 airlines as from March, we will see different situation.

Speaker 2

Got it. Very clear. Thank you.

Operator

Our next question comes from the line of Pablo Montalffaez with Barclays. Please proceed with your question.

Speaker 3

Hi, Adolfo. Thanks for taking my question. I have additional gates? And also my second question, I heard you said something about Dominican Republic, but if you can tell us again what's the update there? Thank you.

Speaker 1

Well, in the case of the project, as I said, dollars 21,000,000,000 it can pull in 70% of Dario's expansion projects. Those expansion projects are increased the final terminal 4, which will add the 4 additional gates that were not completed during COVID. If you go back to March 2021, the delay in CapEx or the performing CapEx was nearly COP2 1,000,000,000. Also in the case of Pencun, we will reconstruct and expand Terminal 1. Those are the 3 major projects in terms of terminal expansions, clause, the additional connection to the mega train and the roads to the airport.

Speaker 1

In the case of the airports in the World Health Reform, the situation is that a legal there was a legal process that stopped the beginning of the construction. And that has been confirmed in December 16 last year. Also on top of that, the President issued a decree canceling the previous decree that was issued by the previous president authorizing the airport. We have presented legal recourses for both things And we will have to wait and see what is the outcome of these legal processes. But it's clear to me that the project has been put on hold at least for the next 12 months.

Speaker 3

Okay. Thank you very much.

Speaker 1

You're welcome.

Operator

Our next question comes from the line of Anton Mortenkader with GBM. Please proceed with your question.

Speaker 4

Hi, Adolfo. Thank you for taking my question and congrats on the results. I just have a quick one. Any thoughts about capital allocation, maybe an extraordinary dividend or maybe some buybacks now also considering the potential savings from the reduction in the technical assistance?

Speaker 1

Well, it's 2 different things. 1 is the case of the capital allocation. We will review this once we have completed we have finished the year and we will review the results and the current situation, the future CapEx tax and all of that. And we will make our proposal to both directors that will have meeting the 1st week of March and then to the shareholders assembly. The case of the 10 year assistance fee that it was in accordance of what we received from the Mexican government during the negotiation process.

Speaker 1

So, basically, we were able to negotiate with ETA the adjustment in the fee by 50% reduction.

Speaker 4

Sorry, just to know, see if I heard you right. So, the reduction in the technical assistance fee was something that was also discussed with the Mexican authorities and incorporated in the MDP?

Speaker 1

Well, the Mexican authorities in their new rules, they reflected a reduction in the recognition of the clinical assistance and that is why we had to negotiate with ITA.

Speaker 4

Okay. Thank you.

Speaker 1

You're welcome.

Operator

Our next question comes from the line of Angraca Virato with UBS. Please proceed with your question.

Speaker 5

I have two questions on my side. The first one is on how is the implementation of the new maximum tariffs going so far? If you can provide Miglia a timeline that you are expecting to reach the maximum tariff? And I have a question on Colombia, where we saw the passenger drop, but an extension in both aeronautical tariffs and non aeronautical revenue per passenger. So just wanted to know what is driving that?

Speaker 5

And also if the strong cost extension in Colombia in the quarter, if it includes any non recurring event? That is from my end. Thank you.

Speaker 1

Okay. In the case of the the new maximum rate, the increases that we saw from the ONDP, We have already started the process for that. It will take more or less 4 months. So, I do believe that as from the month of April, the maximum the new intrinsic tariffs will be in place. So during the Q1, you will see no increases and the increases will come from as from April.

Speaker 1

In the case of Colombia, no, we do not have any great numbers occurring. It is important to see a Colombian numbers in Colombian pesos and then you will be able to understand better the situation that is there. During the quarter, The Colombian peso appreciated against the Mexican peso and that was the Q1 over the last couple of years. So if we see what is happening in Colombian pesos, let me go into the case of the passenger, the commercial revenue of the passenger, as I said before, in Colombian pesos, the increase was really important during the quarter. So I will recommend you to make the analysis in a comparable basis, so excluding the FX.

Speaker 5

Perfect. Thank you very much.

Operator

Our next question comes from the line of Isabella Salazar with GBM. Please proceed with your question.

Speaker 6

Hello. Thank you for taking my question. Regarding the technical assistance fee reduction, I understand that this is a very positive action. However, I was wondering if you could give us more color behind the rationale for the reduction because I would like to understand if it will result in some costs moving to the absolute level or if it will be a direct saving?

Speaker 1

Well, it depends on how you measure this. If you see the new maximum rates, well, those are the ones that are going to be in places from this year. If your forecast was considering for this year 5%, then you have you can place a 2.5% instead of the 5%. Percent and then it will be for you a reduction or a saving.

Operator

Our next question comes from the line of Gabriel Himmelfarb with Scotiabank. Please proceed with your question. Gabriel, your line is live.

Speaker 7

Hi. Thanks for the call. Sorry, my line was in mute. Just a quick question about the dividend policy. Are you planning to propose a higher dividend or keep the dividend stable?

Speaker 7

And I would say, up to the Board, but what's the strategy the company is seeking for the dividend for this year? Thank you.

Speaker 1

Hi, Gabriel. Well, you know that we do not have a dividend policy in writing that we review that thing every single year. And once I finish with you, I will start referring that proposal for the Board and then to the shareholders and as I said before, our next Board of Directors will be the 1st week of March. So I do believe that the 1st week of March, you will figure out what I have proposed and what the Enabex sector.

Speaker 5

Okay. Thank you.

Speaker 1

You're welcome.

Operator

Our next question comes from the line of Jay Singh with Citibank. Please proceed with your question.

Speaker 7

Thanks guys. Just Jay Singh calling in from Stephen Trent Group. I just want to ask 2 questions on my end. First one is, what are you seeing on tourism bookings to Southeastern Mexico? And my other one is, should the authorities block the airport project in the Doctor?

Speaker 7

Will Surb be looking at any other overseas investments? And what seems to be going wrong with the process right now? Thank you.

Speaker 1

Could you repeat your second question?

Speaker 7

Sure. So should the deal or the airport project in the Doctor get blocked, would Assur be considering any other overseas investments? And if so, what seems to be going wrong with the process right now with the Dominican Republic?

Speaker 1

Let me confess with the bookings. In the case of bookings, as I said in my initial remarks, we are seeing better bookings going from U. S. And Canada. It's not the case of domestic with the problems we are having with the Pratt and Whitney and the case of Mexico City Airport.

Speaker 1

Just to say that during the month of January, we lost it in terms of domestic traffic to and from Mexico City around 100,000. So that will have an impact. These 100,000 are not willing to go to Santa Lucia. Yes, Santa Lucia is growing, but not absorbing all of these passengers. In the case of Dominican Republic, as I said before, until we get the final rulings of these legal procedures we have, we will not be able to start the construction of the airport.

Speaker 1

My expectation is that all of these at least will last the whole year.

Operator

There are no further questions in the queue. I'd like to hand the call back to Mr. Castro for closing remarks.

Speaker 1

Thank you, Doug, and thank you all of you again for joining us today in this Q4 2023 conference call. On behalf of Azul, we wish you a good day and goodbye. Now you may disconnect.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

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Earnings Conference Call
Grupo Aeroportuario del Sureste, S. A. B. de C. V. Q4 2023
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