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Grupo Aeroportuario del Sureste, S.A.B. de C.V. (NYSE:ASR)

Q1 2011 Earnings Call

April 27, 2011 10:00 am ET

Executives

Adolfo Castro Rivas – Chief Financial and Strategic Planning Officer

Analysts

Vanesa Quiroga – Credit Suisse

Mauricio Alfonso Santos Mayorga – GBM

Neal Dihora – Morningstar

Claudia Medina – Itaú Asset Management

Operator

Good day, ladies and gentlemen, and welcome to ASUR’s First Quarter 2011 Results Conference Call. My name is Veronica and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions).

For opening remarks and introductions, I would like to turn the call over to Mr. Adolfo Castro, Chief Financial Officer. Please proceed, sir.

Adolfo Castro Rivas

Thank you, Veronica, and good morning, everybody. Thank you for joining us today for the conference call of our first quarter 2011 results.

I wanted to remind you that certain statements made during the course of our discussion today may constitute forward-looking statements, which are based on management’s current expectations and beliefs, and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including risks that may be beyond our company’s control. For an explanation of these risks, please refer to ASUR’s filings with the Securities and Exchange Commission and the Mexican Stock Exchange.

Today, I will provide an update on Tulúm Airport and afterwards I will discuss passenger traffic performance and the results of the quarter.

Moving on to Tulúm (inaudible) construction, management, operation and exploitation of the public airport to be built in the town of Tulúm in the state of Quintana Roo. At ASUR, we are still awaiting (inaudible).

As we have mentioned before, on January COFECO, the Antitrust Agency in Mexico released its petition not allowing ASUR to bid in the bidding process. We disagree with this decision and the views expressed by the Commission, as they are eliminating participants in the competition to offer the lowest rate at the airport.

Remember that the criteria established in the beginning of the process, but be clear that the winner will be the one who offers the lowest rate. Because of this, we have initiated legal proceedings in accordance with Mexican legislation to defend our social rights. However, we cannot provide any assurance that any legal proceedings to challenge the COFECO decision would be successful, or that COFECO will be able to participate in the bidding process as a result of such proceedings. (inaudible) would allow us to participate in the process.

At the same time, if the airport were to be granted, the granting authority has agreed to adjust Cancún’s MDP and maximum rate as a result of the negative effect that this airport will have intense impact on this front. The agreement is to make the adjustments within 90 days after the concession is granted.

Moving to the results, as expected passenger traffic during the first quarter declined by 1.3% year-over-year, principally driven by the (inaudible) traffic reflecting capacity constraints following the discontinuation of operations at Mexicana. Traffic was flat in January, fell 1.5% in February, and 2.3% in March. Remember that during 2010, (inaudible) 2011 they fell in April.

As a result of this, international passenger traffic continues to increase its shares of total traffic, up to 57.4% from the 53.7% year ago. Passenger traffic between Mexico, Canada and the United States represented 90.3% of the total traffic compared with 91.6% posted in the first quarter 2010.

(inaudible) air traffic is expected to (inaudible) Tulúm Airport next week. However, even if Mexicana (inaudible) re-initiate operations this year, we continue to see capacity constraints on domestic markets and expected this situation be normalized by the end of the year 2012.

Consolidated revenues declined 40% this quarter, following (inaudible) 24% decline in consolidated revenues. Excluding construction revenues, total revenue would have increased 3.1%, reflecting higher traffic (inaudible) more than offset the 1.3% decline in the total traffic. Commercial revenues per passenger remained strong, up 8% year-on-year to Ps. 63 and above the record high of Ps. 61.33, achieved in the fourth quarter 2009. The increase in commerical revenues per passenger also reflects the direct operation (inaudible) first quarter 2011 compared to those of the year ago. During the quarter, (inaudible) from a concessioner that was in Chapter 11.

Operating costs and expenses rose 1.7% year-on-year, mainly as a result of the improvement (inaudible) Excluding the Service Construction Contracts, total operating costs would have increased 2.1%, reflecting the higher (inaudible) addition of a direct store who are operating directly. (inaudible) As a result of all of these, EBITDA rose 1.9% this quarter with EBITDA margin up 63.7% from the 62.6% in the first quarter 2010.

During the quarter, we made capital investments of Ps. 51 million as we continue with the terminal expansions in Veracruz, Villahermosa and Oaxaca airports depending on first quarter of 2010 and the passengers operations at Cancún airport.

In terms of our balance sheet, cash and cash equivalents at the end of the quarter increased 50% to Ps. 1.85 billion. Bank debt at year end totaled Ps. 815 million.

Now, let me open the floor for questions. Please, Veronica, go ahead. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Vanesa Quiroga from Credit Suisse. Please proceed.

Vanesa Quiroga – Credit Suisse

Thank you, operator. Hi, Adolfo, thank you for the call. My question is regarding the technical assistance fee. I was wondering if you could clarify if Copenhagen continues receiving part of that technical assistance fee that ASUR claim to leave that and so what is the rule, what is the portion of the technical assistance fee that Copenhagen is receiving?

Adolfo Castro Rivas

Venesa, good morning. Technical assistance fee agreement is between (inaudible). So I don’t know if ITA is giving something to Copenhagen or not. The only thing that I know is that ITA decided to sign an agreement with them (inaudible) from Copenhagen. But keep in mind that we’re not interested at this and we cannot say anything about what is happening in ITA. So the only thing that I know that we have contract that’s been signed with them and we are on that entity.

Vanesa Quiroga – Credit Suisse

Okay, okay. That’s clear, Adolfo. And my second question is regarding the Mayan Riviera airport bidding process. If you – if the Antitrust Authorities have provided you with any timing of when they could give a resolution to the (inaudible) presented?

Adolfo Castro Rivas

Well, the only thing that I can refer to you is that the competition norm provides (inaudible) appeal and we’re expecting them or the answer from (inaudible). And basically we have given (inaudible) business relations with the authorities (inaudible).

Vanesa Quiroga – Credit Suisse

Okay. Thanks, Adolfo.

Adolfo Castro Rivas

You’re welcome.

Operator

Your next question comes from the line of [Angela Lee] from Citigroup.

Unidentified Analyst

Hi, good morning. This is actually – I’m speaking on behalf of Steve Trent. My first question is do you believe that the tender could still proceed with just two bidding parties for the Riviera Maya tender? And my second question would be considering the apparent disincentive for our commercial airline service, Riviera Maya, why would ASUR even bother to try bidding for this? Thanks

Adolfo Castro Rivas

First, thank you for the questions. First is to say that even with one strategic (inaudible) we will continue with the process. Riviera Maya (inaudible)

Unidentified Analyst

Okay.

Adolfo Castro Rivas

In terms of (inaudible) we have said many times that from a reference perspective we do not need a (inaudible).

Unidentified Analyst

Okay thank you.

Adolfo Castro Rivas

You’re welcome.

Operator

Your next question comes from the line of Mauricio Santos from GBM. Please proceed.

Mauricio Alfonso Santos Mayorga – GBM

Good morning, Adolfo, thank you for the call. My question is regarding the CapEx for this year. In my figures, I have you should be investing roughly 770 million, do you – are you reaching this amount? Thank you.

Adolfo Castro Rivas

Remember that – you have to remember that we have committed with our focus. Remember that last year we have made some (inaudible). In the future engagements we (inaudible) that we have committed (inaudible) so that we have (inaudible) we have compiled in a committed project and there is a little (inaudible) and you have to (inaudible).

Mauricio Alfonso Santos Mayorga – GBM

350 million you said?

Adolfo Castro Rivas

250.

Mauricio Alfonso Santos Mayorga – GBM

250 is total CapEx for this year.

Adolfo Castro Rivas

No, 250 (inaudible).

Mauricio Alfonso Santos Mayorga – GBM

Okay. Perfect. Thank you.

Adolfo Castro Rivas

You’re welcome.

Operator

Your next question comes from the line of (inaudible) from Morgan Stanley. Please proceed.

Unidentified Analyst

Hi, Adolfo, good morning. Question again about concession fee, I think I probably asked this before. As a percentage of your operating revenue, if it continues to decrease, is that just a function of increased revenue from the space that you operate directly?

Adolfo Castro Rivas

(inaudible)

Unidentified Analyst

So the difference between the concession fees first I thought would be 5% of your operating revenue, but that percentage is just coming down, continues to come down I think somewhere around 4.6% or so right now. Is that just an increase of the – an increase of revenue that is outside of the regulated revenue?

Adolfo Castro Rivas

(inaudible)

Unidentified Analyst

Yes

Adolfo Castro Rivas

Second, (inaudible) that we made are coming from concession, with 5% in a continued (inaudible) everything that is coming from – everything that is coming from concessioned assets should pay a 5% and probably that’s why we are not expecting the 5%. What I do not expecting is (inaudible)

Unidentified Analyst

Is there a way to breakout this in the portion of revenue that is not coming from concessioned assets?

Adolfo Castro Rivas

No, I don’t think.

Unidentified Analyst

Yes, its not, okay. And then one – one, second question regarding the construction revenue, how come your (inaudible) revenue exceeds the CapEx that is executed during the quarter and how those were correlated?

Adolfo Castro Rivas

The construction cost is basically the transits that we make and that actually in accordance with the NDP that was actually (inaudible) the government and as we are apparent with these on May, sorry, on March 31, 2009. (inaudible) we go back to the probably the 2nd of April 2009, we will find the numbers. Then – and then the numbers the adjustment that we have to make is (inaudible) during 2010 we have made some (inaudible) in some project. So it is a number of 2010, no way in comparison with the (inaudible). All right, that was extremely not for the (inaudible) forever so that we have to derive these numbers later. And we will apply a portion of this money into a plant that separate that we have committed early this year. And the number that I have in the mentioned (inaudible) accurate number, with 1,052 (inaudible) for this year.

Unidentified Analyst

1,052, around that, okay. Thank you very much. That’s helpful.

Adolfo Castro Rivas

You are welcome.

Operator

Your next question comes from the line of Neal Dihora from Morningstar. Please proceed.

Neal Dihora – Morningstar

Hi, thanks for taking my question.

Adolfo Castro Rivas

Hi.

Neal Dihora – Morningstar

I wonder if you could help us CPI adjustment for your tax this year?

Adolfo Castro Rivas

I couldn’t get you Neal.

Neal Dihora – Morningstar

I guess the question is on the CPI or inflation adjustment traffics for this year, I guess by – talk about your average rate, you know, by taking your aero services that seems a little bit higher than whatever it was from the NDPs I think the difference is the inflation adjustment that you guys get every year at PTI?

Adolfo Castro Rivas

Hopefully, (inaudible) if you – relatively, again, if you go back to the present (inaudible) of this (inaudible) 2009, you will find out then the (inaudible) for each one of the records. Then what we have to do with here is to use that amount with (inaudible) 70% where inflation (inaudible) petroleum. So you send me an email, I will send you these (inaudible) it’s that what you want.

Neal Dihora – Morningstar

Okay, yeah, thanks. That would be helpful.

Adolfo Castro Rivas

Thank you.

Operator

Your next question comes from the line of Claudia Medina with Itaú Asset Management. Please proceed.

Claudia Medina – Itaú Asset Management

Hi, Adolfo, good morning. I’ve got two questions. One is a clarification regarding CapEx, just to make sure that I know what to put in my model. I’ve got the press release in front of me the one from 2009 and so, yeah, the commissioned investments for 2011 are something about a $1 million asset subtracting with according to the sales release had already been invested, which were about $200 million we get something around $750 million or $800 million is that right, I was under the impression that for 2011 than I’m sure you have to spend these $750 million or $800 million plus the $650 million that were saved last year, which did a total of about $1.4 billion, but now if I understand it correctly the figure you mentioned is more around like 900 total. So it’s an important feeling, that’s great. I just wanted to make sure that I got it right.

Adolfo Castro Rivas

Okay. Then (inaudible), you were in that bank up to – we said around – that number has come around 780, remarkable savings. In terms of maturities, we (inaudible) that ranking risk we have to – not just savings. And then we have one related acreage with adjusted MDP. So those are not CapEx some are based around risk or have even range and the featuring that’s not there in the bank. Then I’ll refer, that we’re facing the term concept and the (inaudible). So the studies were that we will apply at the year-end and (inaudible) from the year 2010 or within our level of MDP. So that’s why we are interested in one more, so the expected CapEx of this year and brings up the cash flow will be around 153 million.

Claudia Medina – Itaú Asset Management

Okay. Yeah, I got it. It’s perfect, yeah. Okay now adding those two numbers I get to ’11. Excellent. Thank you.

Adolfo Castro Rivas

Thank you.

Claudia Medina – Itaú Asset Management

And the other question is regarding uses of cash. What’s your view regarding the Brazilian potential, opening of the airport sector, the privatization, I guess more specific that was. Where do you think we stand in that platform, will it happen at all if so we will not still be interested and is not hopeful and maybe an extraordinary dividend.

Adolfo Castro Rivas

It’s correct to say that in Brazil. And very interested about each base with limited numbers of (inaudible) positives moves which have you can see some of those net (inaudible). Even though Brazil has shown some of their IP and so some getting some things (inaudible). Where – the data center bill, was adversely (inaudible) in private banks. As this occurs, we are about to put a stage of the process. That said you will have to see what will be the final outcome of the process and it never (inaudible). So I could thank the – it’s system. Maybe giving example you can have the (inaudible) has become a unique mix with these things. In the modern – in Brazil, lot of the data company and the privatized even – sort of relative general shares for the market. I don’t think we will be focusing on rate that we want to operate the outputs and to move (inaudible) that we have got. So for the moment we have that we will have to wait and see what will be the finalized output of this. In terms of the use of cash growth, we have already used these kind of opportunity to first (inaudible) use, the language and the specific product. So I don’t think that we will fairly mix it around. We will have certain amount that can be – your we will have more developed, but there is a lot that’s already equivalent.

Claudia Medina – Itaú Asset Management

Okay, excellent. Thank you Adolfo.

Adolfo Castro Rivas

Thank you (inaudible).

Operator

(Operator Instructions) And at this time there are no questions on the line, Mr. Castro, I’ll hand the call over to you for closing remarks.

Adolfo Castro Rivas

Okay, and thanks to all of you who have joined today in our conference call. As you know normally closing our (inaudible), this afternoon. And so we don’t think it’s (inaudible). Thank you for being here and have a good day. Good-bye.

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