Apr 25, 2012
Executives
Adolfo Castro Rivas – CEO
Analysts
Stephen Trent – Citigroup Luis Willard – GBM Nicolai Sebrell – Morgan Stanley Neal Dihora – Morningstar
Operator
Good day ladies and gentlemen, and welcome to the ASUR's First Quarter 2012 Results Conference Call. My name is Jesenia (ph) and I will be your operator for today.
At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference.
For opening remarks and introductions, I would like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer.
Please proceed.
Adolfo Castro Rivas
Thank you Jesenia (ph) and good morning everyone. Thank you for joining us today for the conference call for the first quarter 2012 results.
Allow me to remind you that certain statements made here in 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 those 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.
On today's call, I will provide an update on the operations and traffic performance for the quarter and afterwards a brief review of the results. In terms of our international expansion strategy, as anticipated on March 15 we presented our indicative beep for the privatization of San Juan de Puerto Rico Airport and we are now one of the two participants shortlisted to present the final piece.
We do not have technical date for when these have to take place but we believe the final piece would have to be presented sometime in May. With respect to corporate matters our holders of actual B shares ITA have the right to elect two board members while holder of 10% of ASUR's B shares can elect one member of our Board of Directors.
As a result ITA, Grupo ADO and Fernando Chico have nominated the following people to ASUR's Board of Directors. Fernando Chico Pardo and his alternate (inaudible) Jose Antonio Anton and his alternate (inaudible), Luis Chico Pardo and (inaudible).
These appointments will be made at tomorrow's annual shareholders meeting. Turning now to the results this was a very good quarter.
Passenger traffic was up by 10.4% year-on-year to a $5.1 million record high. Growth was mainly driven by the 19.8 rise in domestic traffic which reached 1.8 million passengers this quarter, the second highest quarter, following the peak of $1.9 million achieved in 2008.
All airports performed well with domestic traffic particularly strong at Cancun, Merida and (inaudible) airports. In fact domestic traffic at Cancun has fully recovered from the negative impact of the disruption of (inaudible) and the last 12 months passenger traffic now exceeded the peak post in 2008.
The smaller airports however still reflect the impact of lack of domestic airlines seat capacity. International traffic was up by 0.8% to 3.3 million passengers, also a record high this quarter.
The share of international passenger traffic however down to 65% of the total traffic from the 67% in the first quarter 2011. Passenger traffic between Mexico, Canada and the United States represented 89% of the total traffic compared with 90% a year ago.
Consolidated revenues were up by 20.9% this quarter driven by revenue growth across the board. Excluding construction total revenue will have increased 19.4%.
Commercial revenues for passenger rose to 75.63 pesos, another record high. Operating cost and expenses rose 15.9% year-on-year mainly due to higher construction cost and cost of services.
Excluding construction cost, operating cost will have risen by 11.9%. Remember that including this line item, all the cost associated with the volume of our convenience, those which posted higher sales and then higher cost during the period.
Higher energy cost and expenses in connection with our participation in international bidding processes, also job increasing cost. EBITDA was up by 22.4% this quarter with EBITDA margin up by 66 basis points year-on-year to 64.4%.
This quarter we invested 152.35 million pesos and we continue with the terminal expansions in Veracruz, Villahermosa, Mérida and Wahaca Airports. We also closed the quarter with a strong balance sheet with cash and cash equivalents up 35.3% to 2.1 billion pesos and bank debt of 6.174 (ph) million.
Finally our Board of Directors has also proposed a 3.6 pesos per share as dividend for the ordinary shares and B shares. IT will be disclosed at our next shareholders meeting that will take place tomorrow.
Now let me open the floor for questions. Please Jesenia (ph), go ahead.
Operator
(Operator Instructions). Your first question comes from the line of (inaudible) from Goldman Sachs.
Please proceed.
Unidentified Analyst
I have two questions. The first one is referring to commercial revenues.
We saw that commercial revenues per passenger grew (inaudible) during the first quarter. We wonder if it's a seasonal or if you see that a strong growth is supposed to continue in the coming quarters.
And the second question is regarding the five year investment plan that’s supposed to end next year. What is (inaudible) discussions with the government to the new plan and what are your thoughts on that?
Adolfo Castro Rivas
Commercial revenues, of course every quarter is different from the others because the people that goes to the airport is different. In terms of the history of the company, you can see that it's not the same on a per passenger basis, what occurs in June in comparison with December.
Then unless I have to say that nothing extraordinary occurred during this first quarter and what we are seeing in our opinion could be sustained of the future of course with these different seasonalities in the among the quarters. In terms of the MDP (ph), as we speak we are working on the new MDP (ph).
This process was a source factored in the company and before October last year, from October through May is the moment what we are going to construction this new MDP (ph) proposal. Then we will have to submit this to the airlines and the users for a six month hearing period and then we will have to present this to the government at the end of this year and then the government will have one year to review and discuss what is there.
Unidentified Analyst
And considering that traffic has been stronger, can we expect lower or natural terrace in 2014 on with the new MDP?
Adolfo Castro Rivas
Well the traffic isn’t stronger but keep in mind that when we made our method the traffic trend was what we were seeing let's say June 2007, the end of 2007. So just imagine what has happened between June 2007 and today's traffic and you will be surprised that due to the strong effect and due to the financial crisis we have huge beep in our traffic.
If you see my comments, my initial remarks, we are still talking about going back of the point where we were in June 2008. So it's prudent to say…
Operator
Your next question comes from the line of Stephen Trent from Citigroup. Please proceed.
Stephen Trent – Citigroup
Just two questions from me if I may. Thanks very much for the color on the Puerto Rico airports tender.
I'm just curious, to the extent that let's say the Puerto Rican Airport authorities go with the competitive bid over yours, any thoughts as to whether some might look elsewhere in the region at other potential opportunities, whether it's going to be stumping in Columbia, something in Central America or the Caribbean. And then my second question pertains to Mexico City itself.
I guess we had Popocatepetl erupting last week. That got a lot of press up here and it now seems to have gone quiet.
I'm wondering if you are aware of any air traffic disruptions as a result of that. And that's it for me.
Adolfo Castro Rivas
In the case of San Juan Puerto Rico, if we are the winners this will have caused not accrued from late tonight. It's going to be a process where we will have to prove that they have capacity to the government there.
So it will accrue at least, I would say to the end of this year from the beginning of next year. After that we will continue with our international expansion.
We will have to have weathered that situation let's say one year from now but the first thing that we have to do is to be sure that we are able to survive what we are offering to these people, to the Puerto Rican people. I am absolutely convinced that we are capable to offer to comply with what we are offering and get probably in the future once, let's say in the case of Puerto Rico is normalized, probably we will be able to see some other things.
In the case of the Popocatepetl we guess it's true that if these volcano explodes on roots we will have some difficulties in terms of the air traffic because of the ashes. As of today no operations have been cancelled nor delayed because of the recent events of this volcano.
Operator
Your next question comes from the line of (inaudible). Please proceed.
Unidentified Analyst
My question is also about the commercial revenues. There was a relevant increase of our own 39% in revenues from direct operations and also 23% of total commercial revenues.
What could we expect going forward? Are you comfortable with this proportion or do you think it would be high in the future?
Adolfo Castro Rivas
Well I have to say that this is a moving target and this is what I said. I say every day to my region director.
We are not comfortable anytime, any moment. We have to work every day in terms of revenue per passenger.
Yes, it's true that you can see a huge increase from the first quarter last year to this quarter. Two comments on that.
The first one is not all the stores were exactly open during the whole quarter 2011. I have to say most of them, if we go into the details, not all of them were open during the whole quarter.
Nevertheless I have to say we have learned and we are selling much more than what we sold last year. This is an ongoing process.
This is a learning curve also for each one of the stores. Not all of them are at the same and it's true, we're making better than the previous year but we have and we believe that we can do better.
Operator
The next question comes from the line of Luis Willard from GBM. Please proceed.
Luis Willard – GBM
Just has there been any update on the tax rate issue at the Cancun airport and the second, just to have a little quick recap on the Puerto Rico, if you are already in the final round you are not expecting, you don’t have like a formal timeframe to the final proposal. Did I get it right?
Adolfo Castro Rivas
In the case of the tax rate you should, thank you for your question because I didn’t mention anything on my initial remarks. But the case is the following.
We have presented our process for the judge. So we are starting its run in the court now but I truly believe that each process will take from two to three years and that's how the legal system works in Mexico.
So as soon as I know or we have some news on these, we will be informing this to you. For the moment, what I can say to you is we will not have a, I do not expect a final ruling on these for the two to three years.
In the case of San Juan Puerto Rico it's true. As we speak, I don’t have any specific nor an exact date of when do we have to present our final offer but this has to be published very soon and what I believe is that these could happen during the month of May, maybe third week or fourth week.
Operator
Your next question comes from the line of Nicolai Sebrell from Morgan Stanley. Please proceed.
Nicolai Sebrell – Morgan Stanley
Quick question. First the criteria for the Puerto Rico airport in the final round, do those change at all?
What's the bidding criteria for deciding the final winner if you can share that and then follow up on a tax question, I'm a little bit confused about the write up of value. I think you said the estimate of a total potential consequence if the case were to be lost would be around 334 million pesos but there was another assessment made by the government that was something like 865 million.
How do I reconcile those two numbers?
Adolfo Castro Rivas
In the case of the San Juan Puerto Rico the criteria is who pays more and also what I believe is that the clinical capabilities at the end will count as well but that thing is who pays more. In terms of the tax matter, the difference between the two numbers, it is important to understand that the government is basically telling us that we didn’t have the right to amortize our concession values for more than 2% and because of these they are basically saying you have to pay more taxes and this is for the years 2006 and 2007.
If you remember, after those years, we have paid in the case of Cancun airport dividends and because we were not paying corporate tax we have to pay tax on dividends. So if now you say A, you have to pay corporate tax because of this, then okay, you pay the corporate tax, then you don’t have to pay tax on dividends.
So that's why the number that you said, the 800 number is not the same as the 300. I don’t know if I am clear on the –
Nicolai Sebrell – Morgan Stanley
That’s very clear.
Operator
The next question comes from the line of Neal Dihora from Morningstar. Please proceed.
Neal Dihora – Morningstar
Just trying to get a little bit more color on Cancun. I guess for domestic, are there more airlines that are serving the Cancun airport as opposed to back in 2008 or is it just more frequencies or is it that the airlines that are serving Cancun are just using bigger sized fleets so more passengers can get in there and then I guess the same question is international too.
I think your traffic numbers for the quarter were the highest, I guess at least and so it may be ever, those were my questions. Thanks.
Adolfo Castro Rivas
Well it's true. Today we are record; we see that ASURs numbers in general, we are presenting a bit numbers for our first quarter ever.
In the case of domestic of course it's not more airlines because there are no new airlines in Mexico and it's basically more passengers are willing to come to Cancun now and in the case of the international traffic, it's the same situation.
Operator
(Operator Instructions). And the next question comes from the line of Fernando (inaudible) from JPMorgan.
Please proceed.
Unidentified Analyst
I have two questions. First one is a margin, EBITDA margin in the quarter, ex-construction revenue, it was around 69%.
Last year your full year margin was around 64. I was wondering if this is the recurring level of margin going forward or you have some seasonality effect in the first Q that brought margins up and the second question is regarding investments outside Mexico.
It seems that the government of Portugal is willing to privatize (inaudible) which takes care of the major airports in the country. Just wondering if you guys would be interested in looking to this asset?
Adolfo Castro Rivas
In terms of margins, yes of course, it's in our company. If you see the first quarter, it's always the highest in terms of the other three quarters and normally the first is higher than the second one and the second higher than the third one and the third one higher than the fourth one.
In the case of investing somewhere else, for the moment we are focused on Puerto Rico and once we finalize with this we will see what (inaudible).
Operator
(Operator Instructions). I will now turn the call over to Mr.
Adolfo Castro for closing remarks.
Adolfo Castro Rivas
Thank you Jesenia (ph) and thank you for everybody for joining us today in our conference call for the first quarter 2012. As always do not hesitate to contact me if you have any further questions and have a great day.
Thank you. Bye.
Operator
Ladies and gentlemen, that concludes today's conference. Thank you for your participation.
You may now disconnect. Have a great day.