Jul 23, 2013
Executives
Adolfo Castro – CEO
Analysts
Eduardo Couto – Morgan Stanley Stephen Trent – Citi Investment Research
Operator
Good day ladies and gentlemen and welcome to the ASUR second quarter 2013 results conference. May name is Alicia and I will 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 the conference.
If you would like to ask a question please press star followed by the digit 1. You may withdraw your question by pressing * followed by the digit 2.
If you're using a speaker phone, please lift the handset before making your selection. As a reminder today’s call is being recorded.
For opening remarks and introductions, I’d like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer.
Please proceed.
Adolfo Castro
Thank you, Alicia and good morning, everybody. Thank you for joining us today for the conference call to discuss our second quarter 2013 results.
Allow me to remind you that certain statements made during 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 factors that may be beyond our company’s control. For an explanation of these risks, please refer to our filings in the Securities and Exchange Commission and the Mexican Stock Exchange.
I will start today’s call by providing an update on San Juan, Puerto Rico International airport and afterwards I will briefly review the results for the quarter. Total passenger traffic at San Juan airport was 2.1 million during the quarter, reaching an estimated 2.9 million since February 28, 2013.
On the financial front, I will start, net income contribution for ASUR's ownership 50 ownership stake for the quarter was a net gain of Ps. 26.8 million, equivalent to approximately $2 million.
Results were also impacted by a foreign exchange of 76.5 million and a Ps. 77.1 million gain in stockholders equity.
This reflects the impact of the depreciation of the Mexican peso against the U.S. dollar during the quarter on the valuation of Aerostar’s capital stock of the [start in development] in connection as well as on Cancún airport's higher foreign currency denominated bank debt.
In terms of the work being done at Aerostar, during the quarter, we will focus on repairing, cleaning and performing maintenance of the [portion of Cancún's] airport infrastructure. We also began preparation work in connection with the remodeling of [San Juan] which is expected to begin this November and continue for approximately three years.
Moving on to our consolidated results, passenger traffic increased almost 10% year on year with a 6% expansion in domestic traffic to 2.3 million passengers this quarter, a record for us in the second quarter. Domestic traffic was particularly strong at Cancún, Veracruz, Merida, Minatitlan, Oaxaca and Villahermosa airports.
Cancún continues to post strong growth, again posting a record traffic figure with more than 1.2 million passengers this quarter. As we have seen, in the third quarter 2011, smaller airports remained affected by the limited domestic airline seat capacity, although the situation is getting better.
International traffic performed very well this quarter, up by 12.9% year on year, reaching 2.9 million passengers, a record for a second quarter. The share of international traffic rose to 56.1 of total traffic, up from 54.6 in the second quarter of 2012.
Passenger traffic between Mexico, Canada and the United States represented 87.81% of the total traffic compared with 88.61 a year ago. Revenues rose 0.6% as higher passenger traffic and the continued expansion in international revenues was in large part offset by the 49% decline in construction services revenues.
Commercial revenues per passenger however fell 1.3% to Ps. 74.08 year on year.
Two factors affected the growth in our commercial revenues per passenger: One was the depreciation of the Mexican peso against the U.S. dollar and the other one was capacity constraints at Cancún terminal 2 in light of the continuous strong traffic growth.
As always we remain focused on maximizing commercial revenue growth opportunities and are actively waiting to change the negative trend we have since the beginning of the year. For example we are finalizing work at Cancún airport terminal 1 and we expect to open this terminal by October this year which will allow us to [better send] domestic passenger and will improve the shopping experience in terminal 2 of this airport.
Operating costs and expenses declined 8.4% year on year reflecting the 49% reduction in construction costs. Excluding construction costs, operating costs and expenses have increased 6%.
EBITDA was up by 8.8% with an EBITDA margin increase of around 470 basis points year on year to 62.70%. We made investments of Ps.
102 million this quarter as we continued with the terminal expansion in [Oaxaca] Villahermosa and Veracruz airport, all of which are expected to be completed during the year 2013. In terms of our balance sheet, we closed the quarter with cash and cash equivalents of Ps.
1.9 billion and bank debt of Ps. 2.9 billion.
During the quarter we also paid an ordinary cash dividend of Ps. 4 per share.
Now let me open the floor for questions. Please Alicia, go ahead.
Operator
We'll go first to Eduardo Couto from Morgan Stanley
Eduardo Couto – Morgan Stanley
Hi good morning Adolfo. Congratulations on the results.
I have two questions, if I may. The first one regarding Puerto Rico.
Now in the first quarter, excluding the one-off expenses that you had there, you were reporting losses around Ps. 8 million per month, more or less, if I'm not wrong.
And now in the second quarter, you had like the same value, but more or less but it was a gain. So can you explain a little bit if this gain from Puerto Rico is recurrent or if there is any FX impact there, Adolfo, just clarify?
Adolfo Castro
Well first of all, thank you for your words. It's hard for me to say what will be the future in terms of the rest of the year for Puerto Rico because as you may recall, we do not have the clear history of what has happened last year in terms of the passenger traffic.
So we do not have the facts or accurate figures for the last year operations. That means that we do not have a fair seasonality of the airport down there.
So it's hard for me to forecast for the moment what will be the rest of the year. What I believe is that the seasonality of Puerto Rico should be more or less the same as the one that we have in Cancún which the first part of the year is the most important, so the first quarter is higher than the second one, the second one higher than the third one, and the third one higher than the fourth one.
But to be honest, I am not sure it is the case or not and what will be and then the [forecast] of the rest of the year. It's very hard for me to do, to forecast that.
But I think the view is that the second quarter in terms of the operational costs was better than the first one and the revenues in terms of the commercial revenues now then Puerto Rico was better revenue per passenger. So I hope that the numbers we saw during the second quarter will be more or less what we expect for the following quarters.
But it's very hard to 100%.
Eduardo Couto – Morgan Stanley
Okay. But the FX impact of the dollar assets that you have there, they go directly to equity right?
They don't pass on this equity income line? Is it right?
Adolfo Castro
That's right. Let me talk about the exchange loss or gain the effect in the case of ASUR.
As you may recall, investment we made in San Juan, Puerto Rico was $118 million. Also we gave -- more like Cancún airport gave San Juan, Puerto Rico a loan of $100 million.
So on the equity side, you have 218 and on the debt side we requested a loan to BBVA Bancomer Merrill Lynch a loan of total 215 million. So more or less you have the same on the equity, while on the asset side, and in the case of the loan or the equity side.
But the difference in terms of how the gain is applied is that in the case of the investments, the factor of investment is the equity contribution directly and the in case of the debt, goes into the P&L of ASUR. So that's why you can see a loss in the P&L of ASUR this quarter.
And on the other side the gain is billed on the capital contribution.
Eduardo Couto – Morgan Stanley
Okay. So the FX impact on your -- on Puerto Rico that -- this FX impact goes in your results, that's your point?
Adolfo Castro
Well the effect for an exchange loss or exchange gain in the case of San Juan, Puerto Rico the most important goes into the financial books of ASUR.
Eduardo Couto – Morgan Stanley
Okay. And what's your net debt position in Puerto Rico right now, Adolfo?
Do you have this number?
Adolfo Castro
Yes, on top of the 100 million, the number that we issue at [funds] because of private placement of $350 million.
Eduardo Couto – Morgan Stanley
Okay, 360.
Adolfo Castro
350 and the rate is 5.75.
Eduardo Couto – Morgan Stanley
Okay. And just a second question now on ASUR's operations, especially in the case of Cancún, can you remind us what is the current capacity that you have, terminal capacity that you have in Cancún including this reopen of the terminal 1 that you mentioned that could happen in October?
And also still on the back of investments for Cancún, when do you see the need for a new terminal or the expansions of the existing ones? When does the company see maybe the requirement of additional investments in terms of terminal capacity?
Adolfo Castro
Okay. In terms of -- let me start with passenger traffic, more or less what you have, for the last 12 months is more than 15 million passengers.
If we talk about runway capacity, we have more or less 30 million. If we talk about terminal capacity we have more or less 17 million.
Of this 17 million, terminal 1 which is the one that we intend to open during October this year, it's more or less 2 million. So the other two terminals are basically reaching its full capacity.
And that is why probably one of the reasons why we are being able to convert all the passengers traffic into commercial revenues per passengers because of this congestion. So, but the intention is to open terminal 1 in October, that will give some kind of relief to terminal 2.
Then we will start the beginning of next year with the expansion of terminal 3 and we intend -- it depends of course in the future passenger traffic growth but we intend to start the beginning of the works within the fourth -- during the year 2017 or 18.
Eduardo Couto – Morgan Stanley
Okay. So it can still be included on your next investment cycle that could -- this way.
Adolfo Castro
Well sure at least a piece of the news is going to be included in our next five year bill.
Eduardo Couto – Morgan Stanley
And the capacity, any idea in terms of the terminal capacity for this new one?
Adolfo Castro
It will depend again on what will be the line on terminal 3 but if we say that expansion in terminal 3 is needed, the new terminal 4 phase 1 should be more or less the same as the capacity we have with terminal 3 today, which is more or less 6 million passengers.
Eduardo Couto – Morgan Stanley
Okay. Thanks for those.
Very very helpful.
Adolfo Castro
You're welcome.
Operator
We'll go next to Ronaldo Velez of GBM.
Unidentified Analyst
Hi good morning. I was wondering, Adolfo, if you could provide us with a little bit more insight regarding the tax reimbursement.
Adolfo Castro
The tax reimbursements?
Unidentified Analyst
Yeah the tax reimbursements that you received this quarter regarding the change in the concessions amortization.
Adolfo Castro
It's not exactly a tax reimbursement. It's basically a tax on the P&L.
It does not have to do with cash, but basically what [we started] using is the problem that it was presented by the major finance was to change the decision rate that we used that and basically to be able to have that expense as a feature. And that created the effect that you're seeing in the P&L, a positive impact on the taxes and also together with a positive effect on the [third line].
Unidentified Analyst
Okay perfect. And you mentioned in your press release that you were active on new international bidding projects.
Could you give us a bit more insight on this?
Adolfo Castro
Well we are working in one specific project, we are trying to be a participant there, which is the same 1st terminal of the airport in [Veracruz].
Unidentified Analyst
Okay perfect. Thank you.
Operator
We'll go next to Stephen Trent of Citi.
Stephen Trent
Good morning Adolfo and thank you as always for the time. Just two or three for me, some quick ones.
I think the first is with respect to President Peña Nieto's infrastructure plans. There seems to be a lot out there including some potential news of a Mérida to Riviera Maya train and maybe some more airports.
I'm wondering if you could give us sort of your broad view as to how you see ASUR participating in these plans or what could be the general impact on the business? That would be great.
– Citi Investment Research
Good morning Adolfo and thank you as always for the time. Just two or three for me, some quick ones.
I think the first is with respect to President Peña Nieto's infrastructure plans. There seems to be a lot out there including some potential news of a Mérida to Riviera Maya train and maybe some more airports.
I'm wondering if you could give us sort of your broad view as to how you see ASUR participating in these plans or what could be the general impact on the business? That would be great.
Adolfo Castro
Good morning Steve. The projects that you're mentioning, the one that is clear is the train that goes from Punta Venado to Mérida.
This is a project that has been announced by the President and they are talking about that project as a Phase 1 project, the one that is closest to our region. In terms of airports what they have announced is basically the remodeling of six airports and the completion of one which is Palanka, the previous government was working in the new Palanka airport which is close to Villahermosa.
And they are expecting this plan to continue to -- desire for this project, it's an effort that will serve the region of Palanka. Those two are the most important airport projects that I see on their plans.
But I have to say that I was at the meeting which they announced this plan and the words from the Secretary of Communications and Transport were as were in terms of the Mexico City airport and basically they said that they are working as well to solve the congestion this airport has. That basically is an important project.
For the moment I do not expect a major impact on our company results.
Stephen Trent
Okay, great. Thank you Adolfo.
And just one or two questions on San Juan. I guess the first is from a disclosure perspective, some of your peers of course, as you guys are adhering to IFRS rules on accounting for some items under the equity method, but some of those peers are also providing data on a proportionally consolidated basis.
Do you think this is something that ASUR might move to going forward especially if you guys decide to buy some high stake in San Juan?
– Citi Investment Research
Okay, great. Thank you Adolfo.
And just one or two questions on San Juan. I guess the first is from a disclosure perspective, some of your peers of course, as you guys are adhering to IFRS rules on accounting for some items under the equity method, but some of those peers are also providing data on a proportionally consolidated basis.
Do you think this is something that ASUR might move to going forward especially if you guys decide to buy some high stake in San Juan?
Adolfo Castro
Too many questions there, but basically I would say we need to understand what's the current situation of San Juan. First as I said before, we do not have history, so it's hard to -- it's hard for me to present numbers like that just because -- previous was because I don't have previous ones.
Your second comment is that today as you see, we have no financial statements audited. So we do not have that.
It's hard to think about the next steps. And the third one is as you have mentioned, we have accounting there, and then you will have to talk about the disclosure we may have on San Juan, Puerto Rico's numbers because they would have to approve our disclosure.
But if we're going to buy Highstar Capital, what I can say to you is probably in the future that we'll -- tell the participation because they are on, that future may be between 7 to 10 years.
Stephen Trent
Understood. Well, appreciate your candor, as always, Adolfo.
And I'll let somebody else ask a question.
– Citi Investment Research
Understood. Well, appreciate your candor, as always, Adolfo.
And I'll let somebody else ask a question.
Adolfo Castro
Okay, thank you Steve.
Stephen Trent
Thank you.
– Citi Investment Research
Thank you.
Operator
(Operator Instructions) We'll go next to Eljino Malero of Credit Suisse.
Unidentified Analyst
Yes, good morning Adolfo. Thank you for the call.
My question is regarding your, the insight if you could provide it regarding your next -- in your CapEx plan. In your year-end report you have indicative investments of Ps.
2.2 billion for the 2014-2015 five year plan, which is about 51% below the 4.785 billion of 2009-2013. Do you see in the ongoing negotiations is this still an indicative number?
And second how do you feel this impact maximum tariffs going forward for your next -- in your plan?
Adolfo Castro
The number that you have mentioned is indicative and that was the one -- that wasn't in the year 2006 more or less. Also the number that you're mentioning in pesos of December 2006, so you can have inflation and so forth for that number.
We are, as we speak, we are working with the government to review the proposal we presented last year. I have to say to you that the government will conclude its visits of our nine airports next week.
There is one that is pending. Once they conclude then we will be able to talk in more detail about investment plans.
For the moment we do not have any comment or anything different than the plan we presented to them. If this is going to affect the rates?
Of course the rates are the results of the numbers we put there in terms of investment plans. If the final number of the maximum rates for the next five years are going to be more than what we have today or less than what we have today, that is something that we will have to see by the end of the year.
And I hope that we will be able to share that explanation with you at the beginning of next year. So the first week of January next year.
Unidentified Analyst
Thank you Adolfo.
Adolfo Castro
You're welcome.
Operator
We'll go next to Eduardo Couto from Morgan Stanley
Eduardo Couto – Morgan Stanley
Hi Adolfo. Just a follow up question on the income tax side.
On your financial statement you reported almost something close to zero in terms of income taxes. I was just wondering what is your actual cash tax payment.
I don't know if you have this number in the top off your head, but something to share with that cash tax, instead of the income tax that we see on the results.
Adolfo Castro
I don't have it in the top off my head but what I can comment to you is to see the financial statements of last year and to see specifically in the cash flow the cash tax payments there.
Eduardo Couto – Morgan Stanley
Okay, but you are paying taxes right in terms of cash outflow?
Adolfo Castro
Absolutely.
Eduardo Couto – Morgan Stanley
Okay, thanks.
Adolfo Castro
You're welcome.
Operator
(Operator Instructions) At this time I would like to turn back over to Mr. Castro since we have no further questions.
Adolfo Castro
Thank you Alicia and thank you everybody for joining us today on our conference call. As always, do not hesitate to contact me if there is any further questions and thank you all of you and have a good day.
Good bye.
Operator
That does conclude today’s conference. We thank you for your participation.