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GRUPO AEROPORTUARIO DEL SURESTE, S.A.B. DE C.V. (NYSE:ASR)
Q1 2020 Earnings Call
Apr 24, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to ASUR's First Quarter 2020 Results Conference Call. My name is Kathy and I'll be your operator.

[Operator Instructions]

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

Adolfo Castro Rivas -- Chief Executive Officer

Thank you Kathy and good morning everyone. Thank you for joining us on the conference call to discuss ASUR's first quarter financial and operating results. Before starting the call, I would like to express my hope that you and your families are healthy and safe in these uncertain times. As a reminder, please note that certain statements made during the course of our discussion today may constitute forward-looking statements which are based on our current management expectations and beliefs and are subject to a number of risk and uncertainties that could cause active results to differ materially, including factors that may be beyond our company's control including the impact from COVID-19. For an explanation of these risks, please refer to our filings with the US Securities and Exchange Commission and the Mexican Stock Exchange.

Overall, our first quarter results were good. The year began in solid footing before we started to see the impact of COVID-19 pandemic in the second half of March. It resulted in the disruption of global travel industry. Importantly, in the end of the first quarter we had healthy balance sheet which I will come back and discuss in more detail later in my presentation. I'm going to start today's presentation with some comments regarding COVID-19 and the impact on the industry, on our business, and the steps we are taking to mitigate this disruption to the best we can in this rapidly changing environment. From an industry perspective, since mid-March, many governments have issued flight restrictions in an effort to mitigate the spread of COVID-19 virus. In turn, capacity has been severely reduced and very few people are booking flights as most are in some form in lock down around the world and not traveling. With respect to our airports, the situation varies by country and could be subject to change depending upon how fast or slow the pandemic is brought under control. Colombia has been the most active and we've suspended operations at all six of our airports since the third week of March with domestic flights suspended until April 27 in accordance with the published decree and most recently extended to up to May 11.

International travels have been suspended through May 13. By contrast, in our airports in Puerto Rico and Mexico remain open, although there's significant reduced flights and passenger traffic. As a result, total passenger traffic declined sharply in the second half of March, down nearly 69% year over year between March 16 and March 31. By country, we show the margin decline in Colombia around 77%, followed by Puerto Rico down 73% and Mexico with 63% decrease [Indecipherable]. Additionally starting in mid-March, some of the airlines as well as some tenants that operate in our airports began asking for assistance either through discounts on payments owed to ASUR or by extension by payment which resulted in a higher accounts receivables in March in Mexico and Colombia, up 54% and 78% year-over-year. We are having ongoing commercial discussions with these companies with respect to their contracts.

Moving next to action we have taken, starting with health and safety. Following the guidelines of relevant health agencies, we have implemented health and safety protocols for both our airport employees and passengers travelling through our airports. For example, protective gear such as wearing masks is required for airport staff. We have also stepped up disinfectants and sanitization practices, once again in accordance with the guidelines of local health authorities. Lastly, where possible, we have also implemented remote working points.

Moving next to ensuring continuity of our business. We have introduced cost reduction initiatives across our airports. The impact of these initiatives however is not expected to be significant vis-a-vis the potential decline in passenger traffic at the majority of the cost structure is different, except for concession fees and technical assistance in Mexico which are biannual cost. We are prepared to take additional step, if needed, to respond to the evolving business environment. Now, let me talk about our financial situation. We entered this quarter in a position of strength with strong liquidity and very low principal payments required through year end. Additionally we believe the company has sufficient liquidity to meet its obligations and continue operating in the normal course of business. Our cash position ended at MXN7.8 billion which was up from MXN6.2 billion at the year-end 2019. And subsequent to the quarter end, as we further strengthen our financial positions as our subsidiary in Puerto Rico drew down an additional $10 million of its committed line of credit. The line of credit [Indecipherable] support for the capex projects we have under construction, Apelian airport in Puerto Rico.

We closed the quarter with total debt of MXN15.3 billion. Although 11% high than the year-end 2019, this was due to the conversion effect from the depreciation of the peso to the dollar. As a reminder, the majority of our debt, 54% is denominated in the US dollars which is at our subsidiary in Puerto Rico. 26% of total debt was denominated in Mexican pesos and 20% in Colombian pesos. We have principal payments of only MXN432 million coming due over the next three quarters. This represents less than 3% of ASUR's total debt. With respect to that ratios, net debt to last 12 months EBITDA stood at 0.7 times at the close of first quarter '20. You can see the interest coverage ratio by country in the table we have included in the annual release this quarter.

Now, stepping back for more, since we began operations over 20 years ago, we have successfully navigated through many very significant challenges. From the 9/11 event in 2001 to [Indecipherable] into 2005 and 2008 and 2009 business financial crisis, H1 and H2 and the bankruptcy of 50% of airlines in Mexico which cut planes capacity in Mexico by more than half. Following each of these events, passenger traffic recovered, although recovery time varied from 13 months to 26 months and then continued to grow. Between 2000 and 2019, annual passenger traffic increased the compound annual growth rate of 6.6%, up from slightly over 10 million to historical high to over 34 million last January. We believe the COVID-19 pandemic is unique in that sense it is global event and with a broad disruption in travel and economies worldwide and could change the way of travelling in the future while a vaccine or a cure is found. Summing up this section, we have a strong balance sheet, we have generated years of consistent profitability and we exercise prudent capital management. In the sense we believe that we cannot be very prepared for an event of this magnitude, but of course given its great uncertainty on the final effects in the worldwide economy and that travel will be [Indecipherable].

Now turning to our first quarter results, more details can be found in the press release issued last evening. Like I mentioned this part of my presentation, let me spend with the effects of the business in late March. We believe we had solid results in the first quarter 2020. Total passenger traffic was down in most of the airports, which leads to a total passenger decrease of slightly 6% YoverY. This was primarily due to the fallout from COVID-19 and the impact of the global travel industry beginning in the second half of March. Our airports in all three countries experienced total passengers decline from a low of nearly 3% in Colombia to a high 8% in Mexico. Puerto Rico passenger traffic was down 4%. All three countries reported declines in both domestic and international traffic.

Moving next to the P&L highlights, revenues ex construction were relatively unchanged at 4% increase in revenues from non-aeronautical services was offset by a 3% decline in aeronautical revenues. Commercial revenues per passenger increased 11% year over year, reaching MXN116.3. This was driven by solid performance across the region. Mexico posted a good performance with an increase of 11% on a per passenger basis benefiting from the currency peso devaluation and regulated revenues. Puerto Rico posted 7% increase per passenger benefiting from peso depreciation and finally Colombia saw a 33% increase on a per passenger basis, reflecting the 43 new stores opened over the last year and currency depreciation. The main drivers were ground transportation and car rentals.

Moving on to profitability, reported consolidated EBITDA increased 3% from the same period over the prior year. Both periods benefited from insurance recoveries related to the Hurricane Maria. In the first quarter '20, it amounted nearly MXN124 million while last year the amount was dragging over MXN41 million. Excluding these recoveries, consolidated EBITDA was essentially flat year-over-year at MXN2.7 billion. Ex-IFRIC 12 and without taking into account insurance recoveries in both quarters, adjusted EBITDA margin increased 20 basis points to 66.7% this quarter.

A few comments about capital allocation. Capital expenditures were MXN353 million in the quarter. Of these, nearly MXN58 million was allocated in Mexico due to the terminal expansion of Merida airport. For the full year, and as we have discussed before, our non-prevalent plan in Mexico calls for investment of approximately MXN5.3 billion for the full year. At the current time, there are no changes to the planned continuation of the foreigners tax relief of the second one we have at Cancun airport and the beginning of the first expansion at the Merida. Our plans call for a conclusion of Phase 1 of the Merida terminal expansion and typically the second phase this year. Nevertheless, due to the COVID-19 health crisis, you may see some disruption in the construction process, attributable to stay-at-home, the combination and we have informed the government about this situation. In Puerto Rico we have made investments of MXN114 million this quarter, mainly from the connection with some major maintenance referred tax relief. Finally, capex in Colombia amounted to MXN1 million related to maintenance. Last year we concluded our committed capex was at MXN20 million. And going forward, we only expect to incur a major maintenance capex in Colombia.

Next, our Annual General Meeting from yesterday, shareholders approved an ordinary net cash dividend of MXN8.1 per share to be paid, subject to the Board's approval on or after May 11, 2021 in a single installment.

In conclusion, we are proactively responding to the developing situation. No one can control the virus or even the economic fallout. But we can control how we react to the crisis. I am optimistic about the prospects for the future both navigating through the current crisis and in the long term recovery. I believe that we are well positioned with a healthy balance sheet. We had a solid first quarter results. We believe in the strategies that we are executing.

This ends my prepared remarks. Kathy, please open the lines for questions.

Questions and Answers:

Operator

[Operator Instructions]

We'll go first to Alejandro Zamacona of Credit Suisse.

Alejandro Zamacona -- Credit Suisse -- Analyst

Thank you Adolfo, thanks for the call. Two questions from our side. The first one is on the aeronautical maximum tariff. So, considering that airlines have been negotiating with most of airports and in some cases some fees have not been charging. What could we expect for maximum tariffs in the short-term meaning the second quarter and in the immediate term, meaning year end 2020? Could we still expect tariffs to be close to the maximum level?

Adolfo Castro Rivas -- Chief Executive Officer

Alejandro, hi, good morning. Well, basically what we are seeing today is a very reduced demand. So we believe that there is no effect if we try to reduce our fees for the month of April or the month of May. So we have maintained our tariffs and we believe that we can comply with -- we have to maintain compliance toward the year end.

Alejandro Zamacona -- Credit Suisse -- Analyst

Okay, thank you. And my second question is on the non-aeronautical business. Same thing in the same context, what could we expect in the short term for commercial revenues per passenger? Have you grant any rent payments facility to payments or any deferrals? Thank you.

Adolfo Castro Rivas -- Chief Executive Officer

Most of our contracts, as you may know, they have to pay higher of the minimum guarantee payment per passenger or a percentage of sales. So if we do not have passengers, we will not have to pay rent. So it's made automatically. So in that sense, we are not reducing or adjusting the contracts.

Alejandro Zamacona -- Credit Suisse -- Analyst

Okay, thank you Adolfo.

Adolfo Castro Rivas -- Chief Executive Officer

You're welcome.

Operator

We will now take a question from Fernando Sanchez of Bradesco BBI.

Fernando Sanchez -- Bradesco BBI -- Analyst

Hi, good morning and thanks for taking my question. My question is light of the likelihood of the GDP contraction beyond 5% I just wanted to ask if you have had the opportunity to discuss with the authorities the possibility of delaying the 2021 and the key mandatory capex?

Adolfo Castro Rivas -- Chief Executive Officer

Hi, good morning. Well as you are aware, the contract has a clause that says that the maximum tariff can be reviewed in the case of Mexico in an external way. When on the Mexican GDP drops by more than 5% in a year and that's happened in fact on track. Of course with the current circumstance and the current expectations from analysts, it is possible that the Mexican GDP will drop by more than 5% this year. So in that sense, we will be we -- and the possibility of review our maximum time in an external rate. That's for next year, but not this year.

Fernando Sanchez -- Bradesco BBI -- Analyst

Okay. Thank you very much.

Adolfo Castro Rivas -- Chief Executive Officer

You're welcome.

Operator

And now, we'll take a question from Carlos Peyrelongue of Bank of America.

Carlos Peyrelongue -- Bank of America -- Analyst

Thank you. Good morning Adolfo. Thank you for the call. On the something I couldn't hear well because of the connection but can you comment as to whether the dividend will be kept or there is the possibility of cutting the dividend until we have more sense about passenger traffic? That would be the first question. And the second would be related to cash burn, if you could give us an idea of what your cash burn is on a quarterly basis, just to get a sense of compare that primarily to your strong cash position. Thank you.

Adolfo Castro Rivas -- Chief Executive Officer

Yes, of course. In the case of the dividends, yesterday we held Annual Shareholders Meeting, they have sadly approved the dividend that it was proposed MXN8.1 per share. But it was -- this was subject to the approval from the Board to the moment of the payment that's from May 11, 2021. So the Board will have to approve when this dividend will be paid. In the case of the cash burn, what I said to you during the initiative months, is that our currency structure is basically fit. The only variable pieces are the technical assistance fee and the concession fees we paid to the government. So we are working and just to remember the case of Mexico is 5% as well as in Puerto Rico, and in the case of Colombia its' 19%. So this of course will reduce -- our passenger traffic is reduced and our income gets reduced. The remaining is basically, of course, we are taking measures to try to reduce as much as we can, all the expenses in the companies. But as I said, at the end, in the overall picture, the cost reduction will not be significant in comparison with reduction in the revenues of the company.

Operator

And we'll run to our next question, and that will come from Andressa Varotto of UBS.

Andressa Varotto -- UBS -- Analyst

Thank you very much for taking my question. So my question is if have plans to negotiate with the government postponement of the mandatory capital is this possible? Thank you.

Adolfo Castro Rivas -- Chief Executive Officer

Could you repeat the question? I couldn't hear you.

Andressa Varotto -- UBS -- Analyst

Yes. So my question is if you plan to negotiate with government the postponement of mandatory capex?

Adolfo Castro Rivas -- Chief Executive Officer

As I said before, in accordance with the contract, we do not have that possibility this year. But of course, with the given standards [Phonetic] and as I said it in my initial remarks, during an expansion situation and that expansion situation is that some companies have stopped operations [Indecipherable] and that it was reactivated later on, but there was a decree from the Mexican government that also named the steel and glass that is produced in the country will be used for the project. So in that sense, at the moment it's almost impossible for us to expand our 10-year buildings without these material. So we have this situation to the government. So for the moment, what we see is that we will see some disruption in our construction process for some months and then we will have to talk about these with the government. That's what I can share with you for the moment on this respect.

Andressa Varotto -- UBS -- Analyst

Thank you very much.

Adolfo Castro Rivas -- Chief Executive Officer

You're welcome.

Operator

Our next question will come from Stephen Trent of Citi.

Stephen Trent -- Citi -- Analyst

Good morning, Adolfo and thanks very much for taking my question. Hope that you and your family are well. Just one quick one for me, I know that it seems that Mexico apparently has not been that active in likely offering any assistance to the corporate sector. What are you hearing from Colombia? Kind of any indications from them with respect to whether aviation industry will get some sort of relief?

Adolfo Castro Rivas -- Chief Executive Officer

Steve, thank you for your question. So in the case of Colombia in comparison with Mexico they have been more active in the measures that they have been taking. As I said here in the report they were very [Indecipherable] basically closing or sorting down everything as from March 23. And that can be seen in terms of results. In the case of Spain and the active they have in comparison with active cases we have in Mexico. So their curve is decreasing or at least flattening while the Mexican curve is still increasing. In terms of what they have said for our industry, we have been closed since March 23 and they have issued decrees in that respect. Maybe this week, there was a new announcement from the President expanding the process of shutting down everything. As I said in my remarks, for the case of domestic aviation that will be close up to May 11 and in the case of international up to May 30. It is important to remember that in the case of Colombia, 85% of aviation is domestic and 15% is international. That's what we know as of today. Of course all of these may change depending on how fast or how slow they can control the virus in their country.

Stephen Trent -- Citi -- Analyst

Thank you very much Adolfo. Apologies I couldn't hear all of your remarks. But no indication at this point for example that Columbia's planning a kind of tax relief for aviation or something along those lines offering kind of financial support.

Adolfo Castro Rivas -- Chief Executive Officer

Well we have not heard anything above that yet.

Stephen Trent -- Citi -- Analyst

Okay. Appreciate that. I'll let someone ask a question. Thanks Adolfo.

Operator

And next we will go to Gabriel Himelfarb of Deutsche Bank.

Gabriel Himelfarb -- Deutsche Bank -- Analyst

Hi, good morning, thanks for the call. I have two questions. The first one is concerning about account receivables. Can you give us like a number or approximate number about what's the total of the sales coming from airlines and in specific from Interjet and American Airlines and my second question is do you think you could obtain some waivers in opex sorry capex your current MDP in Mexico and could you will be able to extend the life of the concession in Colombia?

Adolfo Castro Rivas -- Chief Executive Officer

Hi, good morning. In terms of the account receivables you can see those in our report, revenue increase in the case of Mexico and Colombia, most of the increase is coming from the land industry. I do not have the details of American Airlines and Interjet you are requesting. In terms of the capex, as I said before, we have informed the government about this current situation. We don't know if they are going to react in that respect. But of course it's going to be almost impossible for us to construct and expand our buildings with that material. So more or less what I say to you.

Gabriel Himelfarb -- Deutsche Bank -- Analyst

Okay, thank you.

Operator

And now we will go to Ruben Lopez of Santander.

Ruben Lopez -- Santander -- Analyst

Hi Adolfo, thanks for the call. My question is on commercial revenues. Sorry if you commented on these. But I understanding Cancun operating in just one terminal. So I want to confirm you how are your operations there in Cancun and what are the implications on commercial operations? Are there any penalties with the tenants? What are negotiations here? That's the first one. And the second one is related with the same topic. When we see commercial revenues and we kind of try to compare current levels versus what would be the fixed amount or the fixed part of the minimum payment. I mean can you give us any sense of the guidance here? Thank you.

Adolfo Castro Rivas -- Chief Executive Officer

Okay. As you have said, yes, in the case of Cancun, we have closed two terminals and we are just operating today in terminal 4. So all the operations of airport have been concentrated there in order to reduce on one side the expenses and of course on the other side be better prepared in the case of these reduced demand. All the stores are working in the case of terminal 4. So terminal 4 is operating as it was before the event. As I said before, most of the contracts, the financial contracts we have with the tenants are related to a minimum guarantee payment passenger. So once again, they do not have, let's talk about one of the deals that is closed. So if they do not have passenger traffic in terminal 2, they almost have to pay the rent. Of course when they operate in terminal 4 their operations will be in the accordance with the amount of passengers we have in that facility. So I would say terminal 4 is operating normally.

Ruben Lopez -- Santander -- Analyst

Thank you. And when you compare, sorry, the current level of commercial revenues versus what would be the minimum payment from the contract, can you give us any idea on that?

Adolfo Castro Rivas -- Chief Executive Officer

As I said, minimum payment -- the contract is on a per passenger basis.

Ruben Lopez -- Santander -- Analyst

Perfect, thank you.

Operator

[Operator Instructions]

And we will now go to Jorge Larocco of Morgan Stanley.

Jorge Larocco -- Morgan Stanley. -- Analyst

Hi Adolfo, good morning. Thank you for the questions. It's two questions, actually a pretty general question, I was just wondering if you could provide more color on what are the main initiatives regarding our cost reduction efforts. How are those working down, your payment reductions on paid leave of absence, maintenance cost, utility costs, etc. and how are those playing out so far? Thank you very much.

Adolfo Castro Rivas -- Chief Executive Officer

The main initiatives of course are related to in the case of Cancun in the terms of amounts. So we these key terminals closed, we are not burning the same amount of energy as if they were open. Also in the case of Cancun, we are in the process to shut down and one of the runway because today in accordance with the [Indecipherable] it's not needed. So, that runway will be turned off in terms of light at night also reducing their energy we will have to pay. And in terms of some other measures we are taking, adjusting some of the contracts of nature or mainly maintenance in the case of the buildings are closed and to try as much as possible to reduce operating cost and expenses. But I once again at the end, most of our cost is fixed. So if we apply the cost structure of the company, the most important lines are personnel and utility costs as we have said so. In the case of personnel, we are maintaining the personnel for the event or the crisis and in the case utilities, we are trying, as much as we can to try to reduce that.

Jorge Larocco -- Morgan Stanley. -- Analyst

Thanks so much Adolfo. Stay safe and have a good day.

Operator

And with that, that does concludes the question and answer portion of today's conference call. I would like to turn the call back over to Mr. Castro for closing remarks.

Adolfo Castro Rivas -- Chief Executive Officer

Thank you Kathy and thank you again for participating in our fourth quarter results conference call. On behalf of ASUR, we wish you good day and until we meet, be safe. Good bye.

Operator

[Operator Closing Remarks]

Duration: 34 minutes

Call participants:

Adolfo Castro Rivas -- Chief Executive Officer

Alejandro Zamacona -- Credit Suisse -- Analyst

Fernando Sanchez -- Bradesco BBI -- Analyst

Carlos Peyrelongue -- Bank of America -- Analyst

Andressa Varotto -- UBS -- Analyst

Stephen Trent -- Citi -- Analyst

Gabriel Himelfarb -- Deutsche Bank -- Analyst

Ruben Lopez -- Santander -- Analyst

Jorge Larocco -- Morgan Stanley. -- Analyst

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