Grupo Aeroportuario del Sureste, SAB de CV (ASR) Q1 2021 Earnings Call Transcript

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Grupo Aeroportuario del Sureste, SAB de CV (ASR 2.21%)
Q1 2021 Earnings Call
Apr 23, 2021, 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 2021 Results Conference Call. My name is Christina, and I'll be your operator. [Operator Instructions] We will conduct a question-and-answer session toward the end of today's conference. [Operator Instructions] Now I'd like to turn this call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead.

Adolfo Castro Rivas -- Chief Executive Officer

Thank you, Christina, and good morning everyone. Thank you for joining our conference call to discuss ASUR's first quarter 2020 -- '21 and financial and operating results. I hope that all of you and your families are managing to stay healthy and safe. As a reminder, please note that certain statements made during the course of our discussion today may contain 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, including the impact from COVID-19. For an explanation of these risks, please refer to our filings with the U.S. Securities and Exchange Commission and the Mexican Stock Exchange.

Before starting the discussion of our results for the quarter, as expected, earlier this month, we concluded the extraordinary maximum downward [Phonetic] revision for our master development plan of -- for our Mexican operations. The revision resulted in a reduction of around MXN2.65 billion from the regional MXN10.9 billion as of December 2016, committed investments for the current five-year period ending 2023. We also held our Annual Shareholders' Meeting yesterday, which among other items, shareholders approved setting aside all remaining accumulated net profits for the fiscal year 2020 as well as setting aside 5% to increase the level of the shares, to assure shares repurchasable is set.

On the governance front, I wish you to welcome Mrs. Heliane Steden and Mrs. Diana Chavez as new independent members of the Board of Directors, whose nominations were approved at yesterday's shareholders' meeting. Mrs. Steden brings over 20 years of experience of financial market. She was Managing Director at Merrill Lynch and member of the flagship New York international offices. Prior expertise includes positions at Bankers Trust and Deutsche Bank. She is also on the Board of Trustees of the University of Southern California. Ms. Chavez brings to us her extensive expertise in advancing the agenda of corporate governance and sustainability. She is the Executive Director and Chairperson of the Board of [Indecipherable] a private sector center promoting research for the implementation of the United Nations Sustainability clause and initiatives in Colombia. She is also Vice Chair of the Board of Trustees of UNITAR, the United Nations Institute for Training and Research in Geneva.

In addition, independent director Mrs. Barbara Garza Laguera who is until now -- was a member of the Nominations and Compensation Committee, was appointed to chair this committee. With these two new board appointments, our Board is now composed of a total of 11 members, 7 of which are independent. Additionally, we have increased our female participation at the port level and our Nominations and Compensations Committee is now headed by an independent board member. These advances underscore our commitment to further enhancing ESG. We look forward to providing more updates on this front in our 2020 sustainability report that we expect to publish within the next 30 days.

Now moving on to travel environment across our airports, commercial travel in Colombia, resumed last September, while our airports in Mexico and Puerto Rico have remained open throughout the pandemic. Traffic in the first three months of the year continued to recover upward [Phonetic] since last June. Down 32% year-over-year to 5.1 million passengers compared with drops of 50% and 70% in the fourth and third quarters of last year. By country, traffic was down 36% in Mexico, 20% in Puerto Rico, and 30% in Colombia. Domestic traffic continued to pose better trends. In Mexico and Puerto Rico, domestic traffic was down year-over-year in the mid-high teens with traffic in Colombia declining in the high 20s. This compared with a year-over-year declines in international traffic of nearly 50% in Mexico and Colombia and 70% in Puerto Rico. Looking at our monthly traffic, traffic recovers in Mexico [Technical Issues]

Operator

Please standby. Please go ahead.

Adolfo Castro Rivas -- Chief Executive Officer

Thank you, Christina. Sorry for this inconvenience. Looking at our monthly traffic, traffic recovery in Mexico slowed down in January and February. On the back of higher COVID cases a health alert levels were established in several areas of Mexico. Traffic was also impacted by travel restrictions mainly in Canada, which banned travel to U.S., Mexico and the Caribbean until the end of April, and now extended up to June. As well as negative COVID testing and self quarantine requirements in the U.S. for passengers returning to their country. March saw a recovering with a total traffic of 11%, reflecting easier comps and mainly driven by Puerto Rico and Colombia. While traffic in Mexico was relatively flat. The external result in the vaccination process in the U.S. have been positive on these figures. Looking ahead at travel trends were operating -- while operations with airlines across the four regions we usually work with, the U.S., Canada, Europe and Latin America, resumed in the fourth quarter last year, passenger traffic remains impacted by weak demand.

In near term, domestic traffic is expected to continue to drive the recovery, while international traffic should become more relevant in the medium term. A pent-up demand drives traffic as a critical mass of vaccination is achieved. We expect these to be partially mitigated in Mexico by this lower recovery of the economy, which has been hit hardly by the pandemic. In short, we remain optimistic about long-term global travel demand and expect traffic to return our last 12 months record achieved in February 2020 within 10 to 18 months from now.

Now let's move to ASUR's financial performance for the quarter. More details can be found in the press release issued yesterday after markets closed. Despite this challenging environment, we maintain a highly liquid and a strong balance sheet that allows to navigate the current choppy travel environment and wrap up operations when travel -- when demand accelerates. Cash and cash equivalents at the quarter increased 11% to MXN5.7 billion from year-end levels. Increase in cash of over MXN600 million in Mexico and nearly MXN7 million in Puerto Rico were partially offset by MXN64 million cash decline in Colombia. Debt at the year end was relatively flat from the year-end 2020 levels at MXN13.7 billion, while net debt to last 12 month EBITDA was 2.0 time -- 2.1 time and interest covered ratio was 2.9 times. We also benefit from low near term principal payments with just over 5% of our total debt maturing in the next nine months of the year. In terms of the currency exposure, 52% of ASUR's debt is denominated in U.S. dollars and held as a restorative subsidiary in Puerto Rico. The remaining 29% is denominated in Mexican pesos with 19% in Colombian pesos.

Now a brief update on accounts receivables. Aeromexico, Avianca Holdings and LATAM Airlines Group that filed for Chapter 11 bankruptcy protection in the United States, continue to make regular payments. At the same time nearly MXN75 million in account receivables from Interjet will cease operations mid December were fully provisioned in fourth quarter '20. Interjet accounted for 5% of our revenues in 2020. Year-on-year accounts receivables were down in Mexico and Colombia, but increased in the high teens in Puerto Rico.

Now moving to the P&L. Revenues ex construction were down 36% year-on-year to MXN2.7 billion. As ASUR's non-aeronautical revenues declined in the mid 30s, while aeronautical revenues show a slight better performance declining in the high 20s. Mexico accounted for 64% of the total ex construction revenues, while Puerto Rico and Colombia represented nearly 26% and 2% respectively. On a sequential basis, revenues ex construction were up 11%. Accruing revenues from construction services which are deducted as cost on the IFRS accounting standards, total revenues would have declined 36.2% year-on-year to 2.4 -- MXN39.8 million excluding revenues from construction services. [Technical Issues]

Operator

Please standby.

Adolfo Castro Rivas -- Chief Executive Officer

Again, now moving to the P&L revenues ex construction were down 36% year-on-year to MXN2.7 billion as ASUR's non-aeronautical revenues declined in the mid 30s, while aeronautical revenues show a slightly better performance, declining in the high 20s. Mexico accounted for 64% of total ex construction revenues, while Puerto Rico and Colombia represented nearly 26% and 2% respectively. On a sequential basis, revenues ex construction were up 11%. Excluding revenues from construction services, which are deducted as a cost under IFRS accounting standards, total revenues would have declined 36% year-on-year to 2. -- to MXN2439.8 million. Excluding revenues from construction sites, Mexico accounted for 66.5% of total revenues while Puerto Rico and Colombia represented 24.7% and 8.8% respectively. On a per-passenger basis, commercial revenues were nearly MXN108 up from the 106 -- MXN116 achieving in first quarter '20, reflecting the sharp reduction in passenger traffic together with the reduction of international traffic passenger mix.

Moving down to the P&L cost reductions achieved across our operations contributed to a 21% year-on-year decline in core -- consolidated costs. In Mexico, costs declined nearly 10% year-on-year, mainly due to lower technical and concession fees as well as lower costs of sales from directly operated convenience stores, given the lower levels of activity. Savings in energy, maintenance costs also contributed to lower cost, although since October, we have been operating with all of our terminals at Cancun Airport. Excluding a MXN29.4 million tax refund at Merida airport in first quarter of '20, cost in Mexico would have declined 13% year-on-year. In Puerto Rico, cost excluding construction were down nearly MXN230 million or 41%. A total of MXN187 million, equivalent to $11.2 million were reimbursed through the U.S. CARES Act. A total of $9.3 million remain available on the -- under the grant. We obtained savings of MXN26 million in energy, security and maintenance costs. On a comparable basis and excluding the MXN124 million from the insurance recovery in connection with the Hurricane Maria in the first quarter of '20, costs have declined close to 52% year-on-year. Finally in Colombia, expenses declined nearly 50% -- 15% largely due to lower concession fees and due to the impact of the pandemic on the revenue base. Lower cost of services also contributed to lower cost.

Continuing to the -- continuing down to the P&L, consolidated EBITDA declined 42% year-on-year to MXN1.3 billion pesos impacted by COVID-19. All country of operations continue to report EBITDA gains led by Mexico with MXN1.1 billion, MXN156 million in Puerto Rico and MXN110 million in Colombia. Ex IFRIC12, the adjusted EBITDA margin was 58.8% in the first quarter '21, a decline when compared with 69.9% in the first quarter '20. However, the margin improved from 54.6% in the fourth quarter and 44.6% in the third quarter of last year. Moving on to capex, we made capital expenditures of nearly MXN360 million during the quarter. Of these, over 90% was invested in Mexico, 9% in Puerto Rico and maintenance capex in Colombia. In Mexico, we remained on schedule initiating the construction of the parallel taxiway to the second runway at Cancun Airport, and starting the first expansion of Phase 4 of the 1st phase of Terminal 4. While in Puerto Rico, we are undertaking major maintenance repairs to runways and taxiways.

In summary, ASUR maintains a solid balance sheet and we have a solid track record of prudently managing cash and variable cost to effectively navigate the pandemic. We are also confident in the long-term recovery of our passenger base supported by our attractive airport network. That ends my prepared remarks.

Questions and Answers:

Operator

[Operator Instructions]

Adolfo Castro Rivas -- Chief Executive Officer

That ends my prepared remarks for today. Christina, please open the lines for questions.

Operator

Thank you. We'll take our first question from Alejandro Zamacona with Credit Suisse.

Alejandro Zamacona -- Credit Suisse -- Analyst

Hello, Adolfo, thank you for call. Thank you for taking my questions. My first question is on the CARES Act in Puerto Rico. So I understand that you have received most of the reimbursement including in the initial amount. They are -- there are still remaining around $4 million, if I am not incorrect. So my question here is, if there is any potential for a new round of reimbursements or if you're combining the conversations, with the authorities around this topic?

Adolfo Castro Rivas -- Chief Executive Officer

Alejandro, hi, good morning. The original $34.4 million is -- there is a remaining balance of $9 million as of today. And there is an additional $10 million for the second Act on that respect.

Alejandro Zamacona -- Credit Suisse -- Analyst

Okay, thank, Adolfo. And my second question, if I may, it's on the new Mexica Airport tariffs. So can you give any update on where you are standing right now on the -- when can we expect new tariffs to be fully implemented?

Adolfo Castro Rivas -- Chief Executive Officer

Well, the tariffs itself are applicable as from the first day of this year. Remember that the tariffs are for the year, not on a monthly basis. So they are in fact in place as from January 1, this year. What I believe of course is, due to the increase we have been approved. We are not going to be able to reach the 100% of maximum rate this year because we cannot implement increases in our -- a specific rate in a very or in an immediate way.

Alejandro Zamacona -- Credit Suisse -- Analyst

Okay. So what percentage do you believe you can reach in the year?

Adolfo Castro Rivas -- Chief Executive Officer

That will depend on the traffic, that will depend on also on the passenger mix.

Alejandro Zamacona -- Credit Suisse -- Analyst

Okay. Thank you, Adolfo.

Adolfo Castro Rivas -- Chief Executive Officer

You're welcome.

Operator

Go to our next question from Alan Macias with Bank of America.

Alan Macias -- Bank of America -- Analyst

Hi, good morning, Adolfo. Just one question on dividends. Can you provide an update on dividends expected for this year? Thank you.

Adolfo Castro Rivas -- Chief Executive Officer

Alan, good morning. As you recall, in the last year Shareholders' assembly a dividend of MXN8.0 something was approved. But that payment -- the date of the payment was subject to a board approval as from May 11, this year. So the Board of Directors is the one who will be saying when this dividend is going to be paid.

Alan Macias -- Bank of America -- Analyst

Thank you.

Adolfo Castro Rivas -- Chief Executive Officer

You're welcome.

Operator

Take our next question from Guilherme Mendes with JP Morgan.

Guilherme Mendes -- JP Morgan -- Analyst

Yeah, thanks. Good morning, everyone. Hi, Adolfo. Thanks for taking my question. My first question is regarding Colombia and Puerto Rico. So we already got the MDP renegotiation Mexico. And if I'm not mistaken, you have already under contract some terms that will allow you extend your contracts, given the impacts from the pandemic. Just wondering, how fast it should come to be a reality. So getting a similar rebalance in both Colombia and Puerto Rico. And the second question acts as -- is just to confirm that you mentioned that you do expect your top traffic levels to be back in that 10 to 18 month period. That's it? If that's the case, if that's valid both for domestic and for international. Thank you.

Adolfo Castro Rivas -- Chief Executive Officer

Guilherme, hi, good morning. Well, in the case of Colombia, we do not have to do anything for the extension of the contract because it is adjusted automatically. Remember that when we recuperate our regulated investment floats the return, I would say the concession is over with a minimum period of 2032 and a maximum of 2048. We have said before the pandemic situation that our concession will be concluding in 2032. So basically the contract is adjusted automatically. And in the case of Puerto Rico, there is no any change on the contract, no. I don't know if this answers your question.

Guilherme Mendes -- JP Morgan -- Analyst

Yes, it does.

Adolfo Castro Rivas -- Chief Executive Officer

Okay. Your second question was?

Guilherme Mendes -- JP Morgan -- Analyst

In terms of the traffic recovering, you mentioned in your opening remarks that you do expect traffic to be back to record levels in a 10 to 18 months. I just wanted to double check if that's correct. And if that's the case, if that's valid for both domestic and international.

Adolfo Castro Rivas -- Chief Executive Officer

Okay. Our peak for the last 12 months passenger traffic, let's say, the record was achieved in February 2020. So what I'm saying is, we should be reaching, we expect to reach that levels 10 to 18 months from now.

Guilherme Mendes -- JP Morgan -- Analyst

Okay, thank you. You're welcome.

Operator

Go to our next question from Juan Ponce with Bradesco.

Juan Ponce -- Banco Bradesco -- Analyst

Hi, Adolfo. Thank you for taking my question. We recently saw the new outsourcing law get passed in the Mexican Congress. What do you think is the impact on ASUR? I understand that in-sourcing will also be prohibited. So do you think services such as security, cleaning will be qualified as specialized services? Thank you.

Adolfo Castro Rivas -- Chief Executive Officer

Hi, good morning. Well, we are analyzing the situation. Of course it has been approved at both -- at the deputies and director's chamber, but it has not been published. In the case of security and cleaning, we are analyzing these. We do not believe that these could be considered as in-sourcing. So the companies, I believe, will have to provide the services they are providing today.

Juan Ponce -- Banco Bradesco -- Analyst

Okay. Thank you very much.

Adolfo Castro Rivas -- Chief Executive Officer

You're welcome.

Operator

We'll take our next question from Andressa Varotto with UBS.

Andressa Varotto -- UBS -- Analyst

Hi, Adolfo, good morning. Thank you for taking my question. I have just two quick questions. The first one is on the MDP extraordinary negotiation. So we saw that you published the capex figures for 2021 to 2023 but in 2020 we saw that ASUR invested less than it was originally expected in the previous announced MDP. So I have this question on how was the 2020 capex treated in the negotiation? And my second question is on the traffic. We saw a very positive rebound in March. So if you could give some color of April, and also the upcoming month ahead of the high season. Thank you.

Adolfo Castro Rivas -- Chief Executive Officer

You're welcome. So the capex postponement of MXN2.1 billion that was approved by the authorities in the third quarter last year, was considered in the new figures we have presented. So I would say the numbers that you have to consider in your budget or your forecast are the ones we just published. So it is MXN3 point something billion for this year. In the case of the traffic, yes, we saw a nice recovery process for the case of March. Of course remember that the pandemic situation started in mid-March last year. So a portion of that is because of the pandemic of last year. Nevertheless, I'm still optimistic in terms of what we are seeing in the successful U.S. vaccination process. So I hope that we will see the effects of these during the summer.

Andressa Varotto -- UBS -- Analyst

Great, thank you very much.

Adolfo Castro Rivas -- Chief Executive Officer

You're welcome.

Operator

[Operator Instructions] We'll take our next question from Roberto Fersioni [Phonetic] with Citi.

Roberta -- Citi -- Analyst

Hi, Adolfo. Thanks for taking my question. Just one quick one on the MDP. In light of this recent tariff increase, How does ASUR expect to pass along all this higher pricing to the airlines? Could it be that volume related discount will be given to the airlines? How does it like for this year with the situation still being complicated? Thank you.

Adolfo Castro Rivas -- Chief Executive Officer

Roberta, I think I have mentioned, it's not easy on this moment to increase our specific rates, and that is why I believe we are not going to reach the normal levels of maximum tariff compliance for this year. So we will have to see this very careful and we will be adjusting our rates in the future, to recuperate our maximum tariff levels compliance in 2021.

Roberta -- Citi -- Analyst

Okay. Thanks Adolfo.

Adolfo Castro Rivas -- Chief Executive Officer

You're welcome.

Operator

[Operator Instructions] Go to our next question from Alan Macias with Bank of America.

Alan Macias -- Bank of America -- Analyst

Thank you. Just a follow-up question and maximum tariffs. Have you increased tariffs as of April at any of the airports? And I guess, do you have more leeway to increase maximum tariffs for international traffic, since the peso has been struggling, would that be accurate? Thank you.

Adolfo Castro Rivas -- Chief Executive Officer

No, we have not increased our rates in April. And to increase rates, it requires a process that takes between three to four months. As I said before, again I do not expect to reach maximum tariff compliance at 100% this year, as we used to. So we believe that that will be or should be achieved in '21. In the case of international traffic, yes, of course, the rates are higher due to the additional area we have to provide to them at the airports, which is the one that is related to migration and customs. All of that is in dollars, it's true and -- but at the end of the day the maximum rate is in pesos.

Alan Macias -- Bank of America -- Analyst

Thank you.

Adolfo Castro Rivas -- Chief Executive Officer

You're welcome.

Operator

Go to our next question from Gabriel Himelfarb with Scotiabank.

Gabriel Himelfarb -- Scotiabank -- Analyst

Hi, thanks for the call. Just a quick question. Do you think there is any risk this year as the climate becomes warmer about the sargassum in Cancun and near Riviera Maya? Thanks.

Adolfo Castro Rivas -- Chief Executive Officer

Gabriel, hi, good morning. Yes, of course, we have these risk always. Sargassum is some -- is something that we cannot control. Of course, we cannot predict because it's not seasonal nor cyclical. The season one is starting with lower levels in comparison with the ones that we had in 2018, which was a very bad year for us. No, we'll have to wait and see what is the outlook.

Gabriel Himelfarb -- Scotiabank -- Analyst

Okay, thank you.

Adolfo Castro Rivas -- Chief Executive Officer

You're welcome.

Operator

We'll take a follow-up question from Juan Ponce with Bradesco.

Juan Ponce -- Banco Bradesco -- Analyst

Hi, Adolfo. Thank you so much for taking my question again. So I see Canada extended to major -- two major airlines in Canada extended suspension of flights to Mexico and the Caribbean till May 21. Is May a big month for Canadian travelers such as like in the first quarter?

Adolfo Castro Rivas -- Chief Executive Officer

No, it is not. Unfortunately, the high season for Canadians have passed, that's due to weather conditions. So I would say the additional expansion as from April 30, it is not very important in terms of the impact in comparison with the one that we had in the first quarter.

Juan Ponce -- Banco Bradesco -- Analyst

Perfect, thank you so much. You're welcome.

Operator

Follow-up from Guilherme Mendes with JP Morgan.

Guilherme Mendes -- JP Morgan -- Analyst

Yeah thanks for the whole follow up question. The follow-up is on the non-aeronautical revenues. Just wondering, how is the relationship with the commercial tenants, if we should expect additional discounts on the airports. Thanks.

Adolfo Castro Rivas -- Chief Executive Officer

Well, I would say in general terms the non-commercial revenues is working well. Of course some of them have been facing trouble, probably not because of us but because of other operations they have in some other airports, where the contract runs flat per square meter. So in the case of both in general terms, most of the contracts are adjusted automatically because the way that we collect from them. So I do not expect any major situation with them.

Guilherme Mendes -- JP Morgan -- Analyst

Okay, that's clear. Thank you.

Adolfo Castro Rivas -- Chief Executive Officer

You're welcome.

Operator

[Operator Instructions] It appears there are no questions at this time. That concludes the question-and-answer portion of today's conference. I would like to turn the call back over to Mr. Castro for closing remarks.

Adolfo Castro Rivas -- Chief Executive Officer

Thank you, Christina. And thank you again for the participating in our first quarter results conference. On behalf of ASUR, we wish you a good day, and please stay safe. Goodbye.

Operator

[Operator Closing Remarks]

Duration: 35 minutes

Call participants:

Adolfo Castro Rivas -- Chief Executive Officer

Alejandro Zamacona -- Credit Suisse -- Analyst

Alan Macias -- Bank of America -- Analyst

Guilherme Mendes -- JP Morgan -- Analyst

Juan Ponce -- Banco Bradesco -- Analyst

Andressa Varotto -- UBS -- Analyst

Roberta -- Citi -- Analyst

Gabriel Himelfarb -- Scotiabank -- Analyst

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