Grupo Aeroportuario del Sureste, SA de CV (ASR) Q2 2021 Earnings Call Transcript

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Grupo Aeroportuario del Sureste, SA de CV (ASR 0.54%)
Q2 2021 Earnings Call
Jul 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 Second Quarter 2021 Results Conference Call. My name is Cindy, 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, sir.

Adolfo Castro Rivas -- Chief Executive Officer

Thank you, Sandy, and good morning everyone. Thank you for joining us our conference call to discuss ASUR's Second Quarter 2021 and Financial and Operating Results. I hope that all of you and your families remain healthy and safe.

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 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 maybe 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.

Passenger traffic trends continued to show sustained improvements across the board with a total of almost 12 million passengers traveling to our airport during the quarter although these 14% below pre-pandemic levels of COVID-19. It represents an increase of over 13 times when compared with the same quarter last year. Puerto Rico posted the strongest recovery with passenger traffic exceeding the second quarter '19 levels by 10%, driven by a high-teen increase in domestic traffic, which more than offset a weaker international performance.

Domestic traffic in Mexico and Colombia also contributed to show better trends, although still below pre-pandemic levels down 12% and 30% respectively versus second quarter '19. Encouragingly, Cancun Airport practically reached the same domestic travel levels that we posted in the second quarter '19. While showing improvement on the back of successful vaccination process in the US, recovering international traffic continues to lag. Mexico delivered the faster recovery. International traffic nearly 20% below the level reached in second quarter of '19 followed by Colombia and Puerto Rico, which post drops in the mid-20s and high-50s respectively when compared against second quarter '19.

Looking at our monthly traffic, since March, traffic has started to pick up again, given the gradual roll-out of vaccination campaign in Mexico and further boosted by higher travel demand typical during the summer season. On the downside, traffic was negatively impacted by the travel restrictions mainly in Canada, which extended travel bans to the US and the Caribbean until the end of August. Also impacting traffic are negative COVID testing and self-quarantine requirements in the US for passengers returning to their country.

Next, as we look ahead at emerging travel trends, remember that operations at the majority of the airline serving the four regions we usually work with, namely the US, Canada, Europe and Latin America resumed at the end of last year. In terms of international traffic, we expect that the accelerated pace of the vaccination roll-out in the US with 57% of the population were at least one dose will continue to translate in a travel recovery of international traffic in our Mexican operations. Particularly, during the summer season in the Maya Riviera that serves tourism, travel, and an improved outlook once the winter season arrives. In the near term, however, we expect domestic traffic to continue with the slow recovery as countries gradually advance in their vaccination campaigns. Restrictions are lifted and economies with slower recovery.

By contrast, we expect that the business travel will take more time to recover, which could be the case for airports like Merida, Veracruz, and Villahermosa in Mexico and Rionegro in Colombia. We also remain cautiously optimistic about global travel demand and expect traffic to reach the 12-month record that we achieved in February 2020 within eight to 16 months from now.

Now, let's move on the highlights of ASUR's financial performance. More details can be found in the press release issued yesterday after market closed. Our strong balance sheet has allowed us to navigate the current traffic travel environment as well as ramp-up operations as demand continues to gradually recover. ASUR's financial position remains strong with cash and cash equivalents of MXN7.8 billion at the end of the quarter, up 51% from December 2011.

All countries of operation contributed to these higher cash position reporting increases MXN2.1 billion in Mexico and MXN0.5 billion in Puerto Rico. Colombia contributed nearly MXN6 million in cash compared with the use of cash in the first quarter. We closed the quarter with a total financial debt of MXN13.7 billion, down 3% from the end of the year 2020. Net debt to last 12 months EBITDA was 0.9 times, while interest cover ratio was five times.

Our maturity profile remains healthy with only 3% of the debt maturing before the end of the year and approximately 26% next year. With regards to account receivables, we continue to receive payments from the three airlines, Aeromexico, Avianca Holdings, and LATAM Airlines Group that filed for Chapter 11 bankruptcy protection in the United States. On a sequential basis, accounts receivables increased 26% mainly driven by a 61% increase in Mexico, reflecting revenue growth. And contrast accounts receivables in Puerto Rico and Colombia declined 16% and 5% respectively.

Turning to the P&L, revenues ex-construction increased 324% to MXN3.9 billion year-on-year and were just 4% below pre-pandemic levels of second quarter '19, driven by declines of nearly 5% in revenues from non-aeronautical service and 4% from aeronautical services.

Mexico accounted 68% of total ex-construction revenues, while Puerto Rico and Colombia represented 23% and 9% respectively. On a sequential basis, revenues ex-construction increased a robust 43%. On a per passenger basis, commercial revenues reached nearly MXN119, up from MXN99 positive in the same quarter of 2019. It's still distorted by the sharp reduction in passenger traffic.

Continuing down to the P&L, operating expenses ex-construction cost increased 31% year-over-year, mainly driven by a higher activity levels in Mexico. However, consolidated costs were down 8% when compared to the second quarter '19 levels and slightly exceeded the decline in revenues in that period. In Mexico, costs were up 64% year-on-year, mostly due to the hard technical assistance and concession fees on the back of higher revenues and EBITDA. Higher cost of services also contributed to this increase, mainly reflecting the reopening of Terminals 2 and 3 at Cancun Airport, which were closed in the second quarter '20, compared to the second quarter '19. Operating cost and expenses ex-construction increased 8.2%. By contrast in Puerto Rico, declined 4% year-on-year, benefiting from the reimbursement this quarter related to the cancellation of a security contract with the municipality of Carolina.

Together with the reimbursement from TSA in connection with offering security, as required by the U.S. government, comps also benefited from the cost reduction in the second quarter '21, as a result of a favorable FX translation impact and from a higher provision from our -- for bad debt in the second quarter '20 in connection with the COVID-19 pandemic. Note that a total of $8.2 million remain available on the U.S. taxpayer [Phonetic] grant as funds were not deployed to foreign expenses this quarter.

Finally, expenses in Colombia were up 29% year-on-year mostly reflecting increases in concession fees, to a lesser extent in cost of services resulting from higher traffic levels. Consolidated EBITDA increased to MXN2.5 billion this quarter from MXN51 million in a year ago quarter, which was fully impacted by restrictions worldwide to control the pandemic. When compared to the pre-pandemic performance, EBITDA was only 3% below comparables to the second quarter '19 levels, which excludes the non-recurring insurance recovery in that quarter. Both countries of operation reported EBITDA gains with Mexico contributing MXN1.8 billion, Puerto Rico over MXN0.5 billion, and Colombia MXN157 million.

Next is Page 12, the adjusted EBITDA margin improved to 65% in the second quarter '21, up from 6% in the first quarter of the year and 53% in the second quarter '19 when excluding the insurance recovery that benefited that quarter.

With regards to capex, we invested just over MXN460 million in the quarter, the lion's share of which was allocated to Mexico, while MXN60 million were invested in LMM Airport in Puerto Rico.

In Mexico, we remain on schedule with the expansion of the terminal building in Merida and the construction of the parallel taxiway of the second runway at Cancun Airport and starting the first phase of expansion of Terminal 4. While in Puerto Rico, we are undertaking major maintenance repairs to runways and taxiways.

To summarize my remarks, ASURs maintained a solid balance sheet that is enabling of the ramp-up operations as our markets recover in long term. We're confident in our ability to continue rebuilding our passenger base, based on the encouraging growth trends we are seeing and supported by our attractive airport network.

In the meantime, we continue to prudently managing cash and cash and variable cost, while travel demand remains affected by the pandemic.

On the dividend front as previously announced last month, our Board of Directors approved a payment date October 01, 2021 for an ordinary net cash dividend of MXN8.21 per share that has been approved at our 2020 Annual General Meeting.

Finally, before opening the call for questions, we recently published our 2020 sustainability report, which is housed on our website. We welcome you read it and learn about our recent progress and initiatives on ESG products. We remain committed to further enhancing our ESG strategy and performance. Among all the objectives for our next sustainability report, we intend to add ESG framework to complement our reporting under the GRE framework.

That concludes my remarks for today. And Sandy, please open the lines for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Alejandro Zamacona at Credit Suisse.

Alejandro Zamacona -- Credit Suisse -- Analyst

My first question is in the airport fees increase. So, I mean, in your extraordinary ROE realization [Phonetic], the maximum airport fees increased only probably 17% in the long term. We noticed that some airlines in Mexico have already updated their airport fees, and some airports threshold that was from since July 16. So, could you please confirm by how much airport fees are increasing and when should we expect it to reach the maximum fees? Thank you all.

Adolfo Castro Rivas -- Chief Executive Officer

Alejandro, hi. Good morning. Well, what are you talking about is the result of our extraordinary maximum tariff review process. That was approved basically at the beginning of April. So, as you are mentioning, 17% was approved. And of course toward the year, we're increasing our rates to be able to reach that 17% increase. But, of course, what I can tell you is that this year, we are not going to reach the maximum compliance level.

We're going to be below in comparison of our results in previous years due to the time it takes to increase our rates on the first place and second is because we received approvals in April, as I mentioned. So, what we expect is next year to be able to comply with the maximum tariff compliance.

Alejandro Zamacona -- Credit Suisse -- Analyst

Okay. So, thank you very much. My second question is behind accounts receivable. So, I know that you -- the remarks you mentioned a 60% increase, which is basically for Mexico, right? My question each year is if this increased from $750 million in the first quarter of up to MXN1.2 billion in the second quarter, it's all related to Mexico or what can we comment about that? Thank you, Adolfo.

Adolfo Castro Rivas -- Chief Executive Officer

I would say, in general, all the airlines are paying on time with the exception, of course, of V2 Jets. As I mentioned, that amount has been reset. But the increase that you're seeing in Mexico is the result of an increase in the sales rate, not in the lack of things.

Alejandro Zamacona -- Credit Suisse -- Analyst

Thank you, Alejandro.

Adolfo Castro Rivas -- Chief Executive Officer

You're welcome.

Operator

The next question comes from Guilherme Mendes at JPMorgan.

Guilherme Mendes -- JP Morgan -- Analyst

Hi, Adolfo. Good morning and thanks for taking my question. I had two questions actually. The first one is on the airlines front. In terms of that, we check if there is any significant impact related to the downgrade of the Mexican aviation agency by the FAA. And the second question is, what is the latest on the Tulum Airport? Thank you.

Adolfo Castro Rivas -- Chief Executive Officer

Hi, good morning. In terms of the downgrades, we do not see any impact, and we do not expect any impact from these because most of our passenger traffic. There are travels to the US basically travels in US airline as I mentioned during last year 0.2% of our passenger traffic travels to the US in a domestic airline.

In terms of Tulum Airport, I do not have more details than what you have in terms of what it has been said by the President of the country that he wants to construct a new airport in Tulum. That will be operated by the army. That's all what we say. That's all we said and what we know.

Guilherme Mendes -- JP Morgan -- Analyst

Okay. Very clear. Thanks, Adolfo.

Adolfo Castro Rivas -- Chief Executive Officer

You're welcome.

Operator

The next question comes from Rodolfo Ramos at Bradesco BBI.

Rodolfo Ramos -- Bradesco BBI -- Analyst

Good morning. Thanks for taking my question. I have two questions. The first one is on your traffic that you've seen so far. The Mexico started to go through this third wave of COVID-19, and the state of Quintana Roo was acutely impacted. And this started toward the end of June, beginning of July, so not yet captured by your traffic reports and monthly reports. So, I wanted to see how have you seen this development impacting appetite for travel to Cancun?

Adolfo Castro Rivas -- Chief Executive Officer

Well, as you are mentioning these third wave is occurring, to be honest, I would say it's not the third wave in Mexico. It's the first wave in Mexico because in reality, we have been -- we have not been able ever to control the pandemic like it was controlling Europe and Asia. So I would say that's the first. You are right, we are today at the highest ever in terms of the people that got sick unfortunately. In terms of hospitalizations and fatalities, we are below as we were before. This means that vaccines are working and working well, and I do not expect major impact or major effect as we shown over here in terms of the same numbers. It is true that restrictions can be again enforced, but I do not expect those to be as strong as they were last year.

Rodolfo Ramos -- Bradesco BBI -- Analyst

Thank you. And just my second question is on your commercial revenue side. As you mentioned during your initial March, it's still quite distorted by the movement of volatility in traffic flow, but why do you think it's a reasonable target for you, I mean, considering your expansion of different commercial sites?

I mean, should we look at the MXN100 per passenger level that we saw back in 2019? I mean, how do you think this could evolve in the following month, especially as you approach this pre-pandemic level of traffic?

Adolfo Castro Rivas -- Chief Executive Officer

Well, as you have said in the second quarter 2019, we reached MXN99 per passenger. We have seen nice results in some activities like car rental, like ground transportation. We do not expect a permanent effect after COVID-19 is over if it's over. I believe that these MXN119 that we are seeing today is still distorted because of lack of passengers. You can see that affecting the case of Colombia, trying to compare how it was a year ago. When there was almost no passenger with the number you are seeing today. Nevertheless, we have seen nice results during -- the second quarter. We will have to wait and see what is the new level after COVID-19, but of course I do not expect permanent effects on these activities.

Operator

The next question comes from Pablo Monsivais at Barclays.

Pablo Monsivais -- Barclays -- Analyst

Just wanted to hear from you, what's the current situation in-and your expectations for Colombia? Traffic has kind of, recovered but not quite much and still, we have more optimistic expectations for the second half. But what are you seeing on the ground? Do you think that we can reach pre-pandemic levels in the first quarter of next year or what's your thinking?

Adolfo Castro Rivas -- Chief Executive Officer

Pablo, in the case of Colombia, we need to recall that Colombia was closed completely, the country completely, as from the third week of March up to the end of August last year. So in comparison terms with Mexico and Puerto Rico, that never closed. Of course it's the latest one, that's the first comment. The second comment is most of the traffic in Colombia, I would say, is business traffic related to Medellin and Bogota.

What I said during the remarks is that business traffic will recover later in comparison with tourism traffic and VFR traffic. So, VFR in the case of Puerto Rico, you can see that Puerto Rico is above pre-pandemic levels and tourism in the case of Mexico, mostly. In my initial comments, I said that we have to be, we will have to wait more time to see the recovery process in cases like Merida and Villahermosa and Veracruz, and that is basically because of the business traffic.

It will take more time and I would say that my expectation is that we will have and we will see permanent effect on these activities around the world. We are not going to travel in the same way as we were before the pandemic in terms of business traffic. We will use technology and of course, but just and companies are going to be restrictive. And also the economic situation is not going to be the same for a while.

Pablo Monsivais -- Barclays -- Analyst

One follow-up and let me dig into this. You said that you are expecting a permanent effect. Do you have any fear on your mind the ballparking, I don't know, to expect the structural 20% decrease in corporate travel or 10%, what is your best estimate?

Adolfo Castro Rivas -- Chief Executive Officer

Well, it's hard to say again, but it will depend on the different regions and the economic-the economics of those regions, but you're right between, 10% to 20% could be the permanent effect. That doesn't mean that we are not going to reach the same numbers someday. But what I'm trying to say is that business traffic will recover later than the other travel and leisure and VFR.

But also that the amount of people that will be traveling in business, for business will not be the same as it was-the proportion is not going to be the same as it was. So, if you were traveling, I don't know, 30 times a year, probably in the future, you will travel 25 that's what I'm trying to say.

Operator

The next question comes from Javier Gayol at GBM.

Javier Gayol -- GBM -- Analyst

Hi Adolfo, congratulations on the results and thank you for taking my questions. My question is related to capital allocation and cash generation. You actually generated around MXN7.5 billion in operating cash flow. And if we add up to that or we subtract the capex that you guys have plus the dividend, we'll get to a number of around an excess cash around, let's say MXN3.5 billion to MXN3 billion in our estimates?

So I want you-and with a net debt to EBITDA of 0.9, I wanted to understand how are you looking at ASUR's potential capital allocation? Are you more inclined toward lowering debt? Are you inclined toward refinancing or increasing debt and maybe through investments? If you could give us some color on the strategy from that front, that would be great for us?

Adolfo Castro Rivas -- Chief Executive Officer

Thank you. Well, in general terms, I would say it's too early to tell. What I want to say here is that for me the pandemic is not over, it is not yet. I think that it will take two, three months to be able to say that the world has been able to control this. In the meantime, as I said during the remarks, we have to be cautious. In terms of numbers, you saw the MXN2.5 billion EBITDA for the quarter.

It's true, but also it was the dividend was or the date of the payment of the dividend was approved and was set for October the 1st and that is around MXN2.5 billion. So, for the moment, that's what we are trying to do, is to be cautious on one side second, to approve the dividend. And third, in terms of new project, new expansions, we will have to wait.

Javier Gayol -- GBM -- Analyst

Second question is, as we see some recovery worldwide in terms of travel, how have you guys seen the environment for new travel-between your airports and some international places? Have you seen people more interested in coming to Cancun, increasing the routes? Is that a possibility that we should take into consideration?

Adolfo Castro Rivas -- Chief Executive Officer

Yes, in the case of Cancun in the case of Mexico, basically the problem we have today is travel ban. And of course that we are in the summer, let me be clear. So, we think about Canadian traffic, normally they travel from November up to April. They normally do not travel during the summer due to weather conditions. So today, even with these travel restrictions we will not see Canadians in Cancun of course.

But that's why I'm saying-that's why I'm saying that we will expect a better outlook for the winter season. So I believe that this winter season will be better for us and we will be able to see all the regions contributing to the increase in traffic.

Operator

The next question comes from Anton Mortenkotter at GBM.

Anton Mortenkotter -- GBM -- Analyst

Thank you for taking my question and congrats on the results. I just have two quick questions. One related to the capex development. But I mean up to date, you've invested around MXN700 million out of the almost MXN3 billion committed in your capex plan strategy in the New Mexican airport such as-I was wondering if you could provide some more detail about the capex plan in the future quarters?

Adolfo Castro Rivas -- Chief Executive Officer

Of course. Well, what I can say to you is that we have to comply with the MXN3 billion you are talking about. Of course, it's something more than MXN3 billion, but remember that our external Mexican tariff revision was approved in April. In that sense, of course, there was an adjustment in investment program. So we have more of less three months delay. But do not worry, we will catch up on the second half of the year, because we have to comply with a three-point-something billion pesos during 2021.

Anton Mortenkotter -- GBM -- Analyst

Perfect. Thank you. I just had another question. This one is related to Cancun. I've seen some news and some papers from [Indecipherable] university about strong sighting of Sargassum. [Indecipherable] the Riviera Maya is said to be like one of the biggest or heaviest Sargassum sighting since history. And although it hasn't reached Cancun beaches, it has reached surrounding cities. So, I was wondering do you see any negative impact from this?

Adolfo Castro Rivas -- Chief Executive Officer

Well, of course, there's an impact. This year, I would say, it's mild. It's mild comparison with 2018. That was the strongest year for that. It's not -- what I'm saying as mild is not because I'm happy with what I'm seeing, but it's something that we cannot do anything about in terms of this is nature. And Sargassum will be there from time-to-time in Caribbean Sea.

In the case of operating, I remember it was also in the U.S. It was all the floodway was flooded. It was full of Sargassum. It has an impact, yes, but it's -- I would tell you it's mild. And, of course, toward the end of the year that will be diminishing.

Operator

[Operator Instructions] The next question comes from Gabriel Himelfarb at Scotiabank.

Gabriel Himelfarb -- Scotiabank -- Analyst

Congratulations on the results. Just a quick follow-up question. It's about the dividend. Do you think or what's your view on future dividends? Do you think your dividends grow and traffic levels or financial performance could improve as it is a continuous growth or increase the dividends? Thanks.

Adolfo Castro Rivas -- Chief Executive Officer

Gabriel, Hi. Good morning. Thanks a lot. I have to send my proposal for dividends during February next year. So, I have some time to see what is the outcome of this year in terms of results to see the real situation in terms of the pandemic, to see if that was over or not. So it's a long way from now until that moment.

Operator

The next question comes from [Indecipherable] at Citi.

Unidentified Participant

Hi, Adolfo. Thank you for this call. I'm sorry if you mentioned this before, but-could you give me some more color on the MXN285 million reversal of payment in [Indecipherable] for example? Why was it cancelled and how should I think about this in accounting terms? Does it dwell through your income statement or how does it work? Thank you.

Adolfo Castro Rivas -- Chief Executive Officer

Well, basically we finally decided not to go further on this due to many circumstances. And in terms of accounting basically, it was a reduction in assets -- in fixed assets and increasing cash.

Unidentified Participant

Okay. And what is this going to be like, what is it going to be if you can tell, of course, like something for a retail area or hotel for five crew. I don't know. I was just wondering?

Adolfo Castro Rivas -- Chief Executive Officer

Yes. I couldn't understand your question.

Operator

[Operator Instructions] That concludes the question-and-answer session of today's conference. I would like to turn it back over to Mr. Castro for closing remarks.

Adolfo Castro Rivas -- Chief Executive Officer

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

Operator

[Operator Closing Remarks]

Duration: 37 minutes

Call participants:

Adolfo Castro Rivas -- Chief Executive Officer

Alejandro Zamacona -- Credit Suisse -- Analyst

Guilherme Mendes -- JP Morgan -- Analyst

Rodolfo Ramos -- Bradesco BBI -- Analyst

Pablo Monsivais -- Barclays -- Analyst

Javier Gayol -- GBM -- Analyst

Anton Mortenkotter -- GBM -- Analyst

Gabriel Himelfarb -- Scotiabank -- Analyst

Unidentified Participant

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