Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR) Q4 2021 Earnings Conference Call February 25, 2022 10:00 AM ET
Adolfo Castro - Chief Executive Officer
Conference Call Participants
Guilherme Mendes - JPMorgan
Rodolfo Ramos - Bradesco BBI
Pablo Monsivais - Barclays
Diego Serrano - Credit Suisse
Juan Macedo - GBM.
Gabriel Himelfarb - Scotiabank
Good day, ladies and gentlemen and welcome to ASUR's Fourth Quarter 2021 Results Conference Call. My name is April and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of today’s conference. [Operator Instructions] As a reminder, today's call is being recorded.
And now, at this time, I would like to turn the call over to Adolfo Castro, Chief Executive Officer. Please go ahead.
Thank you, April, and good morning, everyone. Thank you for joining our conference call to discuss ASUR's fourth quarter 2021 financial and operating results. I hope that you and your loved ones have managed to stay healthy and safe and the pandemic will soon be behind us.
Additional details about our quarterly results can be found in our press release, which was issued yesterday after market close and is available on our website in Investor Relations section.
Let me remind you that certain statements made during the course of the call 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, including the pandemic from COVID-19.
Now a review of operating and financial result, as well as some color on travel demand. Starting with passenger traffic, total traffic nearly doubled year-on-year and exceeded fourth quarter 2019 pre-pandemic levels by nearly 7%. This good performance was driven by improvements across the board, with nearly 15 million passengers traveling to our airports during the fourth quarter.
Colombia posted the strongest recovery, surpassing fourth quarter 2019 traffic by 11%, with domestic and international travel up 11% and 14% respectively. Costa Rica also performed well with traffic nearly up 6% against fourth quarter 2019. Domestic traffic was up nearly 9% and continues to drive strong overall traffic, more than offsetting the softer international passenger traffic, which reached 77% of fourth quarter 2019 levels.
Traffic in Mexico continued to recover, beating fourth quarter 2019 levels by 5%, reflecting a high single digit increasing the international traffic, with growth across all airports. Domestic passengers in turn were up low single digit at nearly 12% increase in domestic traffic at Cancun Airport, was partially upset by a lower growth rate at our smaller airports.
Looking ahead, while we maintaining a casually stance given the Omicron variant, which impacted traffic mainly in Mexico and Puerto Rico and slowed the pace of the recovery in January. We are seeing better performance in the second half of February.
Current expectations and continue of harsh winter in the North America would result in a good travel season for our airports. As we anticipated, we are also seeing a recovery in European passengers, although, somewhat have dampened by Omicron variant.
However, it remains to be seen how the invasion of Ukraine will impact Europe's economy and the rest of the world. Although, the rate at which Mexico's economy recovers is unknown at this time, we expect domestic traffic to continue its gradual recovery.
The lifting of other countries' travel restrictions and their own economies recovery are also expected to benefit our Mexican airports. But as I advised during the previous earning call, a recovery in the business travel is expected to lag of leisure travel. This is resulting in slower recoveries at airports like Merida, Veracruz, Minatitlán and Villahermosa, which were in average nearly 20% below 2019 traffic levels during the quarter.
In sum, I noted on our last call, we remain casually optimistic about the global travel demand and should fully Omicron dissipate and travel is not hindered by a fourth wave. We expect total traffic to reach last by second quarter this year the level we saw in 2019, in terms of last 12 months passenger traffic.
Moving on ASUR's balance sheet, our ample liquidity position has allowed to, continue ramping up operations to meet the rising level travel demand, we're seeing across the airports. In summary, we closed the year with a strong cash position with cash and cash equivalent PS.8.8 billion, nearly 70% above 2020 levels, after paying a total of PS.2.5 billion in cash dividend last October.
Mexico contributed with nearly PS.6 billion in cash, Puerto Rico with PS.2 billion and Colombia with nearly PS.1 billion. At the same time, we maintain a healthy balance sheet with net debt last 12 months EBITDA 0.5 times, at the close of the quarter. And the interest cover ratio of 8.4 times.
Our debt maturity profile is also strong with slightly 3% of principal payments during the year and nearly 15% next year. In addition, account receivables increase 38% year-on-year, up 116% in Mexico reflecting increased business activity. This partially offset by declines in low-80s in Puerto Rico and mid-teens in Colombia.
Now, turning to, ASUR's income statement starting with the top line. Revenues ex-construction nearly doubled year-on-year reaching PS.4.8 billion in the fourth quarter. Revenues also saw a good recovery up 24%, when compared to the pandemic levels of fourth quarter 2019.
Non-aeronautical services increased in the mid-30s and aeronautical services high-single digit. We saw sustained recovery across geographies with Mexico accounting 70% of total ex construction revenues in the quarter; Puerto Rico 19%; and Colombia 11%. Commercial revenues were up 112% year-on-year driven mainly, by the 94% recovery in passenger traffic with increases of 112% in Mexico, 117% in Puerto Rico and nearly 96% in Colombia.
Commercial revenues for passenger reached nearly PS.116 compared with a pre-pandemic level of PS.92 achieved in the fourth quarter of 2019. By country we posted commercial revenues in the range of PS.140 to PS.142 in Mexico and Puerto Rico and PS.39 in Colombia. Note, these figures remain distorted but what we call endemic behavior.
We were seeing higher use of cab rentals, parking lots as well as convenience stores as people grab and go, while activity in restaurants is lower than expected. In the future, we expect commercial revenues per passenger to normalize. We also saw an improvement in the traffic mix this quarter with the share of high-spending, Europeans back to the levels observed in 2019.
And continue growing the U.S. tourism. The share of domestic traffic returned to the levels of 2019, while the major difference is the Canadian travelers are still far beyond pre-pandemic levels. Once this, normalize, we expect to see this reflect in a commercial revenue mix closure to pre-pandemic composition.
Moving down on our PL. Operating expenses and ex-construction cost increased 48% year-on-year, but were up just nearly 8% when compared with both quarter 2019, despite the 24% in revenues ex-construction. In Mexico, cost ex-construction rose 30% year-on-year mainly due to high technical assistance and concession fees driven by higher revenues and EBITDA, along with a higher cost of services.
Higher cost of sales from directly operating stores have also contributed to the increase, in the cost as many passengers that buying meals-to-go at our convenience stores instead of going to a restaurant. We're seeing this happening as well in Puerto Rico. Back to Mexico, compared with fourth quarter 2019 operating cost and expenses ex-construction were up 28% with revenues ex-construction up 30%.
In Puerto Rico cost more than doubled as fourth quarter 2020 benefited from a MXN227 million expense reimbursement from the grant under the CARES Act. However, on a comparable basis, expenses were up 20% year-on-year, reflecting a higher maintenance provision concession fees and cost of sales of directly operating stores I just mentioned. When compared to fourth quarter 2019 levels, comparable cost were up 27% while revenues rose 47%.
Finally, expenses in Colombia were up 27% year-on-year, mainly driven by higher concession fees as travel demand rebounded. Compared to fourth quarter 2019, expenses were up by 27% significantly below the 157% increase in cost both ex-construction.
That brings us to profitability. Consolidated EBITDA more than doubled to MXN3.3 billion this quarter from MXN1.3 billion in fourth quarter 2020. Mexico was the main EBITDA contributor of worth MXN2.5 billion, followed by Puerto Rico with nearly MXN460 million, and Colombia close to MXN340 million.
When comparing to fourth quarter 2019 levels, EBITDA was up by 35%, driven by EBITDA increases of 37% in Mexico, 14% in Puerto Rico, and 57% in Colombia, basically resulted from the revenue increase originated by more passengers better commercial revenue per passenger at higher tariffs.
Adjusted EBITDA margin ex-IFRIC 12 increased to 68% in the fourth quarter from 55% in the year ago quarter and also surpassing the 64% margin reported in the fourth quarter 2019.
By country of operations and compared to fourth quarter 2019, adjusted EBITDA margin posted expansions of nearly five percentage points in Mexico to 75% and 17 percentage points to 61% in Colombia, while in Puerto Rico, the margin contracted two percentage points to 52%.
Regarding CapEx, during the quarter, we invested a total of MXN2.2 billion, a significant achievement in just three months and meeting our CapEx commitments for the year. We also invested MXN97 million in Puerto Rico and nearly MXN1 million in Colombia.
Taking a deeper look at the capital investment plans in Mexico. For the full year, we invested a total of MXN3.5 billion almost equal to the committed investments for the year.
Let me provide you an update of the key projects. Expansion of the terminal building in Merida remains on track with the second phase of the project inaugurated during December. We've now begun with the third phase of the terminal expansion project that we expect to conclude by the year end.
At Cancun Airport we completed the construction of the parallel taxiway of the second runway last December. And we are working on the first phase of the Terminal four expansion. This entails adding two boarding gates on international travel.
This year, our CapEx commitment is approximately MXN2.2 billion for Mexico, which includes works on Terminal 4 and emergency vehicles at Cancun. Phase 3 for the terminal expansion in Merida, and the terminal expansion at Tapachula.
In Puerto Rico, we expect to invest close to $30 million this year as we continue with the major maintenance repairs with runways and taxiways and remodel Terminal D.
Before opening the call for your questions, I would like to reiterate a couple of points. Our still strong financial position give us ample flexibility to ramp up ASUR's operations to meet pent-up demand in each of our markets. Also this year and beyond we intend to fully leverage ASUR's attractive airport network to grow our passenger base, anticipating the long-term growth trends that expect will manifest themselves across the markets. However, we will remain disciplined with the cash use and expenses as the course of the pandemic although encouraging at this time could worsen again.
This concludes my review for the fourth quarter results. April, please open the line for questions.
Thank you. [Operator Instructions] And we'll first hear from Guilherme Mendes of JPMorgan.
Hi, Adolfo. Good morning, and thanks for taking the question. Actually I have two questions. The first one is how has been implementation of your MDP tariffs? Have you already fully passed it through to airlines?
And the second one in terms of growth, are there any opportunities outside Mexico that ASUR could be analyzing? Any interests on the Brazilian assets? Thanks.
Hello. Good morning. Well, in the case of the maximum rate tariff compliance you are talking about, I also said during the third quarter that we were not being able to achieve those because of several situations. So at the end of the year the weighted maximum average tariff was MXN 205. You can see it in the report. And we expect to reach close to 100% this year. Of course, that will depend on the situation of the inflation. Once again, we are seeing that inflation is very high in Mexico as it is in the rest of the world. So, it's going to be hard again to transfer the current inflation into the rates. But of course, we're trying our best to reach the maximum tariff compliance we used to. In the case of outside opportunities, in Brazil no we are not seeing any of those.
Okay, very clear. And just to confirm on your initial remarks you mentioned about being back to pre-pandemic levels on the fourth quarter of this year. Is that correct?
Could you repeat your question please?
In terms of the traffic recovery, you mentioned on your initial remarks that you expect it to be back to full pre-pandemic levels by the fourth quarter of this year, just wanted to confirm if that's correct.
No, in terms of lack of more passenger traffic in the second quarter of the year.
Okay, second quarter. Okay, clear. Thanks.
Next we'll hear from Pablo Monsivais of -- I'm sorry, no, Rodolfo Ramos of Bradesco BBI.
Good morning, Adolfo. Thanks for taking my question. I have two if I may. The first one is just wanted to get your -- any feedback that you can share. I understand that you have begun your MDP negotiations this year. And I just want to understand how, if at all, you're going to be reflecting in these negotiations the potential operation of Tulum? And any update that you have there beyond what we hear on the news? That'll be my first question. Thanks.
Rodolfo, thank you. In terms of the MDP what we are doing today is to prepare the document that we will have to deliver to the government at the end of this year. So negotiations will be done next year. In the case of Tulum airports, what we know is that this project was approved by the federal government. We are trying some funds to this project. And this project should start construction once they open Santa LucÃa Airport. So, they're expecting to conclude this project and starting operations by the end of 2023. And of course, that should be included in the document we are preparing for the government.
Thank you. And just a follow-up there. Do you have any sense of what the traffic level could be? I mean we've heard AMLO saying that it would have a four million passenger capacity. I don't know if you have any sense of the magnitude there.
Well, not yet. We have not been able to see the project that they are supposed to construct. But if we go back to 2009, the government was talking about three million passengers.
Okay. Thank you. And just a second question here. What is your sense of the upside risk that you see from perhaps Canada and other countries that haven't really participated or have not been -- really been seen throughout this recovery from the pandemic?
Well, again it was a shame to see that in the high season for also the winter for them that Omicron variant was there. So we saw effects of Omicron variant in the second half of December, the whole January and the first part of February. So there's some months to recover some Canadians. But as I said during my remarks, we are far beyond where they were pre-pandemic levels. So I believe it's going to be up to the next winter season when we see them going back.
And we'll now hear from Pablo Monsivais of Barclays.
Hi. Good morning, Adolfo. Thanks for taking my question. Traffic from the US to Cancun has recovered significantly. But is this a normalized and sustainable level, or do you think there could be some adjustments once the leisure destinations in the Caribbean reopen more steadily? Thank you.
Hi, good morning. Well, of course, you are right. I don't believe that once the world is open again that we will be able to maintain or sustain the level we have seen. We have seen of course extraordinary traffic level from the US because of these travel restrictions. Of course, we will have to wait and see what is going to happen in Europe in the case of the summer. But it's true, it's very clear that when they are able to go somewhere else probably some of them will go outside Mexico.
Perfect. I have a second question if I may. Colombia the traffic in your Colombia operations posted roughly 9 million passengers in 2021. Do you have an estimate of how much of that represents the Bogota to Medellan route?
I don't have exact figure on the top of my head but it is extremely important the traffic between Bogotá to MedellÃn. And as you are probably I'm really surprised of what we are seeing because travel – business travel is not something that I believe is going to be able to recuperate very fast, which is not the case in Colombia in this route. But this route may represent 40% to 50% of the traffic in that airport in general.
Perfect. Super. Great. Thank you very much.
Diego Serrano of Credit Suisse.
Hi, Adolfo. Good morning and thank you for the opportunity to ask the question. I have a quick question regarding Cancun and a second one regarding growth expectations. So for Cancun, we have recently heard about our recent security and crime issues. So could you provide some color on what is the local government doing to address this matter? And also we – I would like to hear your opinion. I mean do you think this could be a risk for the region's tourist activity?
Hi, good morning. Yes of course, it is a risk. There is no question about it. Of course when we see the level of crime in the region compared with some of our cities, it's not so important. Remember that Cancun is a city of 1.5 million persons. The problem is that it's a tourist destination and we don't like to see these things in a tourist destination. What the government is doing and they have responded really fast on the recent events and they captured the people who was involved in the matter. And of course, we can see some effects of people that is preoccupied or concerned about the situation no. But I believe and I hope that the state government also together with the federal government will do what they have to in terms of security matters.
Okay. Perfect. Thank you. And just another quick one. What are your growth expectations by region for 2022?
No, I don't have a crystal ball you are better doing than what we are.
Sure. Okay. Thank you.
Next, we'll hear from Juan Macedo of GBM.
Hi. Thanks for taking my question. I have two questions actually. One is regarding Puerto Rico. Due to the pandemic-related dynamic, the traffic is still doing well above pre-pandemic levels. But now currently figures are slightly below. Do you believe this follows a normalized behavior now, or could you give us some color on that? Thank you.
Well, in the case of Puerto Rico what we saw since the beginning of the pandemic, it was an extraordinary level of traffic by different reasons. One of them being the support by the federal government to the people. The second one the restriction -- the travel restrictions in the case of the U.S. and somebody found that they were able to fly to Puerto Rico without the passport requirement. So in that sense for them it's U.S. soil. And what we saw, it was plus 15%, plus 14% above pre-pandemic levels. So I have said several times that what we are expecting in that case is the numbers to adjust to normality. And that's what we have been seeing recently. Of course, in the case of December and January we saw the effect of Omicron. But apart from these we expect the traffic there to adjust to normal levels.
Great. Thanks. My other question is regarding the conversion front. Terminal revenues significantly. Has there been any change in consumer behavior, or how do you see that?
Well, as I said during the remarks, the passenger mix improved. Europeans went back and they are high spenders. So that's why we saw a very nice increase in this front, in the Mexico case. And of course, we are doing some improvements again in the case of Colombia that have helped that front as well. So we are very happy to see those results.
Great. Thanks for the color.
Gabriel Himelfarb of Scotiabank.
Hi. Thanks for the call. Well, two quick questions. First, do you think or do you see opening new routes towards longer-haul, routes like Canada or maybe Europe that could bypass Mexico City Airport? And my second question is about dividends. Do you believe or do you plan to pay dividends in the near term? Thanks.
Hi. In the case of new routes, I have to say that we are very happy to see new additional routes that we didn't have in the pre-pandemic times going into Cancun, that is the case of some from Poland, some from -- some others that we have many, many, many years ago like Sao Paulo, direct flight from Sao Paulo or a direct flight from Vienna.
In terms of connectivity, I have to say that, we are almost 95% of how we were in the case of 2019 levels. And what we are missing are basically the case of Canada. So I believe one with -- or the next winter season is that, we will be able to recuperate more than 100% of what we had before, if we consider this yield that we didn't have before.
Okay. And in the case of a dividend do you plan to pay some dividends this year or maybe next?
Well, I'm preparing. As we speak, I'm preparing my proposal to the Board of Directors that will be sent later on to the shareholders' assembly.
Okay. Thank you.
[Operator Instructions] Okay. It appears there are no further questions at this time. Adolfo, I'll turn the call back over to you for any additional or closing comments.
Yes, thank you, April. Thank you again for participating on our fourth quarter results conference. On behalf of ASUR, we wish you a good day and please stay safe. Goodbye.
And again, ladies and gentlemen, that concludes ASUR's fourth quarter 2021 results conference call. We would like to thank you again for your participation. You may now disconnect.