Grupo Aeroportuario del Sureste, S. A. B. de C. V.

Good day, ladies and gentlemen, and welcome to ASUR's second quarter 2021 results conference call. My name is Sandy, and I'll be your operator. 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. If you would like to ask a question, please press star followed by one. If you want to withdraw your question at any time, please press star followed by two. If you're using a speakerphone, please lift the handset before making a selection. As a reminder, today's call is being recorded. Now I'd like to turn this call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir.

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 may be beyond our company's control, including the impact from COVID-19. For an explanation of this risk, please refer to our filings with the U.S. Security and Exchange Commission and the Mexican Stock Exchange. Passenger traffic trends continue to show sustained improvements across the board, with a total of almost 12 million passengers traveling to our airport during the quarter, although it is 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 upset 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 U.S., recovery in international traffic continues to rise. Mexico delivered the fastest recovery with international traffic nearly 20% below the level reaching second quarter 19, followed by Colombia and Puerto Rico, which posed 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. driven the gradual rollout of vaccination campaign in Mexico and further busted by higher travel demand typical during the summer season. On the downside, traffic was negatively impacted by travel restrictions, mainly in Canada, which extended travel bans to the U.S. and the Caribbean until the end of August. Also impacting traffic are negative COVID testing and self-quarantine requirements in the U.S. for passengers returning to their country. Next, as we look ahead at emerging travel trends, remember that operations of the majority of the airlines serving the four regions we usually work with, namely the U.S., Canada, Europe, and Latin America, resume at the end of last year. In terms of international traffic, we expect that the accelerated pace of the vaccination rollout in the U.S. with 57% of the population with at least one dose will continue to translate in a gradual recovery of international traffic in our Mexican operations, particularly during the summer season in the Mayan 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 a slow recovery as countries gradually advance in their vaccination campaigns. Restrictions are lifted and economies slower recovery. By contrast, we expect that the business travel will take more time to recover. which could be the case for airports like Mérida, Veracruz, and Villahermosa in Mexico, and Rio Negro 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 8 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 the mine continues to gradually recover. Azure's financial position remains strong with cash and cash equivalents of 7.8 billion pesos at the end of the quarter, up 51% from December 2021. All countries of operation contributed to this higher cash position. Reporting increases 2.1 billion in Mexico and half a billion pesos in Puerto Rico. Colombia contributed nearly 6 million pesos in cash compared with the use of cash in the first quarter. We closed the quarter with a total financial debt of $13.7 billion, down 3% from the end of the year 2020. Net debt to last 12 months in the year 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, Armexico, Avianca Holdings, and LATAM Airlines Group that filed for Chapter 11 bankruptcy protection in the United States. On a sequential basis, account receivables increased 26%, mainly driven by a 61% increase in Mexico, reflecting revenue growth. In contrast, account receivables in Puerto Rico and Colombia declined 16% and 5% respectively. Turning to the P&L revenue, sex construction increased 324% to 3.9 billion pesos 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 services and 4% from aeronautical services. Mexico accounted 68% of total ex-construction revenues, while Puerto Rico and Colombia represented 23.9% respectively. On a sequential basis, revenues ex-construction increased a robust 43%. On a per-passenger basis, commercial revenues reached nearly 119 pesos, up from 99 pesos posted 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 costs increased 31% year-over-year, mainly driven by higher activity levels in Mexico. However, consolidated costs were down 8% when compared to the second quarter's 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 higher technical assistance and concession fees on the back of higher revenues and EBDA. 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 of 2020, compared to the second quarter of 2019. Operating costs and expenses at 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 a 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 of 2021, as a result of favorable FX translation impact and from a higher provision for bad debt in the second quarter of 2020 in connection with the COVID-19 pandemic. Note that a total of $8.2 million remain available on the U.S. TRSAC grant as funds were not deployed to reform the 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 EVDA increased to $2.5 billion this quarter from $51 million in a year-ago quarter, which was fully impacted by restrictions worldwide to control the pandemic. When compared to the pre-pandemic performance, EVDA was only 3% below comparable to the second quarter 19 levels, which exclude the non-recurring insurance recovering in that quarter. All countries of operation reported EVDA gains, with Mexico contributing 1.8 billion, Puerto Rico over a half billion pesos, and Colombia 157 million pesos. Exit week 12, the adjusted median 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 460 million pesos in the quarter, the lion's share of which was allocated to Mexico. while $60 million were invested in LLM Airport in Puerto Rico. In Mexico, we remain on schedule with expansion of terminal building in Merida and the construction of the parallel taxiway of the second runway at Cancun Airport and the start in 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, Azur's maintained a solid balance sheet that is enabling us to ramp up operations as our markets recover and 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 presently managing cash and variable costs 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 the 1st, 2021, for an ordinary net cash dividend of 8.21 pesos per share that have 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 to read it and learn about our recent progress and initiatives on ESG points. We remain committed to further enhancing our ESG strategy and performance, among other objectives For our next sustainability report, we intend to add the SASB framework to complement our reporting under the GRE framework. That concludes my remarks for today. Sandy, please open the lines for questions.

Thank you. Again, to the audience, it is star then 1 for questions. And again, please make sure your mute function is turned off or the handset is picked up before pressing the corresponding digits. Our first question comes from Alejandro Samacona at Credit Suisse.