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

Please stand by. We are about to begin. Good day, ladies and gentlemen, and welcome to ASUR's third quarter 2021 results conference call. My name is Allie, and I will 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. You want to withdraw your question at any time by pressing star followed by two. If you are using a speakerphone, please lift your handset before making a selection. As a reminder, today's call is being recorded. I'd now like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead.

Thank you, Ali. And good morning, everyone. Thank you for joining our conference call to this course, ASUS Third Quarter 2021 Financial Operating Results. I hope that you and your loved ones remain healthy and safely. Additional details about our quarterly results can be found in our press release, which was issued yesterday after market closed, and it's available on our website in the investor relations section. Let me remind you that certain statements made during this 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 active results to different materials, including factors that may be beyond our company's control, including the impact from COVID-19. Please refer to the filings with the Securities and Exchange Commission and the Mexican Bolsa. Passenger traffic continued to improve across the board, reaching a total of nearly 14 million passengers in the third quarter, which was only 1.4% below the pre-pandemic levels of third quarter 2019. Again, Puerto Rico posted the strongest recovery, beating third quarter 19 levels by over 16%. Domestic traffic was up 22%, more than compensating for weaker international travel, which was down in the high 20s. Mexico delivered the best performance in terms of international traffic on the back of successful vaccination process in the U.S., nearly reaching pre-pandemic levels of 3.19. Our eighth-smaller airport in Mexico posted a recovery in high 20s, while traffic in Cancun was just 2% below 3.19 levels. At the same time, domestic traffic in Mexico and Colombia continued to recover during the quarter. Compared to the pre-pandemic levels of third quarter 19, domestic traffic in Mexico was only down by 9%, improving from the 12% drop of the last quarter. Note that Cancun Airport reached the domestic traffic levels of third quarter 19. In Colombia, domestic traffic was only 4% below third quarter 19 levels. Compared to the previous quarter, 30% decline against second quarter 2019. On a monthly basis, traffic continued to gradually recover throughout the quarter with a total traffic of bidding Third quarter 19 levels by 3%, driven by Puerto Rico and Colombia, which were both above pre-pandemic levels, while Mexico was slightly down by 1% as domestic traffic lagged behind international recovery. Looking ahead at the travel trends, the ongoing vaccination rollout in the U.S. with 57% of the population fully vaccinated and 62% with at least one dose, should contribute to a continued recovery of international traffic in our Mexican operations, a better outlook for the winter travel season. We also expect Mexico's domestic traffic to continue its gradual recovery as the vaccination roll and the COVID recovers. These further supported by the gradual advance of vaccination campaigns and the lifting of travel restrictions across various countries. However, we expect that business travel will take more time to recover, resulting in slower recovers at airports like Merida, Veracruz, and Villahermosa in Mexico, which are more than 20% below 2019 during the quarter. We also remain cautiously optimistic about the global trend and therefore expect total traffic to reach the 12-month record that we set in February 2020 during the second quarter of 2022. Moving on the ASUR's financial performance, our strong balance sheet enables to ramp up operations to meet demand as travel conditions continue to gradually recover. We closed another quarter with a solid financial position. Cash and cash equivalents reached 11 billion pesos, more than doubling December 2020 levels. All three of our countries' operations contributed to higher cash positions, with increases of over 8 billion in Mexico, 2 billion pesos in Puerto Rico, and slightly over half a million pesos in Colombia. Total financial debt of the quarter ends at 14.1 billion, up just 1% from the year end 2020 levels. Net debt to last 12 months EBDA was 0.4 times at the close of the quarter, while the interest cover ratio improved to 6.9 times from five times in the prior quarter. We also maintain a healthy maturity profile. Note that on October 19th, we refined our loan with BVA at Cancun Airport, extending its maturity by seven years, with principal payments now starting in 2023. This brought down our principal payments debt to 0.4% total debt for the fourth quarter at the year end and 3.5% next year. Note that October 1st, we paid an ordinary net cash dividend of 8.21 pesos per share that have been approved at our annual shareholders meeting of 2020, or a total of 2.5 billion pesos. Account receivables in turn dropped 18% sequentially, mainly driven by declines of 58% in Puerto Rico, 3% in Mexico, and 10% in Colombia. Revenues ex-construction rose 154% to 4.5 billion pesos year-on-year. Importantly, we achieved an 11% increase in revenues over pre-pandemic levels in third quarter 19, with non-aeronautical services of 17% and aeronautical services nearly 8%. Mexico accounted for 67 percent of the total ex-construction revenues in the quarter, while Puerto Rico and Colombia represented 22 and 11 percent respectively. On a sequential basis, revenues ex-construction increased 11 percent. Commercial revenues increased year-over-year across our operations. over 210% in Mexico, 133% in Puerto Rico, and nearly 190% in Colombia. On a per passenger basis, commercial revenues remain distorted by the reduction in passenger traffic, reaching nearly 118 pesos compared with the pre-pandemic level of 99 posted in the third quarter of 19. Operating expenses, ex-construction costs increased 31% year-over-year, reflecting mainly hierarchies in Mexico. By contrast, consolidated costs were down mid-single digits when compared with third quarter 19 levels, even despite the 11% increase in revenues during the period. In Mexico, cost of construction increased 43% year-on-year, mainly due to the higher technical assistance and concession fees driven by higher revenues and EBDA, along with a higher cost of services. Compared to third quarter 2019 operating costs and expenses, ex-construction rose 7%, below the 10% increase in revenues ex-constructions. Costing Puerto Rico rose nearly 10% year-on-year, but declined 27% when compared with third quarter 19. During the quarter, the efforts of Puerto Rico reimbursed 165 million pesos in expenses from the grant under the CARES Act, compared with the reimbursement of expenses of 113 million in the same quarter last year. Lastly, expenses in Colombia increased 33% year-over-year, largely reflecting higher concession fees related to the recovery in traffic levels. Consolidated EVDA increased 2.2 billion pesos this quarter, up from 755 million in the February 2020. reflecting the travel recovery in travel demand as vaccination programs advance worldwide and travel bans are lifted. Compared to third quarter 19 pre-pandemic levels, EVDA was up 18%. All countries of operation reported EVDA gains in the quarter. with Mexico contributing 2.1 billion, Puerto Rico over half a billion pesos, and Colombia 273 million pesos. In percentage terms, EFDA in the quarter compared with third quarter 19 levels increased by 14% in Mexico, 15% in Puerto Rico, and 1% in Colombia. Adjusted dividend margin, including IFRIC-12, increased to 68% in the third quarter, up from 65% in the prior quarter, and 64% in the third quarter 19. Adjusted dividend margin reached 72% in Mexico, 59% in Puerto Rico, and 57% in Colombia. With regard to CAPEX, we invested just over 600 million pesos in the quarter, the majority of which was invested in Mexico, while 46% were invested in Puerto Rico and nearly 2 million in Colombia. Year-to-date, we have invested a total of 1.5 billion pesos. Note that we expect to spend more capital in the fourth quarter as we met our committed investments of 3.5 billion pesos for the year in Mexico. In Mexico, we remain on schedule with expansion of the terminal building in Merida. The second phase of the project is expected to open during the fourth quarter, and the construction of the parallel taxiway of the second runway at Cancun Airport also expected to open during the fourth quarter. And we are starting the first phase of the Terminal 4 expansion. While in Puerto Rico, we are undertaking major maintenance repairs to runways and taxiways. Before moving to the Q&A portion of the call, a recap of my third quarter review. We maintained a solid balance sheet, enabled us to ramp up ASUS operations consistently with the recoveries in each of the markets. We also remained confident in our ability attractive airport network to continue rebuilding our passenger base longer term, even the encouraging growth trends that we see across all our markets. And because of the pandemic remains unpredictable and continues to affect travel demand, we continue currently managing our cash and viable costs. This concludes my remarks for today's poll. Ali, please open the line for questions.

Thank you again to the audience. It is star one to ask a question. Please make sure mute function is turned off or your handset is picked up before pressing the corresponding digits. We ask that you ask one question and one follow up question and then you may reenter the queue if you have any additional questions. Again, it is star one if you would like to ask a question. And we'll go ahead and take our first question from Willerme Mendez from JP Morgan. Please go ahead.

Hi, Adolf. Good morning, and thanks for taking my question. I have two questions, actually. The first one is in terms of traffic recovery. You mentioned that you do expect traffic to be back to peak levels by the second quarter of 2022. Just wondering what we should expect after that. So, considering that track should be back by mid next year, back to 19 levels. What to expect for the second half of next year? Should we expect a normalization on the growth or still some kind of 10-10 demand? And the second question is regarding the MDP tariffs. It would share how much has already implemented in terms of your recent renegotiation. Thanks.

Okay, hi, good morning. Thank you for your questions. First, in terms of the traffic for next year, what I have said is that we should be reaching the peak of last month's passenger traffic that was reaching February 2020 by the second quarter next year. After that, if everything goes back to normal, so that the pandemic disappears and everything is back, we should be seeing the normalized growth in each one of the regions we're working on. In terms of the traffic, sorry, in terms of the tariff, what I have said in the second quarter's earnings poll is that we will not be able to reach the 99.8% maximum tariff compliance that we have reached over the last 20 years due to the maximum tariff increase that was approved at the beginning of April this year. The maximum target is something that is measured once a year. So once the fourth quarter is over, we will be able to measure how much we're going to reach. But of course, as I have said, we are not going to reach the 100 this year. We're going to be very far away from that. And we should expect to reach the 99.8% that we normally reach during next year.

Okay, thanks.

Thank you.

We'll go ahead and take our next question from Naoki Astuka from GBM. Please go ahead.

Good morning. Thank you for the question. Could you give us some color or some detail regarding the refinancing of your debt with Santander?

Yes, of course. The refinancing was made on a three-year period. So you can see in the report that we have nothing to pay next year and we will start paying on a semester basis during 23rd and 24th.

Okay, just a follow-up question. We saw that increased the rate of the five basis points on that credit. Could you give us some color on that?

So as you can see in the report, you can see the rate, the spread over here is 1.5.

Okay, thank you very much. You're welcome.

And we'll go ahead and take our next question from Alejandro Zamacona from Credit Suisse. Please go ahead.

Thank you. Hi, Adolfo. Just a follow-up question on the airport tariffs increase. So when we look at revenues per working load unit on a sequential basis, we didn't notice any airport fees increases in this third quarter. We understand that the fees increase negotiated in April, kicking in July. So can you just confirm if you already implemented, at least partially, some of that 17% increase in real terms in Mexican airports?

Yes, Alejandro. The 17% you are mentioning is the weighted average. So each one of the airports has its own particular increase, and you can see that in the report. It's very clear that if this approval came in April, so we lost the first three months of the year in terms of the possibility of increasing the rates, and then it takes us between three to four months to increase the rate, it was impossible to reach the 99.8% maximum tax compliance this year. Otherwise, the increase that we applied had to be extremely high. So we're going to be very far from the 99.8, and we expect to reach that up to mid-year.

Okay, so when we think about the fourth quarter of 2021, we should see a sequential increase in working load limit and readiness for working load limit, right?

Yeah, that's right. And of course, as I said before, the maximum rate is something that is measured on an annual basis. So in reality today, we cannot say how much we're going to reach or how much we're reaching.

Okay. Thank you.

You're welcome.

And we'll move on to our next question from Steven Trent from Citi. Please go ahead.

Good morning, Adolfo, and thanks for taking my question. I recall last month maybe there was some news that the AMLO administration wanted to build a second airport in Merida, and I heard you say something about Merida Airport, and I missed it. But I wasn't sure if this is anything you can substantiate or it's just kind of random news.

Well, I have not heard anything from the president on that respect. I have heard from the governor of the state mentioning that they are trying to see if the airport can be relocated, but that doesn't mean that we will not be the operator in the case of someone will have to construct the facilities and then we will be operating that airport.

Okay, perfect. Thanks, Adolfo. And just really quickly, you know, in terms of what you see in potential future traffic flow, is there any kind of sense from your side whether, you know, a commercial airport, Santa Lucia in Mexico City would, you know, align at least with Asura's long-term traffic flow expectations?

Well, you know that this project is extremely important for us and for the whole system because most of the traffic of the country in terms of the domestic traffic comes or goes to the metropolitan area. So, of course, today Mexico City Airport is not congested. Due to the pandemic situation, it has excessive capacity. Of course, in the future, what we expect is the traffic to recourse. So the importance of this project is once this happens, of course, we will have some additional capacity for the metropolitan area in order to be able to serve the inflow traffic to our airports.

Okay, very helpful. Thanks, Adolfo. You're welcome, Steve.

And we'll move on to our next question from Rodolfo Ramos from Verdesco. Please go ahead.

Thank you. Good morning, Rodolfo, and congrats on the results. I was just wondering if you can elaborate on your outlook for your operating expenses. We saw some good, you know, good control this quarter, and, you know, we're still below the 2019 levels despite some inflationary pressures that you've seen. As traffic continues to recover, where do you see operating expenses normalizing?

Good morning. Thank you for your question. Well, basically, as you're mentioning, the inflation in this country is really high, as it is in some others. We have put in the brakes on the cost side the second quarter 2020, and we are doing as much as we can to control these, and you can see some of the results. Of course, the expectation is that once everything is normalized, the cost side should go back to the 2019 levels. Of course, inflation, it's going to be a crucial element on that as well. But, yes, it's true we are doing good in terms of managing the cost side of the company.

Thank you. And if I may, a follow-up here on traffic. You mentioned that you do expect traffic to recover to the peak levels by the second quarter of next year. I'm just wondering if you have a visibility, maybe what we've seen so far in October – But if you have any visibility as to how markets that have been largely absent from this recovery, you know, Canada, Europe, or markets that were hit more severely by restrictions, if you have any visibility as to how they're coming back, I don't know if you can talk about bookings or any...

you know color that you can give us as to how how do you expect these these segments to contribute to traffic into this winter season absolutely that is why i was saying during the initial remarks that we're expecting a better outlook for the winter no yes we have some requests from the airline But this request does not mean that they will in reality use the slots. So they can cancel the slots at the last minute as they have done during the pandemic levels. But it's clear that we lost in Canada basically in the high season at the third week of January this year. So we are expecting them to go back and if the winter is strong in the north of the americas it will be a good season for us and that is also the case of europe in the case of europe probably you can see the news and we are seeing some some recovery just to to give you something or an example yesterday we we had the first flight from vienna and in the case of vienna the uh the flight was canceled 14 years ago. So after 14 years, they're coming back to Cancun. So yes, we are seeing also a recovery from the case of Iraq.

Thank you, Adolfo.

You're welcome.

We'll move on to our next question from Pablo Monsivas from Barclays. Please go ahead.

Hi, Adolfo. Thanks for taking my question. I have two. The first one is, provided that traffic recovers at some point in 2022 and that you are charging the full tariff, what are the main important concerns for you in terms of what you want to do with the zoo? Are you going to keep looking for other places to invest or to improve your commercial platform in Colombia and Puerto Rico. What are your thoughts here? Thank you.

Well, of course, the first concern is that we do not have another rebound of the virus, that we don't see the fourth wave during the winter. That's my major concern. If we go after and if we say that the pandemic is over and we are, let's say, third one next year, of course, we will go back to normal and we will be looking for some other attractive opportunities for the shareholders. Of course, we will be in a continuous effort to increase and to improve our commercial operations as we have done. We have taken some opportunities in the case of Colombia, as you have seen. We have also been able to manage to replace some spaces that were empty in our airports and also to have new additions, as you have seen in the report as well.

Okay. And a second question here, if I may. seeing very strong recovery in Cancun and thinking about the Canadians and Europeans going into Cancun in the fourth quarter and first quarter of next year. What do you think is the main constraint for Cancun to keep growing? I mean, is room capacity enough to withstand, I don't know, 10% traffic growth for next two, three years? What are your thoughts?

Well, when you're saying 10%, well, of course, I have to say you need to say, okay, this 10% is over 2019 levels. I can say that there are some hotel construction projects today as we speak, and they should be opening very soon. Additional capacity has been placed in the region, also in terms of Airbnbs and things like that. So today, to be honest, I'm not concerned about the capacity. We are concerned about not having the fourth wave, and we're working also in terms of the cost control and increasing the commercial revenues.

Super, Thierry. Many thanks. Thanks.

We'll take our next question from Gabriel Hamilton from Scotiabank. Please go ahead.

Hi, Adolfo. Congratulations on the results. Just a quick question. We're seeing that inflation is rising and there's some constraints on supply chains, but the material costs, steel costs are rising. Do you think this could impact your planning investment in your MDP? For example, it could be some planning investments could cost more than we were planning. Thanks.

Well, yes, of course, you're absolutely right. The increase in the construction side, it's really tough with VIA and also the problems of the distribution of some materials. And we're suffering from that as we speak. Of course, that will have an impact on our capex, but basically we have to comply with what we have committed with the Mexican government, as I have said in Durag. We should comply with the 3.5 billion pesos for this year. Next year, it's a lower commitment. It's a lower commitment. That should be around 1.7, 1.8. So the toughest part is right now. And we have to work really hard this quarter, this fourth quarter, to meet the commitments.

Okay, thank you, and congratulations on the results. Thanks.

And we'll move on to our next question from Andressa Verado from UBS. Please go ahead.

Hi. Thank you very much for taking my question. My question is on the commercial revenue side. We have seen a very good commercial revenue commercial revenue expansion in this quarter in operations. So I just wanted to know what is behind that and what can we expect going forward? Can you say that commercial revenues are normalized already?

Well, of course, as I have said during the remarks, I still believe that commercial revenues in the quarter still affected with inflation. with a lack of passengers or less passengers than normal. That's the first thing. The second thing is, I would call it pandemic behavior, which currently is higher than expected. Parking lot is higher than expected. Food and beverage is lower than expected. Convenience stores are higher than expected. Just to talk about the convenience stores. So the people is not willing, not all the people is willing to stay in a restaurant. So they prefer to grab and go. So that is why convenience store is increasing and these kind of things. I believe that in the future this will normalize and we will not see permanent effects from the pandemic in terms of the behavior from one side. And also it's important to say that, as you have seen, the passenger mix today is not the same as it was before. So proportionally speaking, we had more domestic, less Europeans, more U.S. So that also will have an effect on our commercial burdens in the future once the passenger makes his adjustments as it was before.

Great. Thank you very much, everyone. Have a great day.

Thank you.

And as a reminder, it is star 1 if you would like to ask a question. And we'll go ahead and move on to our next question from Rodolfo Ramos from Berdesco. Please go ahead.

Just to follow up on the CARES Act, do you expect any additional payments or what is the remaining amount or I don't know what we should expect in the next quarter or two?

Yes, well, in the case of the CARES Act, the first grant that was given by the U.S. government is it's over. We're expecting the second and third programs, and yes, we can expect more for the coming months.

Okay, thank you. No details as to the amounts.

Sorry, I couldn't hear your question.

You don't have any visibility as to the amounts?

No, I prefer not to say the amounts because we're not sure about those yet. Thank you. You're welcome.

And we will take our next question from Steven Tramp from Citi. Please go ahead.

Hi, Adolfo, and thanks for taking my follow-up. And I apologize if I missed what you said before. But we've noticed your days receivables look pretty strong. How should we think about the trend going forward as you continue negotiating with some of your host airlines that are going through some financial difficulties?

Hi, Steve. Well, they have improved during the quarter, basically because of the better position that the airlines have due to the recovery process. As I had mentioned in the report, we're still working well with all the airlines. The only problem we had in the past was in the case of Interjeta, and that's clear and it has been preserved. Going forward, I do not expect major problems or major issues from the airlines. So we should be seeing the same or similar numbers that we have pre-pandemic levels in terms of receivables. Of course, in relation with the operation of the company.

Okay, perfect. Thanks again, Adolfo.

You're welcome.

And we'll go ahead. And that actually concludes the question and answer session for today's conference. Now I turn the call back over to Mr. Castro for closing remarks.

Thank you, Ali. And thank you again for participating in our third quarter results conference. On behalf of us all, we wish you a good day and please stay safe. Goodbye.

Ladies and gentlemen, that concludes ASUR's third quarter 2021 results conference call. We would like to thank you again for your participation. You may now disconnect.