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

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 a 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 the digit 1. And if you would like to withdraw your question at any time, you may do so by pressing the star 2. If you are using a speakerphone, please lift the handset before making your selection. 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 ASMU'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 closed and is available on our website in the Best of Relations section. Let me remind you that certain statements made during the course The code 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 results, as well as some color on travel demands. Starting with passenger traffic, total traffic nearly doubled year-on-year and exceeded four-quarter 2019 pre-pandemic levels by nearly 7%. This good performance was driven by improvements across the board, where nearly 15 million passengers traveling to our airports during the fourth quarter. Colombia posted the strongest recoveries. surpassing 4 quarter 2019 traffic by 11%, with domestic and international travel up 11% and 14% respectively. Puerto Rico also performed well with traffic nearly up 6% against 4 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 four-quarter 2019 levels. Traffic in Mexico continued to recover, beating four-quarter 2019 levels by 5%, reflecting a high single-digit increase in ventilation 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 offset by a lower growth rate at our smaller airports. Looking ahead, while we are maintaining a casualty 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. Expectations and continue of harsh winter in the North America would result in a good travel season for our airports. As anticipated, we are also seeing a recovery in European passengers, although somewhat have happened 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 recover is unknown at this time, we expect domestic traffic to continue its travel recovery. The lifting of other countries' travel restrictions and their own economy's recovery are also expected to benefit our Mexican airports. But as I advised during the previous earnings call, a recovery in the business travel is expected to lack of leisure travel. This should result in slow recoveries at airports like Merida, Veracruz, Minatizan, and Villahermosa, which were, in average, nearly 20% below 2019 traffic levels during the quarter. In sum, I noticed on our last poll we remain cautiously 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 a source balance sheet, our ample liquidity position has allowed to continue ramping up operations to meet the rising level of travel demand we're seeing across the airports. In summary, we closed the year with a strong cash position with cash and cash equivalents reached 8.8 billion pesos, nearly 70% above 2020 levels, after paying a total of 2.5 billion pesos in cash even last October. Mexico contributed with nearly 6 billion pesos in cash, Puerto Rico with 2 billion, and Colombia with nearly 1 billion. At the same time, we maintain a healthy balance sheet with net debt, last month's EBDA of 0.5 times, at the closest of the quarter, and the interest cover ratio of 8.4 times. Our debt maturity profile is also strong, with a slightly 3% of principal payments during the year, and nearly 15% next year. In addition, account receivables increased 38% year-on-year, up 116% in Mexico, reflecting increased business activity. It's partially upset by declines in low 80s in Puerto Rico and mid-10s in Colombia. Now turning to a source income statement, starting with the top line. Revenues construction nearly doubled year-on-year, reaching 4.8 billion pesos in the fourth quarter. Revenues also saw a good recovery of 24%. when compared to pandemic levels of port water 2019. Non-aeronautical services increased in the mid-30s, and aeronautical services high single digits. 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 per passenger reached nearly 116 pesos compared with the pre-pandemic level of 92 pesos achieved in the fourth quarter of 2019. By country, we posted commercial revenues in the range of 140 to 142 pesos in Mexico and Puerto Rico and 39 pesos in Colombia. Note, these figures remain distorted by what we call pandemic behavior. We were seeing higher use of car 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 a share of high spending Europeans back to the levels observed in 2019 and continued flow in the U.S. tourism. The share of domestic traffic returned to the levels of 2019, while the major differences is the Canadian travelers are still far beyond pre-pandemic levels. Once this normalizes, we expect to see this reflect in a commercial revenue mix closer to pre-pandemic composition. Moving down on our P&L, operating expenses and extra construction costs increased 48 year-on-year, but were up just nearly 8% when compared with quarter 2019, despite the 24% in revenues ex-construction. In Mexico, cost ex-construction rose 30% year-on-year, mainly due to higher technical assistance and concession fees driven by higher revenues and EVDA, 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 are buying meals to go at our convenience stores instead of going to a restaurant. We are seeing this happening as well in Puerto Rico. Back to Mexico, compared with 4 quarter 2019 operating cost and expenses, ex-construction, were up 28% with revenues ex-construction up 30%. In Puerto Rico, costs more than doubled, as 420 benefited from a 227 million pesos 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 costs were up 27% while revenues rose 47%. Final expenses in Colombia were up 27% year-on-year, mainly driven by higher concession fees as travel demand rebounded. Compared to fall quarter 2019, expenses were up by 27%, significantly below the 157% increase in cost post-ex-construction. That brings us to profitability. Consolidated EVDA more than doubled to 3.3 billion pesos this quarter from 1.3 in fall quarter 2020. Mexico was the main EVDA contributor with 2.5 billion pesos, followed by Puerto Rico with nearly 460 million pesos, and Colombia close to 340 million pesos. When comparing to four quarter 2019 levels, EVDA was up by 35%, driven by EVDA 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 for passenger at higher times. Adjustability and margin XE312 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 19, Adjusted dividend margin posted expansions of nearly five percentage points in Mexico to 75% and 17% dashed points to 61 in Colombia, while in Puerto Rico the margin contracted to percentage points to 52. Regarding CapEx, Uniquatum invested a total of 2.2 billion pesos, a significant achievement in just three months and meeting our CapEx commitment for the year. We also invested $97 million in Puerto Rico and nearly $1 million in Colombia. Taking a deeper look at the world capital investment plans in Mexico, for the full year, we invested a total of $3.5 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 now begin with the third phase of the terminal expansion project that we expect to conclude by the 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 port expansion. This entails adding two porting gates on international products. For this year, our capex commitment is approximately $2.2 billion for Mexico, which includes works on Terminal 4 and emergency aprons 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 to 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 gives us ample flexibility to ramp up ASUS operations to meet and top demand in each of our markets. Also, this year and beyond, we intend to fully leverage ASUS's attractive airport network to grow our passenger base. Anticipating the long-term growth trends that we 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 four-quarter results. April, please open the line for questions.

Thank you. Again, if you would like to ask a question, simply press the star key followed by the digit one on your telephone keypad. Also, if you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one. And we'll first hear from Guillermo Hernandez of J.P. Morgan.

Hi, Adolfo. Good morning, and thanks for taking my 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 a source could be analyzing? Any interest on the Brazilian assets? Thanks.

Hello, good morning. Well, in the case of the maximum rate type compliance you are talking about, I also said in 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 205 pesos. 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 inflation. Once again, we are seeing that the inflation It's 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 brakes. But, of course, we're trying our best to reach the maximum target 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've expected 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 last month's passenger traffic, the second quarter of the year. Okay, second quarter. Okay, clear. Thanks. 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 on, just wanted to get your, any feedback that you can share I understand that you have begun your NDP 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 would be my first question, Tim.

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. They have signed some funds to this project, and this project should start construction once they open santa lucia airport so they're expecting to conclude this project and and start in operations by the end of 23 and of course that should be included in the document we are preparing for the government thank you and just a follow-up there um do you have any uh sense of 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 are not being able to see the project that they 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 really been seen to have this recovery from the pandemic?

Well, again, it was a shame to see that in the high season for us or 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, they are far beyond where they were pre-pandemic level. So I believe it's going to be up to... the next winter season when we see them going back. Thank you.

You're welcome.

And we'll now hear from Pablo Monsivais of Barclays.

Hi. Good morning. Thanks for taking my question. Traffic from the U.S. to Cancun has recovered significantly, but is this a normalized and sustainable level, or do you think there could be some adjustments once other leisure destinations in the Caribbean reopen more steadily?

Thank you. Hi. Good morning. Well, of course, you're 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 levels from the U.S. 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. very clear that when they are able to go somewhere else, probably some of them will go outside Mexico.

Perfect. Thank you. I have a second question by May. Colombia, the traffic in your Colombia operations posted roughly nine million passengers in 2021. Do you have an estimate of how much of that represents the Bogota to Medellin route?

I don't have the exact figure in the top of my head, but it is extremely important the traffic between Bogota and Medellin, 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 gonna be able to recuperate very fast, which is not the case in Colombia in this route. But this route may represent with the 50% of the traffic in that airport in Trinidad and Tobago.

Perfect. Thank you very much. You're welcome.

Diego Serrano of Credit Suisse.

Hi, Adolfo. Good morning, and thank you for the opportunity to ask a question. I have a quick question regarding Cancun and a second one regarding growth expectations. So for Cancun, we have recently heard about recent security and crime issues. So could you provide some color on what is the local government doing to address this matter? And also, I would like to hear your opinion. I mean, do you think this could be a risk for the region's tourist activity?

Thank you, Maureen. Yes, of course, it is a risk. There's no question about it. Of course, when we see the level of crime in the region compared with some other 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 God is doing, and they have responded really fast on the recent events, and they captured the people, what's involved in the matter. And, of course, we can see some effects of people that is preoccupied or concerned about this situation. 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 there. You're doing what we are.

Okay. Thank you.

Next, we'll hear from Juan Macedo of DBM.

Hi. Thanks for taking my question. I have two questions, actually. One is regarding Puerto Rico. This is pandemic-related by NAMI. The traffic used to be well above the pandemic levels. But now, current figures are slightly low. Do you believe this follows a normalized behavior now, or did you give us some color on that? Anyway.

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 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. only. And what we saw, it was plus 15, plus 14 above pre-pandemic levels. 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 vomiting, but apart from these, we expect the traffic there to adjust to normal levels.

Great. Thanks. My other question is regarding the commercial funds. Permanent revenue has increased 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 helped that front as well. So we are very, very happy to see those results.

Great. Thanks for the comments.

Gabriel Hemelfarb of Scotiabank.

Hi, thanks for the call. Well, two quick questions. First, do you think or do you see opening new routes toward 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 others that we have. many, many, many years ago, like Sao Paulo, direct flights 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 meeting are basically the case of Canada. So I believe one piece or the next winter season is that, we would 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 dividends, 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 to the Board of Directors that will be sent later on to the Shareholder's Assembly.

Okay, thank you. You're welcome.

As a reminder, if you would like to ask a question for SAR1, we'll pause for a moment. And again, it's star one to ask a question or make a comment. Okay, it appears there are no further questions at this time. I'll turn the call back over to you for any additional or closing comments.

Thank you, and thank you again for participating on our fourth webinar resource conference. On behalf of us, we wish you a good day and please stay safe. Goodbye.

And again, ladies and gentlemen, that concludes ASUD's fourth quarter 2021 results conference call. We would like to thank you again for your participation. You may now disconnect.