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

Good day, ladies and gentlemen, and welcome to ASRU's second quarter 2022 results conference call. My name is Anna, and I'll be your operator. 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 1. If you would want to withdraw your question at any time, please press star followed by 2. If you are 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 the call over to Mr. Aldofo Castro, Chief Executive Officer. Please go ahead, sir.

Thank you, Anna, and good morning, everyone. Before we get started covering the highlights from the quarter and then taking your questions, let me remind you that certain statements made during the call may constitute forward-looking statements which are based on current management expectations and beliefs and are subject to several risks and uncertainties that may cause actual results to differ materially, including factors that may be beyond our company's control, including the impact from COVID-19. As usual, 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 investor relations section. Now moving on to a review of passenger traffic and travel demand during the quarter. Total traffic was over 39% year-on-year and exceeded second quarter 19 levels by 19% to a record of 16.7 million passengers in the quarter. We continue to see steady growth throughout the quarter across the three geographies. Now looking at recovery trend by region against pre-pandemic levels of second quarter 19, once again, Colombia posted the strongest recovery up 43% with domestic traveling, increasing in the low 40s and international travel in the low 50s. Puerto Rico saw a 15% increase in traffic, mainly driven by domestic traffic that was up in the high teens, although relatively flat sequentially. In turn, international travel continued its gradual recovery, reaching 88% of the second quarter 2019 levels. Traffic in Mexico surpassed second quarter 19 levels by nearly 13%, with international travel up in the high teens despite higher airfares, driven by a strong leisure travel demand from all key regions, with the exception of Canada, which remains at 57% of the last 12 months, 2019. This has been more than upset by strong U.S. traffic, while last 12 months European tourism is just 8% below pre-pandemic levels. Looking ahead, staying with Mexico, we expect traffic from Canada to resume during the winter season, mainly November through April next year. While we expect to see a steady performance from the U.S. and Europe, we also anticipate domestic travel to continue its gradual recovery. As I have mentioned before, business travel is expected to continue to lack leisure. As a result, we believe that traffic at Veracruz, Minatitlan, and Villahermosa airports, which this quarter were on average 7% below second quarter 2019 levels, will continue to recover at a slower pace. In Puerto Rico, we are seeing domestic traffic trending to normalize after a very strong performance over the last several quarters. Lastly, traffic in Colombia remains surprisingly strong, and we expect this to continue throughout the year, driven by addition of routes and investments in tourism, which have driven a structural shift in demand. Traffic trends remain solid, underscored by pent-up demand. We believe that if any, this acceleration resulting from the increasingly inflationary global macro environment could be mitigated with the recovery expected to come from some markets like Canada. Now turning to the P&L, starting with our top line, note that all reference to revenues cost exclude construction revenues and that all comparisons are against pre-pandemic levels of second quarter 19. Revenues increased in the mid-40s reaching 5.7 billion pesos, a record high for any given quarter. This good performance was driven by growth in both aeronautical and non-aeronautical revenues. All geographies posted sustained revenue growth, with Mexico counting for 70% of the total revenues in the quarter, Puerto Rico 17%, and Colombia 12%. Commercial revenues were up 44%, driven mainly by passenger traffic growth, with increases of 39% in Mexico, 60% in Puerto Rico, and nearly 41% in Colombia. Commercial revenues per passenger amounted nearly 120 pesos above the 100 pesos reported in the second quarter 19, and is likely above the level achieved in the prior quarter. By geography, commercial revenues in the quarter were in the range of 143 to 149 pesos in Mexico and Puerto Rico. In Colombia, commercial revenues per passenger reached 40 pesos, fairly in line with second quarter 2019 levels. Note that 12 months level more than doubled those achieved over the same period of 2019. In terms of traffic mix, the share of domestic passenger remains at 2019 levels. What we'll continue to see growth in the US and the share of higher spending Europeans back to pre-pandemic levels, the number of Canadian travelers remain at 56% of 2019 levels. Now moving on to Of course, total operating expenses increased by high single digit, excluding 175 million pesos expense reimbursement in Puerto Rico, operating costs and expenses would have increased 18%. Nonetheless, this was significantly lower than the 45% growth in revenues. In Mexico, costs were up 27% but still below the 48% increase in revenues. This reflects higher technical assistance and concession fees, resulting from higher revenues and EBDA, together with higher cost of services, including the cost of sales from directly operated stores that continue to see a strong activity. Puerto Rico in turn benefited from 175 million pesos expense for investment, under the American Rescue Plan Act. Excluding these benefits, costs would have increased 10% while revenues were up 33%. Finally, costs in Colombia declined 26% while revenues were up 37%. In summary, the significant efficiency measures during the pandemic level have allowed us to maintain the costs that are on our control at 95% of the second quarter 19 levels and 79% on a per passenger basis, even with higher revenue levels than in the second quarter 19. These numbers includes total cost minus construction, depreciation and amortization, technical and concessions fees. We achieved record high profitability this quarter with consolidated adjusted EVDA up 47% to 4 billion pesos. Passenger traffic growth increased commercial revenues per passenger, higher tariffs, and operating leverage contributed to this performance. Mexico lead this growth with adjusted EVDA up 57% to 3 billion pesos. Puerto Rico in turn posted a 7% increase in EVDA to 580 million pesos, while profitability in Colombia continued to recover with EBDA up 62%, reaching just over 400 million pesos. Adjusted EBDA margin XE3-12 increased 100 basis points nearly to 71% this quarter. By geographical region, adjusted EBDA margin improved over 4% points in Mexico and Colombia. to nearly 76% and 58% respectively, while the margin in Puerto Rico was close to 59% this quarter compared with the 73% in the second quarter of 2019. All in all, we delivered a solid set of results with traffic and revenues at record high levels. These, together with operating leverage, have contributed to more than doubling net majority income to 2.6 billion pesos in the quarter, up from 1.2 billion in the second quarter 21 and 1.4 billion in the second quarter 19. Turning now to capital investments, we invested nearly 440 million pesos during the quarter, of which 79% was allocated to Mexico, 20% to Puerto Rico, and 1% to Colombia. In Mexico, we completed the expansion of the Tapachula Terminal as anticipated. We also remain on track with the expansion of the terminal building in Merida, with the third phase of the project to be completed by the year end. At Cancun Airport, we are making the steady headway to finalize by the year end the first phase of the Terminal 4 expansion, which consists of adding two boarding gates in the international front. In Puerto Rico, we continue to advance with the remodeling of Terminal D and major maintenance repaired to runways and taxis. Now a few comments on the balance sheet. We maintain a robust financial position with cash and cash equivalents of 7.3 billion pesos at the quarter end. This follows the dividend payment of 4.5 billion pesos paid last June as we return additional value to our shareholders. In turn, net debt last 12 months EBITDA was just 0.4 times at June 30, with interest coverage at 10.5 times. Only less than 1% of our death matures in the second half of the year, with the next major maturity taking place in 2025. Finally, account receivables were practically flat year-on-year. Before moving into the quick Q&A portion of the call, a quick recap. We welcome a record number of passengers in the second quarter, surpassing second quarter's 2019 levels. with robust growth across our markets that was driven by a strong pent-up demand. Although Canadian traffic remained low versus pre-pandemic levels, despite the higher fares in the US traffic, this was particularly strong, with European traffic has nearly recovered. We expect Canadian traffic to normalize this winter season which would help offset any potential slowdown in the traffic that could cause eventually a rise from the still inflationary environment across the world. Nonetheless, today we're seeing healthy traffic trends supported by a strong pent-up demand. Also gratifying was our record profitability this quarter. thanks to the effective efficiency measures and expenses control that drove our cost levels well below pre-pandemic levels, offering leverage kick in the strongly on the traffic growth. I will leave the operator please open the floor for question.

Thank you. Again to the audience, it is star then one for questions. And again, please make sure your mute function is turned off or the handset is picked up before pressing the corresponding digits. We ask that you please limit yourself to one question and one follow-up. If you have any additional questions, we ask that you rejoin the queue to allow everyone an opportunity to signal. We'll now take a question from Alejandro Zamacona with Credit Suisse.