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

Good day, ladies and gentlemen, and welcome to a SOAR's first quarter 2023 results conference call. My name is Paul, 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 toward the end of today's conference. If you'd like to ask a question, please press star 1. If you want to withdraw your question at any time, please press star 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 this call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir.

Thank you, Paul, and good morning, everyone. Before I begin discussing ourselves, let me remind you that certain statements made here in this call may constitute forward-looking statements, which are based on good management expectations and beliefs. and are subject to a federal risk and uncertainty that would cause actual results to differ materially, including factors that may be beyond our company's control. 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 in investor relations sector. Following my presentation, I will be available for Q&A. Before getting into the discussion of the quarterly financial results, I want to note that our latest sustainability report is available on our website, and we invite you to read all of it. Last year, during the first quarter conference call, we laid out the seven key strategic objectives for the company to implement in their short-term and medium-term. Two notable advances made last year towards achieving these goals include The formation of the Sustainability Committee. This committee has three members and will support the board directors in making decisions focused on environmental, social, and governance matters, and incorporate them into the company's long-term strategy. Furthermore, the company will support the organization in integrating sustainability and corporate social responsibility at the highest level of the corporate governance in the company. The committee held its first meeting earlier this year. We also made progress with respect to reducing greenhouse gas emissions in 2022. We began installing solar panels at the airports of Cancun, Merida, and Oaxaca. We'll generate 900,000 kilowatt hours annually in each airport. We are already seeing benefits with the reduction in greenhouse emissions. One of our objectives for the next year is to expand this project to other airports in the group. As we continue to make progress to get closer to achieving our goals, we will provide you updates at the appropriate time. Now, moving to a review of our original and financial results together with some color and travel demand in the quarter. Note that all comparisons are year-over-year unless otherwise noted. We are pleased to report record high passenger traffic revenues and EBDA in the first quarter of the year But we are more cautious for the remaining of the year, given the easy comes from Omicron during the first two months of 2022 and the negative effects of the personal suspension of two Colombian airlines during the quarter. We deliver sustained growth in the number of passengers traveling to our airports, up 19% and reaching a record of nearly 18 million. Mexico boasts the fastest growth traffic up 23%, reflecting increases across all of our airports. Domestic travel was up in the high 20s, with traffic up at pre-pandemic levels, while we expect that to fully recover this year. In turn, international traffic was up in the high teens, mainly driven by steady demand from the United States and Europe, and an uptick in Canada, which recovered pre-pandemic levels during the first quarter. These all regions that we operate within have recovered 12 months pre-pandemic levels. Puerto Rico followed with traffic up 22% with domestic traffic up in the high teens and internationally up by nearly 50%. Lastly, total passenger traffic in Colombia increased 9% with domestic traffic slowing to the middle, single digits, and international passengers to the high 30s. As anticipated, this slower growth reflects in the freeze in VAT from 5% to 19%, which is impacting traffic trends and the suspension of operations of Viva Colombia at the end of February and new trial during March. These airlines represented 17.4% and 1.9% of 2022 passenger traffic in Colombia, respectively. On a consolidated basis, the share of domestic traffic over total traffic is still at 59.3% of total traffic compared with 60.1% in the first quarter 2022. Now moving to the PNL. As a reminder, all reference to revenues and costs exclude construction revenues. Before, beginning with our key financial figures, revenues increased 22% reaching all-time high of 6.3 billion pesos. This robust performance is attributed to the solid growth in both aeronautical and non-aeronautical revenues across our three geographic regions. Mexico represented 75% of total revenues, while Puerto Rico accounted for 15%, and Colombia contributed 10%. Commercial revenues continue to show an upward trend, increasing by 20% overall, with Mexico up 23%, Puerto Rico 18%, and Colombia 13%. On a per-passenger basis, commercial revenues increased to 123% from nearly 121 pesos in the year before. The regional commercial revenues were in the range of 145 to 147 in Mexico and Puerto Rico. Of note, these figures include the effect of the struck Mexican peso, which appreciated 36.23% versus the U.S. dollar and the Colombian peso since the end of the first quarter last year through the first quarter of the year. Commercial revenues per passenger in Colombia were up in the low single digits in Mexican pesos, impacted by the currency depreciation that increased 37.8% in local currency, reflecting the opening of 29 commercial spaces over the past 12 months. Moving to cost, total comparable operating expenses were up 12% below the 22% revenue growth in the quarter. Note that comparable costs exclude the threat of the 196 million pesos expense recovery in the first quarter of 2022 resulting from the application of the CRASA Act in Puerto Rico. Expenses in Mexico increased in the low 20s, below the 26% revenue close. Higher costs were primarily due to personnel, energy, and maintenance, along with increased technical assistance and concession fees in line with the higher EBDAs. We have worked hard to maintain our cost control policy, but the 20% increase in the minimum wage had a negative impact on clean and security contracts. In Puerto Rico, comparable costs were relatively stable as a reduction in the maintenance reserve more than offset higher cost of services. Cost in Colombia was generally flat compared to a high single visit increase in revenues. Solid passenger traffic growth together with higher commercial revenues and increased operating leverage resulted in another quarter of pre-call carry EBDA reaching 4.5 billion pesos of 23% and adjusted EBDA margin of nearly 72% of 90 basis points from the year-ago quarter. Again, this quarter, we delivered high profitability in our three regions of operation. Mexico posted a high increase in EBITDA of over 28% to 3.6 billion pesos. In Puerto Rico, EBITDA was up 4% to 520 million pesos, while Colombia EBITDA rose 12% to over 415 million pesos. By geography, adjusted India margin includes 80 basis points in Mexico to nearly 77%, and by 150 basis points in Colombia to just over 63%. In turn, Puerto Rico posted a 260 basis points decline in adjusted India margin to nearly 55%. To recap, we delivered yet another strong quarter, characterized by a record break traffic, and revenues. The combined effect of these achievements and our operating leverage led to an increase of 15% in net majority income, reaching $2.5 billion for the quarter. In terms of the balance sheet, we maintain a robust cash position of $15 billion and a well-balanced debt profile. Account receivables were up 44%, mainly reflecting the high passenger traffic across our airport network, as well as a surge in Puerto Rico from the recognition of other revenues disclosed in the fourth quarter of 2022. We anticipate collecting these receivables within the first half of 2023. To a lesser extent, Viva Colombia and Ultra Air outstanding receivables to assume were a combined sum of 22 million pesos. Capital investments during the quarter were 143 million pesos, of which nearly 50% was allocated to Mexico, 47 to Puerto Rico, and 6 million pesos were invested in Colombia. Before we move to the Q&A portion of the call, some brief closing remarks. We are pleased to have started the year with a strong note. Nevertheless, as we think about the remaining of 2023, the year over the year comes will not be easy as we experienced in the first quarter. As I mentioned earlier, two of the Colombian airlines have recently suspended operations. Meanwhile, we will continue to look for ways to further improve our cost of structure and drive margin improvements. Our balance sheet is healthy and we will continue to invest to support future growth. Separately, on the news front, at the end of the quarter, Mexico sent to the Mexican Congress a bill to reform 23 laws. The bill was to provide, among other things, additional funds for the Mexican government to modify or to revoke license, authorizations, and permits. And it's not clear whether the Congress will pass this bill, and if it passes, the impact it may have on the Mexican economy and the country's operation. We believe this bill will be discussed by the Mexican Crown Congress during the third quarter of this year. In conclusion, with a keen focus on providing value to our shareholders, our Board of Directors has proposed an ordinary net cash dividend of 9.93 pesos per share, payable in May, and an extraordinary net cash dividend of 10 pesos per share, payable in November, for each of the ordinary B and BB shares. Equivalent to a combined total of nearly 6 billion pesos in dividend payments. These, among other items, will be boarded by our shareholders at our annual general meeting held this Wednesday. This is my presentation. Please open the floor for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset. One moment, please, while we poll for questions. Thank you. Our first question is from Guillerme Mendez with JP Morgan. Please proceed with your question.