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

Good day, ladies and gentlemen, and welcome to ASUR's second quarter 2024 results conference call. My name is Zico, and I'll be your operator. At this time, all participants are in listen-only mode. We will conduct a question and answer session toward the end of today's conference. If you would 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, Sitko. And good morning, everyone. Before I begin discussing our results, 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 several risks and uncertainties that could cause active results to differ materially, including factors that may be beyond our company's control. 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 investor relations section. Following my presentation, I will be available for Q&A. Before moving on to our performance for the quarter, let me provide an update on recent developments on the sustainability front. We have complied with virus ESG reporting requirements, including the Mexican Stock Exchange, the United Nations Global Compact, and the Mexican Register of Carbon Emissions. We are also implementing a data collection process that will allow us to calculate our scope-free carbon emissions. This process is approximately at 90% complete as of the end of the second quarter for the Mexican airports. We also renew our social project with Clonatura, which supports local fishing communities and promotes ecotourism in the Yucatan Peninsula. The next couple of projects will include 40 additional direct beneficiaries and approximately 100 indirect beneficiaries. Additionally, we have been in conversation to strengthen our alliance with the UNICEF and extend the activities of this agency to all airports across our group. Lastly, we are also in the final stages of establishing a strategic alliance with EXPAC a non-governmental organization that aims to prevent human trafficking. We look forward to providing more updates as we continue to advance in our sustainability journey. Now, starting with a review of ASUS operational and financial performance for the quarter. As usual, all compliance with this cost will be year on year unless specified otherwise. Passenger traffic was up 3% year on year, to nearly 18 million passengers, a record high for a second quarter. Traffic growth in Puerto Rico and Colombia more than offset a softer performance in Mexico. By region, Colombia posted the strongest performance with traffic of 21 year-on-year, driven by increases in domestic and international in the high teens and in the high 20s. Traffic in Colombia continued to benefit from easier comps following the suspension of two operators in February last year, which accounted for the 20% of the traffic. We expect this positive recovery trend to continue during the remaining of the year as Avianca and LATAM Airlines regain some lost roots. Puerto Rico delivered a 9% increase in traffic driven by crowds in high single digits and in domestic traffic and double-digit in international traffic. As anticipated, we are seeing a normalization in the traffic of Puerto Rico, as last year benefited from the increased operations by Frontier Airlines. Lastly, traffic in Mexico declined close to 5%, reflecting single-digit contractions in both international and domestic traffic. In terms of international traffic, we saw declines from all the regions except Canada in the quarter. In turn, domestic traffic remains impacted by the initial effects of Pratt & Whitney engine problem experienced in the past few quarters, as well as the capacity reduction of air traffic movements at Mexico City Airport since early this year. As a reminder, Mexico City Airport accounted for 45% of ASUS domestic traffic in 2023. And we expect the situation to continue negatively impacting domestic traffic this year, which could cause a small decline in the year. Now, moving on to P&L. As a reminder, all references to revenue and costs are excluding construction. Total revenues increased nearly 18% to $7 billion in the quarter. Colombia stood out with the top-line growth in the 30s, mainly benefiting from the pickup in international traffic. Mexico delivered revenue growth in the high teens and Puerto Rico in the middle single digits. Mexico accounted for 74% of the total revenues, posted an 18% top-line increase, even as passenger traffic declined 5%. Revenue was driven by high 20s growth in aeronautical services, reflecting the adjustment established in the recent master development plan and the impact of the weaker desert, taking into account that international tariffs are based in U.S. dollars. In turn, non-aeronautical revenues increased no single digits. Puerto Rico accounted for 15% of the total revenues and delivered 5% growth in the top line, reflecting high single-digit increase in non-aeronautical while aeronautical revenues increased by no single digits. In China and Colombia, which represented 11% of revenues, posted a 35% increase in top line, reflecting a good performance in both aeronautical and non-aeronautical revenues, which benefited from international traffic growth. As we continue to execute our strategy of expanding our commercial offering, we opened 45 new commercial spaces over the past 12 months. Of these, 17 were open in Mexico, 4 in Puerto Rico, and 33 in Colombia. As a result, commercial revenues were up 7%, more than double the growth in passenger traffic. mainly reflecting increases of 4% in Mexico, 9% in Puerto Rico, and an impressive 40% rise in Colombia. On a capacity basis, commercial revenue increased 5% year-to-year to nearly 128 pesos in the quarter. This performance was mainly driven by growth of 16% in Colombia, 9% was in Mexico, and Puerto Rico was relatively flat. Mexico reported record high commercial readiness per passenger at 154.5 pesos, beyond the typical levels achieved during the pandemic, benefiting from a strong U.S. dollar. Moving down to the P&L, cost and expenses increased nearly 30% year-on-year. On a comparable basis, excluding the 252 million recovery expenses in Puerto Rico under the Coronavirus Response and Relief Supplemental Appropriations Act in the second quarter of last year, total costs were up 16%, slightly below revenue growth. By geography, costs in Mexico were up 18%. RESULTING FROM INCREASES OF 80% IN THE CONCESSION FEES ESTABLISHED BY THE MEXICAN GOVERNMENT AND 20% IN MINIMUM WAGES, MAINLY IN CLEANING AND SECURITY, BOTH EFFECTIVE JANUARY THE 1ST. THIS WAS PARTIALLY UPSET BY A 50% REDUCTION IN THE TECHNICAL ASSISTANCE FEE. ON A COMPARABLE BASIS, PUERTO RICO REPORTED A 10% INCREASE IN COST, WHICH WAS BELOW REVENUE GROWTH, WHILE COLOMBIA were up 19% above revenue goals. Coastal-dated EVDA was up 18% year-on-year to 5 billion pesos in the quarter, while adjusted EVDA margin, which excludes construction, was relatively unchanged at 69%. Note that on a comparable basis, excluding the recovery expenses in Puerto Rico in the second quarter of last year, EVDA would have increased 26%, and the adjusted EVDA margin were expanded by 435 basis points year-on-year. This good performance was driven by a solid profitability across our three regions of operation. Puerto Rico presented the strongest performance with comparable EVDA up over 90%, Colombia falling by 49% increase, while Mexico posted an 18% increase in VBA. Turning to the balance sheets, we maintain a healthy financial position with cash and cash equivalents of nearly 15 billion pesos. After taking into account the dividend payments totaling of 6.3 billion pesos during the quarter, equivalent to a cash and cash of dividend of 10.926 pesos per share and an extraordinary increase cash dividend of 10 pesos per share. Lastly, in terms of CAPEX, we made investments of nearly 650 million pesos during the quarter and close to 820 million pesos in the first half of the year. We're currently in the process of project planning and covering out the green process to select contractors. Key projects include at Cancun Airport, the expansion of Terminal 4, and reconstruction and expansion of Terminal 1. And finally, the expansion of the terminal in Oaxaca Airport. Note that all construction works will take place outside the operating area and do not affect the operation of these airports. Wrapping up, we deliver a solid second quarter with net majority income of 50% year-on-year to 3.7 billion pesos. This good performance also benefited from the foreign exchange gain of nearly 950 million pesos this quarter, resulting from the 10% quarter and depreciation of the Mexican peso against the U.S. dollar, compared with a 350 million FX loss reported in the same quarter last year. This quarter was not without its challenge, notably the ongoing issues of prepping Whitney engines and reduction of capacity at Mexico City Airport, but we navigated through these and delivered some results in the quarter. This ends my prepared remarks. Zico, please open the floor for questions.

Thank you. Again, to the audience, it is star then one for questions. And again, please make sure you mute your function is turned off or the handset is picked up before pressing the corresponding digits. Our first question is from Rodolfo Ramos from Bradesco BBI. Please go ahead.

Good morning, Adolfo. Thanks for taking my question. Just a couple from my side. The first one is on traffic. I wanted to get your sense of where we stand in the recalls. I'm proud of Whitney. You're one of the least exposed. I just wanted to get your thoughts on where we stand there. And on traffic as well, if you would expect, given the rhetoric that we've seen so far from the U.S. election campaign, whether we can expect a similar impact from what we saw last time around in terms of the U.S. international bound traffic. So that's my first one on traffic. And secondly, if you can just give us a sense of pricing of where you currently stand. You had mentioned in the previous call that you increased prices in April. So I just wanted to see where do you stand versus your maximum tariffs and what to expect there going forward. Thank you.

Hello, good morning. Well, in the case of Brett and Whitney, of course, I do not have the exact and precise data, but what I understand, the most affected is Bolares. They sent 19 airplanes during the fourth quarter and 26 during the first quarter. And you know the time of the recall is around 300 days, so... We will see those planes coming back to production, I would say, at the end of September this year. So from now until this September, the things are not going to improve. And after that, I believe they will stabilize up to first quarter next year, and then they should improve. In the case of what you have mentioned, because of the elections in the U.S., yes, I do expect, and you can see that very clear, that Mexico, the Mexican situation will be bad in all the candidates. And they will be blaming all the problems we have here, and that may affect traffic during the fourth quarter. In terms of pricing, we have adjusted our prices, so we are working towards to have a maximum tax compliance of close to 99% for the year.

Thank you. Thank you. The next question is from Gilorme Mendez. From JP Morgan, please go ahead.

Hi, Adolfo. Good morning. Thanks for taking my question. I was wondering in terms of the commercial revenues, ASUR has been surprising to the upside on a per-passenger basis. And you mentioned about opening a bunch of new commercial spaces in the three regions. How should we think about this segment going forward, meaning in addition to the investments that you're going to make in Cancun Airport, should we expect additional openings or ramp-ups on the commercial front? And my second question is on traffic, following up on the previous one, but think about Puerto Rico and Colombia. You mentioned on the past conference call about a normalization on the trend of both Colombia and Puerto Rico, accelerating and decelerating. I just wanted to double-check if that's still your base case expectation. Thank you.

Thank you. Well, in the case of commercial revenues, what you saw for the quarter, it was in parking and also car rental. Those were the two winners for the quarter. I have to say that, of course, in the case of Mexico, which has reached a record high of 154 pesos per passenger, we were positively affected by the Mexican peso depreciation. In the case of the traffic to Puerto Rico and Colombia, yes, I do believe that Puerto Rico should normalize during the remaining of the year. And in the case of Colombia, what I do expect is the recovery process towards the end of the year of what we have lost last year with the ground of these two islands that represented 20% of the traffic during 2022.

Okay, thank you so much. Have a good day.

You're welcome. Thank you. Thank you. The next question is from Ian Spies with Morgan Stanley Investment. Please go ahead.

Yes, hello, Adolfo. Thank you for taking the time for the questions. I just want to ask on the realized tariff, I think you reported 326 pesos. And doing some math here, we get that it represents around 95% of your maximum tariff if we rate it by traffic of the individual airports. Does it sound about right, or are we missing anything? And a follow-up to that, are you worried about the depreciation in the Mexican peso, or I think, better said, further depreciation in the Mexican peso, which could maybe result in a heightened risk of you exceeding the maximum tariff and potentially having to give some discounts towards the end of the year?

Well, in the case of the maximum tariff, there's a key paragraph in the Mexican section that says what was the weighted average maximum rate obtained, well, implicit rate obtained during the quarter. What I was saying last year, yes, we reached 95%, and what we are expecting is it's close to 99%. Of course, that will depend on what you just mentioned in terms of the Mexican peso. Mexican peso devaluation will help us to get these objectives as The tariffs for the international flights are based in U.S. dollars. So remember that maximum rate is in pesos. So that will help us to reach the objective. Okay, perfect.

And if I may, just one follow-up. In terms of traffic, I mean, comparing it to what you forecasted within your tariff review... I mean, we're not even close to getting to the 3% clock back, aren't we? Or any color on that.

Well, in terms of traffic, what I would say is what we were expecting from Pratt & Whitney and the decrease in international traffic has been higher in comparison with what we were expecting at the end of last year.

They have not been higher. They have not been dramatic. Okay. Higher but not close to 3% clawback.

Higher in terms of more negative. So today the current traffic is more negative as we were expecting. Okay. That's clear. Thank you.

Thank you. The next question is from Fernanda Reykja with BTG, please go ahead. Fernanda Reykja, may we ask you to unmute your line and please go ahead with your question. As there is no response, may I request that we move to the next participant? The next question is from Jay Singh with Citibank. Please go ahead.

Hey, thanks for taking my question. I guess the first thing I want to ask is, you mentioned earlier that Columbia and Puerto Rico's traffic strength you see moderating a little bit. I also want to ask, Chepul has been raising capacity into Puerto Rico's market. Considering that, do you still see some degree of moderation, or do you just see it sticking around a little bit higher?

Hello, Jay. I cannot hear you well. Could you speak louder?

Sure. So you mentioned Colombia's and Puerto Rico's traffic strength potentially moderating in the coming quarters, but JetBlue has been raising their capacity into Puerto Rico's market. So do you see that sticking around, or do you still see it normalizing?

The most important effect in Puerto Rico last year was the entrance of Frontier. And they are expanding and creating a base in Puerto Rico. Of course, when you reach the comparables year over year, then it will not be easier to reach the 18% growth we got last year. So that's why I'm saying that it should normalize once we reach the 12 months rollover. when the end comes up from here.

All right, thanks. And for my second question, I want to ask, how much CapEx can we expect on a consolidated basis? And what would the split look like between the MDP and the non-MDP?

Again, I cannot hear you.

Okay. How much CapEx can we expect on a consolidated basis? And what would the split look like between the MDP and the non-MDP?

The entity for these years is around $3.8 billion. That, of course, will have to be adjusted with the construction price index. And that's what we have to comply with. I have to say that at the beginning of the five-year period, once the projects have been approved at the end of last year, We have to wait until we develop the projects, make the bidding process, and find the contractors, and then they can start constructing. So that's why you are seeing a very low, between brackets, number for the first half of the year, the 800 and something million, comparable with the 3.8 billion that we have to spend during the year.

Thank you. You're welcome. Thank you. The next question is from the line of Pablo Montsuay with Barclays. Please go ahead.

Hi, Adolfo. Good morning. Thanks for taking my question. May I just ask if you can provide some color on your perspective for U.S. traffic to Cancun? We have seen some weakness and U.S. carriers are saying that they are taking out capacity. But what are your thoughts on this, and especially how deep or how prolonged can this be? That's number one. And number two, I would like to have more detail on your commercial revenues plans for Colombia and Puerto Rico going forward.

Thank you. Well, in the case of the traffic of Cancun, as you have seen in the first half of the year, It has not been nice, basically affected by the domestic situation of Tupin-Whitney and the reduction of the air traffic limits at Mexico City Airport from 52 to 43. I don't think that these two things will change or that those two things will continue affecting the traffic during the second half of the year. And also the new negative effect is the reduction in the traffic from the U.S., as I had mentioned in my initial remarks. As it was mentioned during the call, during 2018, at the end of 2018, because of the elections of the U.S., where there was someone saying every single day that Mexico was a bad place to be, probably we will be affected from this traffic from the U.S. So not very high hopes on the traffic for Cancun over here.

Okay, thank you. You're welcome.

Thank you. The next question is from Andresa Verotto with UBS. Please go ahead.

Hi, good morning. Actually, it's Roberto Valero here from the UBS team. Adolfo, I would like to know about the new airline in Mexico, Mexicana Aviación. What we should expect from them if you have talked to them for some new routes to your airport? And also, what should we expect from the industry of airlines in Mexico If you see any additional capacity, we know that both Viva and Volari, they are with the initial issue. But for next year, in 2026, what should we expect from the domestic industry? Thank you very much.

Well, in the case of Mexicana de Aviación, what I have heard or what I have read in the news, and the numbers that have been provided by the Mexican government, is they have transported around 100,000 passengers during the first five months of the year. So if we compare that with the 8 million from Volaris, 9 million from Viva, and probably another 8 from Air Mexico doesn't mean too much. As we have seen, Viva, Volaris, and Air Mexico have been adding some additional planes to their fleets. This is also in the case of Volaris and Viva mitigating the, partially mitigating the effect of Kraken Whitney. And remember that this Brett and Whitney situation is a temporary situation, so we should see a strong recovery from these three next year.

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

Thank you. The next question comes from Isabella Salazar with GBM. Please go ahead.

Thank you for taking my question. I was wondering if you could give us any updates on Punta Cana.

We don't have any updates. The legal process has been established and that will take time. As I have said during my previous conference call, the project is put on hold for one year at least.

Thank you. Thank you. The next question comes from Andres Aguirre with GBM. Please go ahead.

Hi, Abinpal. Thanks for the question. I was wondering if you could provide an overview of expected traffic weeks. I think you're mentioning domestic passengers for the remainder of the year. Thank you.

Well, as I have mentioned, when traffic, domestic traffic for Romania over here is going to be affected by these two things, probably in Mexico City. So we should expect these to be negative in the whole system, not just in the case of Osush.

Thank you. Thank you. The next question comes from Anton Morton-Cotter with GBM. Please go ahead.

Hi, Adolfo. Congratulations on the results and thank you for taking my question. I have two quick questions. One is related on your cash balance. I was wondering if you could tell us how much of that is tolerized. And the second one is, considering the cash flow generation that you have right now and with the CapEx commitments, even though they are really high for the next five years, Seems like you will end up with a significant cash balance of around 20 billion pesos. I was just wondering, what are your thoughts on the possible use of that cash?

Hello, Anton. Well, basically, you can see the numbers. Puerto Rico is U.S., Colombia is pesos, and in the case of Mexico... Some of these is U.S. dollars. Roughly speaking, in Mexico, we should be around 400 and something million dollars in dollars and the rest in pesos. In terms of the cash flow generation, yes, of course, we have a lot of capex in front, very high numbers in the coming years. But as always, we will review these at the end of every year. in terms of the tax situation, the cash balance, the CAPEX commitments, and we will propose the dividends to the board of directors and the shareholders' assembly. As I had mentioned, during May and June, we have paid $6.3 billion in dividends, and it was an ordinary dividend of $10.926, an extraordinary dividend of $10 as it was done last year.

Thank you.

Thank you. Ladies and gentlemen, that concludes the question and answer portion for today's conference call. I would like to turn it back over to Mr. Crasto for closing remarks.

Thank you, Zico, and thank you all of you again for joining us today for the second quarter 2024 conference call. We wish you a good day and goodbye. Now you may disconnect.

Thank you. Ladies and gentlemen, that concludes ASUR's second quarter 2024 results conference call. We would like to thank you again for your participation. You may now disconnect.