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

Good day, ladies and gentlemen, and welcome to ASUR's first quarter 2025 results conference call. My name is Daryl, 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 would like to ask a question, please press star, then 1. If you want to withdraw your question at any time, please press star, then 2. If you're 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, Larry, and good morning, everyone. Before I begin discussing our results, let me remind you that certain statements made during the call today may constitute forward-looking statements which are based on current management expectations and beliefs and are subject to several risk and uncertainties that would cause active results to differ materially, including factors that may be beyond our company's control. Additional details about our first quarter 2025 result can be found in our press release, which was issued yesterday after market close and is available on our website in the investor relations section. Following my presentation, I will be available for Q&A. As usual, All comparisons discussed on this call will be year-on-year, and figures are expressing Mexican pesos unless specified otherwise. During the quarter, we welcomed a total of 18.6 million passengers across our three countries of operations, largely flat compared to the same period last year. Continued growth in Puerto Rico and Colombia offset the softer performance in Mexico. Looking more closely at the traffic results by country, Puerto Rico was the best performing market, maintaining a strong positive trend of nearly 11%, with international traffic expanding in the high teens and domestic traffic in the low double digits. While traffic remained resilient, we continued to expect normalization after benefiting from Frontier Airlines' expansion of operations last year. Colombia was the next best performing market, As anticipated, traffic in Colombia began not to normalize to more sustainable levels of 2023, rising just over 6% driven growth in international traffic in the mid-teens and domestic traffic in the low single digits. In Mexico, traffic comparisons were impacted by Easter shift, which occurred in March in 2024. In turn, traffic climbed nearly 5% during the quarter, reflecting a high while the trend in domestic markets improved, declined just below 1%. Cancun, our largest airport, continued to tell the effects of Tulum Airport. Overall, traffic in Mexico continued to experience year-on-year declines from almost all regions during the quarter. Specifically, traffic from Europe decreased 0.8%, from the U.S. 10.5%, and from South America by 2.8%. while traffic from Canada remained unchanged. Domestic traffic remained affected by continued capacity limitation at Mexico City Airport since early 2024, with respect to be lifted in the second half of the year, together with the ongoing traffic with the engine restriction. Additionally, Cancun's airport is experiencing a modest impact from the initial ramp up of operations of the new to the map for context, 2.9 million passengers during this entire year, compared to the 1.2 million last year and over 30 million travelers that passed through Cancun in 2024, or 8 million in this quarter alone. Looking ahead, we anticipate traffic in Mexico will begin to stabilize next year, as the impact of grappling with the engine issue fades and Plum Airport completes its initial ramp-up phase. As I have mentioned in the past, beyond that, we expect passenger volumes at both Cancun and Tulum to expand in line with the growth dynamics specific to each region. Currently, the global macro situation is fluid and unpredictable. However, fabric disruptions, particularly related to the U.S. and the impact of travel to Mexico, have proven to be short-lived. Now, as we move to review our financial performance, recall that all reference to revenue and cost figures exclude construction. Total revenues were up 14% year-on-year to 8.2 billion pesos, supported by solid increases across all operations. Mexico represented 73% of total revenues, posted a high single-toe, a single-digit top-line increase Aeronautical revenues were up 9%, with aeronautical revenues rising 10%, reflecting a strong commercial revenue per passenger. Puerto Rico contributed 15% of the total revenues and continued to deliver steady growth in the high 20s, driven by both aeronautical and non-aeronautical revenues, further supported by exchange rate benefits from weaker vessels. Colombia accounted for 12% of total revenues, Road was driven by both aeronautical and non-aeronautical revenues, which benefited from a continued recovery in domestic and international traffic, and the opening of 26 new commercial spaces over the past 12 months also benefited from the weaker test. Advancing our strategy to expand commercial offerings, we opened 40 new commercial spaces over the last 12 months. This included 11 in Mexico, 3 in Puerto Rico, and 26 in Colombia. As a result, total commercial revenues grew in the high single digits, with Puerto Rico posting an early 23% increase, and Colombia delivering a strong year-over-year, a growth of 38%. In Mexico, commercial revenues saw a low single-digit increase, marking a positive shift from the previous trend. Commercial revenues per passenger reached nearly 147 pesos in the quarter, reflecting a strong year-on-year in the high teens, robust growth across all three regions supporting this performance. In Puerto Rico and Colombia, commercial revenue per passengers, commercial revenues increased in the high 20s, driven by a federal exchange rate in Mexico and in Puerto Rico and the contribution of new commercial openings in Colombia. Mexico also delivered solid growth in the low single digits, reaching 169 pesos per passenger, supported in part by currency effects. In terms of cost, total expenses were up 18% year-on-year. In Mexico, cost increased 10%, primarily reflecting the crisis in concession fees made by the Mexican government. Higher administrative fees effective charity first of this year. In both, Puerto Rico and Colombia cost were up 30% with increasing Puerto Rico and Colombia reflecting the depreciation of Mexican peso against the U.S. dollar and the Colombian peso. As a result, consolidated EBITDA rose 12% year-on-year to 5.7 billion pesos in the quarter, while adjusted EBITDA margin, which excludes construction, stood at 1.4% a year ago. The decrease was attributable to the slight margin decrease in each country due to higher operating costs. Notably, Puerto Rico and Colombia posted double-digit EVDA growth of 24% and 30% respectively, while Mexico saw an 8% increase in EVDA despite the lower passenger traffic. Our balance sheet remains strong with nearly cash and cash equivalents. Of 35% year-on-year, a net debt of EBITDA ratio of negative 0.5 times. During the quarter, we invested 645 million pesos in capital expenditures. Then we deployed toward modernization and expansion effort in our Mexican efforts. Main projects during the quarter included the reconstruction and expansion of Terminal 1 at Cancun Airport, as well as the expansion of Terminal in Oaxaca Airport. In Puerto Rico, runway pavements and rehabilitation was completed, and we're currently working on taxiway hotel. Recall that all construction activities are taking place outside the operational areas to ensure no disruption to airport operations. As mentioned during our prior earning call, we continue to anticipate rather increasing capex as we move forward with several strategic infrastructure projects this year. Among the most significant is the reconstruction and expansion of Terminal 1 at Cancun Airport, which is slated for completion in 2026. Terminal 4 at Cancun remains on track for completion by 2028. Additionally, once Terminal 1 is operational, we expect to implement key upgrades at Terminal 2 to ease existing capacity pressures, particularly in non-aeronautical areas. This is also designed to streamline traffic flows, particularly from South America, unlocking additional commercial revenue potential. our ongoing commitment to delivering value to shareholders. In light of our solid financial performance, subject to approval at two days and our general meeting, the Board of Directors proposed a total cash dividend from accumulated return earnings and shareback act reserve to be paid in three time tranches. The first tranche includes an initial ordinary net cash dividend of 50 pesos per share, payable in May 2025, followed by two extraordinary net cash dividends of 15 each, available in September and November 2025. Before opening to a Q&A, note that last week we published our 2024 Sustainability Report, the 20th Report, and the Circular Unique, and encourage you to read them, all of which can be found on our website. Let me take a brief moment to provide an update on our sustainability efforts. I am pleased to share that 2024 marked a year of meaningful progress. We took several key steps toward achieving our ESG goals, building on our long-term vision. We expanded our flagship social investment program training in a sustainable tourism, 59% more than the previous year. On the climate front, following our 2023 commitment to this science-based targets initiative, we completed our first scope three emissions inventory in Mexico. This milestone helped us better understand the broader impact of our value change as we move forward to net zero emissions. Biodiversity preservation remains a top priority. In 2024, we began building long-term alliances with global organizations to protect emblematic species and restore natural ecosystems in the southeast of Mexico. Lastly, from a governance perspective, we are proposing the appointment of a new female board at our upcoming to 36%, while 57% of the board will be independent. In closing, our first quarter 2025 performance reflects the strength of our diversified portfolio, our resilient operational performance, disciplined execution, and our continuous focus on efficiency. Despite navigating industry challenges such as patent with the engine, the capacity we 3.5 billion. All else equal, we expect the solid remainder of 2025 as we continue investing in infrastructure, elevating the passenger experience and delivering sustainable growth. At the same time, we are cognizant of the potential macrochallenge on a global basis that we are monitoring closely. That concludes my prepared remarks. Please open the floor for questions.

Thank you. Again, to the audience, it is star then 1 for questions. And again, please make sure your mute function is turned off or the handset is picked up before pressing the corresponding digits. One moment, please, while we poll for your questions. Our first questions come from the line of Rodolfo Ramos with Verdesco BBI. Please proceed with your questions.

Good morning. Thanks for taking my question. I have a couple, if I may. The first one is regarding the driver of your strong commercial revenue. I mean, you made some comments on this front, but if you can elaborate a little bit more on the performance that we saw during the quarter, perhaps your outlook. I mean, the Mexican peso depreciation certainly had a role, but the growth per pax was also stronger than in the first quarter of last year when the peso appreciated. So any additional color there would be helpful. And secondly, when you think about your capex, your committed investments, especially in Cancun, this year is expected to ramp up. And you mentioned that you don't expect to deliver these until 2026, these projects. I don't know if there's anything, when you look at what you've already invested so far, that could impact your operating expenses, your margins, as you open more areas or more expansions, just want to get a sense of when we could start seeing, you know, your cost structure swelling up as a result of these investments, if at all. Thank you.

Thank you for your questions. Well, in terms of commercial revenue, of course, the most important effect in comparison of last year is related to Puerto Rico and Colombia. And those are also affected by the positive dollar versus the peso. If we go back to the end of the first quarter last year, the exchange rate with the dollar of the Mexican peso was 16.5. By the end of this year, we are talking about 20.4. So the test of depreciation played an important role on the case of commercial revenues per passenger in Puerto Rico and also in the case of Colombia. In the case of Mexico, I would say, yes, we had a very good quarter. That has to do with the passenger mix and some of the impact for duty-free related to peso dollar again. In terms of CAPEX, yes, we are working today, as I mentioned, in the remodeling and expansion of Terminal 1 that should be completed by the third quarter next year. And then you are right in the sense to say that the cost will change once this Of course, we will have new areas that we will have to maintain and clean and secure all of these new spaces. In the case of Terminal 4, as I mentioned, we're expecting to conclude the project by the end of 2028. I don't know if this answers your questions.

Yes. Thank you, Leopold. You're welcome.

Thank you. Our next questions come from the line of Jens Wyss with Morgan Stanley. Please proceed with your questions.

Yes, hello, Adolfo. I have a question regarding your capital allocation and the dividend you will be paying. And in light of that, you probably saw that CCR is selling their airport assets in Brazil. Do you have interest in those, or can we read from your dividend that basically that's not part of your upcoming capital allocation? Thank you.

Thank you, James. Good morning. Well, basically, if you see what we proposed to the board and the board to the shareholder's assembly, it's almost what we have in cash. The cash and cash equivalents for the quarter ended in 2022. billion and the dividends for the whole year will be 24. Yes, we are seeing the project and the offering of CCI. We are analyzing this carefully. In the case of this will be funded by that.

Okay, perfect. Thank you. And if I may, just one more question regarding any weakness that you're potentially seeing from like airlines removing frequencies maybe due to the ongoing trade tensions and macro uncertainty, specifically the weaker demand that some of the U.S. airlines are seeing. Do you see any weakness coming from that, or is it still too early to tell at this moment?

Thank you. I think it's too early to tell. I don't see any effect of this at the moment. Of course, when you see the traffic in Mexico and when you see the traffic in Cancun particularly, you will see the effect of Tulum Airport. Tulum Airport, as I was saying in my initial remarks, we're expecting these to reach 2.9 million passengers this year. Roughly speaking, round numbers, if you subtract 150,000 every month for this quarter, that's 450,000. And 75% of these is international, not just domestic. So that is why you are seeing numbers decreasing. That is the most important effect I'm seeing for the moment.

Thank you. Our next questions come from the line of Gil Jarmay-Mendez with J.P. Morgan. Please proceed with your questions.

Hey, Adolfo, good morning. Thanks for taking my question. I have two follow-ups on traffic. The first one is regarding the Mexico City restrictions. You mentioned that you would expect some of the restrictions to be lifted in the second half of this year. Can you elaborate a little bit more your expectations on how this should translate into traffic for Sur? And the second point is regarding Toulon. You mentioned 2.9 million passengers this year. Just wondering what were your expectations by the time of the MDP, if this 2.9 is in line with what was incorporated on the MDP, or slightly worse? Thank you.

Hi, good morning. Well, in the case of the Mexico City airport, you'll remember that last year, the 8th of January, to be precise, the government decided to impose a restriction in terms of capacity. The restriction was to have 43 operations per hour coming from 52 operations per hour. This restriction, in my opinion, is too strong considering that you have one runway and a half. One runway can sustain 50 ATMs per hour. So if we say one runway and a half, that should be 75. Today at 43, it's really low. That's one piece of the puzzle. The other piece of the puzzle is we saw some elimination of restriction in the case of Toluca Airport. And Toluca Airport really lies at the end of last year by 20% with us. Why is this so important? Because from the valley of Mexico, it is originated 50% of the domestic traffic of the group. City, Toluca, and IFA grow their traffic. If we go back in time, I will invite you to compare what it was in 2019 when the IFA was not in place. At Mexico City Airport, traffic was 51 million. If you see what the figures of last year were, you will see that after five years, almost six years, there is only a growth of one million. And this is extremely important for us. So I do believe that by the end of the third quarter, the government eliminates or changes this restriction to at least to go back to the 52 ATMs per hour that we had at the end of 23. Also keep in mind that next year we will have the work the football World Cup in Mexico, and it will be extremely important to have or to be the connectivity of Mexico City. In the case of Tulum, as I was saying, what we expect for this year is 2.9. In the case of the MVP, it was almost not too much difference of the reality versus what I was expecting.

Very clear. Thank you, Adolfo.

You're welcome.

Thank you. Our next questions come from the line of Pablo Recalde with Atal. Please proceed with your questions.

Hi, good morning, Adolfo. Thanks for taking my question. I have a question on Mexico-Tahitian. Based on my understanding, you haven't raised tariffs this year. So two questions. The first one is, which percentage of your maximum tariffs you are charging now? And the second, when do you expect to raise tariffs in Mexico?

The maximum tariffs or the maximum rate is measured once a year. You cannot say that you will be measuring that quarter by quarter. LAST YEAR, THE MAXIMUM TAX COMPLIANCE, THAT'S THE WAY THAT WE CALL IT, IT WAS 99%. SO I WOULD SAY TODAY THAT THE REPORT THAT WE PRESENTED YESTERDAY, THAT WE DISCLOSED YESTERDAY TO THE MARKET, INCLUDES JUST REVENUES THAT ARE IN ACCORDANCE WITH THE MAXIMUM RATE WE HAVE TODAY. What we will be expecting for the end of the year is it's almost the same result that we got last year. So it's not that today we are above the maximum rate. That's not the case on the first side. And on the other side, you cannot, again, measure these on a quarterly basis. It's just once a year.

Perfect. Thank you.

Thank you. Our next questions come from the line of Andressa Verado with UBS. Please proceed with your questions.

Hi. Good morning, Adolfo. Thanks for taking my question. I just have one here on my side. What is the expectation of MDP CapEx for this year from the first quarter figure? versus our expectations, it seemed a bit low. So how do you see CapEx deployment throughout the year? Thank you.

You're welcome. You have the figures in the pre-release that we disclosed on December 13, 2023. Of course, those were presented as of December 22, So if you include the inflation factor up to the end of this year, you will reach a number close to $7 billion for the case of Mexico. I would say $25 million for the case of Puerto Rico, and a very small amount in the case of Colombia. That is what we expect for this year. In terms of... You can compare this and you will see that the first quarter is the lowest and the fourth is the highest.

Thank you. Our next questions come from the line of Anton Mortenkader with GBM. Please proceed with your questions.

Hi, Adolfo. Thank you for the call and congrats on the results. I just have one question. I mean, we understand that on Colombia you were rolling out a strategy to increase the prices on some of your contracts or to do some catch-up in the commercial side. I was just wondering if the results of this quarter are a result of this and should we expect to see some more on that front going forward?

Hi, Anthony. Good morning. Well, in the case of Colombia, again, I do believe that we have done a very wonderful work in increasing commercial revenues for passengers. The recommendation there would be to follow since the end of 2020, since the end of 2017, the reports on Colombian buses, and then you will see the real effect of our work there. It has been really nice. The strategy today is to continue with this as we can. Of course, some of the impact that we are seeing in the first quarter has to do with exchange rate, but also with additional spaces that we have opened and the strategy of business

Perfect. Thank you. Thank you. Our next questions come from the line of Stephen Trent with Citibank. Please proceed with your questions.

Good morning, Adolfo, and thanks very much for taking my questions. First is actually just a follow-up on Tulum and the traffic you're seeing around that. Do you have a sense for the extent to which Uh, you know, some of the draw is coming from commercial traffic as opposed to charter and private track, uh, charter and private traffic, uh, going to Tulum instead of Cancun.

But of course, some of what we see today that is related to charter flights, charter flights that have flying destination, uh, very close to Tulum, uh, basically switching from Cancun to Tulum. They should not fly to Cancun anymore if the final destination is very close to Tulum. That's one piece, of course. In the case of commercial activities, you can see that American Airlines is flying there, and Juarez is flying there, and Ruarez and Ruiz are flying there. Also, Mexican Airlines is flying there. Those are basically the commercial airlines, and we have some flights, one flight from from Europe, but they have one plan from Europe. At the end of last year, it was from France.

Okay, that's very helpful. Appreciate it. And just a quick follow-up on the dividend. Of course, this year it's a big one, and it looks like a substantial percentage of the company's retained earnings. You know, how should we think about moving forward how a SOAR might potentially source, you know, future dividends? Would it come from a different piece of shareholders' equity, or should we assume kind of, you know, steady state? Thank you.

Yes. Well, in the case of what we have proposed to the shareholders' assembly is basically the result of what we have done in the past in our financial performance. As I mentioned during the remarks and some of the questions before, we have 24 billion pesos in cash and cash equivalents at the end of the quarter, 22 billion. And the dividend, the proposed dividend We're just paying what we have achieved in terms of the results of the company. Going forward, we will have to see what the results are, and then we will propose something to shareholders and such.

Okay, appreciated. Thanks, Adolfo.

You're welcome. Thank you. Our next questions come from the line of Fernanda Arecchia with BTG. Please proceed with your questions.

Hey, good morning, Adolfo. Thank you for taking my question. So just to follow up here from our side, so just to explore a little bit further the traffic outlook for Puerto Rico and Colombia, I think you mentioned in your remark that you expect a normalization, but maybe if you could provide us with a bit more color on what kind of traffic you're expecting for these years. and when Puerto Rico should start to normalize is the first one. And the second, on the commercial revenues in Mexico, as you mentioned, you're working on the remodeling of Terminal 2, which is expected to finish by the first half of next year. So maybe if you could give us any color on what kind of increase in commercial revenues per PECS should we anticipate because of these conclusions? would be great. Thank you.

Well, the traffic in Puerto Rico, as I mentioned in my initial remarks, is still very strong. And I was expecting these to normalize, no single digits, but it's still strong Puerto Rico squad. And we're happy to see that. The case of Colombia, now you can see that things are normalizing. You can see what the growth was for the month of March, and that's what we believe it should be for the rest of the year. Commissioned revenues, we are just expanding and remodeling Terminal 1 to alleviate the capacity problems we have today in Terminal 2. And those capacity problems are basically eliminating commercial opportunities that we have today. We know for sure that in the middle of the day, there's no chance for the passenger to have a meal because all the spaces are full. Once we open Terminal 1, we will work on Terminal 2 to improve the situation, and that, of course, will increase or have an impact on commercial revenue for passengers. It's not easy for me to say how much it will be, you know, we will have to wait and see once these spaces are fully operational and that should occur for quarter next year.

Okay, thank you.

Thank you. As a reminder, if you would like to ask a question, please press star then one on your telephone keypad. Our next questions come from the line of Jorge Vargas with GMB. Please proceed with your questions.

Jorge Vargas with GMB. Jorge Vargas with GMB. Jorge Vargas with GMB. Jorge Vargas with GMB. Jorge Vargas with GMB.

Jorge Vargas with GMB. Jorge Vargas with GMB. Jorge Vargas with GMB. And that will continue for some time.

Okay. Thank you.

You're welcome. Thank you. Our next question has come from the line of Gabriel Heidelberg with Scotiabank. Please proceed with your questions.

Hi, Ed. Hi, Apollo. Thanks for the call. Just a question. Based on your experience, In the cases of U.S. recession, how much do you think it might drop international traffic and visitors coming from the U.S. and Canada to Cancun? I know it's difficult to forecast, but based on your past experience?

Hi, Gabriel. Well, let me tell you a story. If you see the presentation that we have in our webpage where we are presenting our traffic in 1990. That is the same chart that I used 25 years ago to make the IPO process of this company. And we decided to go back to 1990 because that was at the moment the last U.S. economic recession. To see what was the effect of the U.S. economic recession in the international package of traffic. If you see the charts, international traffic grew from 2.6 million to 2.8 million even with the U.S. economic recession. So in that sense at the moment we were resilient for the U.S. economic recession. I don't know what will happen today and if the recession will be there or not. But on the other side I have to say that what we are seeing today in the case of the United is a very strong decrease of tourism towards these countries. And if we can catch up some of these effects, it would be great for us. Let me say the case of Canada is decreasing significantly for the summer. Let's say for the case of Europe and, let's say, North Asia and South America. Again, we can catch some of these decrease. It will be excellent for us. You know why they are not willing to go there. We will try to relocate our commercial activities to focus on this market or reinforce the commercial or the marketing activities of this market.

Okay, and have you seen any kind of ramp up from Canadian traffic, like you're moving from the U.S. to Canada, not from traveling to the U.S. instead of traveling to Mexico?

Well, if you see what I said during the initial remarks, the only region that was flat for the quarter or that was not negative for the quarter was Canada.

Okay. Okay, thank you.

Thank you. Our next questions come from the line of Jens Spice with Borg & Stanley. Please proceed with your questions.

Yes, thank you. Just one follow-up on Pablo's question regarding the max tariff. I know that compliance is annual, so quarterly we shouldn't be worrying. But for the first quarter, I think you published that the unit tariff was 352, which I think is very close to the maximum tariff, if I'm not mistaken. So given all the FX volatility that might be ahead, and I know that more recently the PSS appreciated, so it plays in your favor, but regardless, there's a lot of volatility. So do you think that there should be a bit more cushion just to factor that in, or do you feel comfortable with the current level? Thank you.

Let me try to explain the case of the maximum rate. And I'm going to just say numbers to be more clear on my example. If we say that maximum rate is 100, and we, during the quarter, obtain, let's say, 105, what we report is just 100, and the other five goes to the maximum value itself. So you will not see the five in the P&L. for the quarter. If the maximum rate is 100 and the result is 98, what you are going to see in the P&L is 98. So in terms of the exchange rate, just to put this very clear, the end of last year, sorry, the end of the first quarter last year, the exchange rate was at 16.5. The end of 24 was 20.78. The end of March was 20.43. And the current exchange rate is around 19.5. Coming from 16.5 to 19.5 today, it was a lot of mean to maneuver. So that is why I was saying that we expect for this year almost the same as in terms of maximum tax compliance of what we got last year.

Okay, that's clear. Thank you, Adolf.

You're welcome. Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Thank you. I'm showing no further questions at this time. That does conclude the question and answer portion of today's conference call. I would like to turn the call back over to Mr. Castro for closing remarks.

Thank you, Darren, and thank you all again for joining us today for the first quarter 2025 conference call. We wish you a good day and goodbye. Now you may disconnect.

Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.