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

Q4 2010 Earnings Conference Call

February 24, 2011 10:00 AM EST


Adolfo Castro – CFO


Alan Solis – Credit Suisse

Tomas Lajous – UBS

Varanese Munoz [ph] – Santander

Claudia Medina – Itau Asset Management

Augusto Ensiki – Morgan Stanley

Andrew West – Harding Loevner

Francisco Suarez – HSBC



Good day, ladies and gentlemen, and welcome to the ASUR fourth quarter 2010 results conference call.

My name is Louisa and I’ll 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 this conference. (Operator Instructions).

For opening remarks and introductions, I would like to turn the call over to Mr. Adolfo Castro, Chief Financial Officer. Please proceed, sir.

Adolfo Castro

Thank you, Louisa, and good morning, everybody. Thank you for joining us today for the conference call of our fourth quarter results.

Allow me to remind you that certain statements made during the course of our discussion today may constitute forward-looking statements which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including risks that may be beyond our company's control.

For an explanation of these risks, please refer to ASUR's filings with the Securities

and Exchange Commission and the Mexican Stock Exchange.

I will start with a brief comment on recent developments, including an update on Tulúm Airport; afterwards I will discuss passenger traffic performance and the results of the quarter.

As you know at the end of January, COFECO the antitrust agency in Mexico released its petition not allowing ASUR to bid in the bidding process for the construction, management, operation and exploitation of the public airport that is to be built in the Tulúm in the state of Quintana Roo. As we have said before, we disagree with this decision and the views expressed by the commission. Basically they are eliminating our [inaudible] in the competition to offer the lowest rate at the airport.

Remember that the criteria establishing the bidding process was that the winner will be the one who offers the lowest rate. Because of these, we have initiated legal proceedings in accordance with the Mexican legislation to defend us to its rights. However, we cannot provide any assurance that any legal proceedings to challenge the COFECO decision would be successful or that COFECO will be required to deny the bidding process.

Keep in mind that we have previously announced if the airport were to be granted, the granting authority agreed to chose Cancún’s MDP and maximum rate as a result of the negative effect that this airport will have in Cancún’s passenger traffic. The agreement is to make the adjustments within 90 days after the concession is granted.

Now moving to the results. Passenger traffic during the quarter increased by 1.7% year-over-year in line with our expectations. Traffic was up 5.1 in October, 1 in November, and fell 0.1 in December. Remember that

[Technical Difficulty]


Pardon me, sir. Hello, hello this is the operator.

Adolfo Castro

[Starts Abruptly] Over capacity and it was easier to capture passengers fly Mexicana. Looking ahead, even if Mexicana and Oaxaca reinitiate operations this year, we see capacity constraints on domestic markets. This situation should be normalized until the year 2012.

International traffic continued to show a recovery, although at a lower rate of 2.4% year-on-year mainly driven by the strong performance at Cancún Airport, continuing the trend seen during the year, traffic growth with easier comps from the H1NI influenza outbreak and the economic crisis in the fourth quarter 2009. As a result, the international passenger traffic continues to increase in chairs of total traffic, of the 55% from the 53.4% in the fourth quarter 2009.

Passenger traffic between Mexico, Canada and the United States represented 89.2% of total traffic compared with the 91.2% in the fourth quarter 2009. Consolidated revenues increased 58.3% this quarter, mainly driven by the adoption of the INIF 17 related to service concession contracts, which resulted in addition of 401 million pesos in revenues from the recognition of improvements to our concessioned assets. Keep in mind that this was offset by a charge to operating income from the same numbers [ph] as we hired third parties to provide construction services. Excluding construction services, total revenue would have increased 5.1%.

Commercial revenues to passenger in turn remains strong up 4.1% year-on-year to 63.88 pesos and above the record high of 61.33 pesos achieved in the fourth quarter of 2009. This quarter, we continued to expand its bases for commercial activities. For example, last year we took over our 14 convenient stores from a concessioner that was in Chapter 11. We opened eight of these stores at the end of the fourth quarter and remaining will be opened during the first quarter of this year. All of them operated directly by us.

Operating cost and expenses rose 76.1% year-on-year this quarter, mainly as a result of the application of INIF 17 related to the service construction contracts. Excluding the impact from applying INIF 17, operating cost and expenses have increased 5.4% year-on-year.

Operating profit rose 29.6 million pesos to 373.7 million pesos, although operating margin declined to 31.50% from the 38.20% in the same quarter last year. And while EBITDA rose 4.8% this quarter, EBITDA margin was down to 39.1 from the 59.1 in the fourth quarter 2009. These reflect negative impact from the inclusion of construction revenues and expenses as a result of the INIF 17, while there wasn’t a corresponding increase in the EBITDA.

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