Grupo Aeroportuario Del Sureste's CEO Discusses Q2 2012 Results - Earnings Call Transcript

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

Q2 2012 Earnings Call

July 24, 2012 10:00 am ET

Executives

Adolfo Castro Rivas – Chief Executive Officer, Chief Financial and Administrative Officer, Director of Strategic Planning

Analysts

Eduardo Siffert Couto – Goldman Sachs

Nicolai Sebrell – Morgan Stanley

Vanesa Quiroga -- Credit Suisse

Pablo Abraham Peregrina – Casa de Bolsa BBVA Bancomer SA de CV

Eugenio Amador – Credit Suisse

Stephen Trent – Citigroup Global Markets Inc.

Gordon Lee – BTG Pactual US Capital LLC

Neal Dihora – Morningstar

Vivian Salomon – Itaú Corretora de Valores S.A.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the ASUR’s Second Quarter 2012 Results Conference Call. My name is Shanel 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.

For opening remarks and introductions, I’d like to turn this call over to Mr. Adolfo Castro, Chief Executive Officer. Please proceed.

Adolfo Castro Rivas

Thank you, Shanel, and good morning, everybody. Thank you for joining us today for the conference call for our second quarter 2012 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 current management expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including those that may be beyond our company’s control. For an explanation of these risks, please refer to our filings with the Securities and Exchange Commission and the Mexican Stock Exchange.

I’ll start today’s call by briefly discussing the San Juan, Puerto Rico International Airport bid and afterwards I’ll provide a review of the results for the quarter. As announced last Thursday, Aerostar Airport Holdings, our 50/50 partnership with Highstar Capital won the bid to become the private operators of the Luis Munoz Marin International Airport in San Juan, Puerto Rico. As a result, Aerostar will enter into a 40-year long-term lease agreement with the Puerto Rico Ports Authority. This entails an upfront payment of approximately $615 million. This payment is expected to be funded by a mix of financing and equity contributions on a 50-50 basis from Highstar Capital and ASUR.

The closing of the transaction remains subject to a number of conditions including the award of a Part 139 operating certificate by the Federal Aviation Authority. We expect this could take approximately 180 days. However, this is the first Airport to be privatized by the FAA and there is no track record. As a result of this and due to the confidentiality issues, there is limited information we can provide until the lease is closed. However, keep in mind that while LMM handles 8.5 million passengers per year compared with almost 18 million passengers served as ASUR during 2011. LMM Airport is in a similar situation to what Cancun was 12 years ago.

At the same time, airport regulations are different from those in Mexico and as a result economics are not the same. So although, we see a lot of potential in this airport and we are enthusiastic to have won the concession, there is a lot work ahead to us to bring element to the standards we have achieved at Cancun today. For the moment in relation with San Juan, Puerto Rico, this is the information that I can share with you.

Moving on to the results, this was a very good quarter. Passenger traffic was up by 74.4% year-on-year inline with our expectations, growth was mainly driven by a 15% rise in domestic traffic while reached 2.15 million passenger this quarter about 1.8 million passengers in the first quarter of this year and the highest quarter following the peak of 2.11 million achieved in the third quarter of 2011.

Domestic traffic was particularly strong at Cancun, Cozumel, Minatitlan, Huatulco and Villahermosa. Again domestic traffic at Cancun for the last two months continued to be at historical peak reaching 4.1 million passengers. This trend of new historical records in Cancun has been observed each month of the year.

The smaller airports, however, still reflect the impact of lack of domestic airline fleet capacity. International traffic was up by 1.8% to 2.59 million passengers although reaching the record of 2.63 million passengers observed in the second quarter of 2008. The share of the international passenger traffic however fell to 55% of total traffic from the 58% in the second quarter 2011. Passenger traffic between Mexico, Canada and the United States, represented 92.1% of the total traffic compared with the 89.4% a year ago.

Consolidated revenues were up by 16.5% in the quarter, driven by a revenue growth all across all activities. Excluding construction services, total revenue would have increased 15.4%. Commercial revenues per passenger rose to 75.05 pesos, another record high, and we remained focused on maximizing commercial revenue opportunities.

Operating cost and expenses rose 11.9% year-on-year mainly due to the higher construction costs and cost of services. Excluding construction costs, operating costs will have only risen by 7.9%. Higher cost of sales from the increase in revenues at our direct commercial operations, energy costs and expenses in connection with our participation in international bidding process drove the increase in costs. Costs also include fees from the bond required in the appeal of a decision of returning the tax rate at Cancun for the years 2006 and 2007.

Read the rest of this transcript for free on seekingalpha.com