Q2 2022 Grupo Aeroportuario del Sureste SAB de CV Earnings Call
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Good day, ladies and gentlemen, and welcome to.
Second quarter 2022 results conference call.
And I'll be your operator.
At this time all participants are in listen.
Only mode, we will conduct a question and answer session towards the end of today's call.
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As a reminder, today's call is being recorded.
Now I'd like to turn the call over to Mr. Phil Armstrong Chief Executive Officer. Please go ahead Sir.
Thank you Anna and good morning, everyone.
Before we get dark that's covering the highlights from the quarter and then taking your questions. Let me remind you that certain statements made during the call may constitute forward looking statements, which are based on current management expectations and beliefs and are subject.
To several risks and uncertainties that may cause actual results to differ materially including factors that maybe beyond our companys control.
Including the impact from COVID-19.
As usual additional details about our quarterly results can be found in our press release, which was issued yesterday after market close and it's available on our website Investor Relations section.
Now moving onto a review of passenger traffic and travel demand during the quarter total traffic was over 39% year on year and exceeded second quarter COVID-19 levels by 19% to a record $16 7 million passengers in the quarter.
We continue to see steady growth throughout the quarter across the three geographies now looking at the recovery trend by region against pre pandemic levels second COVID-19.
Once again, Colombia posted the strongest recovery.
43% with domestic traveling increasing in the low forties and international travel in the low fifties Puerto.
Puerto Rico saw at 15%, increasing traffic, mainly driven by domestic traffic that was up in the high teens, although relatively flat sequentially in June international travel will continue its gradual recovery, reaching 88% of the second quarter 2019 levels.
Traffic in Mexico, surpass second COVID-19 levels by nearly 13%.
With international travel up in the high teens, despite higher airfares, driven by strong leisure travel demand from all key regions.
With the exception of Canada, which remains at 57% of the last 12 months 2019.
This has been more than offset by strong U S dropping while last 12 month's European tourism.
8% below pre pandemic levels.
Looking ahead <unk> is staying with Mexico, we expect traffic from Canada to resume during the winter season.
Mainly November through April next year.
We expect to see a steady performance from the U S and Europe . We also anticipate domestic travel to continue its gradual recovery as I have mentioned before business travel is expected to continue to lag leisure.
We sold we believe that traffic that better crews minute people an M b a malls airports.
Which this quarter were on average 7% below second quarter 2019 levels will continue to recover at a slower pace.
In Puerto Rico, we are seeing domestic traffic trending to normalize after a very strong performance over the last several quarters.
Lastly, traffic in Colombia remained suppressed and be strong and we expect this to continue throughout the year driven by addition of routes and investments in tourism, which has driven a structural shift in demand.
Traffic trend remains solids underscored by pent up demand, we believe that if any of this acceleration, resulting from the increasingly inflationary global macro environment.
It could be mitigated with the recovery expected to come from some markets like Canada.
Now turning to the P&L, starting with our top line.
Note that all references to revenues.
Construction revenues and that all comparisons are against pre pandemic levels of second quarter and 19.
Revenues increased in the mid Forty's, reaching $5 7 billion passes a record high for any given quarter. This good performance was driven by growth in both aeronautical and non aeronautical revenues.
All geographies posted sustained revenue growth with Mexico accounting for 70% of the total revenues in the quarter, Puerto Rico, 17% and Colombia, 12%.
Commercial revenues were up 44% driven mainly by passenger traffic growth with increases of 39% in Mexico, 60% in Puerto Rico, and nearly 41% in Colombia.
Commercial revenues per passenger amounted nearly 120 basis Apple the hundred vessels reported in the second COVID-19.
And there is likely above the level achieved in the prior quarter.
By geography commercial revenues in the quarter were in the range of 143 to 149 vessels in Mexico, and Puerto Rico.
In commercial in Colombia commercial revenues per passenger reached 40 basis.
In line with second quarter 2019 levels.
The 12 months' level more than double dose achieved over the same period of 2019.
In terms of traffic mix the share of domestic passengers remains at 2019 levels.
We'll continue to see growth in the U S and the share of higher spending Europeans back to pre pandemic levels. The number of Canadian travelers remain empty at 56% of 2019 lifts.
Now moving onto cost total operating expenses increased by high single digit excluding.
175 million passengers expense reimbursement in Puerto Rico operating costs and expenses would have increased 18%.
Nonetheless, these were significantly lower than the 45% growth in revenues.
In Mexico costs were up 27%, but it's still below the 48% increase in revenues.
These reflect higher technical assistance and concession fees, resulting from higher revenues and EBITDA.
Together with higher cost of services, including the cost of sales from directly operated stores that continued to see strong activity.
Puerto Rico in turn benefited from 875 million passengers expense reimbursement under the American Rescue Plan Act is clear.
This benefit causes will have increased 10% while revenues were up 33%.
Finally cost in Colombia declined 26%, while revenues were up 37%.
In summary, the significant efficiency measures during the pandemic level have allow us to maintain the cost.
One on our control at 95% of the second quarter, and 19 levels and 17, 9% on a per passenger basis.
Even with higher revenue levels than in the second COVID-19.
These numbers include total cost minus construction depreciation and amortization taken ecolab concession speech.
We achieved record high profitability this quarter with consolidated adjusted EBITDA of 47% to 4 billion passes.
I think the traffic growth increased commercial revenues per passenger Hyatt diary.
And operating leverage contributed to this performance.
Mexico lead these growth with adjusted EBITDA up 57% to 3 billion pesos.
Puerto Rico in turn posted a 7% increase in EBITDA to 580 million passengers, while profitability in Colombia continued to recover with EBITDA up 62%, reaching just over 400 million pets.
Adjusted EBITDA margin ex <unk> 12 increased 100 basis points nearly to 71% this quarter.
By geographical region, adjusted EBITDA margin improved over four percentage points in Mexico, and Colombia to nearly 76, and 58% respectively. While the magic in Puerto Rico was close to 59 this quarter compared with 73% in the second quarter 2019.
All in all we delivered a solid set of results with traffic and revenues at record high levels.
These together with operating leverage have contributed to more than doubling net majority income.
The $2 6 million passengers in the quarter up from 1.2 billion in the second quarter 'twenty, one and $1 4 billion in the second quarter of 19.
Turning now to capital investments, we invested nearly 440 million pesos during the quarter.
Of which 79% was allocated to Mexico, 20% to Puerto Rico, and 1% to Colombia.
In Mexico, we completed the expansion of the type of tool attending all as anticipated.
We also remain on track with expansion of the terminal building in maybe the we the third phase of the project to be completed by year end.
Okay. When airport, we're making this steady hip way to finalize by the year end. The first phase of the 10 minutes for expansion with which consist of adding two boarding gates of international in international upfront.
In Puerto Rico, we continued to advance with the remodeling of terminal B and major maintenance repair two runways taxiways now.
Now few comments on the balance sheet.
We maintain a robust financial position with cash and cash equivalents of $7 3 billion passengers.
At the quarter end.
This follows the dividend payment of $4 5 billion passengers.
Last June as we return additional value to our shareholders in turn net debt last 12 months' EBITDA West just Cedar 0.4 times at June 30.
With interest coverage at 10.5 times, only less than 1% of our debt matures in the second half of the year with the next major maturity taking place in 2025.
Finally accounts receivables were practically flat year on year.
Before moving into the Q&A portion of the call a quick recap.
We welcomed a record number of passengers in the second quarter, surpassing second quarters, 2019 levels, which drove growth across our markets that was driven by a strong pent up demand.
Although Canadian traffic remained low versus pre pandemic levels, despite the high higher.
There is in the U S traffic.
These west particular struggle with European traffic has nearly reached corporate we expect Canadian traffic to normalize these winter season, which would help offset any potential slowdown in the traffic that could cause eventually arise from this deal inflationary environment across the world.
Nonetheless today, we're seeing healthy traffic trends supported by a strong pent up demand also gratifying was our record profitability. This quarter. Thanks to the effective efficiency measures and especially expenses control that drove our cost levels well below <unk>.
Pandemic levels operating leverage kick in this drumbeat on the traffic growth.
I will leave the operator, please open the floor for questions.
Thank you again to audience.
One more question.
Please make sure your mute function.
Or the handset.
And the corresponding.
We ask you please limit yourself to one question and one.
If you have any additional questions.
Thank you to allow everyone an opportunity does cycle.
Well now take a question from Alejandro Zama corner with credit Suisse.
Yeah. Thank you.
Cool.
A quick question on the corporate center.
Yep.
Our strong cost control.
We didn't.
Got it.
So when did the context.
Moving forward.
Got you.
You just mentioned.
Finally inflation environment.
Okay.
Okay.
Sure.
Yeah.
Moving.
Got it.
Quite a bit closer at that.
That's why we put them on <unk>.
Let's walk me Kevin.
Yes, we can.
We got some color on what can we do.
Mhm.
Hello and.
Thank you and good morning, yes.
Yes, Winnie happiness.
We have been facing.
Facing a very difficult times with the high inflationary in all the geographies as you can.
You have seen that as the case of Puerto Rico with a very strong increasing.
Increasing the cost side no.
The Mexico side, we have been able to manage some of these pieces of course going forward, we will see some additional impact if these level of inflation continues no.
The best case in terms of control has been Columbia.
Where things are or have been better than expected.
Okay.
Hello, gentlemen.
Second question on the table.
Certainly.
Cool.
I believe we will.
Medicine.
Yes.
Cool.
Any color.
Good point.
Thank you.
As you know we are working.
To construct that proposal that we have to deliver that in the year and to the government. So.
Today, we cannot say anything about it yet.
Okay.
Thank you.
Youre welcome.
Our next question comes from Goldman.
Okay.
That's great.
Hi, good morning.
My question is more.
The inflation effect during this quarter.
I believe you said there were contracts that were going to be it does contain inflation.
In this quarter and how are you.
And how did you place any problems, so far and with the tenant.
No.
If you're talking about contracts in terms of the cost side, which is not the tenant.
Some of them have been at Justice and they are adjusted normally we have.
Annual contracts and when they mature.
So those are adjusted with inflation and so far we have done that as of today. So no major.
Things are going in front.
Okay perfect.
Yeah.
Well take our next question from Stephen Trent with Citi.
Good morning, Adolfo and thanks very much for taking my question.
I have two for you at the first I know that.
The Federal Aviation administration did.
Lower in Mexico to category to aviation safety rating.
And in that regard and can you tell us whether there are any specific items that saw it may or may not have to change or if there's something that really it.
It doesn't affect you and it's all happening.
In the eyes of the regulator.
Yeah.
Hello, Steve Good morning, and thank.
Thank you for your question, Yeah, a year ago when this happened.
If you remember we publish a 6K.
Where we basically said that to your 0.5% of our traffic in 2019.
One from the United States was in domestic carriers.
For the year 'twenty 'twenty. It was 0.3% why is all of these is because what we have in destination airports basically, California as a destination airports. So the people is coming from the U S to Mexico.
And basically they are coming in U S airlines, they're not coming in domestic airlines.
So that is why we do not see and we do not have a major impact from these factors.
Two situation.
Okay. That's helpful.
My follow up question.
We have seen in the U S in places like London, Heathrow and what have you.
Difficulties in airports and ground staff.
Is it fair to say that's not the case with any of your airports do you guys feel good about your.
Your throughput.
Ground staff at our various installations inside and outside Mexico.
Well that's.
That's a good question why did this happen in Europe , basically is because they basically fired 50 or 60% of their people.
And once the traffic K.
Came back again.
We're not able and they have not been able to recover all the people that was fine.
In our case since day, one we decided to not fire anyone in the company because of this COVID-19 situation.
So today, we have no problems when the traffic has returned.
So we are working without the.
The difficulties that you are seeing in the case of the European airports.
Okay very helpful. I'll, let someone else ask a question. Thanks Adolfo.
Well take our next question from Rodolfo Ramos with Bradesco.
Thank you good morning.
A question.
And I have one or two you are your initial remarks.
That was on the pent up demand just wanted to clarify indeed.
In the case of Canada, and Europe , how much of the percentage is back from 2019 levels or anything you could tell us how much what percent of your total international.
Second traffic.
Hi, good morning, and in the case of the European traffic last 12 months passenger traffic compared with the.
The 20, <unk> last 12 months 2019.
Europe is 92%. So we are below 8% of the pre pandemic levels.
In the case of kind of 856%, while Canada has not.
To come back in that sense, because normally the Canadian traffic.
A very strong seasonality, which is November through April .
So if you remember the last.
Some of the last November to April it was lost because the volume growth.
So that's why we have been saying that we will see that we're expecting to see the recovery up to these winter season. So in the case of Canada and the other 44% that is.
Pending to be recovered will be or should be recovered.
In the next winter season.
And just to dimension.
To put in perspective is this pent up demand.
Million passengers.
If you went to a book to look at is how much of a percent.
Yes in the case of Canadians the maximum they did they had in 2019 was $2 7 million passengers.
In the case of Europe in 2019 was $2 1 million.
Okay. Thank you and just a follow up if that didn't come back to my follow up.
Just wanted to get your thoughts on on the Mexico City system.
We've seen a lot of news around slot restrictions, then and airlines trying to move to look at and Felipe accolades.
Given how important it is for your for your system.
What are your thoughts there as far as it being an opportunity or a bottleneck for our developing domestic traffic.
Well the good news that is that we have a new complementary airport, which is the really bad goodness no.
The other good news is that some of the airlines that were extremely reluctant to operating to Luca they're back again, so in that sense. What we are seeing is that we have additional capacity from these two airports.
And of course.
That will well.
To start growing as we speak and I'm expecting to see a very nice level of traffic in those within the next two years.
Thank you.
Youre welcome.
Well take our next question from.
Gordon with James.
Okay.
Hello Adolfo.
Thank you for taking my question also congrats on your results I have two quick questions one is related to that.
No not at all about the color for everybody else I. Just was wondering if you could provide some color regarding how how is that from.
Behaving with your tenants in the sense of how much of the revenues you're getting are coming from the fixed part of your of your rental and how much of it is.
Bobby I would give it about youre ready to return to pre pandemic traffic levels.
Hi, good morning in the case of the peaks and viable things.
If you remember in the second quarter.
2020.
We saw a huge increase in the case of Colombia.
That was because we saw what the passengers were almost zero.
And we had a fixed revenue under in the ER.
The amount on a per passenger basis jumped up to 4600 and something vessels.
Yeah.
The case of Colombia is the one that has more people.
<unk> revenues per passenger no. It is not the casing in Mexico is not the case in Puerto Rico.
So that is why you are seeing these number coming down from the 4600 and something to the 39 point something during the quarter.
So.
The fixed amount or the fixed revenues are less important ones that traffic has gone backlog.
Case of Colombia, today's 30% more than what we had or what we still.
In the case of 2019.
So most of the revenues in the case of Mexico, and Puerto Rico are coming from the <unk> side.
And in the Columbia side now.
I don't want to say level, but basically the fixed amounts are less important than they were before during the pandemic level.
Okay.
Okay. Thank you that's that's pretty clear I'm also my question is kind of a follow up from Stephen's question.
A lot of your traffic is serviced by international carriers. So I was wondering through your conversations with these international carriers as well.
What are the thoughts on increasing capacity.
What are you thinking how much fleet are they ordering or are you seeing those dynamics.
Well, it's too many it's too many airlines are flying to Mexico from the U S.
And basically what is a dream.
<unk> driven the capacity is basically the load factor in the load factor they have.
It's a it's a very nice today, so that is why they have been increasing that.
The seats offered to Mexico and that is why you see these increasing with this very nice increase from there from the U S traffic.
Have they mentioned like maybe any specifics all I'm trying to increase like 10% of their capacity on Europe or something like that.
No I don't have any specific number to share with you.
From the U S.
Okay perfect. Thanks that helpful.
Youre welcome.
Our next question will come from Pablo.
<unk> with Barclays.
Yeah.
Hi, Thanks.
Thanks for taking my question.
I I just.
I have a question on the on your outlook of the tropical in Colombia.
Being very strong over the recent quarters.
In your view.
What should we expect.
Thank you.
Well Pablo.
I said during the initial remarks, we are extremely surprised of the traffic levels, we've seen in Colombia.
Despite the fact that my.
Around 35% of this traffic is between midnight Union Bogota, and this should be related to business truck.
Why is this so strong.
Several things one is of course some issues in the case of Bogota.
So some of the airlines have decided to start connecting in Michigan.
That can be the case that new Orleans have come to <unk> and they are starting very strong.
And the third probably ease the effect of a country that was closed completely.
For six months no.
So I believe that this has created a lot of pent up demand in the case of this country.
Okay. Thank you very much.
Youre welcome.
We will now take our next question from.
Yes.
Deutsche Bank.
Yeah.
Hi, Good morning, just a quick question can you give us a bit of color.
How is the commercial discussion with Avianca and Latam Airlines.
Level.
And what do you think will come along.
Although Mexico. Thank you.
Well in the case of accounting receivables the only problem we have.
Half is the case of vintage it.
No.
They didn't think it was around 73 million passengers and all of these has been reserve in the previous quarters.
And.
That is the only.
Real problem, we have the rest of the airlines are saying basically on time. So I don't have any problem with a bad avianca Latam nor out of Mexico.
Oh.
Okay. Thank you.
Welcome.
Once again that is star one if you would like to ask a question.
We will now take a question from Johann de Mendez with J P. Morgan.
Hi, good morning, and thanks for taking my questions two questions actually the first one in terms of capital allocation.
And considering our low leverage close to a net cash position would it make sense for you to accelerate payments going forward and just trying to do that the one they already have proven.
And the second question is for a follow up related to costs and margins.
Canada exploring a little bit better what are the main cost initiatives are they have been achieving and if we should continue to expect margins for both the 70% levels. Thank you.
Well in terms of dividend payments, we just paid a dividend as the first of June .
And this happened this quarter it was around $4 5 billion passengers.
And this was divided into two pieces, an ordinary dividend of nine <unk>, an extraordinary of six vessels. So we just paid dividends.
Going forward, we will review with us as we have done over the last 20 something years every year now.
In terms of margins.
Again, I don't like to talk about margins because the costs and the revenue are independent as we have seen during the pandemic.
Period.
So if we see a high traffic and we are able to control the cost as we have done today.
Those margins should be spending no. That's that's very simple.
Okay got it thank you.
You're welcome.
We will now take a follow up from Anthony Good morning.
GBS.
High level for me again.
I'm, sorry, I don't know if you mentioned it in there.
Remoxy ER, it's just said regarding the ARPA law.
Are you expecting any more benefits going forward.
Well there is there is something.
Pending.
I don't remember exactly the amount you should not be.
So significant that it will.
Once in the past with the cares Act.
But not not too much in front.
Okay. Thank you.
Hello.
Thank you.
That is star one if you would like to ask a question.
And well pause for just a moment.
And it appears there are no further telephone questions. So that concludes the question and answer portion of today's conference call I would like to turn it back over to you Mr. Castro for closing remarks.
Thank you Anna and thank you again for participating in our second quarter.
<unk> conference call on behalf of <unk>, We wish you a good day goodbye.
Ladies and gentlemen that concludes <unk> second quarter 2022 results conference call, we would like to thank you again for your participation you may now disconnect.
Yes.
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