Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR) Q4 2023 Earnings Call Transcript
Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR) Q4 2023 Earnings Call Transcript February 27, 2024
Grupo Aeroportuario del Sureste, S. A. B. de C. V. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, ladies and gentlemen, and welcome to ASUR’s Fourth Quarter 2023 Results Conference Call. My name is Doug, and I will be your operator. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, today's call is being recorded. Now, I'd like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir.
Adolfo Castro : Thank you, Doug, 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 actual results to differ materially, including factors that may be beyond our company's control. As usual, 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, Investor Relations sector. Following my presentation, I will be available for Q&A. Before getting into a discussion of the quarterly results, let me start today's call with a recap of the recent developments.
A significant milestone for the quarter was December 2023, approval of the 2024-2028 master development plan for our Mexican Airports. This approval occurred under the government's new regulations and increase of the concession fee to 9% from the 5% of total gross revenues starting from January 3 of this year. Some key highlights of the new MDP include. The efficiency factor used to annually adjust the maximum tariffs increase from 0.7% to 0.8% in the prior MDP. The methodology to calculate the discount rate is now based on weighted average cost of capital compared to cost of equity before. The new MDP 2024-2028 also calls for a total CapEx commitment of MXN 28.5 billion measure in December 2022 tariffs for the five year period. Of these five year CapEx, 75% equivalent to MXN 21 billion or approximately $1.4 billion, will be invested at Cancun Airport, 70% of which will be allocated to expansion works.
Key projects include the second phase of the expansion of the International Terminal 4, which includes additional four boarding gates that have been delayed due to the pandemic, a new road connecting the terminals to the major trains. We also plan to rebuild and expand Terminal 1 as well to expand airport roads. These investments support a new growth phase for Cancun in the years ahead. The remaining 25% will be allocated across our eight smaller airports in Mexico, with approximately 7% allocated to Oaxaca, where we plan to reconstruct and expand the terminal building. Finally, minor terminal expansions at four of the other airports. For 2024, we plan to invest a total of MXN 3.5 billion, 73% of which will be invested in Cancun. Also note that, the new MDP rebalances the impact of the recent opening of the Tulum Airport.
We ended the year with a 98.2% maximum tariff compliance, which includes the effect of the 10% passenger fee discount granted during November and December as a result of the agreement reached with the Mexican government. During the quarter, we conclude negotiations with our strategic partner, ITA by Twitch. Starting January 2024, the technical assistance fee has been reduced to 2.5% from 5% of the EBITDA generated by Mexican operations. On December 21 of last year, the Supreme Court of Justice rejected the appeal filed by the Airport International Bavaro against judgment that suspended the permit to start construction previously issued by the Civil Aviation Institute. More recently, on January the 5, the president of Dominican Republic issued a decree cancelling the previous decree issued by the previous President, which had approved the establishment of Bavaro International Airport.
On January 19, an appeal for consideration review was brought before the Constitutional Court against the Supreme Court of Justice, notified on December last year. On the sustainability front, during the fourth quarter, we completed the installation of solar panels in the airports of Tapachula and Huatulco. We will generate the combined output of 1.5 million kilowatt hours in the first year of operation. These in addition to the solar panel projects already completed in the airports of Cancun, Medellin and Oaxaca. We generated a total of nearly 632,000 kilowatt hours of solar energy during the fourth quarter. As part of our continued sustainability efforts, our airports in Mexico renewed their certification at Level 2 under the Airport Carbon Accreditation program.
This program is organized by the Airport Council International to provide a framework for measuring, reducing and compensating carbon emissions. Also in the fourth quarter, we became signatories of the science-based targets initiative, with the goal a roadmap to achieve zero emissions by 2050. Among the community projects, ASUR involved in -- we provided support to promote ecological tourism activities in the Malian speaking rural communities in the northern region of the state of Yucatan. Locals are provided with training and equipment to supplement their income from traditional fishing activities. By close of 2023, 49 tourist sites with approximately 100 economic dependents were provided with training and we intend to scale up these activities to additional communities in 2024.
We plan to publish our 2023 Annual Sustainability Report next month and encourage you to read it. Let's review ASUR's operational and financial performance for the quarter. As usual, all comparison discussed will be year [Technical Difficulty].
Operator: Mr. Castro, are you there? One moment, ladies and gentlemen. It appears that we have lost Mr. Castro. I'm going to try and reconnect. Rejoining Adolfo Castro.
Adolfo Castro : Thank you, Doug. Let's review ASUR's operational and financial performance for the quarter. As usual, all comparisons this quarter will be year-on-year unless specified otherwise. Starting with traffic, we saw nearly 18 million passengers travel across our airport network, the highest level for a fourth quarter. Even at the growth rate, this accelerated to 1%. This brought total traffic for the year to a total record of high over 70 million passengers, with an annual increase of 10% in Mexico, 18% in Puerto Rico and partially offset by a decline of nearly 10% in Colombia. Looking at the quarterly performance by region, Puerto Rico delivered the strongest growth, with traffic up nearly 13%, driven by a solid performance in both domestic and international traffic.
In Mexico, traffic increased 4% supported by a low single-digit growth in domestic and international passengers. Traffic driven from the United States and Canada remain the key growth engine, while domestic traffic is experiencing the initial effects of Pratt & Whitney engine problems. Also, not working as from January 8, the Mexico City airport reduced its air traffic movements per hour to 43 from 52. This airport accounted for 45% of the domestic passenger traffic in 2023, and those is also expected to negatively impact domestic traffic this year. Additionally, the strength of the Mexican peso has been impacting the results for the quarter. Lastly, Colombia posted a 13% decline in traffic and domestic travel remained impacted by the suspension of 2 local airlines in February of last year, partially offset by a 2% increase in international travel.
Recall that, these two airlines accounted for 20% of all traffic in Colombia in 2022. Avianca and Latam Airlines have been absorbing some of that traffic starting this March we expect to start seeing a recovery in traffic growing in Colombia. Now turning to the P&L. As a reminder, all reference to revenues and costs exclude construction and cost revenues. Total revenues increased nearly 5% to just over MXN 6 billion in the fourth quarter, as growth in Mexico and Colombia was partially offset by weaker performance in Puerto Rico, due to the exchange rate. Mexico, which accounted for 74% of revenues, posted a 6% increase in the top line driven by need to high single-digit growth with aeronautical services up 5% and non-aeronautical services increasing 7%, mainly reflecting higher passenger traffic.
Puerto Rico, which accounted for 14% of total revenues, reported a 1% decline in revenues mainly due to the 4% decrease in aeronautical revenues, partially offset by a 2% increase in commercial revenues. Lastly, Colombia, which represented 11% of revenues, posted a mid-single-digit top line increase, supported by the growth of 3% in aeronautical revenues and 8% in non-aeronautical services, reflecting our sustained focus on expanding our commercial offering across our airport network. Commercial revenues were up 70%, above the 1% increase in passenger traffic, driven by the high single-digit increases in Mexico and Colombia both up 8%, together with a 3% growth in Puerto Rico. On a per passenger basis, commercial revenues reached MXN 119, up 6% on a consolidated basis and for country in Mexico and Colombia, commercial revenues per passenger increased 4% and 20% respectively, while Puerto Rico decreased nearly 9%.
In local currency, Puerto Rico and Colombia posted increases in commercial revenues of 15.2% and 1.2% and in commercial revenues per passenger of approximately 2.4% and 19.1% respectively. These increases partially reflect our initiatives to continue enhancing passenger travel experience. These include the opening of 65 new commercial spaces across our airport network during the last 12 months. Of these, 17 were opened in Mexico, 4 in Puerto Rico and 44 in Colombia. Comparable consolidated EBITDA, excluding other non-recurring income in the year-ago quarter, increased 1% to MXN 4.1 billion. Recall that the fourth quarter 2022 results included a one-time our income of MXN 300 million in Puerto Rico in connection with a federal judgment in connection with the right to charge a fee for each gallon of aviation fuel dispatched at the airport between 2013 and 2021.
Mexico remains the main driver of profitability, with EBITDA up 5% followed by Puerto Rico with 1% comparable increase. By contrast, Colombia posted a 23% drop in EBITDA, impacted by disrupted passenger traffic. In turn, comparable adjusted EBITDA margin, which excludes construction as well as the other non-recurring income in the fourth quarter 2022, was nearly 68% versus a comparable of 70% margin into fourth quarter 2022. Last, moving on to the balance sheet, we close the year with a strong cash position of nearly MXN 16 billion and a negative leverage ratio of 0.2% -- 0.2x. Wrapping up, we'll finish 2023 on a very solid note, which we believe put us on a solid path going into 2024 and 2025. Our long-term opportunities supported by our ongoing investments to further enhance the travel experience of passenger traveling to our airports.
Continue to expand our commercial offerings and extend capacity to support future growth, while maintaining a balanced use of cash. This ends my presentation. Doug, please open the floor for questions.
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