ASR

Business Context and Reporting Period

Company: Southeast Airport Group (Grupo Aeroportuario del Sureste, S.A.B. de C.V.)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: First Quarter ended March 31, 2017
Business Overview: ASUR operates nine airports in southeast Mexico (including Cancún) and holds a 50% joint venture stake in Aerostar, which operates the Luis Muñoz Marín International Airport in San Juan, Puerto Rico.

Key Financial Metrics

Financial figures are in millions of Mexican Pesos (Ps.) unless otherwise noted.

Liquidity and Balance Sheet:
- Cash and cash equivalents: Ps.4,495.30 million (as of March 31, 2017).
- Total bank debt: Ps.4,040.59 million.
- Stockholders' equity: Ps.23,857.31 million.
- Total liabilities: Ps.6,092.46 million.

Material Changes vs. Prior Period

• Passenger Traffic: Total traffic increased 8.42% to 7.798 million passengers. Domestic traffic rose 11.98%, while international traffic grew 6.22%. Growth was driven primarily by Cancún, Mérida, and Huatulco, offset by declines in Cozumel and Minatitlán.
• Revenue Composition:
  • Aeronautical Revenues: Increased 18.94% due to higher passenger volumes.
  • Non-Aeronautical Revenues: Increased 27.64%, driven by a 28.26% rise in commercial revenues (duty-free, food & beverage, retail). Commercial revenue per passenger rose 18.51% to Ps.117.74.
  • Construction Revenues: Declined 25.52% to Ps.106.69 million due to lower capital expenditures on concessioned assets.
• Costs and Expenses: Total operating costs rose 6.74%. Increases were seen in cost of services (12.41%), technical assistance fees (25.26%), and concession fees (20.67%). These were partially offset by the decline in construction costs.
• Financing Results: The company reported a comprehensive financing gain of Ps.20.40 million, compared to a loss of Ps.18.58 million in 1Q16. This shift was due to a foreign exchange gain of Ps.7.17 million (peso appreciation) and higher interest income.

Outlook, Risks, and Unusual Items

• Strategic Acquisition: On April 10, 2017, ASUR announced agreements to acquire controlling interests in Colombian airport operators Airplan and Oriente for a combined price of US$262 million. The transaction is subject to regulatory approval and funding via cash and financing.
• Joint Venture Performance: ASUR recorded a Ps.68.84 million gain from its equity in Aerostar (San Juan airport). However, passenger traffic at San Juan declined 2.13% year-over-year.
• Regulatory Environment: Regulated revenues accounted for 59.68% of total income (excluding construction). Tariffs are set by the Mexican Ministry of Communications and Transportation.
• Accounting Adjustments: The filing highlights the impact of IFRIC 12 on construction revenues. Adjusted EBITDA margin (excluding IFRIC 12 effects) was 74.73% in 1Q17 versus 73.14% in 1Q16.
• Foreign Exchange: A Ps.235.28 million loss in stockholders' equity was recognized due to the translation effect of Aerostar's financial statements (denominated in USD) against the appreciating peso.

Investor Verification Checklist

• Verify the closing conditions and regulatory approval status for the US$262 million acquisition of Colombian airport operators (Airplan and Oriente).
• Confirm the sustainability of the 8.42% passenger traffic growth, particularly the divergence between domestic (up 11.98%) and international (up 6.22%) trends.
• Monitor the impact of the peso's appreciation on future foreign exchange gains/losses and the valuation of the Aerostar joint venture.
• Review the amortization schedule and interest rate exposure (LIBOR + 1.85%) of the US$215 million debt held by the Cancún subsidiary.
• Assess the long-term impact of the 25.52% decline in construction services revenue on future capital expenditure plans and asset modernization.