Business Context and Reporting Period
Company: Southeast Airport Group (Grupo Aeroportuario del Sureste, S.A.B. de C.V. or ASUR)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2013
Accounting Standards: International Financial Reporting Standards (IFRS)
Reporting Currency: Mexican Pesos (Ps.)
ASUR operates nine airports in the southeast region of Mexico under 50-year concessions. The company's primary revenue driver is Cancún International Airport, which accounted for 76.5% of total revenues in 2013. In February 2013, ASUR's joint venture, Aerostar, began operating the Luis Muñoz Marín (LMM) International Airport in Puerto Rico under a 40-year lease.
Key Financial Metrics (2013)
| Metric | 2013 (Ps. Millions) | 2012 (Ps. Millions) | Change |
|---|---|---|---|
| Total Revenues | 5,446.1 | 5,119.9 | +6.4% |
| Net Income | 2,296.9 | 2,075.3 | +10.7% |
| Operating Income | 2,871.1 | 2,529.9 | +13.5% |
| Operating Margin | 52.7% | 49.4% | +3.3 pts |
| Net Margin | 42.2% | 40.5% | +1.7 pts |
| Cash Flow from Operations | 2,379.5 | 2,649.2 | -10.2% |
| Total Assets | 21,416.5 | 19,109.2 | +12.1% |
| Total Liabilities | 5,132.3 | 2,638.2 | +94.5% |
| Outstanding Debt | 2,840.9 | 314.9 | Significant Increase |
| Cash & Equivalents | 1,259.6 | 2,265.4 | -44.4% |
Revenue Breakdown (2013): Aeronautical services (Ps. 3,076.7M), Non-aeronautical services (Ps. 1,782.8M), Construction services (Ps. 586.6M).
Passenger Traffic: 21.1 million total passengers (10.1% increase from 2012).
Material Changes vs. Prior Period
- Revenue Growth: Driven by a 10.1% increase in passenger traffic and improved commercial contract terms. Aeronautical revenue grew 8.0%, while non-aeronautical revenue grew 10.9%. Construction revenue declined 11.6% due to lower capital expenditure levels.
- Debt Expansion: Total liabilities increased significantly due to the incurrence of a U.S.$215.0 million (approx. Ps. 2,745.5 million) credit facility in February 2013 to fund the LMM Airport joint venture investment.
- Joint Venture Loss: ASUR recorded a loss of Ps. 143.5 million from its 50% equity interest in Aerostar (LMM Airport), reflecting start-up costs and initial operating losses.
- Tax Reform Impact: The repeal of the Mexican Flat Tax (IETU) effective January 1, 2014, resulted in the cancellation of deferred IETU liabilities, providing a tax benefit in 2013. However, the company also recognized deferred income tax charges due to the change in tax rates and the repeal of IETU.
- Cash Flow: Operating cash flow decreased primarily due to higher tax payments (including a Ps. 128.3 million payment under a tax amnesty program) and reduced tax refunds compared to 2012. Investing cash flow was heavily negative (Ps. 3,308.0M) due to investments in the Aerostar joint venture.
Guidance, Outlook, and Risks
Outlook: Management expects passenger traffic to continue increasing as the U.S. economic recovery continues. The company anticipates that growth in commercial revenues will continue to outpace aeronautical revenue growth.
Key Risks and Contingencies:
- Regulatory Risk: Revenues are subject to a "dual-till" price regulation system with maximum rates set by the Ministry of Communications and Transportation. Exceeding these rates can result in fines and rate reductions. A new Federal Economic Competition Act is pending in the Mexican Senate, which could grant broader powers to regulators.
- Concentration Risk: Cancún International Airport generated 76.5% of revenues in 2013. The business is highly dependent on tourism to this region and the U.S. economy (58.1% of international passengers travel to/from the U.S.).
- Legal/Tax Disputes: An appeal is pending regarding the amortization of the Cancún concession for tax purposes. While a tax amnesty payment was made, a potential additional liability of Ps. 116.0 million remains if the appeal regarding employee profit sharing is lost.
- Joint Venture Risks: The LMM Airport investment involves significant debt and operational risks in a new market. Deadlocks in management decisions with the joint venture partner (Highstar Capital) could adversely affect operations.
- Foreign Exchange: Approximately 55.9% of liabilities were dollar-denominated as of year-end. Depreciation of the peso increases debt service costs and could cause the company to exceed regulated maximum rates.
Investor Verification Checklist
- Debt Covenants: Verify compliance with the leverage ratio (3.50:1.00) and interest coverage ratio (3.00:1.00) covenants associated with the new U.S.$215M loan, as breach could restrict dividend payments.
- Regulatory Rate Compliance: Confirm that regulated revenues per workload unit did not exceed the maximum rates set for 2013 to avoid penalties or future rate reductions.
- LMM Airport Performance: Monitor the operational performance and cash flow generation of the Aerostar joint venture, given the significant initial loss and debt load.
- Tax Liability Resolution: Track the outcome of the pending appeal regarding the Cancún concession amortization and the potential Ps. 116.0 million liability.
- Passenger Traffic Trends: Verify continued growth in international passenger traffic, particularly from the U.S., to validate revenue projections.