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: Third quarter and nine months ended September 30, 2010
Business Overview: ASUR is the first privatized airport group in Mexico, operating concessions for nine airports in southeast Mexico, including the major hub at Cancún. Financial results are presented in nominal Mexican pesos (Ps.) under Mexican Financial Reporting Standards (MFRS).
Key Financial Metrics
Third Quarter 2010 (3Q10)
- Total Revenues: Ps. 955.5 million (up 33.70% YoY)
- EBITDA: Ps. 405.8 million (down 6.66% YoY)
- EBITDA Margin: 42.47% (down from 60.83% in 3Q09)
- Operating Profit: Ps. 298.4 million (up 7.20% YoY)
- Operating Margin: 31.23% (down from 38.95% in 3Q09)
- Net Income: Ps. 221.8 million (up 29.93% YoY)
- Earnings Per Share (EPS): Ps. 0.7395 (up 29.93% YoY)
- Passenger Traffic: 4.01 million total (up 10.78% YoY)
Nine Months 2010 (9M10)
- Total Revenues: Ps. 3,042.6 million (up 27.96% YoY)
- EBITDA: Ps. 1,636.6 million (up 7.57% YoY)
- EBITDA Margin: 53.79% (down from 63.99% in 9M09)
- Operating Profit: Ps. 1,350.6 million (up 28.75% YoY)
- Operating Margin: 44.39% (up from 44.12% in 9M09)
- Net Income: Ps. 997.0 million (up 56.29% YoY)
- Earnings Per Share (EPS): Ps. 3.3233 (up 56.29% YoY)
- Passenger Traffic: 12.97 million total (up 9.42% YoY)
Liquidity and Balance Sheet (as of Sept 30, 2010)
- Cash and Marketable Securities: Ps. 1,537.7 million (up 24.07% YoY)
- Total Bank Debt: Ps. 922.7 million
- Shareholders' Equity: Ps. 14,517.3 million (79.46% of total assets)
- Total Liabilities: Ps. 3,753.8 million (20.54% of total assets)
Material Changes vs. Prior Period
Revenue Growth Drivers: Total revenue growth was driven by a 10.78% increase in passenger traffic (recovering from the 2009 H1N1 outbreak and recession) and higher commercial revenues per passenger (up 7.56% to Ps. 60.11). Aeronautical revenues rose 15.63%, while non-aeronautical revenues rose 18.49%.
Cost Increases and Margin Compression: Despite revenue growth, 3Q10 EBITDA and operating margins declined significantly. This was primarily due to:
- Accounting Change (INIF 17): Adoption of "Service Concession Contracts" required recognizing Ps. 122.2 million in "Construction Services" revenue and an equal amount in "Construction Costs." This inflated total revenue without increasing EBITDA, artificially lowering the EBITDA margin.
- Bad Debt Provision: A Ps. 128.0 million increase in the reserve for doubtful accounts due to the bankruptcy of client Grupo Mexicana de Aviación significantly increased the cost of services.
- Administrative Expenses: Rose 36.94% due to labor cost reassignments and higher professional fees.
Traffic Trends: International traffic surged 20.88% (led by Cancún's 23.31% increase), while domestic traffic grew modestly by 1.26%.
Outlook, Risks, and Unusual Items
Management Commentary and Outlook
Management highlighted the recovery in international traffic and the successful expansion of commercial space (new retail and currency exchange outlets). The company is transitioning to International Financial Reporting Standards (IFRS) effective January 1, 2012.
Risks and Contingencies
- Customer Concentration Risk: The bankruptcy of Grupo Mexicana de Aviación resulted in a significant bad debt provision, highlighting exposure to major airline clients.
- Regulatory Risk: Revenues are subject to maximum rates set by the Mexican Ministry of Communications and Transportation, reviewed annually.
- Interest Rate Risk: The company has hedged 100% of interest rate exposure on its Ps. 750 million credit agreement using interest rate swaps.
Unusual Items
The filing notes that the 3Q10 EBITDA margin decline is largely a non-cash accounting artifact caused by the new INIF 17 standard, which recognizes construction revenue and costs simultaneously. Additionally, tax provisions were impacted by the transition of Cancún airport from the flat-rate IETU tax to standard income tax in 2010.
Investor Verification Checklist
- EBITDA Quality: Verify the impact of the INIF 17 accounting change on EBITDA margins; the decline is largely due to revenue inflation from construction services rather than operational deterioration.
- Bad Debt Exposure: Assess the remaining exposure to Grupo Mexicana de Aviación and the adequacy of the Ps. 128.0 million provision.
- Traffic Sustainability: Confirm if the 20.88% international traffic growth is a one-time recovery from the 2009 H1N1 low base or a sustained trend.
- Debt Servicing: Review the terms of the new Ps. 920 million in bank loans (TIIE + 1.5%) and the impact of interest rate fluctuations despite hedging.
- IFRS Transition: Monitor the upcoming transition to IFRS in 2012 for potential restatements of historical financial data.