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, 2010
Business Overview: ASUR operates nine airports in the southeast region of Mexico under 50-year concessions. The portfolio is heavily concentrated in Cancún International Airport, which accounted for 74.4% of passenger traffic and 78.6% of revenues in 2010. The company generates revenue from aeronautical services (regulated), non-aeronautical services (commercial), and construction services (newly recognized in 2010).
Key Financial Metrics (2010)
| Metric | 2010 (Mexican NIF) | 2010 (U.S. GAAP) |
|---|---|---|
| Total Revenues | Ps. 4,235.5 million | Ps. 3,500.4 million |
| Net Income | Ps. 1,275.1 million | Ps. 1,251.0 million |
| Operating Income | Ps. 1,724.3 million | Ps. 1,668.9 million |
| Operating Margin | 40.7% | 47.7% |
| Net Margin | 30.1% | 35.7% |
| Cash and Cash Equivalents | Ps. 1,442.9 million | Ps. 1,442.9 million |
| Total Debt (Bank Loans) | Ps. 890.6 million | Ps. 890.6 million |
| Capital Expenditures | Ps. 719.9 million | Ps. 719.9 million |
| Passenger Traffic | 16.7 million | N/A |
Note: Financial statements are prepared under Mexican Financial Reporting Standards (MFRS/NIF). Significant differences exist between MFRS and U.S. GAAP, primarily regarding the treatment of airport concessions and inflation adjustments.
Material Changes vs. Prior Period (2009)
- Revenue Growth: Total revenues increased 35.3% to Ps. 4,235.5 million. This surge was primarily driven by the adoption of INIF 17 ("Service Concession Contracts"), which required the recognition of Ps. 741.2 million in construction service revenues (equal to construction expenses). Excluding this accounting change, organic growth was driven by a 7.6% increase in passenger traffic.
- Profitability: Net income increased 60.0% to Ps. 1,275.1 million. This was aided by a 39.8% decrease in depreciation and amortization expenses due to the reclassification of assets under INIF 17, which extended amortization periods to match the concession term.
- Cost Structure: Operating expenses increased 40.0% to Ps. 2,511.1 million. The increase included Ps. 741.2 million in construction costs and a Ps. 128.0 million increase in the allowance for doubtful accounts due to the bankruptcy of Grupo Mexicana.
- Passenger Traffic: Total passengers rose 7.6% to 16.7 million. International traffic grew 11.7%, while domestic traffic grew only 2.3%.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Accounting Transition: The company is transitioning to International Financial Reporting Standards (IFRS) effective January 1, 2012. Preliminary estimates suggest this will reduce stockholders' equity by approximately Ps. 3.1 billion due to the elimination of inflation adjustments recognized under MFRS.
- Investment Commitments: The company is committed to investing Ps. 4,913.3 million in its airports through 2013 under approved Master Development Plans.
- Dividends: Shareholders approved a dividend of Ps. 3.00 per share (Ps. 900 million total) for the 2010 fiscal year, payable in May 2011.
Key Risks and Contingencies
- Competitive Threat (Mayan Riviera Airport): The Federal Competition Commission (COFECO) issued an unfavorable decision regarding ASUR's participation in the bidding process for a new airport in the Mayan Riviera (Tulum), located 101 km from Cancún. ASUR has initiated legal proceedings to challenge this decision. The new airport could adversely affect Cancún's passenger traffic.
- Customer Concentration & Bankruptcy: The bankruptcy of Grupo Mexicana (a major customer) resulted in a Ps. 128.0 million provision for doubtful accounts, representing 24.4% of total accounts receivable. ASUR is an unsecured creditor.
- Regulatory Risk: Revenues are subject to a "dual-till" price regulation system. Exceeding maximum rates can result in penalties or concession termination. Fluctuations in the peso exchange rate pose a risk of exceeding these maximum rates.
- Concession Termination: Concessions can be terminated for non-performance, failure to meet investment commitments, or by government reversion (rescate) for public interest, with compensation based on investment and depreciation rather than market value.
Investor Verification Checklist
- Verify INIF 17 Impact: Confirm the sustainability of revenue growth by analyzing the Ps. 741.2 million in construction revenues, which are essentially pass-through costs with zero margin.
- Monitor Grupo Mexicana Recovery: Track the recovery rate of the Ps. 128.0 million receivable from the bankrupt airline group.
- Track Mayan Riviera Litigation: Follow the legal proceedings against COFECO regarding the right to bid on the new Tulum airport, as a loss could significantly impact long-term traffic projections for Cancún.
- Assess IFRS Transition: Review the final impact of the 2012 IFRS adoption on the balance sheet, specifically the reduction in equity and changes to asset valuation.
- Exchange Rate Sensitivity: Evaluate the company's exposure to peso appreciation, which reduces the peso value of dollar-denominated international passenger charges and commercial contracts.