Business Context and Reporting Period
Company: Southeast Airport Group (Grupo Aeroportuario del Sureste, S.A.B. de C.V. or ASUR)
Reporting Period: Fiscal year ended December 31, 2014
Accounting Standard: 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 group's primary revenue driver is Cancún International Airport, which accounted for 75.8% of total revenues in 2014. The company also holds a 50% joint venture interest in Aerostar, which operates the Luis Muñoz Marín (LMM) International Airport in Puerto Rico.
Key Financial Metrics (2014)
| Metric | 2014 Value (Ps. millions) | 2014 Value (U.S. $ millions) |
|---|---|---|
| Total Revenues | 5,879.2 | 397.1 |
| Net Income | 2,283.7 | 154.2 |
| Operating Income | 3,160.9 | 213.5 |
| Operating Margin | 53.8% | - |
| Net Margin | 38.8% | - |
| Cash and Cash Equivalents | 2,855.4 | 192.9 |
| Total Assets | 23,924.5 | 1,615.9 |
| Total Liabilities | 5,173.4 | 349.4 |
| Stockholders' Equity | 18,751.1 | 1,266.5 |
| Outstanding Debt | 3,187.3 | 215.3 |
| Passenger Traffic | 23.2 million | - |
Note: U.S. dollar translations are based on the exchange rate of Ps.14.806 per U.S.$1.00 as of January 2, 2015.
Material Changes vs. Prior Period (2013)
- Revenue Growth: Total revenues increased 8.0% to Ps.5,879.2 million, driven by a 9.9% increase in passenger traffic. Aeronautical revenues rose 7.9%, while non-aeronautical revenues grew 11.0% due to improved commercial contracts and higher traffic.
- Net Income Decline: Despite higher operating income (up 10.1%), Net Income decreased 0.6% to Ps.2,283.7 million. This was primarily due to a 14.7% increase in income tax provisions and a significant foreign exchange loss.
- Foreign Exchange Impact: The Mexican peso depreciated 12.7% against the U.S. dollar in 2014. This resulted in a net comprehensive financing loss of Ps.115.0 million (compared to income of Ps.18.6 million in 2013), largely due to the increased peso value of U.S. dollar-denominated debt.
- Joint Venture Performance: The equity participation in the LMM Airport joint venture (Aerostar) turned positive, contributing Ps.36.4 million to income in 2014, compared to a loss of Ps.143.5 million in 2013.
- Dividends: No dividends were paid in 2014, compared to Ps.2,520.0 million paid in 2013.
Guidance, Outlook, and Risks
Outlook and Capital Expenditures: The company has committed to Ps.7,288.4 million in investments for the period 2014–2018 under its Master Development Plans. In 2014, capital expenditures were Ps.1,294.2 million, focused on Cancún Airport (Terminal 3 expansion) and Veracruz Airport. Management intends to fund future investments through operating cash flows and existing indebtedness.
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. Depreciation of the peso increases the risk of exceeding these maximum rates, which could lead to fines or concession termination.
- Concentration Risk: Cancún International Airport generated 75.8% of revenues. The business is highly sensitive to tourism trends, safety perceptions in Mexico, and the economic conditions of the United States (source of ~60% of international passengers).
- Legal and Tax Disputes: An appeal regarding the amortization of the Cancún concession for tax purposes is pending. While a tax amnesty payment of Ps.128.3 million was made, a potential additional liability of Ps.116.0 million related to employee profit sharing remains if the appeal is lost.
- Debt Covenants: The company has a U.S.$215.0 million credit facility with covenants requiring a consolidated leverage ratio of 3.50:1.00 or less and an interest coverage ratio of 3.00:1.00 or less. Failure to comply could restrict dividend payments.
Investor Verification Checklist
- Exchange Rate Sensitivity: Verify the impact of continued peso depreciation on the company's ability to service its U.S. dollar-denominated debt and stay within regulated revenue caps.
- Cancún Dependency: Assess the stability of tourism in the Cancún region and the potential impact of new competing airports (e.g., Mayan Riviera airport proposals) on the 75.8% revenue concentration.
- Tax Litigation Status: Monitor the resolution of the pending appeal regarding the concession amortization rate and the potential Ps.116.0 million liability.
- Debt Covenant Compliance: Confirm ongoing compliance with the leverage and interest coverage ratios required by the BBVA/Merrill Lynch credit facility.
- Joint Venture Cash Flow: Review the cash flow generation of the LMM Airport joint venture (Aerostar) and the timeline for potential distributions, noting that distributions are currently restricted by Aerostar's senior debt facilities.