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, 2006
Business Overview: ASUR operates nine airports in the southeast region of Mexico under 50-year concessions granted by the Mexican government. The portfolio includes Cancun International Airport, which accounted for approximately 75.6% of total revenues and 70.6% of passenger traffic in 2006. The company generates revenue from aeronautical services (regulated) and non-aeronautical services (commercial activities, largely unregulated).
Accounting Standards: Financial statements are prepared in accordance with Mexican Financial Reporting Standards (NIF), which include inflation restatement. Reconciliations to U.S. GAAP are provided.
Key Financial Metrics (2006)
| Metric | 2006 (Mexican NIF) | 2006 (U.S. GAAP) |
|---|---|---|
| Total Revenues | Ps. 2,238,961 thousand | Ps. 2,235,092 thousand |
| Operating Income | Ps. 829,668 thousand | Ps. 830,997 thousand |
| Net Income | Ps. 528,115 thousand | Ps. 415,961 thousand |
| Operating Margin | 37.1% | 37.2% |
| Net Margin | 23.6% | 18.6% |
| Cash and Marketable Securities | Ps. 1,241,678 thousand | Ps. 828,706 thousand |
| Total Assets | Ps. 14,941,401 thousand | Ps. 7,974,239 thousand |
| Total Liabilities | Ps. 1,156,300 thousand | Ps. 256,721 thousand |
| Stockholders' Equity | Ps. 13,785,101 thousand | Ps. 7,717,518 thousand |
| Operating Cash Flow | Ps. 1,031,626 thousand | Ps. 1,043,218 thousand |
| Capital Expenditures | Ps. 1,088,980 thousand | Ps. 991,516 thousand |
Note: All figures are in thousands of constant Mexican pesos as of December 31, 2006, unless otherwise noted. U.S. GAAP figures differ significantly due to the treatment of airport concessions and inflation adjustments.
Material Changes vs. Prior Period (2005)
- Revenue Growth: Total revenues increased 4.3% to Ps. 2.24 billion, driven by a 4.5% increase in aeronautical services and a 3.8% increase in non-aeronautical services. This followed a recovery in passenger traffic (up 3.44% to 13.78 million) after the impact of Hurricane Wilma in late 2005.
- Operating Income: Operating income remained nearly flat, decreasing 0.3% to Ps. 829.7 million. While revenues grew, operating expenses increased 7.1% due to higher costs of services (personnel and insurance) and depreciation.
- Net Income: Net income declined 9.9% to Ps. 528.1 million (NIF) primarily due to the increase in operating expenses and a higher provision for income taxes.
- Capital Expenditures: Investing activities surged to Ps. 1.09 billion, primarily for the construction of Terminal 3 at Cancun International Airport, which began operations in May 2007.
- Dividends: The company paid net dividends of Ps. 210.7 million in 2006, compared to Ps. 200.0 million in 2005.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Terminal 3: The new Terminal 3 at Cancun Airport, a $100 million investment, is expected to double international passenger capacity.
- Commercial Growth: Management anticipates that future growth in commercial (non-aeronautical) revenues will eventually exceed the growth rate of aeronautical revenues.
- Mayan Riviera Airport: The company is monitoring a potential public bidding process for a new airport in the Mayan Riviera, which could introduce competition to Cancun International Airport.
Key Risks and Contingencies
- Natural Disasters: The region is prone to hurricanes. Hurricane Wilma (2005) caused significant damage and traffic disruption. Insurance premiums for hurricane damage increased significantly (from ~$362k to $2.6 million annually), and the company does not carry business interruption insurance.
- Concentration Risk: Cancun International Airport represents over 75% of revenues. The business is also highly dependent on the U.S. economy, as approximately 66% of international passengers in 2006 traveled to/from the U.S.
- Regulatory Risk: Revenues are subject to a "dual-till" price regulation system. Exceeding maximum rates can lead to penalties or concession termination. The Mexican government retains the right to revoke concessions or requisition airports in cases of national security or public interest.
- Customer Concentration: The top four airline customers (Mexicana, American Airlines, Aeromexico, Continental) accounted for approximately 25.5% of total revenues in 2006.
- Exchange Rate Risk: While costs are primarily in pesos, a significant portion of revenues is linked to the U.S. dollar. Depreciation of the peso can cause the company to exceed maximum regulated rates.
Investor Verification Checklist
- Terminal 3 Performance: Verify the actual passenger uptake and revenue generation of the new Terminal 3 at Cancun Airport post-opening (May 2007).
- Hurricane Exposure: Assess the adequacy of current insurance coverage limits against potential future natural disasters, given the lack of business interruption coverage.
- Regulatory Compliance: Monitor compliance with maximum rate regulations to ensure no penalties are assessed that could threaten concession validity.
- Competitive Landscape: Track the progress of the proposed new airport in the Mayan Riviera and its potential impact on Cancun's market share.
- Airline Solvency: Evaluate the financial health of major airline customers (e.g., Mexicana, American Airlines) to assess credit risk on unsecured passenger charges.
- Accounting Differences: Review the reconciliation between Mexican NIF and U.S. GAAP, specifically regarding the amortization of airport concessions and the treatment of inflation, as these significantly impact reported equity and net income.