ASR

Business Context and Reporting Period

Company: Southeast Airport Group (Grupo Aeroportuario del Sureste, S.A.B. de C.V.)
Filing Type: Form 6-K (Current Report)
Reporting Period: Third Quarter and Nine Months ended September 30, 2018
Operations: ASUR operates 16 airports across Mexico, Puerto Rico (via Aerostar), and Colombia (via Airplan). The period includes full consolidation of Aerostar (since June 2017) and Airplan (since October 2017).

Key Financial Metrics

Passenger Traffic (3Q18): Total traffic increased 6.3% YoY to 13.3 million passengers. Growth was driven by Mexico (+6.7%), Colombia (+7.3%), and Puerto Rico (+3.8%).
Commercial Revenues per Passenger: Declined to Ps.92.5 (from Ps.99.5), impacted by the inclusion of lower-yield Colombia operations in the consolidated base.

Material Changes vs. Prior Period

• Revenue Composition: Aeronautical services revenue rose 29.9% and non-aeronautical (commercial) revenue rose 23.2%. This was partially offset by a 77.9% decline in construction revenues due to lower capital expenditures.
• Profitability: While EBITDA grew significantly, Operating Profit remained flat (+0.1%) and Net Income declined (-10.2%). This divergence is primarily due to a 124.8% increase in Depreciation and Amortization (D&A) driven by the consolidation of Airplan and Aerostar valuations under IFRS 3.
• Cost Structure: Operating costs excluding construction rose 59.2% YoY. Key drivers included higher maintenance/energy costs in Puerto Rico (Hurricane Maria recovery), increased concession fees in Mexico, and significant D&A charges from new acquisitions.
• Regional Performance:
  • Mexico: Operating profit up 12.1%; EBITDA up 11.5%. Traffic growth driven by Cancun.
  • Puerto Rico: Operating profit down 27.2% due to D&A and insurance costs; EBITDA down 5.7%.
  • Colombia: Reported an operating loss of Ps.102.8 million (vs. profit in 3Q17) due to high amortization of the concession asset, though EBITDA grew 10.5%.

Outlook, Risks, and Contingencies

• Regulatory Risk (Mexico): In August 2018, the Federal Economic Competition Commission (COFECE) issued an Opinion of Probable Liability regarding alleged monopolistic practices in ground transportation at Cancun Airport. ASUR is defending the claim; potential penalties cannot be estimated at this time.
• Foreign Exchange: The company reported a Ps.39.5 million foreign exchange loss in 3Q18 due to the depreciation of the Mexican peso against the U.S. dollar, contrasting with a gain in the prior year.
• Capital Expenditures: Total Capex for 3Q18 was Ps.1,369.8 million, focused on modernizing Mexican airports (Cancun Terminal 4), Puerto Rico (Federal Inspection Station), and Colombia (terminal expansions).
• Debt Profile: 54.2% of total debt is denominated in U.S. dollars, exposing the company to currency fluctuations. Net debt leverage remains low at 1.22x.

Investor Verification Checklist

• IFRS 3 Impact: Verify the sustainability of earnings given the significant non-cash D&A charges from the Airplan and Aerostar consolidations which suppressed Net Income despite strong EBITDA growth.
• COFECE Proceedings: Monitor the status of the antitrust investigation at Cancun Airport for potential fines or operational restrictions.
• Colombia Integration: Assess the timeline for Colombia operations to return to positive operating profit margins as high initial amortization charges normalize.
• Commercial Yield: Track the recovery of commercial revenues per passenger, which declined due to the lower-yield mix of newly consolidated airports.
• Currency Exposure: Evaluate the impact of peso volatility on debt service costs, given the majority of debt is USD-denominated.