Business Context and Reporting Period
Company: Southeast Airport Group (Grupo Aeroportuario del Sureste, S.A.B. de C.V. / ASUR)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Third Quarter and Nine Months ended September 30, 2017
Key Operational Change: On May 26, 2017, ASUR increased its ownership in Aerostar Airport Holdings (operator of San Juan, Puerto Rico's LMM Airport) from 50% to 60%. Starting June 1, 2017, Aerostar results are fully consolidated on a line-by-line basis, whereas previously they were accounted for via the equity method.
Key Financial Metrics (3Q17 vs 3Q16)
| Metric | 3Q17 (MXN Millions) | 3Q16 (MXN Millions) | YoY Change |
|---|---|---|---|
| Total Revenues | 3,230.1 | 2,355.8 | +37.1% |
| Operating Profit | 1,655.6 | 1,235.4 | +34.0% |
| EBITDA | 1,916.6 | 1,374.1 | +39.5% |
| Majority Net Income | 1,100.7 | 916.8 | +20.1% |
| Earnings Per Share (MXN) | 3.6690 | 3.0560 | +20.1% |
| Total Debt | 14,712.4 | 4,160.4 | +253.6% |
| Cash & Equivalents | 7,679.0 | 3,497.6 (Dec 2016) | +119.6% |
Key Ratios (as of Sept 30, 2017):
- Net Debt to LTM EBITDA: 1.0x
- Interest Coverage Ratio: 8.8x
- Consolidated Commercial Revenues per Passenger: Ps. 99.5
Material Changes vs. Prior Period
- Passenger Traffic: Total traffic rose 4.9% YoY to 9.9 million. Mexico traffic increased 8.1% (driven by Cancun), while San Juan (LMM) traffic declined 5.5% due to Hurricane Maria.
- Revenue Growth: Driven by a 49.7% increase in aeronautical services and a 44.6% increase in commercial revenues. The consolidation of Aerostar contributed significantly to these figures.
- Debt Expansion: Total debt increased to Ps. 14.7 billion, primarily reflecting the inclusion of Aerostar's debt and a Ps. 4 billion loan at Cancun Airport. 72.8% of total debt is denominated in U.S. dollars.
- Cost Structure: Operating costs rose 40.5% YoY. Cost of services increased 98.7% due to maintenance, higher cost of sales from direct operations, and Aerostar consolidation. Construction costs declined 4.4% due to lower capital expenditures in Mexico.
- Foreign Exchange: Reported a Ps. 49.2 million FX gain in 3Q17 (vs. a loss in 3Q16) due to the appreciation of the Mexican peso against the U.S. dollar.
Outlook, Risks, and Management Commentary
- Hurricane Maria Impact: Operations at LMM Airport were suspended on September 19, 2017, and resumed on a limited basis on September 21. The airport remains on limited operations. Management is evaluating infrastructure damages; insurance covers material damages with a maximum deductible of US$10 million. No reasonable estimate of damages is currently available.
- Acquisitions:
- Airplan (Colombia): Regulatory approval received; acquisition expected to close by end of October 2017. ASUR will own ~92.42%.
- Oriente (Colombia): Regulatory approval pending. Parties are negotiating purchase price adjustments.
- Capital Expenditures: 3Q17 capex was Ps. 313.4 million, focused on modernizing Mexican airports (including Cancun Terminal 4, expected to open in 4Q17) and LMM Airport.
- Regulatory Risks: Mexican operations are subject to tariff regulation by the Ministry of Communications and Transportation. Puerto Rico operations are governed by an Airport Use Agreement with airlines and the Puerto Rico Port Authority.
Investor Verification Checklist
- Hurricane Maria Damages: Verify the extent of physical damage to LMM Airport infrastructure and the timeline for full operational recovery.
- Debt Servicing: Confirm the sustainability of the increased debt load (Net Debt/EBITDA of 1.0x) and interest coverage (8.8x) given the new debt structure from Aerostar consolidation.
- Colombian Acquisitions: Monitor the final regulatory approval status and purchase price adjustments for the Oriente acquisition.
- Construction Revenue Accounting: Review the impact of IFRIC 12 on reported margins, as construction revenues and costs are recognized simultaneously, affecting margin calculations.
- Currency Exposure: Assess the impact of future peso/dollar fluctuations on the 72.8% of debt denominated in U.S. dollars.