Business Context and Reporting Period
Company: Grupo Aeroportuario del Sureste, S.A.B. de C.V. (ASUR)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Fourth Quarter and Full Year ended December 31, 2010
Business Overview: ASUR is the first privatized airport group in Mexico, operating Cancún Airport and eight other airports in southeast Mexico. The company is listed on the NYSE (ASR) and the Mexican Bolsa (ASUR).
Key Financial Metrics
Fourth Quarter 2010 (vs. 4Q09)
- Total Revenues: Ps. 1,192.89 million (Increase of 58.32%)
- EBITDA: Ps. 466.95 million (Increase of 4.83%)
- Operating Profit: Ps. 373.68 million (Increase of 29.63%)
- Net Income: Ps. 278.16 million (Increase of 74.40%)
- Earnings Per Share (EPS): Ps. 0.9272 (vs. Ps. 0.5317 in 4Q09)
- EBITDA Margin: 39.14% (Declined from 59.12% in 4Q09)
- Operating Margin: 31.33% (Declined from 38.26% in 4Q09)
- Passenger Traffic: Total traffic up 1.69% (International +4.23%, Domestic -1.27%)
- Commercial Revenue per Passenger: Ps. 63.84 (Increase of 4.08%)
Full Year 2010 (vs. FY09)
- Total Revenues: Ps. 4,235.47 million (Increase of 35.27%)
- EBITDA: Ps. 2,103.54 million (Increase of 6.95%)
- Net Income: Ps. 1,275.14 million (Increase of 59.91%)
- Earnings Per Share (EPS): Ps. 4.2505 (vs. Ps. 2.6580 in FY09)
- Passenger Traffic: Total traffic up 7.59% (International +11.66%, Domestic +2.28%)
Liquidity and Balance Sheet (as of Dec 31, 2010)
- Cash and Marketable Securities: Ps. 1,442.88 million (Up 50.08% from Dec 31, 2009)
- Total Bank Debt: Ps. 890.61 million (including Ps. 3.7 million accrued interest)
- Shareholders' Equity: Ps. 14,795.46 million
- Total Liabilities: Ps. 3,418.46 million
- Capital Expenditures (4Q10): Ps. 381.18 million
Material Changes and Drivers
The significant increase in reported revenues (58.32% in 4Q10, 35.27% in FY10) is primarily driven by the adoption of I-MFRS 17 ("Service Concession Contracts"). This accounting change requires the recognition of "Construction Services" revenue and a corresponding "Construction Costs" expense for improvements to concessioned assets. In 4Q10, Ps. 401.39 million was recognized in both revenue and expense lines.
Impact on Margins: While revenues increased significantly due to the new accounting treatment, EBITDA and Operating Profit did not increase proportionally, leading to a compression in EBITDA and Operating margins.
Operational Drivers:
- Passenger Traffic: 4Q10 growth was aided by a low base in 4Q09 due to the H1N1 outbreak and global recession. International traffic grew 4.23%, led by Cancún (+4.47%). Domestic traffic declined 1.27% due to significant drops at Veracruz, Oaxaca, and Minatitlán.
- Commercial Revenues: Increased 4.52% in 4Q10, driven by growth in advertising (+34.14%) and banking/currency exchange (+44.24%), partially offset by declines in parking fees and ground transportation.
- Costs: Operating costs rose 76.11% in 4Q10, largely due to the new construction cost line item. Administrative expenses increased 18.79% due to professional fees and trade show participation. Depreciation and amortization decreased 40.65% due to rate changes under I-MFRS 17.
Outlook, Risks, and Contingencies
Accounting Transition (IFRS)
ASUR is transitioning to International Financial Reporting Standards (IFRS) effective January 1, 2012. Preliminary analysis indicates this will result in a significant reduction in reported assets (approx. Ps. 4.07 billion) and shareholders' equity (approx. Ps. 3.13 billion) due to the elimination of inflation accounting and recognition of assets at acquisition cost. This will likely result in lower amortization expenses starting in 2012.
Regulatory and Legal Risks
- COFECO Ruling: On January 31, 2011, the Mexican Federal Competition Commission (COFECO) issued an unfavorable opinion regarding ASUR's participation in the bidding process for the new Riviera Maya airport in Tulum. ASUR plans to initiate legal proceedings to challenge this decision but cannot assure success.
- Tariff Regulation: The Mexican Ministry of Communications and Transportation regulates maximum rates for aeronautical services. Regulated revenues accounted for 55.36% of total income in FY10.
- Client Bankruptcy: In FY10, the bankruptcy of client Grupo Mexicana de Aviación resulted in a Ps. 128.0 million increase in the reserve for doubtful accounts, negatively impacting operating margins.
Investor Verification Checklist
- Accounting Impact: Verify the specific impact of I-MFRS 17 on future comparability of revenue and margin metrics, noting that construction revenue is offset by construction costs.
- IFRS Transition: Review the projected reduction in asset base and equity upon the full adoption of IFRS in 2012 and its effect on future depreciation/amortization schedules.
- Riviera Maya Bid: Monitor the outcome of ASUR's legal challenge against the COFECO decision regarding the Tulum airport bid.
- Domestic Traffic Trends: Assess the sustainability of domestic traffic recovery, given the significant declines at several secondary airports (Veracruz, Oaxaca, Minatitlán) in 4Q10.
- Debt Hedging: Confirm the status of the interest rate hedge covering the Ps. 750 million credit agreement, which fixes rates between 6.21% and 6.37%.