Business Context and Reporting Period
Company: Southeast Airport Group (Grupo Aeroportuario del Sureste, S.A. de C.V. or ASUR)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2004
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 (the second busiest in Mexico), Merida, Cozumel, Huatulco, Oaxaca, Veracruz, Villahermosa, Tapachula, and Minatitlan. The company generates revenue primarily from aeronautical services (passenger charges, landing fees) and non-aeronautical services (commercial leasing, access fees). Financial statements are prepared in accordance with Mexican GAAP, restated for inflation to constant pesos as of December 31, 2004.
Key Financial Metrics (Year Ended Dec 31, 2004)
| Metric | Value (Mexican GAAP) | Value (U.S. GAAP) |
|---|---|---|
| Total Revenues | Ps. 1,975,976 thousand ($177.2 million) | Ps. 1,975,976 thousand ($177.2 million) |
| Operating Income | Ps. 837,610 thousand ($75.1 million) | Ps. 840,731 thousand ($75.4 million) |
| Net Income | Ps. 606,992 thousand ($54.4 million) | Ps. 248,465 thousand ($22.3 million) |
| Operating Margin | 42.4% | 42.6% |
| Cash and Marketable Securities | Ps. 1,163,317 thousand ($104.3 million) | Ps. 952,045 thousand ($85.4 million) |
| Total Assets | Ps. 13,054,530 thousand ($1.17 billion) | Ps. 6,926,847 thousand ($621.3 million) |
| Total Liabilities | Ps. 728,224 thousand ($65.3 million) | Ps. 191,474 thousand ($17.2 million) |
| Stockholders' Equity | Ps. 12,326,306 thousand ($1.11 billion) | Ps. 6,735,373 thousand ($604.1 million) |
| Operating Cash Flow | Ps. 1,122,818 thousand ($100.7 million) | Ps. 1,052,238 thousand ($94.4 million) |
| Capital Expenditures | Ps. 411,954 thousand ($37.0 million) | Ps. 411,954 thousand ($37.0 million) |
Note: U.S. dollar amounts are translated at the rate of Ps. 11.1495 per U.S. dollar (Dec 31, 2004). Significant differences between Mexican GAAP and U.S. GAAP net income arise from the treatment of airport concessions, deferred taxes, and inflation adjustments.
Material Changes vs. Prior Period (2003)
- Revenue Growth: Total revenues increased 28.1% to Ps. 1.98 billion, driven by a 20.0% increase in international passenger traffic and a 51.1% surge in non-aeronautical services revenue.
- Profitability: Operating income rose 58.7% to Ps. 837.6 million. Net income (Mexican GAAP) more than doubled to Ps. 607.0 million, aided by a Ps. 113.8 million tax benefit from a reduction in statutory income tax rates.
- Expense Management: While operating expenses increased 12.2% due to higher service costs and technical assistance fees, they decreased as a percentage of revenue from 65.8% in 2003 to 57.6% in 2004.
- Passenger Traffic: Total passengers served reached 13.9 million (up from 12.2 million in 2003), with Cancun International Airport accounting for 72.0% of total traffic.
- Financing Result: Net comprehensive financing income turned to a cost of Ps. 28.7 million in 2004 (compared to income of Ps. 25.5 million in 2003) due to higher losses on monetary position and lower interest rates.
Guidance, Outlook, Risks, and Contingencies
Outlook and Capital Commitments
- Master Development Plan: The company has committed to Ps. 1.67 billion in investments for the period 2004–2008 to upgrade airport infrastructure. Funding is expected to come primarily from cash flow from operations.
- Expansion: ASUR is seeking land from the Mexican federal government to construct a second runway at Cancun International Airport to accommodate growing traffic.
- Dividends: Stockholders approved a net ordinary cash dividend of Ps. 0.62 per share for 2004, paid in May 2005.
Key Risks
- Regulatory Risk: Revenues are subject to a "dual-till" price regulation system. Exceeding maximum rates can result in fines, rate reductions, or concession termination. A devaluation of the peso could cause the company to exceed these rates.
- Concentration Risk: Cancun International Airport generated 76.4% of total revenues in 2004. The business is also heavily dependent on the U.S. economy, with 69.4% of international passengers traveling to/from the U.S.
- Customer Concentration: Airlines controlled by Cintra (Mexicana and Aeromexico) accounted for 19.5% of revenues in 2004.
- External Factors: Risks include terrorist attacks, health epidemics (e.g., SARS), natural disasters (hurricanes), and political instability in Mexico.
Contingencies
- Legal Proceedings: ASUR is involved in litigation regarding the termination of duty-free store leases (e.g., Dufry Mexico). An arbitration ruling in April 2005 required Dufry to pay $3.7 million and vacate a store, though compliance is not guaranteed.
- Tax Disputes: Municipalities have requested property taxes on airport land, which ASUR contests based on public domain laws.
Investor Verification Checklist
- GAAP Reconciliation: Verify the significant difference between Mexican GAAP Net Income (Ps. 607M) and U.S. GAAP Net Income (Ps. 248M) due to the capitalization of airport concessions and deferred tax treatments.
- Regulatory Compliance: Confirm that the company did not exceed maximum regulated rates in 2004, which could trigger penalties or concession revocation.
- Cancun Dependency: Assess the impact of any downturn in tourism to the Cancun/Mayan Riviera region, given it represents over 75% of revenue.
- Second Runway Status: Monitor the progress of land acquisition negotiations with the Mexican government for the Cancun second runway, a critical growth driver.
- Exchange Rate Sensitivity: Evaluate the impact of peso fluctuations on dollar-denominated passenger charges and the risk of exceeding peso-based maximum rates.
- ITA Relationship: Review the technical assistance agreement with ITA (holding 15% equity), which dictates management appointments and incurs fees based on earnings.