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: First Quarter ended March 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
| Metric | 1Q2010 | 1Q2009 | Change |
|---|---|---|---|
| Total Revenues | Ps. 970.4 million | Ps. 984.7 million | (1.45%) |
| EBITDA | Ps. 666.0 million | Ps. 685.8 million | (2.88%) |
| Operating Profit | Ps. 506.3 million | Ps. 527.4 million | (4.01%) |
| Net Income | Ps. 375.5 million | Ps. 341.7 million | 9.87% |
| Earnings Per Share (EPS) | Ps. 1.2515 | Ps. 1.1391 | 9.87% |
| Earnings Per ADS (US$) | $1.0150 | $0.9238 | 9.87% |
| EBITDA Margin | 68.63% | 69.64% | (1.01 pp) |
| Operating Margin | 52.17% | 53.56% | (1.39 pp) |
| Commercial Revenue per Passenger | Ps. 60.15 | Ps. 60.62 | (0.79%) |
Liquidity and Debt:
- Cash and Marketable Securities: Ps. 1,331.45 million (down 31.57% from 1Q09 due to a Ps. 1,884 million dividend paid in 2Q09 and new borrowings).
- Total Bank Debt: Ps. 495.71 million as of March 31, 2010.
- Capital Expenditures: Ps. 94.31 million invested in 1Q10 for airport modernization.
Material Changes vs. Prior Period
Passenger Traffic: Total traffic declined 3.63% year-over-year to 4.68 million passengers.
- International: Down 3.52%, driven by a 4.03% decline at Cancún Airport.
- Domestic: Down 3.86%, with significant declines at Cozumel (-35.09%), Oaxaca (-23.19%), and Tapachula (-19.93%).
- Context: Traffic was impacted by the H1N1 Influenza outbreak announced in April 2009 and the global recession. While traffic declined significantly in mid-2009, it showed signs of recovery in early 2010 (0.2% increase in March).
Revenue Composition:
- Aeronautical Revenues: Declined 0.90% due to lower passenger volumes.
- Non-Aeronautical Revenues: Declined 2.49%. Commercial revenues fell 3.74% overall.
- Specific Commercial Declines: Advertising (-31.95%), Teleservices (-21.66%), Duty-free (-11.84%), and Parking (-10.30%).
- Specific Commercial Increases: Banking/Currency Exchange (+52.30%), Car Rentals (+15.67%), and Ground Transportation (+9.41%).
Cost Structure: Total operating costs increased 1.51%.
- Administrative Expenses: Increased 38.31% due to labor cost reassignments from Cancún operations to corporate.
- Concession Fees: Increased 3.80% due to a higher taxable base.
- Cost of Services: Decreased 3.07% due to prior employee reassignments.
Taxation: Net income increased despite lower operating profit, primarily due to a 40.68% decline in income tax expense. This was driven by a shift in tax treatment for Cancún Airport from the flat-rate IETU to standard income tax, and the recognition of tax loss carryforwards.
Guidance, Outlook, and Risks
Management Commentary: Management attributes the decline in traffic to the lingering effects of the H1N1 outbreak and the global recession. The company notes that traffic trends improved in March 2010 compared to the severe declines seen in mid-2009.
Regulatory Environment: The Mexican Ministry of Communications and Transportation regulates maximum rates for aeronautical services. Regulated revenues accounted for approximately 72.45% of total income in 1Q10.
Accounting Changes: New Mexican Financial Reporting Standards (NIFs/INIFs) took effect January 1, 2010. Management is evaluating the impact of INIF 17 regarding concession contracts but does not expect significant impacts from other new standards.
Risks and Contingencies:
- Forward-Looking Statements: Future expectations are subject to risks identified in SEC filings; actual results may differ significantly.
- Interest Rate Risk: The company has hedged 100% of its interest rate exposure on its Ps. 750 million credit agreement using swaps fixed at rates between 6.21% and 6.37%.
- Exchange Rate Risk: The company reported a Ps. 7.2 million exchange rate loss in 1Q10.
Investor Verification Checklist
- Tax Impact Sustainability: Verify if the significant drop in tax expense (driven by the shift from IETU to income tax for Cancún) is a one-time benefit or a structural change affecting future margins.
- Traffic Recovery Trajectory: Monitor monthly passenger traffic data to confirm if the 0.2% growth in March 2010 signals a sustained recovery from the H1N1 and recession impacts.
- Commercial Revenue Mix: Assess the sustainability of the 52.30% growth in banking/currency exchange revenues versus the sharp declines in advertising and duty-free sales.
- Administrative Cost Run-Rate: Determine if the 38.31% increase in administrative expenses is a one-time adjustment due to employee reassignment or a permanent increase in overhead.
- Debt Servicing: Review the terms of the Ps. 750 million credit agreement and the impact of the interest rate hedge on future cash flows.