Good day, ladies and gentlemen, and welcome to the ASUR First Quarter 2014 Results Conference Call. My name is Alan, I'll be your operator. [Operator Instructions] As a reminder, today's call is being recorded. For opening remarks and introductions, I'd like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please proceed, sir. .

Thank you, Alan, and good morning, everybody. Thank you for joining us today for a conference call to discuss our first quarter 2014 results.

Allow me to remind you that certain statements made during the course of our discussion today may constitute forward-looking statements, which are based on current management expectations and beliefs, and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including factors that may be beyond our company's control.

For an explanation of these risks, please refer to our filings with the Securities and Exchange Commission and the Mexican Stock Exchange..

I will start today's conference with an update on San Juan, Puerto Rico International Airport. Afterwards, I will briefly review the results for the quarter. .

Passenger traffic at San Juan Airport was up 10.8% quarter-on-quarter to MXN 2.2 million, reflecting seasonality. Weather conditions in the north of the United States, particularly in the case of New York, also negatively affected traffic for the quarter.

A historic net income contribution this quarter for ASUR's 50% ownership stake was a gain of MXN 10.6 million, compared with the MXN 122.1 million lost in the first quarter 2013. Note that we took over these airports on February 27, 2013, and before the onetime expenses on -- of MXN 112 million in the first quarter 2013. .

We remained focused on implementing our plan to upgrade the airport facilities at San Juan to improve the level of service offered to our passengers and to add commercial revenues. In line with this strategy, we are now remodeling Terminal B, which was closed last November and work is expected to be completed by the year end. .

The overall airport upgrade should continue for approximately 3 years, as we remodel Terminal C and make some minor adjustments at Terminal A. .

Before reviewing ASUR results for the quarter, let me remind you that we published, on January 3, at the year end, we completed our [indiscernible] process, which resulted in a 3.7% decrease in weighted average maximum tariff, and includes a 0.7% efficiency factor, which means that with the same amount of passengers and similar weeks, regulated revenues this year will be at 3% lower in real terms compared to 2013.

Note also that the maximum rate was adjusted with [indiscernible] in petroleum, which during 2013 increased 0.1% compared with a 4% decrease in the consumer price index..

Moving on to the results of the first quarter. Passenger traffic increased 6.2% year-on-year and to all-time high of 5.9 million. This was achieved despite the tougher comps, as in 2013, Holy Week fell in March, while this year it fell in April. .

Domestic traffic rose 4.9% to 2.1 million passengers, a record for a first quarter, with Cancun achieving an all-time high of more than 1 million passengers and reporting increases across most airports. .

Cozumel and Huatulco, however, posted a weak performance. Passenger traffic at Cozumel was affected by the reduction of frequencies at easyJet, the only airline flying to and from Mexico City Airport. While lower traffic at Huatulco was terminated due to the effect of Holy Week falling in April this year. .

International traffic grew 6.1% year-on-year, reaching a high of 3.8 million passengers. The share of international traffic rose 40 basis points to 65.4% of total traffic. .

Passenger traffic between Mexico, Canada and the United States represented 87% of the total traffic compared with 86.3% a year ago. While total revenues rose slightly, 0.6%, excluding the 6.7% reduction in construction revenues, it increased 6.1% year-over-year. .

Commercial revenues per passenger were up 5% year-on-year to MXN 77.95, again beating previous levels and reflecting the opening of Terminal 1 at Cancun International.

But I have to mention -- as I have mentioned before, we do not expect a significant expansion in commercial revenues per passenger until the capacity constraints contemplated in the new MDP are addressed. .

Operating flows and expenses rose -- sorry, fell 2.7% during the quarter, including the 75% decline in construction cost.

Operating costs and expenses would have increased by 11.5%, mainly driven by the combined effect of the reinvestment last year of the fee savings I mentioned with the privatization process of San Juan, Puerto Rico, and with the opening of Terminal 1, to provide a relief to Cancun's Terminal 2, and higher direct cost of sales resulting from the 18.5% increase in revenues from direct operations.

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EBITDA grows 3.7% year-on-year for a total of MXN 951 million, representing an EBITDA margin increase of 202 basis points to 68.76%..

We invested [indiscernible] MXN 7 million this quarter, mainly to begin the expansion work at the terminal in Veracruz. In terms of our balance sheet, we closed the quarter with cash and cash equivalents of MXN 1.6 billion, while bank debt stood at MXN 2.8 billion at the quarter end. .

Now let me open the floor for questions. Go ahead. .

[Operator Instructions] We'll first go to Neal Dihora with Morningstar. .

Hey, you mentioned the increase in cost for services partly due to owning more concession stores.

What percent of the concession stores that you have are your own now versus somebody else operating them?.

Can you repeat your question?.

So it sounds like your operating your own concessions stores in some of the terminals, but I assume you have some other stores some other people operating what is it the road the revenue.

What portion of the stores are yours? Are the ones that you operate?.

I don't have a percentage, but you have in the report our revenues from direct commercial operations, so you have the total amount of the commercial and you can work out how much is the others and how is us, the number. You have it in the report. .

[Operator Instructions] We will now go to Stephen Trent with Citi. .

What's your take on the Mexico City airport? Is there a -- do you see no new airport coming? Or do you now simply just see [indiscernible] Juarez International Airport.

Do you see that FCT [ph] partially privatizing this installation, or is this against Toluca?.

I don't any information about the Mexico City airport with the exception of what has been published in the newspapers everyday. I think the latest news that we had was published 2 days ago, where they were saying that they will make some decisions on these airports up to July this year.

And that's the latest statement that we have, that's the only thing that I can share with you. .

Okay. So I just -- I guess, I'm just trying to get your sense of what you think the potential is for a Mexico City airport. I guess, with no new airport coming [indiscernible] privatize or not. I guess, just one other question, since there's a lot of people online, what's happening with cash flow from operations.

Has there been some sort of adjustment in working capital policy here, or is this like a short-term fluctuation?.

In terms of the cash flow for the quarter, you can really -- you should remember that we paid dividends at the end of last year.

And during the first quarter, we paid tax on dividends, with an amount, probably it's not exactly -- because this is coming from the top of my head, but MXN 285 million, that's what I remember we paid in taxes because it's due in this first quarter. And probably that is the reason of your question. .

Okay, understood. Now, also, we're just trying to get a run rate for [indiscernible] CapEx for the full year.

How does 1Q compare to required CapEx for the full year?.

Your line is cutting. I cannot hear you very well. .

I'm sorry about that.

We're just kind of wondering how 1Q CapEx compares to the required CapEx for the full 2013?.

Well, on January 3, we published our committed investments for the year. The plan has approved basically at the end of last year, so during the first part of, we were basically focused on making, trying to make the accepted projects, then to make or select contractors, making bidding process, signing contracts.

So as you can see, that was the -- what has been very low in comparison of what we have to spend during the full year.

You will see, of course, speed up on the second, third and fourth, the total amount, again, it's -- the tax figures in the document we published on January 3, but from the top of my head, it's MXN 1.2 billion, again, we had 30-something that we invested this quarter.

So the beginning of this year is basically the preparation for investments that we will be making during the second, third and fourth quarter. .

Okay, understood.

I guess, my last question would be, do you see it evenly spread out or does it look, maybe just [indiscernible] and probably maybe see the most in 4Q?.

Most of the revenue, it can be made during the 4Q. .

And next, we'll go to Victor Sanchez with Morgan Stanley. .

This is actually Ricardo Alves from Morgan Stanley. I'm sorry, I had to jump off the call a bit, so I apologize if this has been asked. I just want an update on the new terminal in Cancun.

What is the view of the company in terms of commercial revenue per passenger? Because I assume this -- we're probably going to see higher growth once the terminal is at full speed? So an update on that, that would be great. .

Well, basically, today we're working in concluding the renovation of Terminal 2, then we will proceed, and we are now working on that, which is expansion of Terminal 3. And then finally, Terminal 4. Today, what we are doing in terms of Terminal 4 is the design of the terminal.

We are in the early stages of the design of the terminal, basically selecting the sites, working on the permits, environmental permits and all this. And in terms of your question, your specific question, commercial revenues for Terminal 4, what we expect is, that it would be better than what we have today for the same passengers.

Even though the Terminal 4 is going to be domestic and international in the same way that Terminal 2 is today. So what we expect is to have a better facility. A facility with a better layout than the one that we have today in Terminal 2. Remember, Terminal 2 is something that we received from the government at the beginning of the concession.

Yes, it's clear that we have been able to [indiscernible] and change some of these terminals, but of course, it's not the same, to construct from old to design from scratch, than just to patch a building, so.

The answer, the clear answer is, we expect to have a better commercial revenue per passenger in comparison with the facilities that we have today. .

That's very helpful.

And in terms of -- there is no precise timing for the conclusion of Terminal 4, is there?.

Well, for the moment, the time we have is 2017. .

I'm sorry, I didn't get that, sorry. .

2017 for Terminal 4. 2015 for the expansion of Terminal 3. .

Okay. Got it. And finally, just another one on the same topic, actually.

So you do expect commercial revenue per passenger to be a little bit lower -- or at least to see slower growth going forward until you deliver the expansion of Terminal 3 and conclusion of the Terminal 4? Would you expect the growth in commercial revenue to be sluggish a little bit?.

Exactly. That was what I have been saying. Do not expect a higher growth in commercial revenue per passenger until we can address this capacity constraint. .

And now we'll take a question from Bernardo Velez with GBM. .

I was wondering, and if I recall correctly, your expertise technical assistance contract ends on August.

So my question is, could we expect the automatic renovation of this contract? Or has ASUR thought of calling a shareholders meeting in order to discuss the renovation or another to change the terms of the contract?.

Okay. This is a good question because this allows me to remember you and the others, that we have published our 20-F report and our similar report for the Mexican authorities. As we think about April, we think that there's just a [indiscernible]. And your question is clear, it's answered in that report as well.

The terminal at [indiscernible] was renovated last year, so I don't know why you are saying that it should be opposed [ph]. That's the other [indiscernible]. .

Okay.

So you have already renovated, and so it's for a 5-year term, right?.

Exactly. .

Okay.

And I suppose that within this contract, you continue to receive some of benefits coming from, I don't know, expertise in terms of construction, operation of new airports and stuff like that, right? So I guess my question is, when can we expect ASUR to be expert enough so that it doesn't need this contract anymore?.

That's a tough question. In a sense, when do you really want to have all the experts inside the company and paying them all the time? That's a good question. Maybe when we have the size enough for that. Let me give you one clear example, something I had mentioned some minutes ago. Today, we are in the process of the design of Terminal 4.

Of course, we have a lot of people in the company that knows about how to run an airport and knows about how to design a building. But believe me, this is a major task, and you do not construct these buildings every day. So because of this, [indiscernible] are receiving technical assistance for these particular tasks.

This is just one small example of what we are receiving today from this contract. And I believe you have, on board, all the people that we need for these particular tasks. .

Okay.

So it's probably more about onetime effects or needs that ASUR may need, right?.

Another example -- another clear example is the MDP and this is something that we do every 5 years. .

[Operator Instructions] We'll go to Jean Bruny with BBVA Bank. .

I just have a couple of question. This one is on your administrative expenses. That went down by 8% during the quarter and that now represents well below the 3% of sales that you used to represent before.

I just want to know if this trend will be maintained for the rest of the year, [indiscernible] administrative cost, or do you expect a rebound in coming quarters? The second question is on the [indiscernible] Cancun Airport.

We've seen some news in the newspapers reporting that you may have to pay the contact fees [ph] for the Cancun airport? Just want your view on that point. .

Okay, and let me go on the cost side. And the cost side this quarter was particular, because of 3 things. Well, first, you shouldn't choose construction cost and construction revenue from your analysis, in my opinion. These being distortion, always, the information of the company. So I recommend you to exclude that from your analysis.

Second, if you remember that last year, during the first quarter, we recuperated the expenses we made in the case of the privatization process of San Juan, Puerto Rico, you have it on the report. There's a clear indication in that report the [indiscernible] here. How much we received because of that.

So you have the positive effect, but today it's a different compulsion. And the third one has to do with the direct costs of our commercial direct operations. We had a very significant increase in sales during the quarter. It was an 18.5% increase. And of course, the 18.5% increase in direct cost is small. Let me explain this.

If you are selling 100 magazines, the cost that we will have for this 100 magazines is going to be different against selling 118 magazines, okay? So these are the 3 effects that we have for one time, let me put it that way. Of course, the direct cost is not in the sense of one time, but the onetime is due to the increase of 17.8% -- or 17.5%.

And the other thing that we're having inside the cost today is the opening of Terminal 1 in November last year. But that is not one time, that's going to be for the future. So in that sense, the effect of additional cost, as from November last year, because of Terminal 1, is going to be there for sometime.

That, more or less, is what I can share with you. So, and the comparison for the second quarter is going to be different because of San Juan. We will not have a petition [ph] costs in the second quarter. We have -- we will have Terminal 1, and we will have some problems with increasing in sales in the direct cost. That's what I can say.

The answer -- the topic of tax you are talking about, and specifically, the liens we made into Cancun airport. Well, let me say that we are not the owners of the land, and there's some other legal aspects why we are not subject to that asset -- this asset tax, so this property tax.

Every 3 years, when a new guy comes into the development of a municipality, wants to collect more money, because always, they are -- they have a lack of money. So because of this, every 3 years, when a new guy came, he starts saying, we need to collect money from this airport.

And in the case of Cancun, we have gone this process through the courts and this final ruling, saying that we should not, and we are not, subject to these specific tax.

Of course, if the laws are changing in the future, and I have to say that the Constitution of a country, particularly the Article 115, change, then we could probably be subject to this tax in an indirect way, because we are not the owners of the property. The owners of the property is the government.

And because of this, we are paying the government a fee for the use of the land and the assets that are on the land and we are paying the concession fee. The concession fee, is the 5 -- more than 5% of the revenues. And these have represented 20% of the profit of the company for the last 15 years.

So it's a significant amount, what we have to pay to the government, the federal government, for the use of a concession asset, okay? These are concessions, it's not that we own the property and that is why we are not, at the moment, subject to the tax. I don't know if I was clear in the answer. .

[Operator Instructions] It looks like there are no further questions at this time. So Mr. Castro, I would like to turn it back over to you for any additional or closing remarks. .

Thank you, Alan. And thank you everybody for joining us today on the conference call. As always, do not hesitate to contact me if there's any further questions. And thank you for being here today, and I believe in the afternoon, you will be able to see what are the results for our shareholders' assembly that will start 20 minutes from now.

Thank you, and have a great day. Goodbye. .

And that does conclude today's conference. We thank everyone for their participation..