Good day, ladies and gentlemen, and welcome to ASUR's Third Quarter 2021 Results Conference Call. My name is Ally, and I will be your operator. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of today’s conference. As a reminder, today's call is being recorded.

I'd now like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead..

Thank you, Ally, and good morning, everyone. Thank you for joining our conference call to discuss ASUR's third quarter 2021 financial and operating results. I hope that you and your loved ones remain healthy and safely.

Additional details about our quarterly results can be found in our press release, which was issued yesterday after market close and is available on our website in the Investor Relations section.

Let me remind you that certain statements made during this call may constitute forward-looking statements, which are based on current management's 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, including the impact from COVID-19.

Please refer to the filings with the Securities and Exchange Commission and the Mexican Stock Exchange. Passenger traffic continued to improve across the board, reaching a total of nearly 14 million passengers in the third quarter, which was only 1.4% below the pre-pandemic levels of 3 quarter 2019.

Again, Puerto Rico posted the strongest recovery, beating third quarter '19 levels by over 16%. Domestic traffic was up 22%, more than compensating for weaker international travel, which was down in the high-20s.

Mexico delivered the best performance in terms of international traffic on the back of successful vaccination process in the U.S., nearly reaching pre-pandemic levels of 3 quarter '19. Our 8 smaller airports in Mexico posted a recovery in high-20s while traffic in Cancun was just 2% below 3 quarter '19 levels.

At the same time, domestic traffic in Mexico and Colombia continued to recover during the quarter. Compared to the pre-pandemic levels of third quarter '19, domestic traffic in Mexico was only down by 9%, improving from the 12% drop posted last quarter. Note that Cancun Airport reached the domestic traffic levels of third quarter '19.

In Colombia, domestic traffic was only 4% below third quarter '19 levels. Compared to the previous quarter, 30% decline against second quarter 2019.

On a monthly basis, traffic continued to gradually recover throughout the quarter with the total traffic beating third quarter '19 levels by 3%, driven by Puerto Rico and Colombia, which were both above pre-pandemic levels, while Mexico was slightly down by 1% as domestic traffic lagged behind international recovery.

Looking ahead at the travel trends, the ongoing vaccination rollout in the U.S. with 57% of the population fully vaccinated and 62% with at least one dose should contribute to a continued recovery of the international traffic in our Mexican operations, a better outlook for the winter travel season.

We also expect Mexico domestic traffic to continue its gradual recovery as the vaccination roll and the economy recovers. These further supported by the gradual advance of vaccination campaigns and the lifting of travel restrictions across various countries.

However, we expect that business travel will take more time to recover, resulting in slower recoveries at airports like Mérida, Veracruz and Villahermosa in Mexico, which are more than 20% below 2019, during the quarter.

We also remain cautiously optimistic about the global trend, and therefore, expect total traffic to reach the 12-month record that we set in February 2020 during the second quarter of 2022. Moving on the ASUR's financial performance.

Our strong balance sheet enables us to ramp up operations to meet demand as travel conditions continue to gradually recover. We closed another quarter with a solid financial position.

Cash and cash equivalents reached Ps.11 billion, more than doubling December 2020 levels at all three of our countries operations contributed to higher cash position with increases of over Ps.8 billion in Mexico, Ps.2 billion in Puerto Rico and slightly over Ps.0.5 billion in Colombia.

Total financial debt at the quarter end at Ps.14.1 billion, up just 1% from the year-end 2020 levels. Net debt to last 12 months EBITDA was 0.4 times at the close of the quarter, while the interest coverage ratio improved to 6.9 times from 5 times in the prior quarter. We also maintained a healthy maturity profile.

Note that on October 19th, we refined our loan with BVA at Cancun Airport, extending its maturity by seven years with principal payments now starting in 2023. This brought down our principal payments stepped to 0.4% total debt for the fourth quarter at the year-end and 3.5% next year.

Note that on October 1st, we paid an ordinary net cash dividend of Ps.8.21 per share that has been approved at our Annual Shareholders Meeting of 2020 or a total of Ps.2.5 billion. Accounts receivables in turn dropped 18% sequentially, mainly driven by declines of 58% in Puerto Rico, 3% in Mexico and 10% in Colombia.

Revenues ex construction rose 154% to Ps.4.5 billion, year-on-year. Importantly, we achieved an 11% increase in revenues over pre-pandemic levels in third quarter '19 with non-aeronautical services of 17% and aeronautical services nearly 8%.

Mexico accounted for 67% of the total ex-construction revenues in the quarter while Puerto Rico and Colombia represented 22% and 11%, respectively. On a sequential basis, revenues ex-construction increased 11%. Commercial revenues increased year-over-year across our operations, over 210% in Mexico, 133% in Puerto Rico and nearly 190% in Colombia.

On a per passenger basis, commercial revenues remained distorted by the reduction in passenger traffic, reaching nearly Ps.118 compared with the pre-pandemic level of Ps.99 posted in the third quarter '19. Operating expenses, ex-construction costs increased 31% year-over-year, reflecting mainly higher activity in Mexico.

By contrast, consolidated costs were down mid-single digits when compared with third quarter '19 levels, even despite the 11% increase in revenues during the period.

In Mexico, cost ex-construction increased 43% year-on-year, mainly due to the higher technical assistance and concession fees, driven by higher revenues and EBITDA along with a higher cost of services. Compared to third quarter '19, operating costs and expenses ex-construction rose 7%, below the 10% increase in revenues ex-construction.

Cost in Puerto Rico rose nearly 10% year-on-year, but declined 27% when compared with third quarter '19. During the quarter, we -- the airport of Puerto Rico reported PS.165 million in expenses from the plant under the CARES Act compared with the reimbursement of expenses of PS.113 million in the same quarter last year.

Lastly, expenses in Colombia increased 33% year-over-year, largely reflecting higher concession fees related to the recovery in traffic levels.

Consolidated EBITDA increased Ps.2.2 billion this quarter, up from Ps.755 million in the third quarter 2020, reflecting the current recovery and travel demand as vaccination programs advanced worldwide and travel bans are lifted. Compared to third quarter '19 pre-pandemic levels, EBITDA was up 18%.

All countries of operation reported EBITDA gains in the quarter, with Mexico contributing Ps.2.1 billion, Puerto Rico over Ps.0.5 billion and Colombia Ps.273 million. In percentage terms, EBITDA in the quarter compared with third quarter '19 levels increased by 14% in Mexico, 15% in Puerto Rico and 1% in Colombia.

Adjusted EBITDA margin, excluding IFRIC 12, increased to 68% in the third quarter, up from 65% in the prior quarter and 64% in the third quarter '19. Adjusted EBITDA margin reached 72% in Mexico, 59% in Puerto Rico and 57% in Colombia.

With regard to CapEx, we invested just over Ps.600 million during the quarter, the majority of which was invested in Mexico, while 46% were invested in Puerto Rico and nearly Ps.2 million in Colombia. Year-to-date, we have invested a total of Ps.1.5 billion.

Note that we expect to spend more CapEx during the fourth quarter as we met our committed investments of Ps.3.5 billion for the year in Mexico. In Mexico, we remain on schedule with the expansion of the terminal building in Mérida.

The second phase of the project is expected to open during the fourth quarter and the construction of the parallel taxiway of the second runway at Cancun Airport also expected to open during the fourth quarter.

And we are expanding the first phase of the Terminal 4 expansion, while in Puerto Rico, we are undertaking major maintenance repairs to runways and taxiways. Before moving to the Q&A portion of the call, a recap of my third quarter review.

We maintained a solid balance sheet, enabled us to ramp up ASUR’s operations consistently with the recoveries in each of the markets.

We also remain confident in our ability to effectively leverage ASUR's attractive airport network to continue rebuilding our passenger base longer term given the encouraging growth trends that we see across all our markets.

And because of the pandemic remains unpredictable and continues to affect travel demand, we continue cautiously managing our cash and variable costs. This concludes my remarks for today's call. Ally, please open the line for questions..

And we'll go ahead and take our first question from Guilherme Mendes from JP Morgan. Please go ahead..

Hi, Adolfo. Good morning. And thanks for taking the question. I had two questions, actually. The first one is in terms of traffic recovery. You mentioned that you do expect traffic to be back to peak levels by the second quarter of 2022. Just wondering what we should expect after that.

So, consider that traffic should be back by mid next year back to '19 levels, what to expect for the second half of next year? Should we expect like the normalization on the growth or still some kind of in-time demand? And the second question is regarding the MDP tariffs.

If you could share how much has already implemented in terms of your recent renewal situation?.

Okay. Hi. Good morning. Thank you for your questions. First, in terms of the traffic for next year, what I have said is that we should be reaching the peak of last 12 months passenger traffic that we reached in February 2020 by the second quarter next year.

After that, if everything goes back to normal, so that the pandemic disappears and everything is back, we should be seeing the normalized growth in each one of the regions we are working on.

In terms of the traffic -- sorry, in terms of the tariff, what I have said in the second quarter's earnings call is that we will not be able to reach the 99.8% maximum tariff compliance that we have reached over the last 20 years, due to the maximum tariff increase that was approved at the beginning of April this year.

The maximum tariff is something that is measured once a year. So, once the fourth quarter is over, we will be able to measure how much we're going to reach. But, of course, as I have said, we are not going to reach the 100 this year.

We're going to be very far away from that and we should expect to reach the 99.8% that we normally reach during that year..

We'll go ahead and take our next question from Maroki Asuka from GBM..

Could you give us some color or some detail regarding the refinancing of your debt with Santander?.

Yes, of course. The refinancing was made on a three years period. So, you can see in the report that we have nothing to pay next year, and we will start paying on the natural basis Santander during ‘23, ‘24..

Okay. Just a follow-up question. We saw that increased the rate 25 basis points on that credit.

Could you give us some color on that?.

So, as you can see in the report, you can see the rate, the spread over TA is 1.5..

And we'll go ahead and take our next question from Alejandro Zamacona from Credit Suisse..

Just a follow-up question on the airport tariff increase. So, when we look at revenues per workload unit on a sequential basis, we didn't notice any airport fees increases in this third quarter. We understand that the fees increase negotiated in April kicking in July.

So, can you just confirm if you already implemented, at least partially some of that 17% increase in real terms in the Mexican airports?.

Yes. Alejandro, the 17% you are mentioning is the weighted average. So, each one of the airports has its own particular increase. And you can see that in the report. It's very clear that if this approval came in April, so we lost the first three months of the year in terms of the possibility of increasing the rates.

And then, it takes us between three to four months to increase the rate. It was not possible to reach the 99.8% maximum tariff compliance this year. Otherwise, the increase that we applied had to be extremely high. So, we're going to be very far from the 99.8%, and we expect to reach that ultimately..

Okay.

So, when we think about the fourth quarter of '21, we should see a sequential increase in working load unit -- on revenues by working load unit, right?.

Yes, that's right. And of course, I said before, maximum rate is something that is measured on annual basis. So, in reality, today, we cannot say how much we're going to reach or how much we are reaching..

And we'll move on to our next questioner from Stephen Trent from Citi. Please go ahead..

I recall, last month, maybe there was some news that the AMLO administration wanted to build a second airport in Mérida, and I heard you say something about Mérida Airport, and I missed it.

But, I wasn't sure if this is anything you can substantiate or it's just kind of random news?.

Well, I have not heard anything from the President on that respect. I have heard from the Governor of the state mentioning that they are trying to see if the airport can be relocated. But, that doesn't mean that we will not be the operator in the case of.

And in the case of someone will have to construct the facilities and then we will be operating that airport..

Okay. Perfect. Thanks, Adolfo.

And just really quickly, in terms of what you see in potential future traffic flow, is there any kind of sense from your side whether a commercial airport Santa Lucía and Mexico City would align at least with as far as long-term traffic flow expectations?.

Well, you know that this project is extremely important for us and for the whole system because most of the traffic of the country in terms of the domestic traffic, comes or goes to the metropolitan area. So, of course, today, Mexico City Airport is not congested due to the pandemic situation, it has excess of capacity.

Of course, in the future, what we expect is the traffic to recourse. So, the importance of this project is, once this happens, of course, you will have -- we will have some additional capacity for the metropolitan area in order to be able to serve the inflow traffic to our efforts..

And we'll move on to our next question from Rodolfo Ramos from Bredesco. Please go ahead..

Thank you. Good morning, Adolfo. And congrats on the results. I was just wondering if you can elaborate on your outlook for your operating expenses. We saw some good control this quarter. And we're still below the 2019 levels, despite some inflationary pressures that you've seen.

But as traffic continues to recover, where do you see operating expenses normalizing?.

Rodolfo, hi. Good morning. Thank you for your question. Well, basically, as you are mentioning, the inflation in this country is really high and as it is in some others. We are putting the brakes on the cost side since the second quarter 2020, and we are doing as much as we can to control these and you can see some of the results.

Of course, the expectation is that once everything is normalized, the cost side should go back to the 2019 levels. Of course, inflation, it's going to be a crucial element on that as well. But yes, it's true, we are doing good in terms of managing the cost side of the Company..

Thank you. And if I may, a follow up here on traffic. You mentioned that you do expect traffic to recover to the peak levels by the second quarter of next year.

Just wondering if you have a visibility, what we've seen so far in October, but if you have any visibility as to how markets have been largely absent from this recovery in Canada, Europe or markets that were hit more severely by restrictions, if you have any visibility as to how they're coming back? I don't know if you could talk about bookings, or any color that you can give us as to how do you expect these segments to contribute to traffic into this winter season?.

Absolutely. That is why I was saying in the initial remarks that we're expecting a better outlook for the winter. Yes, we have some requests from the airlines. But, this request does not mean that they will be used a lot. So, they can cancel the slots at the last minute that they have done during the pandemic levels.

But, it's clear that we lost in Canada basically in the high season at the third week of January this year. So, we are expecting them to go back and if the winter is strong in the North of Americas, it will be a good season for us. And that is also the case of Europe. In the case of Europe, probably, you can see the news.

And we are seeing some recoveries. Just to give you something -- or an example, yesterday, we had the first flight from Vienna. And in the case of Vienna, the flight was canceled 14 years ago. So, after 14 years, they're coming back to Cancun. So, yes, we are seeing also a recovery from the case of Europe..

We'll move on to our next question from Pablo Monsiváis from Barclays. Please go ahead..

I have two.

The first one is, provided that traffic recovers at some point in 2022 and that you are charging the full tariff, what are like the main important concerns for you in terms of what you want to do with the two? I mean, are you going to keep looking for other places to invest or to improve your commercial platform in Colombia and Puerto Rico? What are your thoughts here? Thank you..

Well, of course, the first concern is that we do not have another rebound of the virus that we don't see the fourth wave during the winter. That's my major concern.

If we go after -- and if we say that pandemic is over and we are, let's say, third quarter next year, of course, we will go back to normal and we will be looking for some of the attractive opportunities for the shareholders. Of course, we will be in a continuous effort to increase and to improve our commercial operations as we have done.

We have taken some opportunities in the case of Colombia, as you have seen. We have also been able to manage to replace some spaces that were empty in our airports and also to have new additions, as you have seen in the report as well..

Okay.

And a second question here, if I may, very strong recovery in Cancun, and thinking about the Canadians and Europeans going into Cancun in the fourth quarter and first quarter of next year, what do you think is the main constraint for Cancun to keep growing? I mean, can -- is room capacity enough to withstand, I don't know, the 10% traffic growth for next two, three years? What are your thoughts?.

Well, when we're saying 10%, well, of course, I have to say you need to say, okay, 10% is over 2019 levels. I can say that there are some construction in -- hotel construction projects today as we speak, and they should be opening very soon. So, additional capacity is being placed in the region, also in terms of Airbnb and things like that.

So, today, to be honest, I'm not concerned about the capacity. We are concerned about not having the fourth wave, and we are working also in terms of the cost control and increase in the commercial revenues..

We'll take our next question from Gabriel Himelfarb from Scotiabank. Please go ahead..

Hi, Adolfo. Congratulations on the results. Just a quick question. We think that inflation is rising and there's some constraints on supply chain, but the material costs -- steel costs are rising.

Do you think this could impact your planned investment in your MDP for some of it could be some planned investments to cost more than you were planning? Thanks..

Well, yes, of course. You're absolutely right. The increase in the construction side, it's really tough here and also the problems of the distribution of some materials. And we are suffering from that as we speak. Of course, that will have an impact on our CapEx.

But basically, we have to comply with what we -- have to meet with Mexican commitment as I have said in the last, we should comply with the Ps.3.5 billion for this year. Next year, it's a lower commitment and that should be around Ps.1.7 billion, Ps.1.8 billion.

So, the toughest part is right now, and we have to work really hard this quarter -- this fourth quarter to meet the commitment..

And we'll move on to our next question from Andressa Varotto from UBS. Please go ahead..

My question is on the commercial revenue side. We have seen a very good commercial revenue expansion in this quarter in operations.

So, I just wanted to know what is behind that? And what can we expect going forward? Can you say that commercial revenues are normalized already?.

Well, of course, as I have said to you in the remarks, I still believe that commercial revenues during the quarter still affected with the lack of passengers, so less passengers than normal. That's the first thing. The second thing is, I would say -- I would call it pandemic behavior, which car rental is higher than expected.

Parking lot is higher than expected. Food and beverage is lower than expected. Convenience stores are higher than expected, just to talk about the convenience stores. So, the people is not willing -- not all the people is willing to stay in a restaurant, so they prefer to grab and go. So that's why convenience store is increasing.

And these kind of things. I believe that in the future, this will normalize, and we will not see permanent effects from the pandemic in terms of the behavior from one side. And also, it's important to say that, as you have seen, passenger mix today is not the same as it was before.

So, proportionately speaking, we have more domestic of Europeans, more U.S. So, that also will have an effect on our commercial revenues in the future, once the passenger mix is adjusted as it was before..

And we'll go ahead and move on to our next question from Rodolfo Ramos from Bredesco. Please go ahead..

Just a follow-up on the CARES Act.

Do you expect any additional payments, or what is the remaining amount, or I don't know, what we should expect in the next quarter or so?.

Yes. Rodolfo, in the case of the CARES Act, the first grant that was given by the U.S. government, it's over. We're expecting the second and third programs. And yes, we can expect more for the coming months..

So, no detail as to the amount....

Sorry. I couldn't hear your question..

You don't have any visibility as to the amounts?.

No, I prefer not to say the amounts because we are not sure about those yet..

And we will take our next question from Stephen Trent from Citi. Please go ahead..

Hi, Adolfo. Thanks for taking my follow-up. And I apologize if I missed what you said before. But, we noticed your receivables -- days receivables look pretty strong.

How should we think about the trend going forward as you continue negotiating with some of your host airlines that are going through some financial difficulties?.

Hi, Steve. Well, they are -- they have improved during the quarter, basically because of the position the airlines have due to the recovery process. As I have mentioned in the reporters, we're still working well with all the airlines. The only problem we have in the past was in the case of Interjet, and that that's clear, and it has been reserved.

Going forward, I do not expect major problems or major issues from the airlines. So, we should be seeing the same or similar numbers that we have pre-pandemic levels in terms of receivables, of course, in relation with the operation of the company..

And that actually concludes the question-and-answer session for today's conference. I would now like to turn the call back over to Mr. Castro for closing remarks..

Thank you, Ally. And thank you again for participating in our third quarter results conference. On behalf of ASUR, we wish you a good day. And please stay safe. Goodbye..

Ladies and gentlemen, that concludes ASUR's third quarter 2021 results conference call. We would like to thank you again for your participation. You may now disconnect..