Good day, ladies and gentlemen, and welcome to ASUR's Second Quarter 2023 Results Conference Call. My name is Kevin, and I'll be your operator. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of today's conference.

[Operator Instructions] As a reminder, today's call is being recorded. Now I would like to turn this call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir..

Thank you, Kevin, and good morning, everyone.

Before I begin discussing our results, let me remind you that certain statements made during this call may constitute forward-looking statements, which are based on management's expectations and believes and are subject to several risks and uncertainties that could cause actual results to differ materially, including factors that may be beyond our company's control.

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. Following my presentation, I will be available for Q&A.

Before getting into a discussion of the quarterly results, let me start today's call with recent developments in terms of capital allocation. Through a U.S. subsidiary, ASUR recently entered into a joint business investment agreement with Grupo Abrisa and CVC One to develop and built a private international airport in Bavaro, Dominican Republic.

This entailed an initial investment by ASUR of $17.8 million that was paid in June, funded by internal generated funds. Once the construction of this airport is finalized, we expect to maintain a 25% ownership stake in venture, representing a total estimated investment for ASUR of $66 million.

The remaining $48.2 million to be invested by ASUR will be applied to the construction of the airport. The Abrisa Group is a well-respected and diversified business group based in Dominican Republic, with a leading market position in construction, real estate development, health and education.

Since its foundation, the Abrisa Group has been committed to helping people acquire basic goods and services, such as housing, healthcare and education. The Abrisa Group were the founders of AERODOM in 2002, which operated six airports in Dominican Republic.

Among them, Las Americas Airport in Santo Domingo that was sold to Advent International in 2008. Today, Punta Cana is the second most important tourism market in Latin America after Cancun and presenting a very attractive growth opportunity.

To put this in perspective, lodging capacity in Punta Cana is around 47,000 hotel rooms and is expected to double by 2040. This compared with 120,000 hotel rooms in Cancun region. In terms of passenger traffic, Punta Cana receives approximately 8 million passengers annually, with traffic expected to expand to [13 million] (ph) by 2040.

With capacity to serve 8 million passengers annually, Bavaro International Airport will provide modern and efficient facilities, offering a superior experience to both passengers and airlines, while acting as a catalyst for local business.

Additionally, the airport will be conveniently located approximately 12 kilometers from the current tourist hotel area and 32 kilometers from Punta Cana International Airport. The airport will be situated right between Bavaro Beach and the fast-growing new tourist area to the north of Bavaro around Playa Macao and Uvero Alto.

This area has currently experienced an increase in hotel development to absorb the sustained growth and tourist expected to continue over the next three decades in this region. The JV already owns the plot of the land to develop the new airport, which was approved by the government.

At the moment, it is in its initial phase of project planning and development, with the construction expected to start once the phase is finalized and authorized by the government. We expect the Bavaro International Airport to begin operations approximately three years from now.

Second, at the Annual General Meeting held on April 26, shareholders approved the distribution for an ordinary cash dividend of MXN9.93 per share that was paid at the end of May and an extraordinary cash dividend of MXN10 per share to be paid in November. Now, moving on to ASUR's operating and financial performance for the quarter.

Before starting, note that all comparisons are year-on-year, unless otherwise noted. As anticipated in our prior call, we saw a slowdown in total passenger traffic growth this quarter, up nearly 4%. Nevertheless, this was a record high for second quarter at 17.3 million travelers.

Recall that in the first quarter '23, traffic benefited from easy comps from Omicron during the first months of 2022, while this quarter, we are experiencing the negative effects of the suspension of two Colombian airlines earlier in the year, which is impacting our operation in that region.

On a consolidated basis, the share of domestic traffic over total traffic remained stable year-on-year at 63% of the total traffic during the second quarter. Moving next to a review by country. Starting with Mexico, posted a 9% growth in passenger traffic.

This accelerating from the double-digit levels experienced in the first quarter due to the easy comps because of Omicron in 2022. Domestic travel was up in the high teens, 17%, with traffic at Veracruz back to pre-pandemic levels.

International traffic was up in the low-single digits, mainly driven by Canada, which recovered pre-pandemic levels during the first quarter. Next, Puerto Rico delivered the fastest growth, up 15% with domestic traffic up 12% and international up by 44%.

Lastly, total passenger traffic in Colombia contracted nearly 18%, with declines of 20% and 4% in domestic and international passengers, respectively.

As mentioned in our prior call, this reflects the suspension of operations of Viva Air and Ultra Air in the first quarter, which represented 17.4% and 1.9% of 2022 passenger traffic in Colombia, respectively. The increase in value-added taxes from 5% to 19% at the beginning of the year also impacted traffic trends. Turning to the P&L.

Recall, all references to revenues and costs exclude construction and cost revenues. Also note that Puerto Rico and Colombia figures reflect the strong Mexican peso, which appreciated 15% and 18% versus the U.S. dollar and the Colombian peso since the end of the second quarter last year through the end of the second quarter this year, respectively.

Now, starting with the top-line. Revenues increased 5% to MXN6 billion in the quarter, mainly driven by growth in aeronautical and non-aeronautical revenues in Mexico, while Puerto Rico and Colombia posted declines of nearly 1% and 16%, respectively.

Overall, Mexico represented 74% of total revenues, while Puerto Rico and Colombia accounted 16% and 10%, respectively. Note that in local currency, revenues were up nearly 13% and 6% in Puerto Rico and Colombia, respectively.

Commercial revenues were up 6%, doubling passenger traffic growth, driven by increases of 8% in Mexico, 6% in Puerto Rico, more than offsetting the 15% decline in Colombia. On a per passenger basis, commercial revenues increased to MXN122, up from nearly MXN120 in the year-ago quarter.

Region figures range from MXN142 in Mexico to MXN146 in Puerto Rico and MXN41 in Colombia. In local currency, Puerto Rico and Colombia posted increases in commercial revenues per passenger of 5.1% and 31.3%, respectively.

This performance reflects our sustained focus on expanding our commercial offerings to further increase the travel experience of our passengers across our airports network. In this respect, during the last 12 months, we opened 20 new commercial spaces in Mexico, four in Puerto Rico and 44 in Colombia. Turning to cost.

Total comparable operating expenses were up 8% compared to 5% revenue growth in the quarter. Note that comparable costs exclude the effect of MXN252 million expense recovery this quarter, resulting from the application of the CRRSAA Act in Puerto Rico compared to a benefit of MXN175 million in the same quarter last year.

In Mexico, expenses rose 16%, above 10% revenue growth, while we maintained a tight control on expenses. The increase was primarily driven by the higher cost of services, reflected the effect of 20% increase in the minimum wage at the beginning of the year. In turn, strong capital investments last year drove higher amortization expenses.

In Puerto Rico, cost declined 15%, benefited from a higher expense recovery under the CRRSAA Act this quarter compared to the second quarter '22. Excluding this recovery in both periods, expenses would have increased 11%, as higher professional fees and maintenance more than offset savings in personnel and energy cost.

Cost in Colombia declined 8%, as provisions for [bad account] (ph) in connection with the suspension of two local airlines were more than compensated by decline across [indiscernible]. Consolidated EBITDA for the quarter was up 3%, reaching MXN4.2 billion, mainly driven by higher profitability in Mexico, up 9% to MXN3.3 billion.

This performance was partially offset by declines of 8% in Puerto Rico to over MXN530 million and 24% in Colombia to over MXN300 million.

In turn, consolidated adjusted EBITDA margin declined 140 basis points to 69%, reflecting contractions of [200] (ph) basis points in Mexico to 74.3%, 430 basis points in Puerto Rico to 54.5% and 530 basis points in Colombia to 52.6%.

To recap, we delivered another good quarter in Mexico, affected by the strong peso and the effects of the two Colombian airlines that has stopped operations during the quarter.

Moving to our financial position, we maintain a robust balance sheet with cash and cash equivalents over MXN14 billion and a healthy debt profile after paying the ordinary dividend at the end of May, which amounted to a total of nearly MXN3 billion.

Accounts receivables increased 7%, driven by half passenger traffic in Mexico and Puerto Rico, together with combined receivables of MXN23 from the two local airlines that were suspended earlier this year. Finally, capital expenditures in the quarter totaled MXN153 million.

Of this, 50% was operated to Mexico, 46% to Puerto Rico and remaining to Colombia. Summing up, we are seeing healthy passenger traffic trends, we have a solid financial position, and we are investing for the future growth. This ends my presentation. Kevin, please open the call for questions..

[Operator Instructions] Our first question today is coming from Rodolfo Ramos from Bradesco BBI. Your line is now live..

Thank you. Adolfo, good morning. Thanks for taking my question. I have a couple. The first one is on the Bavaro airport.

I mean, can you please repeat the level of passenger that you're targeting over the long run? And when you expect to conclude [indiscernible]? And also, if there is anything you can share on the economics, the amount of income that you expect to attain once it's stabilized? So that would be my first question..

Okay. What I have said is that we are working in a project that will have an 8 million passenger capacity, they won in the infrastructure of the airport. In terms of the economics, it's too early to tell, we are three years away from that moment..

Thank you. And the second question I had was on your MDP. I mean, we have seen this administration be more confrontational with concession-based businesses. We've seen headlines about some industry players pushing back against the current level of tariffs, I mean this is not just for you, but for the industry broadly.

Can you talk about your expectations on your MDP? Anything that you've seen recently? And whether you've seen any changes on whether it's a process or methodology, anything versus your previous negotiations? Thank you..

Well, so far, we have not seen anything in comparison with the previous negotiations. As of today, we have the process -- we have, together with the authorities, conducted the process to visit all the airports and review each one of the projects we have proposed.

And during the second half of the year, we will go to the economics in terms of the passenger traffic that this generates, and finally, the final calculation. So, so far, I can say to you that I don't see any change in comparison of how it has been in the past..

Thank you. [Operator Instructions] Our next question is coming from Guilherme Mendes from JPMorgan. Your line is now live..

Hi, Adolfo, good morning. Thanks for taking my question. My first question is a follow-up to the previous one on the Dominican Republican Airport. I understand the 8 million passengers a year.

But just thinking of the ramp up of these operations, so by the time it's concluded three years from now, how fast will you reach to this 8 million? And how is the competition? You mentioned it's only 30 kilometers from the Punta Cana International Airport.

So, how should we think about the competition in the region? And the second one is regarding Colombia. I mean, how do you see the outlook in terms of traffic performing post the imbroglio with the two airlines that went bust? I mean, how fast should we expect the recovery of traffic in the region? Thank you..

You're welcome. In [indiscernible] today, the Punta Cana airport is logging at approximately 8 million passengers. We are constructing or we will be constructing an infrastructure with a capacity of 8 million. Normally, I would say, technically speaking, to construct infrastructure, they won with a target of, let's say, between five to seven years.

In the case of Colombia, what I can say to you is that I don't see how the other two airlines, Avianca and LATAM, will be able to recuperate in a fast way what we have lost it from Ultra Air and Viva Colombia. So, my expectation is that we will be affected for the rest of the year..

Okay. Thank you..

You're welcome..

Thank you. Next question is coming from Javier Gayol from GBM. Your line is now live..

Hi, Adolfo. Thanks for taking my question. I have a follow-up on the Bavaro Airport.

If you could just help us understand the regulatory framework of that venture? And is there any -- at this time in your joint venture, are there any options that you have to maybe buy 100%? Or is it anything like that structured into the concept of the joint venture that we should be aware of? Thank you..

For the moment, that's what we have. We have been invited to this project. We will be working together with them for the design and the future operation of this airport. And as I have said in my initial remarks, what we are expecting to have is 25% of this airport.

Of course, in the future, it can grow, but we do not have any option at the moment to increase our participation in that..

Thank you.

And on the regulator -- like the regulation of the airport, you said similar to what we should expect like Mexico, like Colombia, like Puerto Rico, what sort of scheme are you guys looking at over there?.

It's not equal to Mexico, nor to Colombia. The government has the saying on the passenger fees and some of the air fees. I would say, in general terms, it's a dual-till system. Of course, being a private airport is not exactly the same as what we have in Mexico.

So, the regulation is not so, I would say, strict in that sense, but it is a dual-till system where the government has something to say in some specific tariffs..

Okay. That's right. Thank you..

You're welcome..

Thank you. Next question today is coming from Anton Mortenkotter from GBM. Your line is now live..

Hi, Adolfo. Thanks for taking my question. Congrats on your results. Two quick ones.

One is, are you seeing any -- I mean, besides the Tuesday FX effect on your peso-denominated revenues, have you seen any impact of maybe less consumption of some of your airports or something like that?.

No, I have not seen anything like that. Of course, as I have said in my initial remarks, if you could see the peso appreciation from the U.S. dollar and the Colombian peso of 15% and 18% during the last year, of course, that has an implication -- an important implication in the results that I am presenting today when we transform all of these to peso.

That's what I said in my initial remarks that the commission revenues per passenger in local currency have increased significantly. We see what has happened in case of Colombia, it was an increase of 31%. When you translate into Mexican pesos, apparently these are peanuts..

Okay, thank you. That's pretty clear. And the other one is related to the service costs, we saw an increase quarter-over-quarter.

Should we expect these levels to be maintained or if you could provide some color there?.

Well, the important effect that we saw in the case of Mexico was at the beginning of the year due to the minimum wage increase by 20% that affects basically services like cleaning and security. Also, some increase in costs of personnel by salary increases, of course, not due to the size.

But yes, we would be effective from now on in terms of the growth you're seeing during the second quarter..

Okay. Just another quick one. I also saw some really high cash taxes during the quarter, quite different from previous quarters. You can tell us a little bit about why..

That has to do with the level of revenues in the case of Mexico. Probably when you see the consolidation of tax, the results are not so well in the other two airports, but they are in the case of Mexico and that's why you saw increase in taxes..

Perfect, thank you..

You're welcome..

Thank you. [Operator Instructions] Our next question is coming from Jay Singh from Citi. Your line is now live..

Thank you. This is Jay Singh from Steve Trent's team. My first question is your Mexico CapEx was very low.

Is this due to it being the final year of the Master Development Plan or something else?.

No, it's the last year of the MDP, the expected amount for the year is around MXN600 million..

Thank you. And as a follow-up, is ASUR considering any expansion opportunities abroad, maybe airport acquisitions in Central America or the Caribbean? Thank you..

Well, the only thing that we have today is what I've just mentioned in the case of the Dominican Republic..

Thank you. Our next question is coming from Alan Macias from Bank of America. Your line is now live..

Hi. Good morning, Adolfo, and thank you for the call. Just if you can give us a little color on international traffic to Cancun? How U.S. traffic from -- visitors from the U.S. has been acting up? Has it been decreasing? And what do you see behind this? And of course the Canadian traffic has recovered quite well, but are you seeing any effect in U.S.

visitors besides a strong peso? Thank you..

Alan, hi, good morning. I don't see any decrease in the U.S. traffic. I would say, a small increase if we compare the second quarter with the previous year. In the case of international traffic during the quarter, as I have mentioned during my initial remarks, most of the growth came from Canada, some growth from U.S.

and a slight growth from Europe and a decrease in Latin America..

Thank you.

Just can you give us the level or the average of Mexican flying from Cancun to the U.S.? Is that a significant amount of traffic or has that been growing?.

Well, if you are trying to ask about category one, the traffic between U.S. and Cancun mostly is traveling with the U.S. carrier. If we go back in time, May 2021, when Mexico [indiscernible] category one and it was in category two, we issued a 6-K saying that 0.5% of our traffic to and from our airports in Mexico to the U.S.

are traveling with domestic carriers, so 99.5% is traveling with a U.S. carrier..

Thank you..

You're welcome..

Thank you. [Operator Instructions] We have reached the end of our question-and-answer session. I would like to turn the floor back over for any further or closing comments..

Thank you, Kevin. And thank you all of you again for participating in the second quarter results conference call. On behalf of ASUR, we wish you a good day and goodbye..

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today..