Grupo Aeroportuario del Sureste, S. A. B. de C. V. (ASURB) Earnings Call Transcript

As a reminder, today's call is being recorded. I'd now like to turn the call over to Mr. David Barlow, Corporate Governance, Strategic Planning Manager and Investor Relations Officer at ASUR. Please go ahead, sir.

Thank you, Melissa, and thank you, everyone, for joining us today to discuss ASUR results for the third quarter 2026. With me on today's call is Adolfo Castro, Chief Executive Officer. Additional details about our results can be found in our press release, which was issued yesterday after market close and is available on our website. As usual, all comparisons discussed on this call will be year-on-year and all figures are expressed in Mexican pesos unless specified otherwise. As a reminder, certain statements made during the call today may constitute forward-looking statements, which are based on current management expectations and beliefs 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. Please refer to the forward-looking statements disclosure included in this earnings presentation for additional information. With that, I'll now turn the call to Adolfo. Please go ahead, Adolf.

Thank you, David, and good morning, everyone. The third quarter [indiscernible] an important milestone for ASUS. On September 1, we completed the acquisition of CPC Arportes, Romotiva, which added 20 airports or portfolio, the majority of which are located in Brazil coupled with our December 2025 acquisition of the U.S. commercial operations, we have taken significant actions in the decline as those operations. In turn, as so has evolved into the leading international airport operator across the Americas. Today, our portfolio spans 36 airports across 7 countries complemented by commercial operations at 3 major U.S. airports. With this scale in perspective, the combined airport portfolio served approximately 120 million passengers in 2025 on a pro forma basis, up from EUR 70 million we reported last year. We now have much broader business than the Mexican airport group that was established nearly 3 decades ago. PPC Aeroportos had 17 airports in Brazil, 1 on each Ecuador, Costa Rica and Curacao. This gives us an established presence in Brazil, Latin America's largest smart avition market. and expands our operations into 3 additional markets. The final purchase price was BRL 5.5 billion or approximately $992 million after customary closing adjustments. Our results for the third quarter include operations solely for the month of September, Chart consolidated under the region coal Brazil and others. It's a larger, more diverse company, our operations are now spread across more markets with different passenger profiles, producing our dependence on 1 market. It also provides more opportunities to plan the operating and commercial experience we have built out many years. While we do not expect to capture significant operating synergies. Our focus now is on implementing seamless integration while maintaining our disciplined approach to investment. We are making changes to our organizational structure to better support the large growing business. To that end, on August 28, shareholders approved bringing in house the technical technology transfer service provided by it. Once completed, the merger will bring these capabilities and personnel directly into [indiscernible] simplifying our structure, keeping the expertise within the company. As a reminder, we'll assume the cost of providing these services and eliminate the recurring external technical systems fee which amounted approximately MXN 401 million in 2024. Our U.S. commercial business gives us another avenue for growth. At GSK, LAX, and Chicago here, we are building a platform on a nonregulated dollar-denominated commercial revenues. The next major project is the new terminal 1 expected to be open towards the end of the first quarter next year. We also continue developing commercial expenses at LAX to be ready for the Olympics games in 2028. The business today is only a small contribution of what we expect the longer-term potential of this new business to be. While we are very excited about these new opportunities, at the same time, Mexico remains central of our business investment program. Within Mexico, Ann is an important market for us with significant investments underway to improve operational efficiencies and support future growth. We are taking a long-term view of Canon's development while managing the current operating environment. First, the expected remodel and expanded Terminal 1 construction will be completed during this fourth quarter. And then we will proceed with the operational readiness and airport transfer to start operations in the first quarter. Terminal 1 will allow us to redistribute passenger flows and relief pressure of Terminal 2. It will also create additional commercial capabilities and improve passenger experience. We are also investing in Terminal 4 with a project expected to be operational at year-end 2028. This investment will provide 12 additional boarding gates on top of the 4 we added during '27 and 3 more due to the expansion of Terminal 1 and connecting taxiway and related infrastructure. Our capital allocation continues to balance investment into business to support growth and improve efficiencies with returns to shareholders. There are 2 extraordinary dividends of MXN 10 each payable on November 30 and December 23 this year. Turning to our energy strategy. During the third quarter, we began procuring energy from a third-party supplier in Mexico. We purchased 13.1 million kilowatt hours, representing more than 40% of electricity consumption at our Mexican airports during the quarter. We also began the executive design of additional solar panels in our packing facilities. These are expected to become operational in 2027 that could generate an additional 8 million-kilowatt hours of renewal energy annually. Our efforts to advance renewal energy also earned recognition during the quarter. with Airport can International awarding the U.S. green airport recognition for our digital reel energy management system project. Moving on to passenger traffic. Total traffic decreased 1.2% to 20.9 million passengers and includes 1 month contribution from Brazil and us. Considering September 2025, there for comparison purposes. Lower traffic in Mexico and Puerto Rico was partially offset by growth in Colombia and the core portfolio. Mexico traffic declined nearly 5% primarily due to weaker international traffic at growth in domestic traffic across our other 8 Mexican airports partially offset this weakness. Airline capacity constraints, including street Airlines bankruptcy, higher jet fuel prices continue to wait on the map. particularly for international travel. Passenger volumes by region, 2 and from the United States, Europe, South America decreased by 14.9%. 14.4%, 7.9%, respectively, while Canada increased by 5.7%. In Puerto Rico, traffic declined slightly over 3% due to continued impact from the bankruptcy of street debts. Early May and softness in both domestic and international demand. On a positive note, September showed an improvement with total traffic increasing just over 3% volume in declines in July and August. Colombia continued to outperform the rest portfolio with traffic just over 5%, reflecting mix trend in both domestic and international traffic benefiting from better connectivity and healthy demand. Total traffic figures for the quarter also include 1 month contribution from operations in Brazil and ores, which as a whole increased just over 1% and another nearly 4 million passengers in September. This is mainly driven by low single-digit growth in Brazil, Ecuador, more than offsetting the low single-digit declines in Costa African Colas. On a bigger picture macro front, we don't see any near-term improvement as conditions remain challenging. particularly for international traffic in Mexico, although airlines scheduled for the winter season indicate only more seat capacity for December than a year ago. which is not encouraging for the whole winter season. The September improvement in Puerto Rico security, while Colombia continues to grow. We remain cautious on the pace of recovery, while at the same time, our focus on supporting the long-term defense events across our order portfolio and with CPC with the mines the dependence in Mexico are basically whatever. Turning to next to the financial performance. As a reminder, the figures I will discuss construction revenue and construction costs, unless otherwise noted. Revenues increased nearly 13% to MXN 7.8 billion. Non-aeronautical revenues grew just under 27%, including MXN 456 million from the U.S. operations, MXN 362 million from the first month of consolidation of Brazilian others and 16% growth in Colombia, offsetting the softer performance in Mexico and Porto. Aeronautical revenues were up 5% to EUR 4.8 billion, including MXN 315 million contribution from Brazilian others. higher passenger traffic supported higher aeronautical revenues in Colombia, while Puerto Rico at reticle revenues increased primarily due to the exchange rate difference. gains were partially offset by softer traffic in Mexico. commercial revenue per passenger increased 3.5% to MXN 113.5, mainly reflecting the contribution of our U.S. commercial operations. Puerto Rico had a posted the highest commercial revenue per passenger at BRL 163.2 up 2% follow buying back with MXN 129 although this was 10% lower year-on-year, mainly reflecting the lower traffic and passenger mix. Colombia delivered double-digit growth, reaching MXN 652 per signal others added MXN 64.7 in commercial revenues per passenger. We continue expanding our commercial footprint over the past 12 months, we opened 39 new commercial spaces across Mexico, Puerto Rico and Colombia, 31 in Colombia, 7 in Puerto Rico and 1 in Mexico. Moving on to profitability. Consolidated EBITDA increased 1.7% to MXN 4.7 billion. Brazil and contributed MXN 330 million in September and our U.S. commercial operations at MXN 49 million in the quarter. This, together with increases of 7% in Puerto Rico driven by lower operating costs and nearly 2% in Colombia more than offset the 10% decline in Mexico. Adjusted EBITDA margin declined 7.4 percentage points year-on-year to 60.3%. This reflect the pressure of Mexico's revenues together with the consolidation of Brazil and others and the U.S., both of our margins. Brazilian others reported an adjusted EBITDA margin of 46.3% was September 2026, while the U.S. reported an EBITDA margin close to 11%. Recall, this business has a different cost structure from our airport operations. Including lease obligations to airport authorities and the margin is not directly comparable. We also incurring expenses for projects that are not yet generating revenues, including commercial spaces at our U.S. operations, which are expected to open until '27 and '28. On the balance sheet, we closed the quarter with cash and cash equivalents of MXN 20 billion and a total debt of nearly MXN 70 billion. Of these, 26.5% was denominated in Mexican pesos. 46. 4% in U.S. dollars, corresponding mainly to Puerto Rico and 27.1% in Brazilian. Net debt of last 12 months EBITA was 2.6x, up from reflecting the acquisition, financing and addition of the debt from the commercial operation in U.S. and Brazilian ones. After quarter end, Cancun Airport place 1.8 billion senior notes in 2 tranches, $900 million in 2021 and $900 million in 2026. These notes carry an investment-grade rating by S&P and Fitch. We used the net proceeds to repay the facilities for the U.S. and CPC acquisitions, repaying the remaining Santander loans and partially prepaid the PBA loan. This refinancing extends our debt maturities by 7 years on average. Lastly, capital expenditures totaled MXN 2.7 billion during the quarter. with the majority expanded in Mexico as we advance in our mass development program. At yesterday's exchange rates converted to Mexican pesos for each region next year, we expect to invest close to MXN 6 billion in Mexico, MXN 1.8 billion in Costa Rica, MXN 1.7 billion in Puerto Rico, 1.5% in Brazil. $44 million in our U.S. commercial operation, EUR 230 million in Colombia and EUR 213 million in resell. We expect to fund all of these resources rate generated by the operation of the region, except for Puerto Rico. This is a total of MXN 11 billion. Main projects include the start of the second phase of the expansion of Terminal 4 at Econ Airport. The beginning of the construction of a second runway at Cortiva Airport to be completed in 2029. Runway refurbishing at Belerionte, Boane, Teresina and Saris airports in Brazil, which is expected to be completed in 2027. also to be completed in 2027 is the first phase of the international -- of the mine expansion at Saks Airport in Costa Rica. Also, a hunger-relocation that will allow us for the second phase expansion this terminal in 2028. Wrapping up, Auris making consistent progress in executing the strategic priorities, optimizing in the structure and further diversifying its geographic operations. We accomplished this in a challenging operating environment, particularly in Mexico, and we remain cautious on the pace of the recovery. At the same time, we completed an important acquisition, obtain approval for more efficient corporate structure and refinance our acquisition bridge loans with long-term debt. Our broader airport portfolio U.S. commercial platform and continued investment in capacity provide a source additional opportunities for long-term growth. We remain focused on operating performance, driving further efficiencies and disciplined capital allocation and delivering value to our shareholders, including through different payments. We send our prepared remarks. We are ready to take your questions. Please Melissa open the floor for questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Rodolfo Ramos with Bradesco BBI.

My first 1 is on traffic, if I may. you found realistic, but still very cautious regarding the recovery into the winter season. And Cancun did a little bit better than cabo, for example, during the quarter. But can you tell us a little bit more detail as to how would you write down the decline perhaps this airline capacity decisions late to loan what has been driving that decline? And just a little bit more color, if you may, into the first quarter of next year and next year in terms of how you see traffic evolving? And the second, if I may, as a follow-up, the Mexico ISA was down almost double digit. -- consolidated administrative expenses roughly doubled. Can you quantify during the quarter what costs were nonrecurring, for example, CPC on the internalization as well and you have some expenses there. And when you look at now having this multi-country platform, what would be the run rate for you going forward?

Well, the traffic, as I said in my initial remarks. If we see the schedule of the earners for the winter season, the only month that's up, I guess last year is the case of December. It is not the case for the others, and that is why I'm saying it's not encouraging. The principal problem we see is the case of the United States in terms of the decline, of course, today, we have a cocktail of things that are affecting all of these. As you have mentioned, capacity reduced -- [indiscernible] capacity from the airlines on 1 side on the other side, also jumping into better markets for them in terms of yield and still affected by the bankruptcy of a pit that was important for the case of Mexico, Puerto Rico and Colombia. There are some other negatives in terms of some of the regions. That's the case of Europe and the case of South America, the only 1 that is positive is of Canada with 5.7% during the quarter. That remains strong, but the others are not looking well for the winter season. Of course, this is not a [indiscernible]. The airlines normally adjust their program as the time goes by. But for the moment, what I can say to you is that we are not so happy of what we are seeing, and we don't know when one of this conflict in the Middle East will bring a better outlook for Giles. In terms of expenses during the quarter, yes, we had some onetime events. That is the case of expenses related to the acquisitions of CPC related to the penalization of the project on the tecansystems and also the case of the bonds, that will not be in the future. Nevertheless, it's important to say that next year, in the case of Mexico, we have -- or we will be affected by the reduction in the working hours that was established by the government from 40 hours during the week to 38 that will give us additional cost during the quarter and also the new operation of Terminal 1, we are taking all what we can start to try to control costs. But of course, we will see the effects of the first quarter next year.

Our next question comes from the line of Guiherme Mendes with JPMorgan.

I have a follow-up on the capital allocation discussion. So going forward, there has been news about we're potentially interested on the Brazilian airport and some regional airports in Brazil. Just wanted to confirm if that's really the case. And if there's anything else that the [indiscernible] will be willing to consider at this point in terms of expanding its portfolio?

Thank you for your question. For the moment, we are focused on consolidating what we just recently acquired as of the U.S. the 20 additional efforts from [indiscernible].

If I may have a follow-up also on capital allocation is how you think about leverage going forward? If -- what pace of the leverage should we expect as you consolidate the operations?

Well, as I mentioned, in terms of the most important thing that we have in front, which is the CapEx, the 11 points of 1 billion for next year. or this should be funded by the cash flow generation in each 1 of the features. So we do not expect any more leverage next year.

Our next question comes from the line of Fernando Recchia with BTG Pactual.

To hear from our side as well. The first, regarding Motiva stability, the airports during the month of September posted of 47% of EBITDA margin. And we know looking for historical level that this airport usually report around 50%. So just wanted to understand if it was something specific for the month of September and margins for this airport should improve or this is like the recurring level we should see going forward? And second, still on capital allocation, a follow-up, we know that you are focused on just consolidate what you acquired, but we also know that Infraero and Zurich are discussing the tad alone within Confins Airport and Ruspecificin Kura, so maybe could you elaborate how you see the timing and if you think this title will be exercised?

Yes, Fernando. Well, we just started the operation in September with this 47% EBITDA margin. I believe that we can do something better in the future. for the moment, I cannot be sure about 50 you were talking about, but here for us that there are some opportunities there. In terms of take loans, yes, those were included the whole scheme of operation with CPC. We are in the process of that, waiting for some approvals and waiting for finances in the case of par. So yes, those have been included in the transaction is to go from the case of Embraer's a 49% convinced in case of suit [indiscernible] and 10.2% in the case of Curacato reach 90%

Our next question comes from the line of Alberto Valerio with UBS.

Welcome to Brazil. official now obviously was Brazil. My question -- my question go towards to the Brazilian airports and Central America ports, the new airports. It's any regulatory commitments of CapEx for those airports?

Yes, Alberto. As I mentioned, what we are expecting for next year in the case of Brazil, most of this is regulatory. There are some additional projects, but of course, those are lower in comparison with the regulatory regime. That is the case of the Brazilian.

And beyond next year, it's a large amount of CapEx. So it's more amount of CapEx to be deployed.

Well, it's almost -- next year is almost the same as -- well, '28 it's going to be almost famous '27 that it reduces.

Our next question comes from the line of Pavel OcalithItal [indiscernible].

On the different topics, I don't know if you can provide an update on the internalization process. If it's fair to assume that, that will happen astray. And if you have quantified synergies or it's going to be 100% impact on margins? Or there will be like some expenses associated with from that technical sequence?