Grupo Aeroportuario del Sureste, S. A. B. de C. V. (ASR) Q2 2025 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to ASUR's Second Quarter 2025 Results Conference Call. My name is Christine, and I'll be your operator. [Operator Instructions] As a reminder, today's call is being recorded. Now I'd like to turn this call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir.

Thank you, Christine, and good morning, everyone. Before I begin discussing our results, let me remind you that 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. Additional details about our second quarter 2025 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. As usual, all comparisons discussed on this call will be year-on-year figures and are expressed in Mexican pesos, unless specified otherwise. During the second quarter, we served 17.7 million passengers across all airports we operate with traffic remaining largely flat year- on-year. Once again, better performance in Colombia and Puerto Rico offset softness in Mexico. Puerto Rico was the best performing market this quarter, posting 3% growth in passenger traffic, supported by domestic traffic and sustained strength in the international traffic. In Colombia, traffic was up 1% with international travel up 12% and domestic contracting a low single digit. Lastly, Mexico reported a decline of nearly 2% in total traffic with an increase of 1.2% in domestic, offset by a decrease by 4.5% in international travel. International travel in Mexico continued to experience year-on-year declines from all regions during the quarter. Passenger volumes from Europe were down 4.7% from the U.S., 5.3%; South America, 2.7% and Canada, 1.6%. A meaningful portion of this decline, approximately 38% is attributable to the ramp-up of the new airport in Tulum, which continues to draw some passenger growth previously concentrated in Cancun. Beyond this shift, we believe the broader softness in international traffic reflects broader market dynamics, including a more cautious demand environment across several sorts of markets. While the underlying drivers vary, some of these pressures are also evident in other international markets as well. Looking ahead, we expect traffic in Mexico to gradually stabilize over the course of next year as the effects of the engine-related aircraft plumbings appear to have bottomed out and Tulum airport reaches more normalized level of operations. With respect to the potential U.S. Department of Transportation restrictions on Mexican carriers, ASUR's does not expect a material impact on our operations from these measures as our exposure to the affected airlines is minimal. To put this in context, Aeromexico accounted for just 0.3% of total passengers traveling between our airports and the U.S. while Viva Aerobus and Volaris together represented approximately 1.3%. As I've noted in prior calls, we see long-term growth potential for both Cancun and Tulum, each driven by the specific demand dynamics of their respective catchment area. While the broader macro environment remains uncertainty, history has shown that travel- related disruptions, particularly those tied to U.S. and Mexico demand tend to be temporary in nature. Now turning to a review of our financial performance. Recall that all references to revenue and gross figures exclude construction. Total revenues increased 5% year-on-year to MXN 7.4 billion, reflecting top line growth across operations, particularly in Puerto Rico and Colombia. Mexico, which accounted for 72% of total revenues, posted a low single-digit increase of 0.7% with relatively growth in aeronautical and non-aeronautical revenues. Puerto Rico contributed 17.7% of the total revenues with top line growth in the high teens. This compared to growth in the high 20s in the prior quarter that was supported by the foreign exchange rate benefit resulting from a weaker peso. Colombia, which accounted for 12% of the total revenues, posted a 15.4% top line growth. This accelerating from growth in the low 30s achieved in prior quarters. This was driven by both aeronautical and non-aeronautical revenues, which benefited from the continued recovery in domestic traffic and international traffic and the opening of 35 new commercial spaces over the past 12 months, partially offset by a strong Mexican peso. As part of our ongoing strategy to enhance our commercial offerings, we opened 47 new commercial spaces over the last 12 months. As I said, 35 in Colombia, 7 in Mexico, 5 in Puerto Rico. This expansion supported high single-digit growth in total commercial revenues, driven by strong performance in Colombia and Puerto Rico and a modest increase in Mexico. On a per passenger basis, commercial revenue reached nearly MXN 140 in the quarter, representing mid-single-digit year-on-year growth with contributions from all three regions. Colombia lead with a 22% increase, followed by 12% gain in Puerto Rico, both achieved despite less favorable exchange rates. In Mexico, commercial revenue per passenger rose nearly 3% to MXN 159 even as passenger traffic soft. Moving on to costs. Total expenses increased nearly 10% year-on-year. This accelerating from the 18% growth we saw in prior quarter. In Mexico, costs rose 7%, primarily reflecting the 12% increase in minimum wage effective at the start of the year. In both Puerto Rico and Colombia, cost increased in low teens, benefiting from the depreciation of the Mexican peso against the U.S. dollar and the Colombian peso. As a result, consolidated EBITDA rose slightly 2% year-over-year, reaching MXN 5 million in the quarter. Notably, Puerto Rico and Colombia posted a double-digit EBITDA growth of 20% and 15%, respectively, while Mexico saw a 1.6% decrease in EBITDA, in line with the passenger traffic, the negative impact of the strong peso and the higher cost I just explained. The adjusted EBITDA margin, which excludes construction revenue stood at nearly 68% compared with the 69% in the same quarter last year. The slight margin contraction was mainly attributable to 170 basis points decline in Mexico, while Colombia posted a 20 basis point decrease. Puerto Rico, on the other hand, delivered 120% margin improvement in adjusted EBITDA margin. Our bottom line this quarter was negatively impacted by a foreign exchange loss of MXN 1,200 million driven by the appreciation of the Mexican peso against the U.S. dollar. This compares to a foreign exchange gain of MXN 942 million in the same quarter last year, which reflected the opposite effect driven by the depreciation of the peso during the period. Moving on to our balance sheet. We maintained a strong cash position, closing the quarter with nearly MXN 20 billion in cash and cash equivalents, up 32% year-on-year. Net debt-to-EBITDA ratio increased slightly to 0.1x, reflecting the drawdown of a loan facility in Mexico for MXN 9.5 billion in the quarter. Turning to capital allocation, reflecting our solid financial position. In May, we paid a MXN 50 per share cash dividend, funded from accounted accumulated retained earnings -- in addition, we will be paying two extraordinary dividends of MXN 15 per share, each in September and another one in November. Capital expenditures in the quarter totaled MXN 1.4 billion, with most of this investment directed towards modernization and expansion projects at our Mexican airports. This includes the ongoing work of the reconstruction and expansion of Terminal 1 at Cancun Airport and the terminal expansion in [indiscernible]. In Puerto Rico, we're currently advancing in the construction of taxiway hotel. All construction activities continue to take place outside operational areas to ensure no disruption to operation airport operations. Lastly, on the governance front, during the quarter, Mrs. Isabel Prieto was appointed to our Board of Directors as an independent member. Following the resignation of Mr. Ricardo Guajardo Touché, with the 57% of our Board is comprised of independent directors and female representation has increased to 36%. We thank Mr. Guajardo Touché for his valuable contribution and years of service on the Board. Mrs. Prieto brings a wealth of experience in both public and private sector, beginning her career in financial services. To close, our second quarter performance underscores the resilience of our diversified portfolio and our sustained focus on efficiency improvements. We continue investing in infrastructure, elevating the passenger experience and delivering sustainable long-term growth. We also remain attentive to evolving global macroeconomic conditions and believe our healthy financial position will help to mitigate potential risk. This concludes my prepared remarks. Christine, please open the floor for questions.

[Operator Instructions] Our first question comes from the line of Jens Spiess with Morgan Stanley.

I have basically two. One is regarding non-aero revenues. So just was wondering what drove like the sequential decline in non-aero revenues. Was it mix of the type of passengers or is anything else explaining it? And secondly, I mean, you already mentioned the DOT situation with the U.S. not impacting you. But I was thinking that maybe one outcome might be that the capacity restrictions in Mexico City might be lifted, which would end up benefiting potentially the passenger traffic in the system as a whole. What -- in case that materializes, how much of a positive impact would you expect?

Thank you, Jens. Well, in the case of non-aeronautical revenues, of course, the exchange rate played an important role during the quarter. Now I would say, of course, a slight difference in the passenger mix, international versus domestic, and also in the case of domestic, the situation that we have in Terminal 2. In terms of your second question, I don't know if you saw 30 days ago that the Mexican government decided to increase or to ease the restriction they have in Mexico City Airport from 43 to 44. This announcement explained that they have made an analysis of the airspace in Mexico City and also an analysis on [indiscernible], and that's why they decided to increase that from 42 to 43. So one operation more in Mexico City airport reflects more or less 1 million passenger traffic in that airport. I was expecting this restriction to be lifted towards the end of the year. I have my serious doubts that this will happen after what we saw in this announcement. Of course, the situation of the DOT came later, and I believe the Mexican government will have to review the situation and see what is -- what they're going to say after what the DOT has expressed. As I said, the situation between the traffic to and from the U.S. from our airports. It's basically managed by U.S. airlines. As I said, Aeromexico 0.3%. In the case of Viva and Volaris together, 1.3%. So it's 1.8%, 1.6% of the total traffic between these two countries. So I do not expect any major implication of this in our case. Of course, as a result of this, the government decided to increase the operations in Mexico City, that will be beneficial to us.

Our next question comes from the line of Stephen Trent with Citi.

The first, just quickly on Tulum. Is it still the case that its charter traffic is still sort of the primary piece of the pie that's leaving Cancun and shifting to Tulum? Or are you seeing a little bit more of a tilt in commercial?

Hello?

Yes. Adolfo, can you hear me?

Yes. But could you repeat your question because you were not...

Sure, sure. No problem. Yes, I was just curious in terms of the -- what you're seeing in Tulum Airport and the traffic impact to Cancun, am I thinking about this correctly? It's still primarily charter traffic that's the piece that's going there? Or are you seeing a little more of a shift of commercial traffic there, too?

Well, it's -- of course, you can find some charter flights there. But basically, I would say most of these is commercial flights basically coming from the U.S. A piece is coming from Mexico, but the most important region in that sense is U.S.

Got it. I appreciate that. And just a very quick question on the balance sheet. I saw there was a MXN 1.5 billion investment in financial instruments in 1Q that is no longer there in 2Q. And just was curious what was sort of the rationale behind the shift?

The rationale is the huge amount of that we have in the bank in investment. So we decided to invest a piece of that in a fund instead of the usual instruments we have been in just to try to get some more return for that amount of money.

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

The first question is on a follow-up on the traffic outlook. You mentioned at the beginning that you do expect some kind of normalization on Mexican traffic into next year. Just trying to understand what does it mean for the second half of this year? I understand that the base of comparison is relatively easier. So is it fair to assume that we could expect some kind of traffic growth, let's say, mid-single digits on Mexican traffic into the second half of '25 when compared to second half of '24? And the second question is on the FX impact. So you mentioned the negative impact on aeronautical revenues. Can you clarify what is the actual impact on commercial revenues during the quarter?

Yes. Well, the domestic traffic, as you have seen in the numbers during the quarter, is no longer decreasing. It was a small increase. I think traffic -- and basically, this is because the engine problem of Pratt & Whitney is basically bottomed out. So Volaris has expressed yesterday that they have like six aircraft in the shop. And then, and how can I say, in the grounders because of the same problem, exactly. And that was exactly the same figure we saw during the first quarter. So this is the lowest part of the curve, I would say, as we can see with the numbers from now on, we should see an increase in domestic because of this. That is, in my opinion, the most important situation. Of course, the situation of Mexico City helps on this. But as we said, there was a small increase in the restriction from 42 to 43. So from now on, everything should be better than how it was before. In the case of the FX in the commercial revenues, this has to do with the exchange rate activities there on one side. On the other side, it has to do with duty-free. And of course, what I have mentioned before, the situation we have in the case of Terminal 2. So that's why you're seeing a very soft, I would say, non-aeronautical revenues in the second quarter compared with the first quarter this year.

Maybe put in a different way, do you have high-level numbers on what is the USD exposure you have on your commercial activity?

It's not that easy because, of course, the only one that is related to U.S. dollars is duty free. The other thing is the way the people expense in terms of food and beverage prices are in pesos, but that doesn't mean that the people will spend more if Mexican peso depreciates, which is not the case in the stores. In the stores, again, the prices are in pesos. But the people tends to spend more if the Mexican peso depreciates.

Our next question comes from the line of Pablo Monsivais with Barclays.

A follow-up on the commercial revenues question. What should we expect for the next two quarters with the situation you're naming on Terminal 2? Should we expect again a couple of quarters of still a soft commercial revenue activity? And my second question is maybe to put different the question of Guilherme, what percentage of the rents that you have in your tenants at Cancun are in U.S. dollars?

Pablo, in the case of Terminal 2, we should expect that for the next four quarters. It will be up to the third quarter next year when we will be able to open the new reconstruction and expanded Terminal 1, which should alleviate in a significant way the situation in Terminal 2. My prices or the way that we charge in the commercial revenues is basically a minimum guaranteed payment per passenger and a percentage of the sales. Normally, what they pay to us is a percentage of the sales. And as I said before, if their sales are in pesos, in between brackets, this is pesos. But it's not the currency. The thing that explains the spending behavior has to do with the passenger weakness of this. In the past, I used to say, what Russian is to U.S. guys in the duty free. And it has to do with packaging, not with what is there.

Our next question comes from the line of Pablo Ricalde with Itaú Asset Management.

I have two questions. The first one is on the Mexico profitability or EBITDA margin. I don't know if you can explain a little bit further what happened on the cost line. You mentioned we saw an increase in labor cost and utilities. But just wondering if maybe you register a provision or something and that's why expenses grew that much and profitability declined that much? And how should we think of profitability in Mexico going forward? And my second question is on your balance sheet and your cash on balance. If I'm mistaken, 60% of your cash is in USD. I just want to double check that number.

Yes, Pablo. Well, in the case of the margin, and normally, I don't want to -- I don't like to talk about margins because revenues and expenses are basically independent. The expenses side grew 7% and basically because of the minimum wage increase of 12% that's from the beginning of the year. It was less than what we had in the first quarter. We had to take some actions there due to the situation of the weak traffic we had during the [indiscernible] The combination of both is what you are saying, a decrease in the margin. That is something that we need to see on an independent basis. In the case of what you're saying in the balance sheet, what was your question?

Like that how -- which percentage of your cash is in USD? Trying to understand what was the FX loss on your P&L. If I'm not mistaken, around 60% of your FX is -- all of your cash is in USD.

Yes. In the case of Mexico at the end of the quarter, we had $700 million in dollars.

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

Two here from our side as well. So the first on the dividend policy going forward, we saw that despite the payment of the first tranche, your leverage is in a pretty comfortable level. So just wondering what we can think about next year onwards if we could expect such a good dividend payment like we saw in 2025? And second, still a follow-up on the Tulum. Maybe if you could elaborate a little bit further. When do you expect this airport to reach full capacity? And when do you expect it to stop hurting Cancun's figures?

Thank you, Fernanda. Well, in the case of figures for next year, let's try to conclude this year first. Now we have another payment in September and another one in November, and then we will have to evaluate what the situation for the year and the results of operations. And then next year, we will propose something to the Board and then to the shareholders assembly. In the case of Tulum Airport, if we see last 12 months, Tulum Airport reached around 1.5 million passengers. If we see the last 12 months end of December last year, it was 1.2 million. So there was an increase of 300,000 passengers during the first half of the year. I was expecting a better ramp-up if you go back to my first conference call of the year, I was expecting 2.9 million for this airport, but recent news basically showing cancellation of some routes, Bogota [indiscernible] some others basically are saying to me that this airport will not reach what I was expecting at the beginning of the year. This airport should have, roughly speaking, 2.9 million in accordance with the location this airport has. So going back to your question, when we will not be hurting from these is once the airport reaches the 2.9 million. In the meantime, we will have to continue talking about the ramp-up of Tulum.

Our next question comes from the line of Andres Aguirre with GBM.

Wondering if you could share the rationale behind the new debt. And given your current high cash balance, how are you thinking about deployment going forward and possibilities for further leverage for CapEx?

Hi, Andres. Well, the net debt has to do with taxes, expenses in Cancun Airport. We thought that it was something important for us to maintain some cash on hand for the future, given the fact that the dividend -- the proposed authorized for this year is a total of MXN 24 billion. So it was important to be sure that we were able to fund that situation.

Our next question comes from the line of Abraham Fuentes with Banco Santander.

We have seen a drop in the number of tourists that are visiting the U.S. Do you think that Mexico could capture any of those passengers? And if that will be the case, when do you think we can begin to see it effect in terms of traffic?

Well, this is true. There are diminishing, decline from all the regions to the U.S. in terms of tourism. We have approached some Canadian airlines and talk about the situation. And basically, what they're saying is that they will evaluate the situation towards the end of the year. If this continue, of course, they will jump into our region. For the moment, what they have expressed is that they do not want to lose their slots in their most important airports in the U.S. they have. Basically, I do believe that next year, we will see some positive effect of this basically from Canada and from Europe.

Our next question comes from the line of [ Enrique Segura ] with Fundamenta Capital.

I wanted to quickly dive into international traffic dynamics in Mexico more specifically during this first half of the year, we have seen traffic internationally fall 7.5% in the first Q and 4% in the second Q. I know if this has been happening basically with Tulum not ramping up. How do you expect international traffic to kind of continue in the second half of this year? And should we expect Tulum to basically ramp up in 2026 and hindering growth next year?

Well, as I said during the initial remarks, the decline -- 38% of the decline of this quarter in the international traffic is related to Tulum Airport. The difference is related to a weaker market from all the regions, all are negative, Canada, U.S., Europe and South America. What to expect for the future, let's see what the economics on one side, macroeconomics on the other side, all of this situation with the U.S. migration policies. And the case of South America with the situation of the visa from the Brazilians, the visa for the Peruvians, the mistreatment to Colombians. All of this has been analyzed by the Mexican government today and also considering that the next year, we will have some gains on the World Cup in Mexico, they will have to do something about it.

Great. And just a quick follow-up, if I may. In terms of domestic passengers, we should not continue to see it falling, but do you expect a strong rebound? Do you see that when talking to Volaris and Viva Aerobus? Or do you think it will be a more gradual change?

Well, what I do expect is a better behavior. So no more decreases from the domestic and a slight decrease in the rest of the year.

Our next question comes from the line of [ Alberto Velez ] with UBS.

One remaining from our side here, it's about CapEx. How should we expect the pace of CapEx deployment for the next quarter? This quarter come a little bit below what consensus and us was expecting. So how should we see the deployment of CapEx in the following quarters?

You're welcome. Well, I have to say that in the case of the CapEx, we are above our internal budget for the first half of the year, slightly above. What do we expect for the end of the year to comply with what we have, they're written in our MVP roughly speaking, MXN 7 billion. Remember that most of this is spended towards the full quarter.

[Operator Instructions] Our next question comes from the line of Alan Macias with Bank of America. Our next question comes from the line of Anton Mortenkotter with GBM.

Just a quick one. I mean, aside from Cancun and the smaller airports in Mexico, maybe like Merida or Oaxaca, we've seen some steady performance. I was just wondering what kind of dynamics are you seeing in those smaller airports? And what would you expect going forward? I mean anything interesting there?

Well, every single airport, of course, has its own situation. I would say that let me go in the case of Oaxaca, public demonstrations in Oaxaca have affected, of course, the [indiscernible] In the case of Merida, it's growing less than it was before, but it is still growing. So it's doing well. In the case of we get most of, I would say [indiscernible] traffic. So each one has its own particular, we cannot generalize all of them.

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

A quick one on traffic. There has been a lot of news on increasing sargassum in the Caribbean region. Is this kind of concerning in your view? Could it imply downside risk to your traffic assumptions for the second half of the year?

Well in the case of sargassum, I have to say not -- if we go back in [indiscernible], we cannot say every three years, every five years, every seven years, you will have some worst in the region. The worst ever has been in 2018. But what we have seen for this year, this may be the worst ever, a situation that it's very, very difficult. Of course, in terms of the seasonality of the year, summer is the most important. So I would say after or during the third quarter and fourth quarter, you will see less sargassum of what you will see for the summer. But yes, it's true that this year has been a very tough situation.

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

Adolfo, just a quick follow-up. Could you comment a little bit on your inorganic growth opportunities that you're currently evaluating? I don't know if you have any update on Bávaro Airport. And apart from that, is there any other opportunity that you're looking at?

The case Bávaro is still the same. We're still in the middle process of that. For the moment, the project is on course. And yes, we are seeing some other opportunities.

Okay. And just a follow-up here. We know that CCR is under a divestment process. Is this process makes sense for you? Or are you looking at it?

I cannot comment on the other opportunities we are analyzing for the moment.

Our next question comes from the line of Alan Macias with Bank of America.

Just if you can give us some color on what's happening or what are the drivers for international traffic in Puerto Rico and Colombia. They're growing double-digit levels. And if this is sustainable for the second half of this year?

You're welcome. Well, in the case of Puerto Rico, I would say this has to do with what's happening there with concerts and everything related to music. So Puerto Rico is really on that one and some international traffic are taking opportunity to go there because of that. In the case of Colombia, basically is the U.S...

Mr. Castro, are you still connected?

I'm connected, yes.

Okay. And Mr. Macias, was that the end of your question?

Yes.

[Operator Instructions] Our next question comes from the line of Federico Galassi with TRG.

Quick question in [ Chilean ] operations. I can see a jump in cost of services in terms of revenues year-over-year. The question is, is there any one-off or this is the level that we have to think in for Mexican operation in the near future?

This is what you should expect for the coming quarters, yes.

Okay. But it's not -- no one-off. It's 100% for the operations, for operations.

Yes.

That concludes the question-and-answer portion of today's conference call. I would like to turn it back over to Mr. Castro for closing remarks.

Thank you, Christine, and thank you all again for joining us today for our second quarter 2025 conference call. We wish you a good day and goodbye.

Ladies and gentlemen, that concludes ASUR's Second Quarter 2025 Results Conference Call. We would like to thank you again for your participation. You may now disconnect.