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

Good day, ladies and gentlemen, and welcome to ASUR's Second Quarter 2026 Results Conference Call. My name is Christine, and I will be your operator. [Operator Instructions] As a reminder, today's call is being recorded. Now Mr. David Barlow, Corporate Governance Strategic Planning Manager and IRO at ASUR.

Thank you, Christine, and thank you, everyone, for joining us today to discuss ASUR's results for the second 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's 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 turn the call to Adolfo.

Thank you, David, and good morning, everyone. I'm going to start today's conference call with a discussion on the strategic initiatives that are setting the foundation of ASUR's next stage of development and growth. Then I will briefly review quarterly results. Our objective is to continue building the leading airport group in the Americas. We are doing this by expanding into attractive markets, diversifying our geographic and revenue mix, diminishing the dependence on one market, increasing our exposure to commercial revenues and improving the efficiency of our operational model. The Motiva transaction, ASUR with U.S. airports, investment program at Cancun Airport and the proposed internalization of the technical assistance services are key components to achieving our growth. Let me begin with the proposal that we propose to the shareholders' meeting that is going to take place on August 20. First, we are asking shareholders to consider approving ASUR's plan to internalize the special technical assistance and technology transfer services currently provided by our strategic partner, ITA. We believe this is an important step in ASUR's evolution. We will bring these capabilities, personnel, expertise and know-how into ASUR, simplify our corporate structure and better align our operational model with the scale and complexity of our growing international platform. The transaction would be implemented through a merger and would involve the issuance of approximately 7.3 million net new ASUR shares to ITA shareholders, equivalent to approximately 2.4% of the current shares of stock. As a reference, ASUR recognized approximately MXN 401 million in technical assistance fees during 2025. If transaction is approved, the services will be performed by ASUR while we will assume the related operating cost, the recurring external fee will be eliminated and the future economic benefits of these activities will remain within the company. The proposal was reviewed and negotiated under the leadership of the Audit and Corporate Practices Committee, which is composed exclusively of independent directors and supported by independent financial and legal advisers. Separately, the Board has proposed two extraordinary cash dividends to be paid MXN 10 per share on November 24 and December 15, respectively. The proposal reflects ASUR's strong financial position, solid cash generation and disciplined approach to capital allocation. During the first half of the year, we generated MXN 7.3 billion in operating cash flow, an increase of 21% year-on-year. This cash generating the capacity allow us to return excess capital to shareholders while preserving the flexibility to fund our investment commitments and pursue future growth opportunity. Shareholders will also be asked to approve amendments to the bylaws. First, to align them with the current regulatory framework. And second, if internalization is approved to reflect the changes resulting from the merger. We encourage shareholders to review the information statement for additional details. Turning to Motiva, we are actively progressing to complete the acquisition during the second half of 2026. The transaction remains subject to remaining regulatory approvals and customary closing conditions. Once completed, the transaction will add a portfolio of concession of 20 airports across Brazil, Ecuador, Costa Rica and Curaçao, including entry into Brazil, the largest aviation market in Latin America. The core portfolio handles approximately 45 million passengers annually and will significantly increase the source of scale and geographic diversification. Our underlevered balance sheet enables to fund the transaction with debt, while at the same time, preserving financial flexibility for the other high-return projects, including dividend payments. Moving next to the ASUR U.S. ASUR U.S. provides direct exposure to the nonregulated dollar-denominated commercial revenues at the three major U.S. airports. With over 35 million annual customers and revenues above U.S. benchmarks. ASUR U.S. also is a platform, which from we will continue to further developing our commercial capabilities in the U.S. On April 2, ASUR U.S. completed the $125 million commercial transformation of JFK Terminal 8, opening more than 60 dining, retail, duty-free and experiential concepts. At JFK the new Terminal 1, commercial development continues ahead of an expected opening towards the first quarter next year. As a result, the current financial contribution does not yet represent the earnings potential of the U.S. platform. At LAX, we continue remodeling and developing commercial spaces ahead of the Super Bowl in '27 and the Olympics and Paralympic Games in '28. In Mexico, construction of the new Terminal 1, continues at Cancun which we plan to be open during the fourth quarter. Once operational, Terminal 1 will allow to begin rebalancing passenger flows, including moving most of South American operations from Terminal 2, this should reduce pressure on Terminal 2 and improve the passenger experience and create additional commercial capacity. In parallel, we continue executing to broad Master Development Program. This includes the second phase of Terminal 4 expansion, which will add onboarding new gates and connecting taxiway together with the related airside and roadway infrastructure. The project is expected to be fully operational by the end of '28 and is designed to expand capacity, improve passenger and aircraft roads and support longer-term growth. Together, these initiatives support the same objective, a larger and more geographically balanced airport platform in markets with attractive long-term demand, greater contribution from commercial revenues and more efficient operating and equity structure. Turning to passenger traffic. Total traffic declined 2.7% year-over-year to approximately 17 million passengers, reflecting softer performance in Mexico and Puerto Rico partially offset by continued growth in Colombia. In Mexico, traffic declined some, primarily reflecting continued pressure at Cancun where, international traffic remains softer particularly from the United States, our largest international source market. Airline capacity constraints, Spirit's bankruptcy and higher airfares partially reflected elevated jet fuel prices also affected demand. In addition, the World Cup did not generate incremental tourism flow into Mexican cities. Most of our other Mexican airports performed better and partially offset the decline at Cancun. Passenger volumes flown from the United States, Europe, South America and Mexico decreased by 11.7%, 11.8%, 6.5%, 1.9%, respectively while Canada increased in some part. Puerto Rico traffic declined 3.5%, reflecting the effects of the Spirit bankruptcy together with subdued domestic and international demand. Domestic remain affected by airline capacity and fare dynamics in the U.S. market, while international remained comparatively more resilient. It will take time for other airlines to absorb the Spirit passengers lost since May 2. Colombia traffic increased 3.6%, supported by a healthy demand and improved connectivity. Growth moderated against a strong comparison base with continued growth of the rest of our portfolio. While near-term conditions in Mexico and Puerto Rico remain challenging, we continue to view much of the current pressure as capacity and affordability-related rather than a change in the long-term fundamentals of the travel demand. Fleet availability should gradually improve as aircraft return to service, although the timing remains uncertain. Turning to financial performance. As usual, the figures I will disclose exclude construction revenue and construction costs, unless otherwise noted. Revenues were broadly stable at MXN 7.4 billion. Non-aeronautical revenues increased nearly 10%, supported by the contribution from ASUR U.S. airports, which added MXN 444 million and 30% growth in Colombia. By contrast, aeronautical revenues contracted by mid-single digit, mainly reflected the softer traffic in Mexico and Puerto Rico and the translation effect of the stronger Mexican peso in our international operations and local operations with the U.S. dollar [ component ]. Commercial revenues per passenger increased nearly 13% to MXN 153 per passenger, primarily reflecting the addition of the U.S. commercial base, a single-digit decline to MXN 145.7 per passenger in Mexico was offset by a low and high single-digit increases in Puerto Rico and Colombia, respectively. Again, softer performance in Mexico and Puerto Rico resulted from lower traffic and FX headwinds given the strength of the Mexican peso. The expansion of our commercial footprint is ongoing with 40 new commercial spaces in Colombia, 8 in Puerto Rico and 3 in Mexico over the past last 12 months. At the same time, as previously mentioned, we completed the commercial transformation of JFK Terminal 8 during the quarter. Moving on to profitability. Consolidated EBITDA decreased nearly 9% to MXN 4.6 billion. By region, EBITDA declined 9% in Mexico, 17% in Puerto Rico, while increasing 1% in Colombia. ASUR U.S. airports contributed to MXN 20 million of EBITDA reflecting the platforms were in development stage. This contribution is not yet representative of its earnings potential as JFK Terminal 8 continues to ramp up and JFK new Terminal 1 is expected to open during the first quarter next year, while commercial spaces at LAX and Chicago O'Hare have been expanded and upgraded. Adjusted EBITDA margin declined 565 basis points year-over-year to 62% due to lower revenues in Mexico and Puerto Rico, and the consolidation of the U.S. commercial business, which is operating at a lower margin. Net majority income increased 7% to MXN 2.3 billion as lower foreign exchange loss in Mexico lower income tax expenses in Mexico and Colombia was offset by the benefit from the amortization of the fair value adjustment related to the Colombian acquisition loan following its repayment. Turning to the balance sheet. We ended the quarter with cash and cash equivalents of nearly MXN 12 billion and net debt-to-EBITDA of 0.9x last 12 months EBITDA. Our balance sheet remains strong and provides flexibility to execute and fund our committed capital program, complete the Motiva transaction and continue pursuing our broader strategic priorities. Lastly, during the quarter, we stepped up capital expenditures to MXN 2.0 billion with the majority of this fund in Mexico as we advance in our capital program, including the project at Cancun that I already discussed. Summing up, while the operating environment remains challenging, particularly in Mexico, ASUR is moving in the right direction as we are making progress executing our strategic growth initiatives, better equity derisk, structure and diversification and with our expansion through the Motiva acquisition, our U.S. ASUR operations, and the ongoing cost efficiency efforts are strengthening our business and positioning the company for the long term growth. At the same time, we remain disciplined with the capital allocation and cautious that our outlook while continuing to create long-term sustainable value for our shareholders. Complemented with attractive dividend payments. With that, we are ready to take your questions.

[Operator Instructions] Our first question comes from the line of Rodolfo Ramos with Bradesco BBI.

A couple here, if I may, include my follow-up there. We saw softer implicit tariff in your aeronautical revenues. I wanted to check on your maximum tariff compliance and where you expect to end the year given today's FX? And the second is on your cost side, whether you think that this quarter represents a good base going forward? And how does the internalization might play there? I don't know if you're seeing still extraordinary expenses on the Motiva acquisition and how can those evolve going forward?

Yes, of course, we are seeing some pressure in the maximum tariff due to the fact that the passenger mix is changing in comparison with last year. So the decrease in the U.S. traffic had an impact. But of course, as always, we will have a very clear objective, which is 99% in that compliance by the end of the year. In terms of the cost, yes, we have onetime cost during the quarter, related to Motiva, related to the U.S., some additional fees, legal fees due to the internalization of the project, nothing that will be there in the future. It's true.

Any way that we can get a sense of sizing of these expenses that you expect to...

Those are, I would say, in general terms, not so important. The clear problem we had during the quarter was the loss of 0.5 million passengers in the case of Cancun Airport and 135,000 in the case of Puerto Rico. So the problem is in the revenue side.

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

I have a couple regarding Motiva's airports. The first is on the approval. You said the expectation for the second half of the year. I recall on the last call, you mentioned about the second quarter of the year. If you can share which of the four regions are taking longer than expected. And also regarding synergies, I recall you guys talking about not expecting a lot of synergies on the transaction, if anything has changed on that front? And lastly, if I may, if you somehow consider a potential partial divestment of those assets once you incorporated on your portfolio?

Yes. The region that is holding up is the case of Brazil. We are very close to and, I would say, I said second half, I would say third quarter in the case of synergies, I don't see any important synergy. As I said before, we are basically expecting the same business as usual. And in terms of selling some pieces, not for the moment.

Our next question comes from the line of Jens Spiess with Morgan Stanley.

Yes. Thank you on the administrative expenses in Mexico, they remain quite elevated. Should we -- I mean, I think they increased more than around 30% year-over-year. But should we expect this level to be more or less the new normal? And what's driving it? Is it mostly like labor cost, minimum wage increases and so on? Or what is it?

Yes, it's minimum wages and also there was an issue with medical insurance costs that have increased significantly in the case of Mexico due to that tax reform by the Mexican government.

Our next question comes from the line of João Frizo with Goldman Sachs.

I have a quick question around Cancun traffic, right? Just wanted to hear a bit your thoughts on why the weakness in that airport specifically. In the past, we had the issue with Tulum ramping up. I think that's behind us right now. So I just wanted to hear your expectations for growth there going forward? And what is driving the weakness we saw in June, but also in the months prior to that?

Well, the softness is a cocktail of matters. So one of the important ones is, of course, the jet fuel increase, just to say jet fuel that increased 42% during the month of June due to the conflicts in the Middle East. That's one of the things. The second one, of course, the bankruptcy of Spirit and it's going to take time for the other airlines to recuperate this. Of course, the case of sargassum, which has been very high during this year, almost at the levels of last year to end the summer. In terms of the recuperation process, my opinion is that the summer is lost. And we are expecting the recuperation process up to the end of summer season or winter season, we see a better outlook and I would say, more seats, more offered seats than what we had last year. But that will be up to November, December this year.

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

Sorry, I think my question was already answered. Sorry for that.

Our next question comes from the line of Pablo Ricalde with Itau.

Talking about the recent increase in tariff in Mexico, which is like the maximum tariff that you're charging now after July hike? Have we met that?

The betting that is not what you collect on every single rate making in tariffs or the to comply the maximum tariff is the whole year from the first of January to December last year -- at the end of the year. So what I said is what we are expecting is that the maximum tariff compliance for this year should be close to 99%.

Our next question comes from the line of [ Enrique Cantú ] with GBM.

I just have one quick question. During the quarter, ASUR U.S. got only another repo contribution despite a full quarter of consideration. Could you provide more color on when you expect the business to reach a more normalized EBITDA level?

I am really sorry but I cannot hear you well. Could you repeat your question, please?