Grupo Aeroportuario del Centro Norte Q2 2023 Earnings Call Transcript

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Provided by Quartr
July 31, 2023

There are 9 speakers on the call.

Operator

Greetings. Welcome to the Grupo Aeroportuero del Centro North OMA Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to your host, Emmanuel Camacho. You may begin.

Speaker 1

Thank you, Shamali, and hello, everyone. Welcome to OMA's Q2 2023 Earnings Conference Call. Participating today are CEO, Ricardo Duenas and CFO, Ruffo Perez Pielo. Please be reminded that certain statements made during the course of our discussion today may constitute forward looking These statements, which are based on current management 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 control. And with that, I will turn the call over to Ricardo Reynas for his opening remarks.

Speaker 2

Thank you, Manuel. Hello, everyone, and thank you for joining us today. This morning, I will briefly comment on several events and milestones occurred during the quarter. Then I will review our operational performance and financial results. And finally, we will be pleased to answer your questions.

Speaker 2

Today, I am pleased to announce that last Tuesday, we released our 2022 sustainability report. This report is to our commitment to transparency, accountability and our unwavering dedication to environmental, social and governance principles. We are proud of the progress we have made in our sustainability journey and we're committed to driving positive change in the years to come. The 2022 Sustainability Report is built upon Global Reporting Initiative and the Sustainability Accounting Standards Board Frameworks. These frameworks have guided us in creating a comprehensive and accurate portrayal of our sustainable practices and progress over the years.

Speaker 2

One of the essential aspects of this report is the reevaluation of materiality, where we conducted A thorough analysis to identify the most critical issues that affect our stakeholders and our business. We have identified and addressed 15 material OpEx that reflect the core sustainability challenge and opportunities we face as an organization. By focusing on these areas, We can drive meaningful change and create a positive impact to our stakeholders. Some significant achievements showcased in the 2022 sustainability Board include the substantial reduction in our carbon footprint during last year. Last year, 95% of our energy Consumption was sourced from renewables, resulting in a 48% reduction in our total Scope 1 and 2 Carbon Emission versus 2021.

Speaker 2

Additionally, we have made remarkable strides in reducing our water consumption. We managed to reduce water usage by 17% in 2022, despite a 29% increase in passenger traffic as compared to 2021. As we embrace sustainability, we recognize that this is an ongoing commitment to responsible business practices. We understand that there is still much work to be done, and we remain committed in our determination to promote Sustainable Mobility. In addition, alongside the release of our 2022 sustainability report, we also published our Green Bond Progress Report Pursuant to OMA's Green Bond Framework.

Speaker 2

This report provides information about allocation of proceeds and the impact of projects financed with the Ps. 1,000,000,000 green bond issued in 2021. As of January 31, 2023, we have contracted ARS 719,000,000 in eligible green projects. These initiatives, which include our solar Our panels are already in operation, are projected to reduce over 15,000 megawatt hour in energy consumption annually. And our 2 new water treatment plants in San Luis Potosi and Chihuahua airports will allow us to treat an additional 24,000 cubic meters of water per year.

Speaker 2

I invite you all to explore this report in detail. Both documents provide comprehensive insights into our sustainable practices, achievements and ongoing initiatives. We welcome the opportunity to engage in meaningful discussions with all of you about our sustainability efforts. Moving on to recent CapEx development. As part of our efforts to enhance the services and capacity of the Monterrey airport, On June 20, 2023, we start operations of the Wing 1 building, which is part of the airport's expansion and remodeling project.

Speaker 2

This new wing serves passengers traveling through Terminal C, has an area of 5,600 square meters, 7 boarding gates and an annual capacity of 1,400,000 passengers. As we continue developing the Monterrey Airport, We look forward to welcoming more passengers to experience the enhanced facilities and services offered by our expanded airport. Regarding growth of our industrial park in Monterrey, during the quarter, we started the construction of 2 new industrial warehouses of 14,000 square meters and 10,000 square meters respectively. These warehouses are expected to start generating revenues in the Q2 of next year. In addition, since the end of 2022, we have been engaged in the construction of 2 additional warehouses.

Speaker 2

Once these 4 warehouses are fully operational, total leased area will grow by 56% to 116,000 square meters, representing 83% of the total visible space in the industrial park. As another highlight of the quarter, in Terminal 2 NH Collection Hotel at the Mexico City Airport, we successfully finished the remodeling. All 287 rooms underwent a full transformation, along with public areas and the restaurant of the hotel, creating an enhanced experience for our guests, which should translate into solid occupancy factor in subsequent years. Finally, in line with our strategy to improve passenger experience in our airports, we have successfully opened another Ooma Premium Lounge in Tampico Airport. With this addition, we now directly operate a total of 10 lounges in 8 of our airports.

Speaker 2

In addition, We are in the process to start operations of new lounges in Otorango, Reynosa and Cihuatanejo airports. Turning to our main Q2 2023 results. Ooma delivered solid financial and operating results in the Q2 of this year. Adjusted EBITDA grew 25 percent in the quarter to MXN2.3 billion and adjusted EBITDA margin reached 78.6 percent, setting a new record high, largely as a result of the increase in both aeronautical and non aeronautical revenues and our successful cost control In the Q2, OMA's passenger traffic reached $6,600,000 an increase of 13% versus Q2 of last year. During the quarter, our Monterey airport delivered an outstanding passenger traffic performance contributing with 544 1,000 additional passengers in the Q2 of 2023 versus Q2 of last year, equivalent to 3% of OMA's total passenger growth in the quarter.

Speaker 2

The top five destinations driving the airport's growth in the quarter were Toluca, Cancun, Queretaro, Felipe Angeles and Houston, which collectively accounted for half of the airport's overall growth. Besides Monterrey, the airport of Ciudad Juarez, Acapulco and Mazatlan also contributed most to passenger growth. And the routes from this airport were with the strongest traffic growth compared to Q2 of last year were the Ciudad Juarez to Guadalajara and Cancun routes, Acapulco to Felipe Angeles and Guadalajara routes and Mazatlan to Mexico City and Tijuana routes. On aggregate, These 6 routes added 130,000 additional passengers, equal to 17% of Oma's total passenger increase in the quarter. Primarily as a result of the strong passenger traffic performance, our aeronautical revenues grew by 26% in the quarter to MXN2.3 billion.

Speaker 2

On the commercial front, revenues increased 23% compared to the Q2 of last year, driven by parking, car rentals, restaurants and VIP lounge. Occupancy rates for commercial space stood at 94.3% at the end of the quarter. Diversification revenues increased 5%. Our hotel services contributed most to this growth. In the Q2 of 2023, Occupancy rate at our Terminal 2 NH Collection Hotel increased 420 basis points to 84.7%, Reflecting the successful completion of the remodeling project, while the Hilton Garden Inn had an occupancy rate of 76.2%, 90 basis points higher.

Speaker 2

On the capital expenditure front, total investments in the quarter including MVP Investments, major maintenance and strategic investments were

Operator

ARS184 1,000,000.

Speaker 2

During the quarter, some of the most relevant projects we are working on are the expansion and remodeling of the Monterey Terminal A Building as well as Ciudad Juarez, Culiacan and Durango Terminal Buildings. The reconfiguration of the MASA Plan Terminal Building, major rehabilitations and reconfiguration of platforms and taxiways in several airports and construction of 4 industrial warehouses. I would now like to turn the call over to Ruffo Perez Pliego, who will discuss our financial highlights for the quarter.

Speaker 3

Thank you, Ricardo, and good morning, everyone. I will briefly review our financial results for the quarter and then we will open the call for your questions. Turning to Oma's 2nd quarter financial results. Aeronautical revenues increased 25.8% relative The Q2 of 2022 driven primarily by the 13% increase in passenger traffic and high revenue per passenger. Non NIO revenues increased 15.7 percent with commercial revenues increasing 23% and the categories with highest growth were parking, Car rentals, restaurant and VIP lounges.

Speaker 3

Parking increased 21% as a result of an increase in passengers and higher penetration in the Monterrey, Chihuahua and Reynosa airports as well as higher turnover in short term state parking across all airports. Car rentals and restaurants rose 36% 30%, respectively, mainly due to higher revenue sharing the impact of the opening of new spaces and improved contractual conditions. VIP lounges increased 44% As a result of the increase in passenger traffic and the opening of the Tampico launch in May as well as the Ciudad Juarez launch opened in November of 2022. Diversification activities increased 4.5% as a strong hotel revenue growth was partially offset by a decline in Omakala, which was affected by decreased operations from our clients in the ground import cargo activity. Total aero and non aero revenues grew 23.4 percent to MXN 2,900,000,000 in the quarter.

Speaker 3

Construction revenues amounted to MXN710 1,000,000 in 2Q 'twenty three, an increase of 27% as a result of higher MVP investment execution. The cost of airport services and G and A expense increased 11.2% relative to the Q2 of 2022, mainly due to higher payroll costs and an increase in the number of parking and Ooma VIP launch staff. Other increases came at the minor maintenance and other cost Expenses line items, which grew due to overall higher activity in our airports as well as inflationary effects. Major maintenance provision was MXN 82,000,000 as compared to MXN298,000,000 in 2Q 2022. Ooma's 2nd quarter adjusted EBITDA was COP 2,300,000,000 and the adjusted EBITDA margin was 78 point 5%.

Speaker 3

Our financing expense was COP 2.82,000,000 mainly due to higher interest expense as a result of Additional debt issuance and higher average cost of debt. Consolidated net income was Consolidated making Ooma's MXN 1,300,000,000 in the quarter, an increase of 37% versus 2Q 'twenty two. Turning to our cash position. Cash generated from operating activities in the 2nd quarter amounted to MXN 1,700,000,000 And cash at the end of the quarter stood at COP 2,000,000,000. On June 22, we made the payment for the first installment of the ordinary dividend of MXN1.8 billion in accordance with the resolutions of our shareholders meeting in April.

Speaker 3

The remaining $500,000,000 will be paid no later than September 30, 2023, and we will provide you with a timely update on the matter. At the end of the quarter, total debt amounted to ARS 10,800,000,000 and we ended the quarter with a healthy net debt to adjusted EBITDA ratio of 1.1 times. This concludes our prepared remarks. Smalie, please open the call for your questions.

Operator

Thank you. At this time, we will be conducting a question and answer session. Our first question comes from the line Rudolfo Ramos with Bradesco BBI. Please proceed with your question.

Speaker 1

Good morning, Ricardo, Rudolfo and Manuel. Thanks for taking my Congratulations on the strong results there. Two questions here, if I may. The first one is, Can you remind us what is your expectation for traffic growth this year? And can you frame for us the kind of Questions that you're having with airlines on your appetite.

Speaker 1

It seems like when you look at the routes opening, it seems to be all the non touristic destinations. Just wanted to take get your take there on business outperforming leisure potentially within your network. So that would be my first question. And second question, when you think of the different projects that you're currently developing in Monterrey and as part of your NDP and also other terminal expansions at other airports. I mean, how do you see your cost structure growing in the next 2 years, focusing On the projects that are probably going to hit this or next year, so how do you see cost growing in the next 2 years until your next MDP In 2025.

Speaker 1

Thank you.

Speaker 2

Thank you, Rodolfo. On first part of the question, In terms of traffic growth, we expect something close to 26,000,000 passengers per year is achievable. You're right. During the quarter, we opened 8 new routes, most of them from Aerus and Viva Araguz, we have Araguz for Mexicali and Bogota. The rest in Aeru is mostly business traffic.

Speaker 2

As you know, business traffic was lagging during COVID. But now that we're we started to seeing increased near shoring activity, we're starting to see a strong pickup in business traffic and that's been reflected in our numbers.

Speaker 3

Hi, Francois. With respect to your second question on costs, certainly, we are going to see a slight pickup on some of the fixed As a result of the openings, we opened a substantial facility in Monterrey at the end of the quarter. We are also making good progress with expansions in the Durango and the Ciudad Juarez airports. [SPEAKER NISOLINA MARTUCCI JAKIS:] But I mean, we should see a slight growth in cost above inflation as a result of these expansions.

Speaker 1

Thank you.

Operator

Our next question comes from the line of Guillermo Mendez with JPMorgan. Please proceed with your question.

Speaker 4

Good morning and afternoon, everyone. Ricardo, Rufe, Manuel. Thank you for taking my question. Two questions. The first one is a follow-up to the previous questions.

Speaker 4

You mentioned about the traffic for this year. Just wondering what's your expectations for traffic in the longer term? Think of it in your Questions and investments in Monterrey. And I know your MDP is too far away, but what kind of traffic increase maybe we could expect for the upcoming years. And the second question is related to cash distribution, capital allocation.

Speaker 4

So what kind of deep densebuybacks should we expect on the verge of these additional investments on the commercial front? Thank you.

Speaker 2

For the first part, it's important to remember that during The first half of this year, we're comparing to a slightly lower base from last year when we have the Omicron variant. So we expect growth to start normalizing a bit going forward. It's hard to tell what The projections that we expect some sort of normalization and we also expect business traffic to have A better performance than the one we've seen in the last couple of years.

Speaker 3

And with respect to Cash distributions, as you know, this year we had an extraordinary dividend paid in March and the ordinary dividend Declared in the April shareholders' meeting, dollars 500,000,000 of which are still pending to be paid. We have yet to define what the cash distributions are going to be for next year, And that's something that we need to propose to shareholders.

Speaker 4

Okay, super clear. Thank you very much.

Operator

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

Speaker 5

Hi. Thank you for taking my questions. I have 2 on my side as well. About maintenance, major maintenance for the quarter, I would like to know if there is there was any special item for this quarter to be a decrease year over year and what Should we expect for the remaining of the year? And the second one about tariffs, What's the percentage of maximotage are you guys running?

Speaker 5

Should we expect any increase for the remainder of the year? Thank you very much.

Speaker 3

Hi, Roberto. With respect to major maintenance, I think if you take the semiannual amount, The amount for the 6 months annualized that will be our forecast for the year. The reason versus the decline of last year is that a lot of the projects included in that Major maintenance provision, which as you know, it's a non cash item are close to being fully provisioned. And the going forward rate is going to be lower than what we were experiencing in previous years. And with respect to your second question, I think that we're targeting for 2023 to end up above 95% levels of tariff compliance.

Speaker 2

We also don't expect an increase in tariff for the remaining of the year.

Speaker 5

Fantastic. Thank you very much. Very clear.

Operator

Our next question comes from the line of Jay Singh with Citi. Please proceed with your question.

Speaker 1

Thank you for taking my question. Can you provide any high level color regarding what's driving such strong

Speaker 3

So Acapulco, in terms of percentage points was the highest growth in our Network, I think it's there are no new routes that were opened this quarter. So it's mostly improved load factors in the existing routes that we have

Speaker 2

It's important just to keep in mind that at the With the saturation of the Mexico City Airport, what we have seen with most of the airlines as they're starting to add Higher capacity aircraft and that's also impacting a lot of Yes, that type of traffic.

Speaker 3

Yes, one clarification is even though some of these routes were opened before, Last year, they were not in operation, and we got about 19,000 passengers From the Philippines and Angeles airports to that are new and were not last year to Acapulco. So that brings Half of the growth of doing departure.

Speaker 1

No, that's super helpful. I also would like to know what caused the 4.9% drop in Our unit volumes versus a year ago, would you say that was due to more competition from third party storage facilities or what would you say led to that?

Speaker 2

You said in cargo? Yes.

Speaker 3

Yes. So in cargo, it's so yes, cargo used decreased 4.9% versus 2Q 2022. This was mostly attributable to cargo at the Monterrey airport. And we are seeing a deceleration on cargo activity in these months.

Speaker 1

Thank you so

Speaker 2

much. Also just to keep in mind that the currency the strong peso also has some effect In the level of exports.

Operator

Our next question comes from the line of Edson Morquette with Somerset Capital. Please proceed with your question.

Speaker 1

Hi, good afternoon. Thank you for taking my questions. I have 2 of them. The first one is related to the cost of hotel services. This quarter, they increased 24%.

Speaker 1

So could you give us a little bit more color about the rationale for the increasing? And the second one is regarding the sustainable report. You mentioned about the ACA that you got the level 1 this first half twenty twenty three And you are pursuing Level 2, but could you give us a little bit more details about what will be new getting Level 2 from the ACA? Thank you.

Speaker 3

So with respect to Hotel costs, there has been a strong pickup in the hotel activity and that has there's been some initial cost primarily I would say in the line items of payroll and food and beverage Consumables, and as we expect growth continue recovering in the 2 hotels, We should see at least for the rest of the year similar increases in the cost of hotels. And with respect 2 sustainability efforts, as you mentioned, we already have a Level 1 certification for the 13 airports of Ooma that were granted in February. We are already working towards the Level 2 certification, which we would expect To that by the beginning of next year as well in all of our reports.

Speaker 1

Just a follow-up on this, but what is the differences? I mean regarding

Speaker 3

So the difference With level 1, basically you have to have like a carbon map and a diagnose of your footprint. And in level 2, you have to have specific KPIs for a long term downward trend in those KPIs.

Speaker 1

Okay, makes sense. Thank you so much.

Operator

Our next question comes from the line of Gabriel Amazighfar with Scotiabank. Please proceed with your question. Gabriel, are you there?

Speaker 6

Sorry, yes, can you hear me now?

Operator

Yes, you can proceed.

Speaker 6

Okay. So yes, thank you. Thanks for the call.

Speaker 3

Can you give us a

Speaker 6

bit of color on the new route opening On, for example, the Tamaulipas, Matamoros, Que de las Negras, is that a thing about New shoring and manufacturing facilities being built there or is it more like higher demand for regional cities? And also the airline that operates touch roads, is it a large airline, just small, a low cost Carrier or how's the dynamics of those roads? Thank you.

Speaker 2

Thank you, Gabriel. That's mostly related to the It's a new airline called Airus. It's and they have smaller planes, Cetna planes, And it's going to be focused on more regional routes. So out of the 8 routes that we opened during the quarter, 6 of them are related to this New airline and the assets regional activity mostly related to new growing activity.

Speaker 6

Okay. So it's like planes for about 20 passengers or something like that or bigger a bit bigger, a bit lower?

Speaker 2

No, no, you're right. It's around 20 passenger aircrafts.

Speaker 6

Okay. Thank you very much.

Speaker 7

Welcome. Thank you.

Operator

Our next question comes from the line Fernanda Roverechia with BTG Pactual, please proceed with your question.

Speaker 8

Hi, thank you for taking my question. I have 2 actually. The first one, if you could further explore the capacity expansion at your Monterey airport. When do you expect to reach The full capacity of this 1,400,000 passenger, how can we think of the incremental passenger? And when do you To reach 100 percent of capacity.

Speaker 8

And the second, I was curious to hear your opinion because as you comment, Mexican Airlines have been adding domestic capacity because of the restriction regarding the Category 1 status. I was wondering, when the Mexico recovers the Category 1, we can have some shifts of Traffic from domestic to international flow and given that you are the most exposed to domestic routes, I wanted to hear your thoughts Maybe you could have some impact because of this capacity shift. Thank you.

Speaker 2

Thank you, Fernanda. In terms of capacity, our goal for this phase of expansion is to increase the current Capacity of the airport by around 50%. Remember, this terminal was the current terminal was for up to 12,000,000 passengers. We're looking to We're going to keep evolving as traffic continues to grow. Fortunately, we don't see in the near term future any bottleneck either on the air side, meaning the runway, apron or taxiway Or on the terminal side.

Speaker 2

So we'll keep growing as demand expands, but the current phase that we're working on is to increase by 50%. So Once we finish we just finished this Wing 1 that is connected to Terminal C. We are already expanding that wing to connect it to the current Terminal A. Once that wing is connected to Terminal A, we're going to use Terminal C for cargo expansion projects, then we'll evolve to a second pier, which will be wing the 2nd wing and then also another airside space,

Speaker 5

that's pretty much.

Speaker 2

And in terms of sorry, in terms of category 2, once we get back to category 1, we expect that to Happened somewhere by the end of this year. It's we expect it to don't have so much In fact, in our traffic, what we have seen in the last year, the last few months, it's all That hasn't been able to be that hasn't been absorbed by local carriers, has been absorbed by foreign carriers. We believe that The growth that we're seeing in business routes, it's going to remain constant even when we shift to Category 1. We don't expect any major shift in our traffic projections as a result of the shift to category 1.

Operator

And our next question comes from the line of Juan Mac Delta with GBM. Please proceed with your question.

Speaker 7

Hi, thanks for taking my question and congrats on the results. My question is a quick follow-up on the previous question on tariffs. I understand that you were at a 95 percent level of the maximum tariff allowed during the last quarter, are you currently in that level? And If I understood well, you expect to maintain a 95% by year end, right?

Speaker 3

Yes, that's correct. Due to seasonality factors and mix between Airports during the year, it might shift, but overall for the full year, yes, we are targeting slightly above 95%.

Speaker 7

Great. And currently, you're around that level, right?

Speaker 3

Yes. We're around those levels. Yes.

Speaker 7

Great. Thanks for the color and congrats to the results.

Speaker 3

Thank

Speaker 2

you. And

Operator

we have reached the end of the question and answer session. I'll now turn the call back over to Ricardo Adwena for closing remarks.

Speaker 2

Thank you all for participating today. Rufe, Emmanuel and I are always available answer your questions and we hope to see you soon. Thank you and have a good day.

Operator

This concludes today's conference and you may disconnect your line at this time. Thank you for your participation.

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Grupo Aeroportuario del Centro Norte Q2 2023
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