Grupo Aeroportuario del Centro Norte Q2 2024 Earnings Call Transcript

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Provided by Quartr
July 29, 2024

There are 10 speakers on the call.

Operator

Greetings. Welcome to the Coupa Aeroputario del Centro Norte Ooma Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. I will now turn the conference over to your host, Emmanuel Camacho.

Operator

You may begin.

Speaker 1

Thank you, Shemarie, and hello, everyone. Welcome to OMA's Q2 2024 Earnings Conference Call. We're delighted to have you join us today as we discuss our company's performance financial results for the past quarter. Participating today are CEO, Ricardo Rodriguez and CFO, Rupu Pareto. Please be reminded that certain statements made during the course of our discussion today may constitute forward looking statements, which are based on current management's expectations and beliefs 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.

Speaker 1

With that, I'll turn the call over to Ricardo Duenas for his opening remarks.

Operator

Thank you, Manuel. Hello, everyone, and thank you for joining us today. This morning, I will review our operational performance and financial results, then I will briefly comment on recent CapEx milestones occurred during the quarter. And finally, we will be pleased to answer some questions. In the Q2 of 2024, almost passenger traffic reached 6.5 1,000,000, a decrease of 2.4% versus the Q2 of last year.

Operator

The mass tick passenger decreased 4.3%. Excluding Acapulco, where tourist infrastructure continues to recover from the impact of Hurricane Otis in October 23, our domestic passenger traffic declined by 3.1%. This was primarily due to the Pratt and Whitney engine recall affecting the fleet of Mexican low cost carriers. The most impacted airports were Monterrey and Culiacan, particularly on routes such as Monterrey to Cancun and Mexico City Culiacan to Mexicali and Tijuana. Despite a 10% decline in our routes to the Mexico City International Airport during the quarter, mainly due to the reduction of movements per hour announced by the Mexican government at the beginning of the year, our connectivity to the Mexico City metropolitan area, including also Toluca and Santa Lucia airports increased by 2.8%.

Operator

This demonstrates that demand for flights to Mexico City remains robust, with airlines responding by adding capacity to these alternate airports. There has been a clear trend towards maintaining capacity within the Mexico City Airport system, while also utilizing available capacity to enhance international coverage connectivity to the U. S, strengthening existing routes and introducing new ones. International passenger traffic achieved a strong performance in the Q2 with a 12% increase compared to the Q2 of last year. This growth was primarily driven by the Monterrey airport with significant increase on routes to Atlanta, Las Vegas, Toronto and Orlando.

Operator

These routes, along with Mass Atlanta Los Angeles route, accounted for approximately 60% of international passenger traffic increase during the quarter. Additionally, in the first half of the year, we launched 6 new international routes, 4 of which were based on the Monterrey Airport, further strengthening our international connectivity. Moving on to an almost financial performance. Aeronautical revenue decreased by 2.5%, primarily driven by the performance of our domestic passenger traffic. Aeronautical revenue per passenger remained flat compared to the Q2 of last year.

Operator

Despite the decline in passenger traffic, non aeronautical revenues grew by 13.8 percent underscoring the successful execution and consolidation of several strategic Q2 of last year, primarily driven by VIP lounges and parking revenues, along with several other categories. VIP lounges saw significant benefits this quarter due to higher access rates and the effect of the previously opened lounges in Reynosa, Tampico and Durango. In addition, leases of 3rd party lounges in Monterrey were renewed under improved terms. Parking revenues increased primarily due to an overall optimization of tariffs across our 13 airports. Revenue from restaurants, car rentals and retail grew, driven by the contribution of commercial spaces opened during the previous quarters.

Operator

Finally, duty free revenue increased due to our strategy of relocating international flights among terminals in Monterrey, boosting passenger exposure to commercial spaces and increased revenues per passenger. The occupancy rate of commercial space stood at 95.3% at the end of the quarter. On the diversification front, revenues increased 27%. OMA Cargo contributed most of this quarter's growth with an increase of 35%, mainly due to higher revenues from ground and air cargo operations in Monterrey. In addition, during May, we began operations with our new client, Lufthansa Cargo, which did not operate previously in Monterrey, offering air cargo transport services with an initial frequency of 1 flight per week between City, Monterrey and Frankfurt.

Operator

This renewed route is part of our strategy to establish our airport as a key logistics hub. In addition, we will soon begin expansion of our Alma Cargo Monterrey warehouse capacity by almost 50%, allowing us to capitalize on near shoring opportunities. Hotel services grew by 16%, mainly as a result of an increase in operations in both hotels. In the Q2 of this year, occupancy rate of our Terminal 2 NH was 85%, while the Hilton Garden Inn Hotel had an occupancy rate of 79%. Additionally, we recorded a double digit increase in average room rate per night on both hotels.

Operator

Moving on to capital expenditure front, I would like to highlight that during the quarter, we achieved a significant milestone in our long term Monterey Airport. As part of our expansion and remodeling project, we successfully inaugurated the Terminal A East Public Area expansion. Covering over 6,000 square meters, this new area features double documentation counters, commercial outlets, airport services and other facilities. These enhancements contribute to improving our services and increasing airport capacity. This completion marks the 3rd phase of our initial expansion project following the earlier openings of the West Public Area of Terminal A and the Wing 1 building.

Operator

As a result of these initiatives, Monterrey's current terminal capacity has grown to 13,900,000 passengers annually. Additionally, during the quarter, we invested MXN 816,000,000 in MDP investments, major maintenance and strategic projects. Notably, we are actively working on expanding and remodeling terminal buildings in Monterrey, Ciudad Juarez, Torreon, Culiacan, Durango and Mazatlan. These projects reflect our commitment to enhancing airport facilities and services for passengers and stakeholders. I would now like to turn the call over to Ruffo Perez Plio, who will discuss our financial highlights of the quarter.

Speaker 2

Thank you, Ricardo, and good morning, everyone. I will briefly review our financial results, and then we will open the call for your questions. Aeronautical revenues decreased 2.5% relative to the Q2 of 2023, driven primarily by lower passenger traffic with a 4.3% decrease in domestic passenger traffic, partially offset by 12.4% growth in international passenger traffic. Nonair revenues increased 13.8%. Commercial revenues increased 11.9% with the categories with the highest growth being VIP lounges, parking and restaurants.

Speaker 2

Diversification activities increased 26.5%, mainly due to higher revenues from Opamacara and hotel services. As a result, total aeronautical and non aeronautical revenues grew 1.1 percent to ARS2.9 billion in the quarter. Construction revenues amounted to ARS556 1,000,000 in the 2nd quarter, a decrease of 22% as a result of lower MVP investment execution speed. The cost of services and G and A expense increased 16.5% compared to 2Q 'twenty three. The rise is primarily due to the expansion of the new operational areas in previous quarters, primarily in the Monterrey airport, coupled with higher unit costs.

Speaker 2

Consequently, several of our costs and expenses such as electricity, contracted services and maintenance have increased as compared to the same period of last year. Concession tax increased 71 percent to 239,300,000 dollars as a result of the rate increase from 5% to 9% applied on the revenues generated by OMA's airport concessions. On the tariff regulation basis effective as of October 20, 2023, payments made to the government related to aeronautical revenues in excess of those included in the most recent tariff revision will be added to the reference value to be used in the next maximum tariff revision. Therefore, starting January 2026, these excess concession tax amounts paid will begin to be recovered through maximum tariffs. In the Q2 of 2024, the 4% surplus of concession tax over aeronautical revenues amounted to COP92.9 million, equivalent to 3.2 percent of the sum of OMA's idle and non idle revenues.

Speaker 2

This surplus is included in the MXN239.3 million recorded as concession tax expense for the quarter. Major maintenance provision was MXN 43,000,000 as compared to MXN 82,000,000 in the Q2 of last year. The decrease is a result of the variation in the present value of the major maintenance provision caused by an increase in discount rates for its calculation. OMA's 2nd quarter adjusted EBITDA was Ps. 2,200,000,000 and the adjusted margin was 73.3%.

Speaker 2

Excluding the ARS92.9 million surplus of concession tax and its impact on financial results, our adjusted EBITDA would have been ARS2.3 billion with a margin of 76.3 percent. For the 6 months ended on June 30, 2024, adjusted EBITDA would have been MXN4.4 billion with a margin of 77.0 percent. Our financing expense amounted to ARS834 1,000,000. This figure includes the effect resulting from changes in the present value of the major maintenance provision due to an increase in the discount rates used for its calculation. Consolidated net income was MXN1.3 billion in the quarter, which increased by 1.5% as compared to the Q2 of last year.

Speaker 2

Turning to our cash position, cash generated from operating activities in the 2nd quarter amounted to MXN1 1,000,000,000 and cash at the end of quarter stood at MXN1.6 billion. During the quarter, we paid the 1st installment of the dividend declared by our in our previous shareholder meeting. At June 30, 2024, total debt amounted to MXN 10,900,000,000 and we ended the quarter with a healthy net debt to adjusted EBITDA ratio of 1 times. This concludes our prepared remarks. Shmali, please open the call for questions.

Operator

Thank you. At this time, we'll be conducting a question and answer session. Our first question comes from the line of Pablo Ricardo with Santander Mexico. Please proceed with your question.

Speaker 3

Hello, Martin. Congrats on the results. I was wondering if you can provide your expectations for traffic for the second half of

Speaker 4

the year in Mexico. We have seen slightly better expectations from

Speaker 5

low cost carriers,

Speaker 4

Yes.

Operator

Yes. Hello, Pablo. We remain with the same projection we had on the previous call, which we believe we're going to be in the low single digit decrease in traffic as a result of the Pratt and Whitney issue. Our next question comes from the line of Rodolfo Ramos with Bradesco BBI. Please proceed with

Speaker 3

your question.

Speaker 6

Good morning, Ricardo, Ruffo, Emmanuel. Congratulations on the impressive growth on the non aeronautical business side. Couple of questions on my side. First one is, wanted to get a sense of how do you look at the potential for non aeronautical revenue per passenger in more in the medium to long term? I mean, your structure is unique in the sense that you have the industrial business, the cargo, the hotel, which might make it more difficult to draw comparisons there.

Speaker 6

But what kind of benchmarking have you done with perhaps other narrow can go from this level. So that's the first one. And then second, it was interesting your comments around the metropolitan area. The Mexico City slot restriction has been something that has been a concern for us, these bottlenecks. So how relevant my question is how relevant do you think Toluca can be to serve as an alternative to Felipe Angeles and the AISIMA?

Speaker 6

Thank you.

Speaker 2

Sure. Hi, Dolfo. This is Ruffo. So in terms of non annual revenue, the way we view it is we separate what's commercial to other diversification activities. On the commercial side, we're around a MXN 58 per passenger revenue.

Speaker 2

I think that's sustainable for the next 6 months and that's consistent with our expectations for full year. And going forward, we would expect that number to increase at least with inflation and be maintained in real terms. As for other diversification activities, their performance does not necessarily relate to passenger growth. So obviously, right now, we are with 85% capacity occupancy ratio in the and H Hotel as well as the 79% occupancy ratio in Hilton in the Monterey airport. They are basically at full capacity in the main business days of the week.

Speaker 2

So we would expect some improvement in tariff going forward, but they would not be correlated to passenger growth. And OMA Cargo also continues to perform very strongly. We saw very good first half results, which we think they are consistent with what we would expect for the second half of the year, but also the revenues would not be correlated to passengers. So therefore, we don't necessarily have this MXN 114 per passenger target for the upcoming quarters or years as a target. Go ahead.

Operator

And just to point out, we're having some strategic initiatives within OMA. We have lot of our energy in the non aeronautical revenues where for example cargo we're expanding our warehouses by 50%. We're looking to expand also our industrial park. We brought a management team in place to revamp all the non narrow side. So we have good expectations there.

Operator

We want to our objective is to capitalize on all the new shoring activity that we're seeing in most of our airports. And relating to Toluca and EIFA, I mean, I think the government has been clear. They want to have a metropolitan system of airports composed of the Mexico City Airport, Toluca and Santa Lucia. We believe that the excess traffic will go mostly to Santa Lucia instead of Toluca. The government has very clear that that's their strategy.

Operator

So we believe most of the excess will go more to Santa Lucia than to Toluca.

Speaker 2

And just to complement that regarding the Q2 of 2024, the IFA represented 5.4 percent of total second quarter traffic.

Speaker 6

Great. Thank you. All right, everyone. And congrats again.

Operator

Thank you. Our next question comes from the line of Jens Vis with Morgan Stanley. Please proceed with your question.

Speaker 3

Yes. Hello, everybody. Two questions. I saw that you cited the Monterrey Cancun route as being one of the main drivers of the traffic to create in Monterrey. What's the reason behind that?

Speaker 3

Did the airlines reduce frequencies? Or is it lower load factors? If you could give a bit more color on that, I was a bit surprised to see this. And you already mentioned that you plan to or are looking into expanding capacity maybe at the industrial park. What's the current capacity roughly the capacity utilization you're having at that park?

Speaker 3

In other words, would you be able to sustain these high growth rates before investing in new capacity?

Speaker 2

So regarding the first question, yes, the Monterey can show a decline in traffic in the 2nd quarter. It's primarily related to a cut of capacity by some of the carriers operating that route. That was one of the routes that was most affected by the Pratt and Whitney issue. As the engine recall effect fades and is behind us, we would expect this to be one of the roads with the quickest recoveries. And regarding the second question, can you repeat your second question, please?

Speaker 3

Yes. On the industrial part, I mean, what's approximately the capacity utilization you have there? Just to assess for how long you could have these high growth rates before you invest in additional capacity of the industrial?

Speaker 2

So we're currently working either on expanding a couple of existing warehouses and building also a couple of new warehouses. Once those four projects are completed, basically the park would be around 98% of its buildable area built. So, these warehouses would expect to be generating revenue towards the last some of them in the second half of the year and the other ones in the Q4 of this year. So, after middle of 2025, if we want to have still growth in this business line item, we would need to invest in additional infrastructure in additional spaces in the Monterrey airport.

Speaker 3

Perfect. Land, right? Expansion of land, right?

Operator

Thank you. Thank you. Our next question comes from the line of Stephen Trent with Citi. Please proceed with your question.

Speaker 7

Good morning, everybody, and thanks for taking my question. Just one from me. I noticed your competitors have done a couple of overseas projects and invested in airports outside of Mexico. Are you guys considering doing anything along those lines? And if so, is this something that you could do jointly with Vinci or is nothing like that being anticipated at the time?

Speaker 7

Thank you.

Operator

Hi, Steven. We're always looking for Hi, Steven. We're always looking for opportunities

Speaker 4

to expand internationally. Obviously, that would have to

Operator

be a joint decision with Bingi. But we're currently not working in any tender bidding processes internationally.

Speaker 7

Okay. Appreciate that. Thank you.

Operator

Thank you. Our next question comes from the line of Isabella Salazar with GBM. Please proceed with your question.

Speaker 8

Hello and thank you for taking my question. I was wondering if you could tell me how close you are to reaching your maximum tariff this year?

Operator

Yes. Thank you, Sabella. We're close to 99.3% compliance with maximum tariff at this point. Our next question comes from the line of Andres Agrir with GBM. Please proceed with your question.

Speaker 9

Hi, thanks for the comment. Congrats on the results. We observed the commercial growth dynamics this quarter. Is it primarily related to traffic mix or deployment of commercial strategies? Additionally, considering the higher mix of international passengers and commercial revenues in Acapulco despite having fewer passengers, could this be impacting the per passenger conversion metric?

Operator

Sorry, and then could you repeat that your line is cutting. Could you please repeat it with your question?

Speaker 9

Yes. Sorry about that. We have served with the commercial growth dynamics this quarter. Is it primarily related to traffic mix or deployment of commercial strategies?

Speaker 2

No, I think the increase in commercial revenues is more related to our overall strategy. Obviously, you saw an increase in duty free that has obviously a component of benefit from higher international passengers than last year. But overall, the increases that you see in food and beverage, in restaurants, in car parking is part of our overall strategy to improve our commercial revenues as a whole.

Operator

Thank you. Our next question comes from the line of Andressa Varadovic, who is a private investor. Please proceed with your question.

Speaker 8

Hi, good morning. Thank you for taking my question. So I have a follow-up here on the maximum tariff question. So you mentioned that you are close to a 99.2% compliance rate. So just wondering how does this take into consideration the discounts that were agreed with government last year, if you have any updates on that?

Speaker 8

And if you have plans to increase tariffs further before your next MDP revision? Thank you.

Speaker 2

So the compliance ratio that we mentioned, it's already a still giving effect to all discounts that were agreed upon last year and the inflationary increase at the beginning of this year. Next year, we would just expect an inflationary increase in our aeronautical tariffs.

Operator

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

Speaker 5

Hi, good morning and thank you for the call. Just one question. At this point in time, can you give us an idea of the level of CapEx you would be expecting for the next master development plan, if it's the same level as the previous or higher or lower? Thank you.

Operator

All right. Hi, Alan. We're still near in early stages of the MVP. We're working very closely with the VINCI team to have a very optimized CapEx. But it's too early to have some numbers.

Operator

But what I can tell you is going to be a very optimized CapEx.

Speaker 5

Thank

Operator

you. Thank you. And our next question comes from the line of Anton Martin Cote with DBM. Please proceed with your question.

Speaker 4

Hello, guys. Thank you for the call. My question is a bit of a follow-up on Andres' question related to the commercial due to having a higher share of international passengers? Or due to having a higher share of international passengers or maybe some distortion due to the commercial revenues in Acapulco given that you have now lower passengers or is this not significant? Thank you.

Speaker 2

I think the impact of Acapulco is limited. As you remember, Acapulco accounted for approximately 3.5% of our total traffic. And even though it's obviously a tourist market, which is prompts to maybe higher expenditures, especially in the international side, The international component of Atacapulco was very small as compared to the GT3 revenues, for example, that we have in Monterrey or Mazatlan. So, I wouldn't think that the mix of passengers right now, except for the duty free line item, is driven by the international passenger growth. For example, parking revenues increased and it's primarily domestic traffic in that line item.

Speaker 2

A lot of the VIP sorry, food and beverage and retail outlets don't necessarily attack the international market, but mostly the domestic market. So I would think that the increase in commercial revenues is driven by overall strategy and does not depend on international traffic growth.

Operator

Thank you. And we have reached the end of the question and answer session. And I will now turn the call over to Ricardo Hernandez Espritu for closing remarks. Yes. We would like to thank everyone for participating in today's call.

Operator

Ruffo, Manuel and I are always available to answer your questions, and we hope to see you soon. Thank you once again, and have a great day. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

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Grupo Aeroportuario del Centro Norte Q2 2024
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