Q3 2021 Grupo Aeroportuario del Centro Norte SAB de CV Earnings Call
[music].
Greetings and welcome to the Grupo Idle post why do you need a central north to Oma's third quarter 2021 earnings conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note that this conference is being recorded.
I will now turn the call over to our host and Manuel Camacho Investor Relations Officer. Thank you you may begin.
Thank you good morning, everyone. Thank you for standing by and welcome to <unk> third quarter 2021 earnings Conference call, the California, almost CEO, Andrew <unk> CFO will be joining us. This morning, we will discuss third quarter 2021.
Please be reminded that certain statements made during the course of our discussion today may constitute forward looking statements, which are based on grid 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 which includes the impact.
The back of COVID-19.
I will now turn the call over to Ricardo.
Thank you, Matt and good morning, everyone and thank you for joining our conference call to review the evolution of our business as well as our performance during the third quarter.
Total passenger traffic reached $5 1 million during the quarter, which was 13% above our second quarter performance in absolute terms Monterrey, Ciudad Juarez and Chihuahua led the recovery path.
As compared to the third quarter of 2019 total passenger traffic stood at 83%. The airport passenger traffic recovery works you ask why does and Master plan.
Additionally, our international passenger performance continues to deliver a strong recovery level as it stood at 99, 6% of the international passengers observed in the third quarter of 2019.
The international passenger recoveries, primarily driven by destination, such as Houston, Dallas and San Antonio.
In terms of Rob performing versus three quarter of 2019, those that experienced the greatest traffic growth in volume terms during the quarter were Monterrey on at San Antonio Dallas, and my calling routes to that flattish on Israel and Mexico routes.
During the quarter, we saw improving passenger dynamics by the end of August and September one's a third wave of COVID-19 began to recede.
Currently of the ninth state, where all my House operations seven states are in Green status and two yellow, there's the greatest number of states and green status since the beginning since the pandemic started.
For the remainder of the year, we are confident that our passenger traffic will continue to evolve positively and we expect to reach a level of approximately $17 7 million passengers for the full year of 2021, which equates to 76% recovery relative to 2019.
It is important to highlight that we expect a strong winter season, and our leisure destinations as travel restrictions in Canada have lessened.
For the last three months of 2021, we have confirmed the opening of 17 seasonal routes from Canada and the U S.
These routes did not operate in the fourth quarter of 2020.
Additionally, in September and December Aeromexico will start flying the Monterrey to my Threet route our first stress Atlantic destination in over a decade.
All in all we will open 20 origin destination routes in the fourth quarter.
Finally at the end of September a total of 136 origin destination routes were in operation compared to 140 at the end of December 22020, and 183 routes in operation at the end of December 2019.
Turning to our third quarter operational resorts results, our passenger traffic performance during the quarter and our strict cost control efforts throughout all areas of the company resulted in overall positive results across the different business lines I would like to highlight that we reached an adjusted <unk>.
EBITDA of $1 5 billion pesos in the quarter, 2% above the third quarter of 2019 with a record margin of 75, 2%.
On the commercial front revenues increased 125% compared to the third quarter of 'twenty 'twenty with the largest increases on parking restaurants car rentals on retail.
Occupancy rate for commercial space in our terminals was 85% at the end of the quarter.
Diversification revenues increased 71%, mainly due to higher revenues from hotel services and all my cargo.
During the third quarter of this year the occupancy rate of our terminal to NH collection hotel with 70%, while the Hilton Garden Inn Hotel at the Monterrey Airport had an occupancy rate of 51% during the quarter.
Well my cargo delivered again, an outstanding performance with an increasing tonnage handled of 73%, resulting in a revenue increase of 52% versus the third quarter of last year.
Revenues from handling and custody of air and ground import cargo drove the increase in revenues.
Total investments in the quarter, including including MVP investments major maintenance and strategic investments were 524 million pesos.
Some of our major projects underway include the expansion and remodeling of the Monterrey Airport terminal a and C. <unk>.
Expansion and remodeling of issue that wireless terminal building.
Expansion and remodeling of the Tampico terminal building platform.
Platform reconfiguration of the Monterrey Airport.
Modernization of this what the net with terminal building and green investments related to someone else solar panels in our 13 airports.
I would like to turn the call over to Ruth Perez, who will discuss our financial highlights for the quarter.
Thank you Ricardo and good morning to everyone I will briefly review our financial results and then we will open the call for your questions.
Turning to almost third quarter financial results.
I don't know logical revenues increased a homeland and 53% royalties to the third quarter of 2020, driven by the 121% increase in passenger traffic.
Ironwood revenues increased 98% with commercial revenues, having the largest contribution.
Commercial revenues increased 625% the facilities, where the highest variations where parking restaurants.
So on retail.
Parking revenues increased 840%, mostly driven by the increase in traffic levels.
Restaurants car rentals and retail increased 267.
12% of the 180% respectively due to the end of this call.
The previous partners as well as higher revenues from revenue sharing.
Diversification activities increased 71%, mostly driven by higher revenues from the hotel services.
As a result total island melanoma analytical revenues were 2 billion vessels in the water and <unk>.
838% versus the third quarter 2020.
The cost of airport services, and G&A expense increased 5% relative to the third quarter of 2020, mainly due to a 16% growth in payroll expense, which reflects a one time expense of 8 million purchase related to the restructuring from.
Reorganization charges related to changes in LIBOR regulation ethical.
Well, let's say, 25% increase in contracted services.
So a higher levels of passenger traffic.
Almost third quarter adjusted EBITDA was $1 5 billion pesos and adjusted margin was 75, 2%.
During the quarter, we recorded an increase in the major maintenance provision.
43% to 165 million doses.
This reflects increased future major maintenance works under the NDP that once approved by the authorities last year.
Our financing expense was 42 million versus which was largely benefited from pulling.
Foreign exchange gain.
Compared to the third quarter of last year.
Consolidated net income reached 812 million, Texas.
With respect to our financial position.
Cash generated from operational activities in the third quarter amounted to $1 4 billion pencils and the cash at the end of the quarter stood at $4 7 million.
This already reflects the repurchase of shares were 465 from the peso is you want to watch it.
Total debt amounted to two 5 billion vessels comprised of three peso denominated bonds.
Our net debt to adjusted EBITDA ratio stood at just 0.1 times at the end of the quarter.
This concludes our prepared remarks, operator, please open the call for questions.
Thank you.
And at this time, we'll be conducting our question and answer session.
If you would like to ask a question. Please press star followed by the number one on your telephone keypad.
A confirmation tone will indicate that your line is in the question queue.
You May press the Star key followed by the number two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions. Thank you.
Yeah.
Yeah.
Our first question comes from Alejandro stomach going on with Credit Suisse. Please state your question.
Okay.
Got a little Oklahoma Martin Thank you for Nicole and my first question is from the commercial business.
Can you just confirm what the current status on the east coast that we have.
The minimum annual guarantee contracts.
I mean, how.
Should we think of these discounts going forward.
Oh, Hi, Alejandro.
When you take out the second quarter of the discount programs that we had with the commercial tenants throughout the airports.
So basically by the third quarter, we did not have in place a discount program for four tenants.
So going forward, we should expect to see.
And in terms of minimum annual revenue increases by inflationary adjustments.
Passengers continue to grow we should see also.
More contribution from variable revenue share a component of the contracts.
Okay. Thank you and then my second question if I may.
Can you provide any color on the future.
Potential dates or or our mountains.
Stand up.
So Randy.
2 billion the pool their dividend for this year, but without the knee deep in the mountains. So.
Any color on that thank you.
Sure sure Alejandro at the moment the board still evaluating the right timing for the payment of the dividend.
Okay. Thank you Michael.
Thank you.
Our next question comes from Alan Macias with Bank of America. Please state your question.
Hi, good morning. Thank.
Thank you for the call.
Just on an adjusted EBITDA margin what are your expectations going forward and.
Where are you seeing cost pressures.
Anything on electricity that you can give us for the color and if you can give us the percentage of our electricity provided by the CFP. Thank you.
Hi, Dan.
In terms of EBITDA margin.
We believe that for the.
Our Seattle vouchers.
5% op.
Margin can be sustained.
And definitely there has been a pickup in inflation.
And in Mexico, as all of you know.
So we're only by the start of next year, we'll see some annual adjustments to all of our contracts.
Such as our securities are planning on Monday with contracts that are indexed and you'll need by the inflation. So we should see a pickup in those type of costs, but with the increase in passenger level that we expect also for the next quarters.
The margins are good.
We are estimating that can be sustained.
With respect to electricity.
You know we have a.
PPA.
For our clean energy supply.
Last year that contract supplies around.
So 80% of our total consumption.
This year from January to September pet supplies over 95% of our total consumption and.
And the remainder would be a plus the cfe provides.
Great. Thank you.
Our next question comes from Gautam, and Mendez with J P. Morgan. Please state your question.
I hate the word or fully Manuel and good morning, and thanks for taking my question I had two questions. The first one on traffic.
A call on the second quarter results, you mentioned about being back to 19 levels by early 2023.
Just wanted to double check if thats what youre.
Our expectations and the second question is with regarding to capital allocation and CRO Hooper Criterias.
There was a discussion about the Barbados.
The airport auction, which has been halted.
Just wondering if you're considering another oh.
Outside of Mexico at this time thank you.
Yeah.
Thank you.
Yes for your first question, Yes, we're still we're still confident that we will reach our 2019 levels by the first quarter of 2023 and regarding the whereabouts Airport. As you know we are REIT qualified bidder for the concession process. However, the process has been delayed and we expect that the project will be.
Restated next year.
Okay. Thank you guys.
Thank you. Our next question comes from Bruno <unk> with Goldman Sachs. Please state your question.
Okay.
Hi, Good morning, everyone I just wanted to hear more.
On your expectations for traffic going forward.
They performed well when he said whoops.
Awesome.
Thanks, Don.
Caroline.
The market also may be some.
It's 42 business remains attractive.
No conversations, which our customers going forward.
What's your expectation should.
Should we expect a catch up or do you think.
On a relative basis, you will be more or less or more competitive going forward. Thank you very much.
Thank you thank you Bruno.
Yes.
The main reason we have been lagging is regarding the business travel component of our of our portfolio.
We believe we will catch up.
You got a it's important to differentiate the business travel there are many types of business travel you can have the corporate business travel or the industrial business travel most of our all of our business travel related traffic is mostly industrial which we believe will be hardly replaced by technology and such.
So we will expect a catch up pretty soon especially yes.
The lights in the different states.
Started to coming back to Green and COVID-19, where we start to recede.
Yes.
Thank you very much.
Yeah.
Our next question comes from Rodolfo Ramos with Bradesco <unk>. Please state your question.
Good morning, gentlemen, Thank you for taking my question. My question is actually a follow up on <unk> question here.
I mean looking at that.
The weakness that we've seen in these more.
And Mexico is more iconic business routes, Monterrey, Guadalajara, and Monterrey, Mexico.
What is your expectation there I mean, you know a little bit looking not so much in the longer term.
The jury's still out there on that one but.
No short medium term I mean do you see.
For example, our plans for exports to come and start coming back in 2022, I mean is there anything that you can.
Sure perhaps more.
Quantitative on your expectations for traffic, especially on makes sense.
We.
With this $17 7 million passengers.
Passenger floor for 2021, it's a little bit below what we're expecting for the full year. So I just wanted to understand how are these these business Hum.
Segment, how are your expectations for perhaps the first half of next year.
Sure Hi, Brian.
In the very short term.
Definitely leisure travel and VFR travel will continue to recover a faster pace.
Business.
And we're seeing that in our portfolio, you'll see master plan.
Head of what 2019 levels, we are expecting a strong winter seasonal in Mercer plan.
Let's see what the missile last year, there was basically no traditional traffic in those dual destinations.
Do you expect the return of the Canadian traffic for those to leisure destinations.
<unk> also has been performing well in some of our VFR routes.
So so.
In the very short term, we will see outperforming but I.
What is clearly a gun and master plan relative to want to wait.
However, as we got to say it's in the probably next six to 12 months, we expect a pickup in business we are already seeing.
Many offices coming back to potential.
At work rather than the home office.
A lot of banks are also haven't started to reengage with potential meetings with clients.
So we would expect that.
The year comes to an end.
Basically the vast majority of ours are vaccinated.
<unk> restrictions from our international offices.
Our relaxed in terms of travel we will see a pickup in that business segment, but we are not seeing at this time, but we do expect to for that trial.
Tried to start picking up in the second half of next year or so I think just just to add to that point.
Aeromexico starts emerging from from chapter 11, and they already have approved some new airplanes, we believe it will help.
Especially in the Mexico monitor rate route which is it's our primarily business destination.
Secondly, and if I.
If I may squeeze a follow up here on your.
Cost side I mean, when you look at your operating expenses, you're still well below slightly below.
What we saw in 2019.
For 2022, and then just wanted to get a sense of how sustainable.
These levels are I mean should we be looking at what <unk> been reporting in recent quarters.
Time, along the expected inflation for 2022 or do you think that debt down.
Data traffic Mccomber as you will likely see.
A greater pressure there.
Yeah.
Hum.
What we have seen already this year increases that are related to traffic growth as for example, some of the savings that we achieved last year.
We could close.
Closed down significant portions of certain terminals or reduced hours of operations.
Our.
We were not able to do that anymore. So social we are seeing increasing.
Electricity consumption or cleaning or security or expense.
Some of the lessons that we learned during the pandemic.
Well you densify some ways to be more efficient so so some of those initiatives.
Initiatives that we had last year will continue to benefit.
In the foreseeable future. So so we expect stability in cost.
Certainly as I mentioned, we'll see inflationary increases in most of our larger contracts.
And with respect to electricity, it's worth noting that.
Even though there might be a risk to our PPA.
If the electricity.
Initiative is passed by the Congress.
We have invested heavily in solar panels in our 13 airports.
Which will sum up with all the samples are already.
On the.
Operational and the remaining of the airports will be operational by year end. So for next year, we will do that.
The benefits of those solar panels woods.
Upset the potential impact of the PPA.
If you just affected so so in that sense, we will also see a stability in our electricity.
<unk> expenses next year.
Thank you very helpful.
Thank you. Our next question comes from quantum assessor with GBM. Please state your question.
Hi, Thanks.
I was wondering if you could give us some color on your buyback policy.
Atlanta continued buybacks at similar rates for the coming quarter.
Hi, everyone.
We do have a proved one 5 billion that's over <unk> four for repurchases of which we have used if there's a fit.
We will continue to engage in opportunistic.
Repurchases are.
Brokerage.
Great. Thanks.
Okay.
Thank you.
Our next question comes from Stephen Trent with Citi. Please state your question.
Good morning, everybody and thanks for taking my question.
Two quick ones for you since.
Since the U S S. A a downgraded.
Mexican aviation to category two.
Have you noted any adjustments in U S originating south bound flights into your airports.
Hi, Steven.
Not not really a I think a very good reason for that is that the FAA that regarding your definition of what a new route means just just for everyone to know that the the fact that we were downgraded from category one to category. Two means that you cannot open new routes or.
New designations too new to new destinations. However, the F N B S double a.
Defined a new route those any new route that has hasn't been opened in the last year and a half since the downgrade.
Most of the airlines have been catching up most of the lost traffic during that period, we have not yet seen a an effect a material effect in the international traffic. However, as times go on and we remain in category two it could start having some effect but.
We believe in the case of all my it will be negligible.
Oh, Okay. Thank you and just a second quick question.
Was there any meaningful disruption to Andy.
Andy of almost installations in Guerrero I believe that you know.
Hurricane made landfall on the Pacific Coast several days ago, just curious.
It there was nothing we had yes, there was a major.
Wake there was no major effect in the structure or the terminal or any of the runway we had some broken glasses, but minimum.
Minimum impact that it had been covered already by the bi insurance so nothing nothing in that time. Unfortunately.
Okay I'd also forgotten about the earthquake.
Good to hear and thanks very much.
Thank you sorry, and the same thing happened with the same thing with a hurricane nothing nothing really major to report.
I appreciate it thanks.
Thanks Steven.
Our next question comes from Edson <unk> with <unk>. Please state your question.
Hi, Good morning. Thank you for taking my questions I have two of them.
First one is related to the inflation that you mentioned, but more.
More specifically would you hotels.
Regarding on the ADR are you planning to increase the average daily rate because of the inflation.
Because your numbers and you could pencil rates are above average in the industry and if you are planning to do so what would be the impact on the revenue side.
And the second one is on the cash and to keep them in do you have because you'll be compared to the two quite a swing of course, it's a typical period and everything but you increased by 65% almost so I was wondering.
What level of cash are you comfortable with.
Thank you.
Yeah.
Hi.
With respect to hotels.
The tariff.
Yeah.
Did you raise the ADR.
Yeah.
That's to a large extent to relative to the competitive set in the.
I already outboard of the hotel is located.
So even though you are we're seeing above average.
<unk>.
I'll keep us, especially in the case of the NH two hotel.
Remember that we have.
A large component of airline groups in that hotel, which typically have a lower rate than walking so so in that sense.
The average daily rates would continue to move up as Occupancies.
This oh, we have more work is relative to the baseline level of airline crews.
As well as the.
Competitive.
The dynamics of the of the area specifically.
And in the case of Monterrey.
The Hilton typical customer used to be.
It's around 70% of its customers are coming from the U S. Hilton honors.
<unk> members.
And that traffic is steel.
Lodging recovery.
So as that international component of traffic those two months right, we will see a pickup in the rate of the Hilton hotel, but at this time.
The the the hotel.
Given its slow.
I'll keep us a factor I think it's difficult that is.
Increased ADR in the next couple of quarters.
Yeah.
And then with respect to your cash equivalent questions. Yes, we have been accumulating cash as mentioned.
We have a pending deal.
Dividend distributions, which the board has not yet set a date for it.
But I mean in terms of capital allocation for Capex on interest payments, we do not have any major payments of that until the first.
First quarter of 2023.
We have.
Strategic cash generation generation took to meet our capex commitments for the next quarter or so so our cash position.
It's comfort level at this time.
Yeah.
Okay really helpful. Thank you so much.
Our next question comes from Gabriel Himmelfarb with Scotia Bank. Please state your question.
Hi, good morning, and congratulations on the result, just a quick question about Capex.
We're seeing a rising inflation in Mexico on almost a globally.
Increasing prices and construction material deal for example, do you think we could have an impact on your MVP planned capex.
Thank you.
Uh huh.
Capex commitment is.
<unk>.
Update it's.
So onto our concession agreement.
The producers price index.
Construction sector.
So yes, our capex commitment goes up as inflation increases and specifically in that construction index.
Relative to 2019 December level were about 19% above.
So yes that will mean that we will have to do to invest more nominal vessels to meet our commitments with your authority in.
In that respect.
Yeah.
Okay. Thank you and just a quick follow up question could you give us a bit.
Maximum great about how much percentage or you're almost there for good telephone in 'twenty one.
Sure.
We can leave that for.
For the fall two.
2021 year will be around 94% recovery rates in Mexico.
We do expect Oh he mentions.
Europe to pass through the.
And you'd be there.
Renegotiation of the of the maximum tariff in two cases of the first phase of cures at the beginning of this year on the second stage of the increase would be.
The pass through at the beginning of next year or so so we'll see.
The improvement in that respect for 2022.
Okay. Thank you very much.
Thank you and just a reminder to the audience to ask a question press star one on your telephone keypad.
Your question Press Star two on your telephone keypad.
Our next question comes from Pablo <unk> with Barclays. Please state your question.
Hi, good morning, Thanks for taking my question.
Just a follow up on the earlier questions I just want to understand that.
If truck figure this deal.
Down Uh huh.
Relative to 2019 why are you.
I'd be conservative on the adjusted EBITDA margin are guiding for 75.
Yeah.
These kind of imply that we're not seeing any operating leverage there or do you think that yes, probably.
Can increase a little bit more thank you.
Yeah.
Yes.
I mentioned, we still are.
Below the 2019 a level.
There might be a room for opportunity.
But.
We have also mentioned Nicole.
Inflationary.
<unk> increases.
On the cost side are also playing in so so I think at this time, where we're comfortable.
I'm thinking of a 75% margin for the next quarters.
Yeah.
And then just to understand this better on inflation.
I agree that you have some cost.
Pressure for inflation, but it is my understanding that you have the ability to also increase ideological revenues by inflation as well. So how is like the lack of charging heightened targets or just reflecting inflation.
Balanced with higher cost.
Yeah.
This decision that in that regard.
Yes.
To place our operational leverage.
On the margin.
However, there are some costs that that's.
Also related to traffic tuck ins that we'll see increases in.
Some of the contracted services such as cleaning and security is and you are yes.
Hum in operationally.
And also there has been some.
Delays.
Delays in certain maintenance that we have not executed in the last few quarters or so so we'll also see some increases in maintenance.
Perfect many things.
Yeah.
Our next question comes from and just something you also with UBS. Please state your question.
Hi.
Thanks for taking my question.
Two quick questions here.
On the commercial revenues.
Oh Wow.
Bobby.
In the second half of them yet.
And I'll get the question on the ballot cancel anything.
Uh huh.
So I was wondering what are the couple of Molson Coors.
Oh.
Okay.
With respect to your first question on the commercial side. We currently have a discount for them in place for four tenants.
So we don't expect.
Yeah.
And any other programs for the remaining of the year.
With respect to Canada.
And and and throw them I kind of got a we've seen that we have we seen an increase of 30% almost 30 around 30% from 2019 2020 levels.
Lee has been driven by e-commerce.
We expect it to remain as such and there is a lot of value added services. Therefore, my card will provide and thats, mostly risen by by the pick up in <unk>.
And then.
Amir.
Thank you very much.
Alright, So you are not.
Omar.
No no not not in the form of a general program.
And I'm not aware of distance.
Okay.
Thank you.
Yeah.
Thank you there are no further questions at this time I'll now turn it back to the floor to management for closing remarks. Thank you.
I want to thank all of you again for participating in this call ruble based player Emmanuel Camacho and I are always available to answer your questions and we hope to see you soon thank you and have a good day. Thank you. This concludes today's conference all parties may disconnect have a good day.
[music].
[music].
Greetings and welcome to the Grupo <unk> Central North to Oma's third quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Please note that this conference is being recorded.
I will now turn the call over to our host and Manuel Camacho Investor Relations Officer. Thank you you may begin.
Thank you good morning, everyone. Thank you for standing by welcome to <unk> third quarter 2021 earnings Conference call.
I'm, a CEO and CFO will be joining us this morning, who will discuss third quarter 2021. Please.
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 expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially.
Factors that may be beyond our control, which includes the impact of COVID-19.
I will now turn the call over to Ricardo.
Thank you Manuel and good morning, everyone and thank you for joining our conference call to review the evolution of our business as well as our performance during the third quarter.
Total passenger traffic reached $5 1 million during the quarter, which was 13% above our second quarter performance in absolute terms Monterrey, Ciudad Juarez and Chihuahua led the recovery path as.
As compared to the third quarter of 2019 total passenger traffic stood at 83% the airports that that's the best.
Traffic recovery, where she got wider and master plan.
Additionally, our international passenger performance continues to deliver a strong recovery level as it stood at 99, 6% of the international passengers observed in the third quarter of 2019.
The international passenger recoveries, primarily driven by destinations such as Houston, Dallas and San Antonio.
In terms of Rob performance versus three quarter of 2019, those that experienced the greatest traffic growth in volume terms during the quarter were Monterrey on at San Antonio Dallas, and Mcmullen routes to that flattish on it as well in Mexico routes.
During the quarter, we saw improving passenger dynamics by the end of August and September once the third wave of COVID-19 began to recede.
Currently of the ninth state, where all Manhattan operations seven states are in green status and two in yellow there is a.
Greatest number of states in Green status since the beginning since the pandemic started.
For the remainder of the year, we are confident that our passenger traffic will continue to evolve positively and we expect to reach a level of approximately $17 7 million passengers for the full year of 2021, which equates to 76% recovery relative to 2019.
It is important to highlight that we expect the strong winter season, and our leisure destinations as travel restrictions in Canada have lessened.
For the last three months of 2021, we have confirmed the opening of 17 seasonal routes from Canada and the U S.
These routes did not operate in the fourth quarter of 2020.
Additionally, in September and December Aeromexico will start flying the Monterrey to my three drought, our first reps Atlantic destination in over a decade.
All in all we will open 20 origin destination routes in the fourth quarter.
Finally at the end of September a total of 136 origin destination routes were in operation compared to $140 at the end of December two.
2020, and 183 routes in operation at the end of December 2019.
Turning to our third quarter operational resort result, our passenger traffic performance during the quarter and our strict cost control efforts throughout all areas of the company resulted in overall positive results across the different business lines I would like to highlight that we reach and adjust.
EBITDA of $1 5 billion pesos in the quarter, 2% above the third quarter of 2019 with a record margin of 75, 2%.
On the commercial front revenues increased 125% compared to the third quarter of 2020 with the largest increases on parking restaurants car rentals on retail.
Occupancy rate for commercial space in our terminals was 85% at the end of the quarter.
Diversification revenues increased 71%, mainly due to higher revenues from hotel services and all my cargo.
During the third quarter of this year the occupancy rate of our terminal to NH collection hotel was 70%.
While the Hilton Garden Inn hotel at the Monterrey Airport had an occupancy rate of 51% during the quarter.
While my cargo delivered again announced standing performance with an increasing tonnage handled of 73%, resulting in a revenue increase of 52% versus the third quarter of last year.
Revenues from handling and custody of air and ground import cargo drove the increase in revenues.
Total investments in the quarter, including including MVP investments major maintenance and strategic investments were 524 million pesos.
Some of our major projects underway include the expansion and remodeling of the Monterrey Airport terminal ANC.
Expansion and remodeling of issue that's wireless terminal building.
Expansion and remodeling of the Tampico terminal building.
Platform reconciliation at the Monterrey Airport modernization of the sea water network terminal building and green investments related to solar and solar panels in our 13 airports.
I would like now to turn the call over to <unk>, who will discuss our financial highlights for the quarter.
Thank you Ricardo and good morning to everyone I will briefly review our financial results and then we will open the call for your questions.
Turning to almost third quarter financial results.
Our electrical revenues increased 853% relative to the third quarter of 2020, driven by the 121% increase in passenger traffic.
Iron ore revenues increased 98% with commercial revenues, having the largest contribution.
Commercial.
Revenues increased to 125% the facilities with the highest variations where parking restaurants.
Rental and retail.
Parking revenues increased 640%, mostly driven by the increase in traffic levels.
Restaurants car rentals and retail increased 267.
12%.
8% respectively.
Each of these end of discounts granted the previous partners as well as higher revenues from revenue sharing.
Diversification activities increased 71%, mostly driven by higher revenues from the hotel services.
As a result total I don't know the melanoma analytical revenues were 2 billion vessels in the quarter and grew 138% versus the third quarter of 2020.
Construction revenues increased 7% as a result of the increase in NDP investments.
The cost of airport services, and G&A expense increased 5% relative to the third quarter of 2020, mainly due to a 16% growth in payroll expense, which reflects a one time expense of 8 million expenses related to the restructuring from.
Reorganization charges related to changes in levels of labor regulation in Mexico.
As well as a 25% increase in contracted services as well.
Salt of higher levels of passenger traffic.
Almost third quarter adjusted EBITDA was $1 5 billion pesos and adjusted margin was 75, 2%.
During the quarter, we recorded an increase in the major maintenance provision of 843% to $165 million versus this.
This reflects increased future major maintenance works under the NDP that was approved by the authorities last year.
Our financing expense was 42 million versus which was largely benefited from.
Foreign exchange gain.
Compared to the third quarter of last year.
Results consolidated net income reached 812 million doses.
With respect to our financial position.
The cash generated from operational activities in the third quarter amounted to $1 4 billion vessels and the cash at the end of the quarter stood at $4 7 million versus diesel.
This already reflects the repurchase of shares.
475 vessels during the quarter.
Total debt amounted to 5 billion vessels comprised of three peso denominated bonds.
Our net debt to adjusted EBITDA ratio stood at just 0.1 times at the end of the quarter.
This concludes our prepared remarks, operator, please open the call for questions.
Thank you.
And at this time, we'll be conducting our question and answer session.
If you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Information tone will indicate that your line is in the question queue.
You May press the Star key followed by the number two as you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions. Thank you.
Okay.
Our first question comes from Alejandro <unk> with Credit Suisse. Please state your question.
Okay.
It got a little over a month.
Thank you for Nicole.
First question is on the commercial business.
Can you just confirm what the current status on the discounts that we have.
In a moment.
More guaranteed contracts.
And how should we think of it.
These discounts going forward.
Hi, Alejandro.
So it's out there.
Second quarter of the discount programs that we had with the commercial tenants throughout the airports. So basically by the third quarter. We did not have in place a discount program for four tenants.
So going forward, we should expect to see.
In terms of.
Minimum annual revenue increases by inflationary adjustments.
As passengers continue to grow we should see also.
More contribution from variable revenue share component of the contracts.
Okay. Thank you and then my second question if I may.
Have you either.
Can you provide any color on future earnings.
Actual dates or or amounts.
Understand that.
So Randy.
To build on our books.
Dividend for this year, but without any date in the Mt.
Can you provide any color on that thank you.
Sure sure Alejandro at the moment the board still evaluating the right timing for the payment of the dividend.
Okay. Thank you.
Thank you.
Our next question comes from Alan Macias with Bank of America. Please state your question.
Hi, good morning. Thank.
Thank you for the call.
Just on <unk>.
Adjusted EBITDA margin, what are your expectations going forward and.
Where are you seeing cost pressures.
Anything on electricity that you can give us for the color and if you can give us what percentage of electricity provided by the CIP. Thank you.
Hi.
In terms of EBITDA margins.
We believe the Florida.
The foreseeable quarters, 75%.
<unk> can be sustained.
And definitely there has been a pickup in inflation.
In Mexico as all of you know.
So we're only by the start of next year, we'll see some annual adjustments to all of our contracts.
Such as securities cleaning maintenance contracts that are indexed annually by the inflation. So we should see a pickup in those type of costs, but with the increase in passenger level that we expect also for the next quarter.
The margins.
We are estimating that can be sustained.
With respect to electricity.
You know we have a.
PPA.
For clean energy.
Clive.
Last year that contract supplies around Sony.
Sony 80% of our total consumption.
This year from January to September test supplies over 95% of our total consumption.
And the remainder would be.
Plus the Cfe provides.
Great. Thank you.
Our next question comes from get Amendment this with J P. Morgan. Please state your question.
I had kind of the hurdle for them on a L. L. B, Brian. Thanks for taking my question I have two questions. The first one on traffic.
I recall on the <unk>.
Second quarter results, you mentioned about being back to 19 levels by early 2023.
Because they had to double check if thats.
Our expectations and the second question is with regarding to capital allocation and growth opportunities.
There was a discussion about the Barbados.
Airports auction, which has been halted.
Just wondering if you're considering another.
Outside of Mexico at this time thank you.
Yes.
Thank you.
Yes for your first question, Yes, we're still we're still confident that we will reach 2019 levels by the first quarter.
2023, and regarding the whereabouts airport as you know we are REIT qualified bidder for the concession process. However, the price has been delayed and we expect that the project will be restated next year.
Okay. Thank you guys.
Thank you. Our next question comes from Bruno <unk> with Goldman Sachs. Please state your question.
Okay.
Hi, good morning, everyone.
What did you hear when you are.
On your expectations for traffic going forward.
The performance of our user groups.
Also moving forward with it.
Thank you Caroline.
Hum.
The market is also may be.
As for new business remains attractive.
From your conversations with your customers going forward.
What sort of expectation should.
Should we expect a catch up or do you think.
On a relative basis, you will be more or less normal comparisons going forward. Thank you very much.
Yes.
Thank you thank you Bruno.
Yes.
The main reason, we have been lagging as regarding the business travel component of our of our portfolio.
We believe we will catch up.
You got a it's important to differentiate the business travel there are many types of business travel you can have the corporate business travel or the industrial business travel most of our.
Business travel related traffic is mostly industrial which we believe will be hardly replaced by technology and such so we will expect a catch up pretty soon especially yes.
The lights in the different states.
Coming back to Green and COVID-19, where we start to recede.
Thank you very much.
Our next question comes from Rodolfo Ramos with Bradesco BBA. Please state your question.
Good morning, gentlemen, Thank you for taking my question. My question is actually a follow up on <unk> question here.
I mean looking at.
The weakness that we've seen in these.
More.
In Mexico, more iconic business routes, Monterrey, Guadalajara, and Monterrey, Mexico.
I mean, what is your expectation there I mean, a little bit looking not so much in the longer term.
Are you still out there on that one but.
Short medium term I mean do you see.
For example plans.
Plans for exposed to coming start coming back in 2022, I mean is there anything that you can share perhaps more.
Quantitative.
On your expectations for traffic, especially <unk>.
With this $17 7 million.
Passenger car and for 2021, it's a little bit below what we're expecting for the full year. So I just wanted to understand.
How are these this business.
Segment, how are your expectations for perhaps the first half of next year.
Sure Hi, Rodolfo.
In the very short term.
Definitely leisure travel and VFR travel will continue to recover at a faster pace than business.
And we're seeing that in our portfolio Youll see Master plan ahead.
Ahead of 2019 levels, we are expecting a strong winter seasonal in master plan.
Let's see what's in April last year, there was basically known traditional traffic in those two destinations.
Do you expect the return of the Canadian traffic for those to leisure destinations.
<unk> also has been performing well in some of our VFR routes.
So.
In the very short term, we will see outperforming.
What is <unk>.
Master plan relative to Monterrey.
However, as Ricardo said in the next six to 12 months, we expect a pickup in business we are already seeing.
Many offices coming back to potential.
At work rather than the home office.
A lot of banks also haven't started to reengage with potential meetings with clients.
So we would expect that as.
The year comes to an end.
Basically the vast majority of outlets are vaccinated and restrictions from.
International offices.
Our relaxed in terms of travel we will see a pickup in that.
Business sentiment.
But we are not seeing at this time, but we do expect.
To follow up.
Charles.
Start picking up in the second half of next year or so I think just just to add to that point.
Aeromexico starts emerging from from chapter 11, and they already have approved some new airplanes. We believe it would it would help.
Especially in the Mexico monitor rate route which is it's our primarily business destination.
Secondly, a very useful.
If I may squeeze a follow up here on your.
Cost side I mean, when you look at your operating expenses, you're still well below slightly below.
What we saw in 2019.
For 2022, and then just wanted to get a sense of how sustainable.
This levels are I mean should we be looking at what <unk> been reporting in recent quarters.
In time, along the expected inflation for 2022 or do you think that.
Traffic recovers you will likely see.
A greater pressure there. Thank you.
We have seen already this year.
Increases.
Related to traffic growth.
Example, some of the savings that we achieved last year.
We can.
Closed down significant portions of certain terminals or reduced hours of operations.
Our.
We're not able to do that anymore.
We are seeing increasing.
Just the consumption or cleaning or security expense.
Some of the lessons that we learned during the pandemic.
Well, it's identified some ways to be more efficient so some of those.
Initiatives that we had last year will continue to benefit.
In the foreseeable future.
We expect stability in cost.
Certainly as I mentioned, we'll see inflationary increases in most of our larger contracts.
And with respect to electricity, it's worth noting that.
Even though there might be a risk to our PPA.
If the electricity.
The initiative is passed by the Congress.
We have invested heavily in solar panels in our 13 airports.
Which will some.
Some of those samples are already.
On the.
Operational the remaining of the airports will be operational by year end. So for next year, we would expect that the benefits of those solar panels woods.
Offset the potential impact of the PPA.
If it is affected so so in that sense, we will also see stability in our electricity.
<unk> expense next year.
Thank you very helpful.
Thank you. Our next question comes from quantum assessor with GBM. Please state your question.
Hi, Thanks.
Was wondering if you could give us some color on your buyback policy.
To continue buybacks at similar rates for the coming quarter.
Hi, everyone.
We do have.
Approved.
One 5 billion that's over surf four for repurchases of which we have used a third of it.
We will continue to engage in opportunistic.
Repurchases.
As we deem appropriate.
Great. Thanks.
Thank you.
Our next question comes from Stephen Trent with Citi. Please state your question.
Good morning, everybody and thanks for taking my question.
Two quick ones for you.
Since the U S FAA downgraded.
Mexican aviation to category two.
Have you noted any adjustments in U S originating south bound flights into your airports.
Hi, Steven.
Not not really I think a very good reason for that is that the FAA.
A definition of what a new route means just just for everyone to know that the.
The fact that we were downgraded from category one to category. Two means that you cannot open new routes or new designations too new to new destinations.
However, the FX the <unk> double a.
Defined a new route those any new route that has hasn't been opened in the last year and a half since the downgrade.
As most of the airlines have been catching up most of the lost traffic during that period, we have not yet seen.
In effect a material effect in the international traffic. However times go on and we remain in category two it could start having some effect but.
We believe in the case of all my it will be negligible.
Okay. Thank you and just a second quick question.
Was there any meaningful disruption to.
Any of almost installations in Guerrero I believe that.
Hurricane made landfall on the Pacific Coast several data I was just curious.
There was nothing we had yes, there was a major earthquake there was no major effect in the structure or the terminal or any of the runway we have.
Broken glasses, but minimum.
Minimum impact that it had been covered already by the bi insurance, so nothing nothing in that front. Unfortunately.
Okay I'd also forgotten about the earthquake, but I'm glad to hear and thanks very much.
Thank you sorry, and the same thing happened with the same thing with a hurricane nothing nothing really major to report.
I appreciate it thanks.
Thanks Steven.
Our next question comes from Edson <unk> with <unk>. Please state your question.
Hi, Good morning, Thank you for taking the questions I have two of them.
First one is related to the inflation that you mentioned, but.
More specifically.
You hotels.
Regarding on the ADR are you planning to increase the average daily rate because of the inflation.
Because your numbers on the occupancy rates are above average in the industry and if youre planning to do so what would be the impact on the revenue side.
Second one is on the cash and to keep them in the new house, because if we compared to the two quarter swing of course, it's a typical period and everything but you increased by 65% almost so I was wondering.
What little cash are you comfortable.
Thank you.
Hi.
With respect to hotels.
Terry.
Yeah.
Daily rate the ADR.
Yes.
Sex to a large extent to relative to the competitive set in the.
<unk> is a wholesale lease located.
So even though you were seeing above average.
<unk>.
Occupancy, especially in the case of the NH two hotel.
Remember that we have.
A large component of airline groups in that hotel, which typically have a lower <unk>.
Right.
And walking so in that sense.
Average daily rates would continue to move up as occupancy.
Greece's we have more work is relative to the baseline level of airline crews.
As well as the.
Competitive dynamics.
Dynamics of the of the areas specifically.
And in the case of Monterrey.
The Hilton typical customer used to be.
At least around 70% of its customers.
Coming from the U S Hilton homeowners.
Members.
That's traffic is steel.
Lagging recovery, so as that international component of traffic for those two months right. We will see a pickup in the rate of the Hilton hotel, but at this time.
The hotel.
Yes.
Given its slow.
I'll keep us a factor I think it's difficult that is.
Increased ADR.
Just a couple of quarters.
And then with respect to your cash equivalent pluses, yes, we have been accumulating cash as mentioned.
We have a pending dividend distributions, which the board has not yet set.
At age four.
But I mean in terms of capital allocation.
Our capex on interest payments, we do not have any.
Any major payments of debt until the.
First quarter of 2023.
We have.
<unk>.
Sufficient cash generation generation took to meet our capex.
<unk> for the next quarter, so so our.
Cash position is comfortable at this time.
Okay really helpful. Thank you so much.
Our next question comes from Gabriel Himmelfarb with Scotia Bank. Please state your question.
Hi, good morning, and congratulations on the result.
Quick question about Capex.
We're seeing a rising inflation in Mexico on almost globally.
Leasing prices and construction material deal for example, do you think we could have an impact on your MVP planned capex. Thank.
Thank you.
Uh huh.
Uh huh.
Capex commitment is.
<unk>.
Updates on.
So onto our concession agreement.
The producers.
Producers price index.
Construction sector.
So yes, our capex commitment goes up as inflation increases and specifically in that construction index.
Relative to 2019 December level were about 19% above.
So.
Yes that will mean that we will have to invest more nominal vessels to meet our commitments with the authority.
In that respect.
Okay. Thank you and just a quick follow up question could you give us a bit.
Microphone, great about how much percentage.
You're almost there for 2021, thank you.
Sure.
We believe that for.
For the quarter.
2021 year will be around 94% recovery rates in national carriers.
We do expect.
As we mentioned.
A year ago to pass through the <unk>.
Renegotiation of the of the maximum tariff in two cases of the first phase of cures at the beginning of this year.
The second stage of the increase was.
The pass through at the beginning of next year or so so we'll see.
Improvement in that respect for 2022.
Okay. Thank you very much.
Thank you and just a reminder to the audience to ask a question press star one on your telephone keypad to remove your question Press Star two on your telephone keypad.
Our next question comes from Pablo <unk> with Barclays. Please state your question.
Hi, good morning, Thanks for taking my question.
As a follow up on the.
And your questions.
Just want to understand that.
If truck figure this deal.
Down on that.
Relative to 2019 why are you.
I'd be conservative on the adjusted EBITDA margin guiding for 75.
Yeah.
These kind of imply that we're not seeing any operating leverage there or do you seeing that yes, probably the EBITDA margin can increase a little bit more thank you.
Well.
Yes.
Mentioned, we still are.
Below the 2019.
Level.
There might be a room for opportunity.
But.
We have also mentioned Nicole some inflationary.
Increases.
On the cost side are also playing in so I think at this time we are comfortable.
Thinking of a 75% margin for many quarters.
Yeah.
And just understand this better on inflation.
I agree that you have some cost.
Pressure for inflation.
It is my understanding that you have the ability to also.
I don't have to grow revenues by inflation as well so I was like the lack of charging heightened targets or.
So just reflecting inflation.
Balanced with higher cost.
Yeah.
His decision in that regard.
Yes.
To place operational leverage.
On the margin.
However, there are some costs that.
Also related to traffic tuck ins that we'll see increases in.
Some of the contracted services such as cleaning and security is and you are yes.
Yeah.
Hum in operationally.
And also.
There's been some.
Delays in certain maintenance that we have not executed in the last few quarters also we'll also see some increases in maintenance.
Perfect many things.
Our next question comes from and just how about yourself.
UBS. Please state your question.
Hi, Thank you very much for taking my question.
Just had two quick questions.
Okay.
On the commercial revenue.
Oh Wow.
On the call.
The second half of <unk>.
And I'll ask a question on the ballot.
Thank you.
Craig I'll just add that.
Chalk well.
I was wondering what are the couple of Melissa.
So.
Okay.
Yeah.
With respect to your first question on the commercial side.
We currently have and let's have a discount program in place for tenants.
So we don't expect.
And any other programs for the remaining of the year.
And with respect to Canada.
And throw them I kind of got a we've seen that yet, but we've seen an increase of 30% almost 30 around 30% from 2019, 'twenty 'twenty levels, mostly has been driven by e-commerce.
We expect it to remain as such and there is a lot of value added services. Therefore, my car will provide and thats, mostly risen by by the pickup in that in that.
There.
Thank you very much.
Super.
Tom.
Tom.
Lauren.
No not in the form of a general program.
And I'm not aware of distance.
Helpful.
Okay.
Thank you there are no further questions at this time I will turn it back to the floor to management for closing remarks. Thank you.
I want to thank all of you again for participating in this call roof repairs player Emmanuel Camacho and I are always available to answer your questions and we hope to see you soon thank you and have a good day. Thank you.
Today's conference all parties may disconnect have a good day.