Q1 2022 Grupo Aeroportuario del Centro Norte SAB de CV Earnings Call
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Greetings and welcome to the Grupo <unk> del Centro Norte, Oma's first quarter 2022 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. This conference is being recorded.
I'll now turn the conference over to your host Emmanuel Camacho Investor Relations Officer, you may begin.
Thank you Sheila good morning, everyone.
Welcome to Wamus first quarter 2022 earnings conference call.
Today, our CEO Ricardo Duenas and CFO you may.
If you're reminded that certain statements made during the course of our discussion today may constitute forward looking statements, which are based on grid management management expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially including factors.
Maybe beyond our control.
I will now turn the call over to where they go but I guess for his opening remarks.
Thank you Benoit.
Everyone. We appreciate you joining us today. This morning, I will review the evolution of our business on our first quarter performance, but first let me begin by highlighting several milestones and events.
Last Friday, we held our 2022 annual shareholders' meeting where shareholders approved among other matters the declaration and payment of a cash dividend to shareholders of $2 3 billion pesos into installments. The first one of $1 8 billion pesos no later than may 31st.
The second one a 500 billion Bachelor no later than July 31.
In addition on March on March 31st we successfully completed our 4 billion peso issuance and long term sustainability linked notes in the Mexican market.
Pleased to announce that we have become the first airport operators to place a sustainability linked bond or S. L. In the Americas and the second worldwide.
As part of our F. L V framework, we set an ambitious target to reduce our carbon footprint by decreasing almost greenhouse gas emission per passenger in 58% by December 31 2025.
We have positive expectations about passenger traffic growth in the coming years, coupled with an important level of additional square meters from the infrastructural projects in development, which will translate into higher energy costs and operational requirements. So we're working our best to create a more sustainable operation in our airports.
Proceeds from the S L b.
We used to pay $2 7 billion peso seen short term loans and the remaining will be used to fund an MVP investment and for the corporate users.
Finally, our commercial milestone during the quarter, we transitioned to a direct operation of all my opinion lounges, which will allow us to improve customer experience significantly and generate additional revenues.
Currently we operate eight lounges and three in three months' delay terminals as well as a couple of quick guidance you want one month's Atlanta, and San Luis Potosi airports, and we expect to open four additional lounges in reynosa and therefore, what it equal.
In 2022.
Turning to our main first quarter of 2022 results.
We started off the year with a challenging passenger traffic recovery scenario as a result of the omicron band and the rights and positive cases.
However, the effect of omicron.
On passenger performance, Spanish rapidly, which allowed us to get back on track.
During the quarter total passenger traffic reached $4 6 million, 52% above the first quarter of 'twenty one.
Compared to the first quarter of 2019 total passenger traffic stood at 90%.
During the quarter the route that experienced the greater traffic growth in volume terms versus the first quarter of 2021 were in Monterrey, Mexico City Guadalajara routes and Chihuahua, you. That's why does in a cup all go on the Mexico City route.
All of them considered naming business routes, which reaffirms our expectations of increased activity and better performance from the business travel segment.
Turning to our first quarter operational results.
We're able to deliver positive results in the quarter, our revenue expansion on our operational efficiency translated into an adjusted EBITDA increase of 74% versus first quarter of 'twenty, one and a margin of 75%.
On the commercial front revenues increased 62% compared to the first quarter of 'twenty one.
<unk> revenues increased 76% versus 2021, and we observed higher penetration on leverage levels and lost days, mainly in Monterrey to athletic and Reynosa.
In addition, carbon adult restaurants, and retail also contributed most of the growth together with VIP lounges occupancy rate for commercial space in our terminals was 87 seven at the end of the quarter.
Diversification revenues increased 38% our hotel services and Oh, My God I got contributed most to this growth.
During the first quarter of 2022, the occupancy rate at our tech.
It'll do NH collection hotel was 74%, while the Hilton Garden Inn Hotel at the Monterrey Airport had an occupancy rate of 60%.
Cargo revenues increased 50% versus the first quarter of 'twenty one.
Revenues from handling storage and custody of ground import cargo drove the increase in revenues.
Yeah.
On the capital expenditure fund total investments in the quarter, including MVP investments major maintenance and strategic investments were 430 million vessels.
During the quarter, we started preliminary works for the expansion and remodeling projects in the Korea kind of airport and continue to work on the follow up of major projects.
Expansion and remodeling of the Monterrey Airport terminal a expansion and remodeling of the she left quite a terminal building.
Reconfiguration of the Master plan terminal building.
Platform configuration at the Monterrey Airport.
Modernization of if you want the naval terminal building.
Finally, we have finished installing solar panels in our 13 airports and by the end of the second quarter of this year, we will be fully operational our solar panels are expected to generate over 20% of our energy consumption for the remaining quarters.
With that I will now turn the call over to prove up that is favorable for more detail on our financial highlights for the quarter.
Thank you Audra and good morning, everyone I will briefly review our financial results and then we will open the call for your questions.
Turning to almost first quarter financial results.
I don't know, let's go live and just increased 60% relative to the first quarter of 'twenty, one driven by a 52% increase in passenger traffic.
The other element of revenues increased 52% with commercial revenues pushing 62%.
Two of the highest growth were parking tourism restaurants, retail and VIP lounges.
Total revenues increased 6% due to increased penetration with the wastewater is available at airports.
As a result restaurants are rebuilt in Greek 62%.
6%.
And 1%, respectively, mainly due to higher revenues from the revenue share on the opening of new projects.
VIP lounges increased due primarily to the recognition of revenue associated with the operation as well as in <unk>.
Number of users.
VIP lounges.
Leather suffocation revenues increased three 8%.
As a result total idle long ago.
Electrical revenues were $1 9 billion vessels departure.
58% versus the first quarter of 41.
Construction revenues increased 13% as a result of our equity investments.
The cost of airport services.
<unk> increased 9% relative to the first quarter of two awesome, one mainly due to a 20% growth in payroll expense, which is the result of the effects of the changes in labor regulation in Mexico, who lives in 'twenty, one I think.
Incorporation of new business lines.
The operation of the almost a year.
Yes.
Contracted services and basic services group due to the overall higher activity in our airports.
While materials and supplies also reported growth as we reported cost from the operation of the new logos.
Well, let's first quarter adjusted EBITDA reached <unk> 4 billion versus the adjusted EBITDA margin was seven 5%.
Our financing expense was 865 million tests is mainly due to higher interest expense as a result of an increase in the average outstanding debt.
And in exchange loss recorded.
Consolidated net income was 753 new vessels.
Percent above that of <unk> 21.
Turning to our cash position.
From the operating activities in the quarter amounted to 717 million peasants passed at the end of the quarter stood at $3 3 billion in vessels.
During the quarter, we recognized the following relevant transactions.
Transactions.
We paid a special dividend of $4 3 billion pesos in January .
We issued 84 zero billion peso sustainability linked bond in the lithium market in March.
Also for base to post surgery.
Short term loss in March.
At the end of the quarter.
Our total debt amounted to nine is going to be the vessels and our net debt to adjusted PBT ratio is 2110 times.
This concludes our prepared remarks.
Please open the call for questions.
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All of your questions on the queue.
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One moment please.
Questions.
Our first question comes from a.
Hey.
J O with GBM.
Proceed with your question.
Hi.
Thank you for taking my question.
And the result.
I have two questions. The first one is regarding the maximum tariffs.
Are you guys.
Two part question.
Chris.
When are you guys are projecting you might be charging the full maximum choice.
Yeah.
And then the second part of that question is.
How are the airlines.
Using the salary increases that have you seen any pushback from them are you having to see.
La where tariffs are having to negotiate with them to bring in.
All routes into airports.
My first question.
Oh.
Thank you Javier.
For the first one what we will reach we're expecting it to reach the maximum tariff somewhere in the first quarter of next year.
As with your last one we have been working very well with them and we're currently we're working off a searching for new opportunities for routes.
Okay.
And.
My second question is regarding to the balance sheet of the company in.
The recent D E Shaw congratulations on that but.
The the leverage ratio or even though compared to other Mexican airports as you see it.
One Simon could be a reasonable although international every early addressable concession rights have much higher leverage do you guys are so my question is are you guys comfortable with the current level of leverage or or or.
Could you looking to increasing the lever and increase the leverage of the company.
Thank you thank you and have it.
Youre right its slow level compared to other airports.
And it will depend.
It would depend on the use of proceeds so if we were to find opportunities to expand abroad than I would that there would probably be a corresponding increase in some healthy levels of leverage.
Alright, great.
For all the answers and congratulations on the results.
Thank you.
Yeah.
Our next question comes from the line of Alejandro Zama Kona with Credit Suisse. Please proceed with your question.
Thank you, we got a little room for my money and thank you for the call.
Two questions from our side the first one.
Cost control through.
We have seen several quarters with this thing.
City of dreams.
Delivering operating leverage so I was wondering if it's fair to assume.
It almost has become more efficient in terms of costs.
Considering these efficiencies are structural or if once the traffic is fully recovered.
We should expect Oh gosh.
Costs, mostly assuming there's higher inflation, but where you have seen recently.
Sure So hi.
So yeah.
Yes.
The company has been working with the passengers to instill a culture of cost discipline.
All of that also we're seeing the.
No.
It works over previous years.
Right now.
This quarter, we were just a 10% is all of that traffic of different blocks of 2019, Intel Silicon Silver we are now operating that.
It does basically.
We are seeing.
Sure Keith.
Increasing slightly.
Tyler.
All right.
We do expect.
Okay.
Our operational leverage.
We see on a quarterly basis going forward.
Third smart homes.
We'll be in the same line items as a result of the first quarter.
Awesome.
Interesting.
Yes.
Truckload services ourselves.
Uh huh.
That's one.
One.
Even with a larger operation.
The size of the horizontal well.
Services.
Okay.
Yeah.
We are.
Setup.
Structured finance for those.
Uh huh.
And just let them face point, we definitely believe we have become more efficient and we think that it does.
Current levels of profitability are sustainable.
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Thank you I'm not sure if it's my language.
Sure.
I'm going to move.
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[noise] here.
Now correctly.
Yes, yes. Thank you. Thank you everyone for folks.
So I'm sorry so.
Just two.
Conclude the question that I mean, you are looking at some.
Well, you would you're expecting some dreams upward.
The costs. We are also looking for some efficiencies.
In the costs going moving forward that that's right.
So we will continue to benefit from operational leverage.
When you compared to the first the second quarter of 2021, and probably the third quarter of 2021, you'll continue to see.
The increases in payroll expense basically because of the basis of comparison, rather than buy a future increase in our cost.
<unk>.
In terms of.
Super constructive services, such as cleaning and security, yes, given the.
Additional passenger volumes that we're handling we will see some increases going forward, but definitely the level of course, we are offering.
Very efficient and we can look to expect to see significant increases to handle the amount of traffic that we're expecting for the rest of the year.
Okay. Thank.
Thank you helpful I'll, let someone else to jump in.
Our next question comes from the line of you heard me with Mendez with J P. Morgan. Please proceed with your question.
Hi, he cut out for them on the mill.
Good morning, and thanks for taking my question. The first question is related to traffic on the last conference calls you mentioned about creation to pre fund them at levels by the third quarter, and reaching full year figures dropping around 3% to 5% when compared to 19. One I was just wanted to double check if that's still the base case and the second question is in terms.
So as a follow up question in terms of the capital allocation. As you guys mentioned leverage is pretty low so thinking in terms of what could be potential kept co location opportunities drill opportunities outside the Barbados once or even increasing dividends in the future.
Well I can't talk about in terms of kept allocation. Thanks.
So in terms of traffic were slightly more optimistic on the previous call. We are now expecting our passengers to be close to 23 million four four at the end of the year.
What we're seeing in April is we're very very close to the April 2019.
Metals.
So probably by May.
May and June we may already be surpassing the letters of those same months in 2000.
'twenty one.
Uh huh.
With respect to.
May and June of 2019.
With respect to capital allocation.
Kevin mentioned.
Unless we find the right to use of proceeds it's going to be difficult to continue increasing leverage to a comparable level of international airports.
At this time, we are prequalified in Barbados process we.
Hurt from the.
I speak with all of it I think the process it could get to be started by may.
It will be looking injuries once the process tender rules R. R.
Become public.
They they have nothing else any any update on the timeline on that.
With respect to increasing dividends going forward it will depend on continued to increasingly reward.
Net income so we can generate sufficient.
Coughing.
That's.
Net income.
We were able to distribute dividends have.
That sufficient.
Okay Super clear thanks.
Our next question comes from the line of Rodolfo Ramos with vertex.
Please proceed with your question.
Thank you for taking my question.
My question is a follow up on the on the expense one so just to just to clarify the you know the.
The level of expenses that you reported in the first quarter or would that be a good base for us to go off on an inflation basis going forward or or how do you see that for the rest of the year.
I would say, yes for most line items.
In the.
The case of.
Subcontracted services.
Uh huh.
Grow was slightly greater than inflation because of the passenger.
Effect, but.
The rest of the line items, such as a payroll.
Sure.
It's a fairly reflective of what you are expecting for the rest of the year.
Okay. Thank you and just a two parter here on traffic I think can you talk a little bit about that.
Nymex that you're seeing in these routes that you mentioned in your earlier remarks in your opening remarks about our Monterrey, Mexico City Monterrey Guadalajara.
How do you see this in the in the short term.
And a second part of this question is how do you see sometimes lucia feeding into your system, particularly in Monterrey. How are you seeing that route going forward. I mean does this type of passenger bode well with with your network or how would you how should we think about that.
Thank you.
Thank you.
I think what's interesting to point out is that if you look at the route of Monterrey, Mexico.
The quoted the variation versus the first quarter of 'twenty, one was 70%.
That compares for example to Monterrey, Cancun, which was only 10% now the first route that I mentioned, it's not purely a business travel business passenger asphalt.
The latter one is.
Tourism, so so we're seeing a more than that.
And in.
And the business passenger.
Same thing if you look at for example, Monterrey Guadalajara, the increase was 92%.
Compared to for example, where there can be one that we just have VFR kind of traffic, which is 15%. So we're finally seeing a recovery in the business segment level.
What is the point that we mentioned earlier and as Al Santa Lucia there.
They're operating right right now six routes.
Only one operated by Veeva two months away. So it's too early to say.
What the impact would be what we do know that it's an opportunity for them to develop onto radius to us.
Hum.
Yeah.
Thank you.
Yeah.
Yeah.
And again as a reminder, if anyone has any questions you May press star one on your telephone keypad to join the question isn't it.
Our next question comes from the line of Gabriel <unk> with Scotiabank. Please proceed with your question.
Hi, Thanks for the call just two quick follow up question. The first one.
Or do you plan to open more routes from your work toward Sunbelt yeah.
Maybe probably.
Due to low milk Berg on Brooklyn.
With a bit of color about tougher specifically on the <unk>.
Industrial related travel, what we call a booth.
About.
This is probably related to corporate travel.
We closed two.
What are the trends you're seeing or you are.
Hum.
Coming back to the whole foods.
Comprehensive.
Did you say.
I'll take the first one no at the moment, we don't we don't have plans to afford them a route for sometimes you have to look at.
And I didn't hear the second one is you got it.
And then if I heard correctly, you're asking for what are the trends regarding the industrial type of travel as opposed to other type of trouble.
Yes.
So yeah.
Yes, we continue to see.
The occupancy core markets for us.
When we talk about business travel, it's not only the high executive.
Consultant banker tight, but we do rely a lot on.
The industrial type of traffic or.
As in the factories in the car.
Cars and steel plants that are located nearby our airports. So so yes are we you'll see that that's.
Traffic continued to performing.
Well and.
Carlo mentioned.
First quarter most of our routes.
What drove the increase of passengers in the quarter water business related route.
We do expect that trend to continue in the next few quarters.
Airports.
Okay. Thank you.
Our next question comes from the line of Alan Macias with Bank of America. Please proceed with your question.
Hi, thank.
Thank you for the call just.
A follow up question on the hub.
Maybe coming to the hub.
So you're taking.
Make that happen and if you see any opportunities in changing your traffic mix.
More and more tourism.
Traffic or do you see this.
Is there an opportunity to capture.
Perfect.
Mexico City.
Airports cannot handle.
<unk>.
Sure.
Thank you Alan.
It's an ongoing process, we're having a conversation with the airlines I think the opportunity comes from trying to move all of that traffic that today doesn't have to go to Mexico City are having it through the Monterrey Airport and that's the conversation we.
We're having at the moment, we want to exploit them.
Also the geographical advantage that they have moved to the board of the U S as well.
Thank you.
Yes.
One.
Further questions.
Any updates you can provide or any insight into Mexico.
Aviation safety rating.
Mexico's efforts.
And to recover the category one.
Any any news you have heard about that thank you.
I think we have the same thing as you probably all have what we've heard from the authorities.
Acting to reach a level one again by the third quarter of this year.
Great.
Our next question comes from the line of Juan.
So with GBM. Please proceed with your question.
Hi, Thanks for taking my question and congrats on the results.
I was wondering about the VIP lounges now you have started to operate.
Can you give us some more color on the economics of the project.
In a sense if you have that level. So far are that you are expecting it would be great to know.
Yeah.
Well, we just took the operations directly we expect to have on margin.
70%.
For that line of business, we have currently across our project to modernize all the lounges in.
In our airports and.
To be able to provide.
A much better product than we used to have.
That's what our IRR levels I think we would have to come back to you probably know well the previous contracts expired yes.
I mean, what we're investing in renewing.
Theres no per se, a large investments being made towards basically.
Profitability levels, reaching into that started so before we used to have.
You used to receive only 50% of the revenue from the lounges with third party operator used to have the other half. So now we're having 100% of our revenues, but we adding a certain operating cost and the margin will be around 70%. So overall you would see an increase in.
And in total.
Volunteers.
Yeah.
That's great color and congrats.
Congrats on the reports.
Thank you. Thank you.
And our next question comes from the line of Alejandro as Alcoa with Credit Suisse. Please proceed with your question.
Hi, guys sorry to jump in again, just one additional question on the commercial business.
Can you remind us what they're going to start pushing these comps.
The minimum annual guarantee complex.
So since.
Late two Q of last year, we stop grunting.
Discounts.
So this is lee for the third quarter of 'twenty one through today.
We are not writing.
Any more discounts in relation to COVID-19 pandemic or any other type of sport to two tenants.
Yeah.
Okay.
So certainly with respect to how how much is fixed rent versus very little in the first quarter of 2022 out of our commercial revenue excluding parking.
Around 65% of the revenue was derived from fixed rents.
35%.
Was derived from volume.
As a point of comparison in the first quarter of 2021 also excluding parking.
72% of the commercial revenue was fixed and 28% was volume.
Okay. Thank you.
And we have reached the end of the question and answer session I'll now turn the call over to Ricardo Duenas.
Chief Executive Officer for closing remarks.
We want to thank all of you again for participating in this call Groupon in Ireland. We're always we're always available to answer your questions and we hope to see you soon.
And have a good day.
This concludes today's conference and you may disconnect your lines at this time.
Thank you for your participation.
Mhm.
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Okay.
Yeah.
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Okay.
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