Q3 2022 Grupo Aeroportuario del Centro Norte SAB de CV Earnings Call

Okay.

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Greetings and welcome to all my third 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 anybody should need operator assistance during the conference. Please press star zero on your telephone keypad.

Please note. This conference is being recorded I will now turn the conference over to Emmanuel Camacho Investor Relations Officer. Thank you you may begin.

Thank you Sherry good morning, everyone I'd like to welcome you all to them its third quarter 2022 earnings conference call.

Participating today are CEO and.

And CFO global credits.

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.

It's subject to a number of risks and uncertainties that could cause actual results to differ materially including factors that may be beyond our control.

With that I will turn the call over to <unk> for his opening remarks.

Thank you Manuel and good morning, everyone. We appreciate you joining us today. This morning, we will review the evolution of our business on our third quarter performance before we begin I would like to comment on an important update on our my shareholding structure. During the quarter were informed by Fintech advisory that certain affiliates of Fintech has entered into a share purchase agreement.

With a subsidiary of Vinci airports for the direct acquisition of $29, 99% series B double B shares with Walmart. This transaction will make vinci airports, our largest shareholder Vinci airports investment in all my represents an endorsement of the extraordinary performance. We have delivered in the past and a confirmation of the potential of all of my assets.

We're excited to be want to be welcoming the world's leading private airport, operator, and together create additional value by combining benches global network and expertise with almost long term strategy and prospects.

We will not further comment on this transaction ahead of the closing which is expected to occur in December 2022.

However, I will review, our third quarter operational performance.

And third quarter, almost passenger traffic surpassed 2019 levels for the first quarter since the beginning of the pandemic total passenger traffic reached $6 3 million, an increase of 2% versus three quarter of 19.

Domestic and international passenger traffic increased by one 8% and three 7% respectively versus the same quarter of 2019.

Our staff are strong passenger traffic performance was guided by the continued improvement on the business travel segment in our main routes.

Monterrey to Mexico City route which is our most relevant route was already at the same level of third quarter of 19 and they should.

Lee other important business routes, such as Monterrey, Chihuahua and.

Why does to Mexico City delivered important world levels versus the third quarter of 19, with an increase of 12% and 34% respectively.

As a result of the strong passenger traffic performance and the increasing our our nautical terrorists in first quarter of 'twenty do our Aero revenue grew 27% in the quarter versus the third quarter of 21 to one 9 billion pesos.

On the commercial front occupancy rate for commercial space in our terminals closed at 93% at the end of the quarter versus <unk>, 89% by the end of the second quarter of 'twenty too strongly.

Strong demand for commercial spaces was mainly guided by an additional 1000 square meters occupied for the food and beverage and retail segments in our Monterrey and <unk> airports.

Commercial revenues increased 34% compared compared to third quarter of 21, driven by parking car rentals restaurants retail and VIP lounges.

Diversification revenues increased 35% our hotel services and Oh, My God I got contributed most to this growth.

In the third quarter of 2022 occupancy rate at our terminal to any Jade NH collection Hotel was 79%, while the Hilton Garden Inn Hotel had an occupancy rate of 77%. While my cargo had another set of strong results as revenues increased 35% versus the third quarter.

'twenty one.

Mainly driven by revenues from handling storage and custody of ground on airport and input cargo.

As a result of all my cards was continuous strong performance during the quarter, we decided to increase capacity of our ground cargo operation facilities in Monterrey Airport the.

The expansion project entails an additional operating area of approximately.

100 square meters, an increase of 70% and is expected to be fully operational by the first quarter of 2023.

On the capital expenditures front total investments in the quarter, including MTP investments major maintenance and strategic investments was 839 million pesos.

During the quarter, we continued to work on the following major projects.

Expansion and remodeling of the Monterrey Airport terminal a building as we're unless you that wireless and <unk> terminal buildings.

Reconfiguration of the mass Atlanta terminal building.

Modernization of see what the naval terminal building.

Major rehabilitation of platform and taxi ways in several airports and platform reconfiguration of the Monterrey Airport.

And with that I will now turn the call over to Rupert, but its payroll for a more detail on our financial highlights for the quarter.

Thank you Ricardo and good morning, 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 know electrical revenues increased 27% relative to <unk> 'twenty one.

By a 23% increase in passenger traffic and then increasing in I don't know if the coal tariffs implemented in the first quarter of this year.

Idaho revenues increased 28%.

Commercial revenues increased 34% and the categories with the highest growth where car parking car rentals restaurants retail and VIP lounges.

<unk> revenues increased 58% due to higher penetration in our Chihuahua, Monterrey and Culiacan airports.

As a result of higher business.

In those airports.

Car rentals restaurants, and retail increased 34%, 23% from 34% respectively.

Due to higher revenue sharing and the opening of new commercial space.

VIP lounges increased 57% due primarily to the recognition of revenue since the direct operation as well as an increase in the number of users of the premier premium lounges.

Diversification activities increased 35%, reflecting strong hotel in Omaha, Canada performances.

Total island article non aeronautical.

Revenues were $2 5 billion vessels in the quarter and grew 27% relative to the third quarter of 2012.

Construction revenues increased 56%.

Old of increased MVP investments.

The cost of airport services, and G&A expense increased 16% relative to the third quarter was 21, mainly due to an increase in payroll expenses as a result of increased headcount higher salaries.

Versus last year and provisions, including statutory profit sharing.

Constructed services grew.

Due to overall higher activity in our airports and materials and supplies grew as we recorded direct costs from the operation of the ultra premium lounges.

Major maintenance provision was 51 million vessels compared to 865 million vessels in the third quarter of 'twenty one.

Almost a third quarter adjusted EBITDA was $1 9 billion vessels on the adjusted EBITDA margin reached 76, 5%.

Our financing expense was $219 million vessels, mainly due to higher interest expense as a result of additional debt issuance and higher cost of debt.

Well as a non cash implied interest on the major maintenance provision.

Consolidated net income was $1 1 billion vessels and increase of 36% roughly for the third quarter of 2021.

Yeah.

Turning to our cash position.

Generated from operating activities in the third quarter amounted to one 6 billion vessels and cash at the end of the quarter stood at $2 1 billion vessels.

During the quarter, we paid the second.

500 million pencils dominance of the $2 3 billion peso dividend that was approved in the 2022 annual shareholders' meeting.

At the end of the quarter total debt amounted to $9 2 billion pesos and our net debt to adjusted EBITDA ratio stood at one one times.

This concludes our prepared remarks, operator, please open the call for questions.

Thank you if you would like to ask a question. Please press star one on your telephone keypad.

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Press Star two if he would like to remove your question from the queue. After.

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Our first question is from Alejandro <unk> with credit Suisse. Please proceed.

Thank you clay with downloadable form.

Sure.

Question on the guide so.

Two we have seen.

A slight increase so far.

It'll be multiple awards.

Ian.

And so is it fair.

Three you will be able to implement.

Yes.

Max.

Tariff increase.

Sean.

Lastly, a 13% increase.

<unk> negotiation.

Oh.

Hi, Alejandro this is this is russell.

Certainly.

Beginning of this year, we implemented approximately.

11% increase in number of stories throughout our our airports.

We do not expect.

This year too.

So their muscle recovery impact we should be around.

The same level of last year.

92%.

For next year, we are targeting.

Increases, we still have yet to define what the level of increases will be it will take into consideration the expected inflation for next year as well as the overall deflation of the of the industry.

Okay helpful. Thank you and then my second question, if I may in terms of the margin.

Just.

Question regarding how sustainable do you believe.

The <unk> margin.

Okay.

Favorable.

Thank you I'll hand, it off yes, and we think 76 something close to 76% margin is sustainable in the long term and the medium term.

Okay.

Our next question is from one pumps with Bradesco. Please proceed.

Hi, Good morning, everyone I have a question on <unk>.

We saw in your most recent traffic reported north of 5% above.

Above three times leverage levels.

In your view.

The main drivers.

In September and going forward and it is showing actually moving the needle and do you think these drivers will will be sustained next year I made a potential slowdown. Thank you very much.

Thank you, yes. So so yes, we think they are sustainable to things that have helped us in our favor in business traffic has been recovering.

No. It was a traffic that was lagging VFR and leisure traffic. So we're starting to see more than that in that sector also the near shoring effect.

<unk> had some some positive effect in our airports you can see that.

By looking at some of the traffic for example in wireless.

Already much higher than.

The traffic that we used to have in 2019.

Okay, great. Thanks.

Our next question is from Felipe Nielsen with Citi. Please proceed.

Hi.

Good morning or afternoon.

So I have two questions on my side and thanks for taking my questions.

I would like to know.

What impacts you're seeing from the Mexico City airports reshuffle.

Into your.

Airports.

Is that good or bad like hubs in Monterrey.

Less business.

Travel fuel from beneath the varieties.

How are you net and the second question is.

What.

What are your thoughts on new projects.

And if you have any intentions on expanding outside Mexico.

Or even getting new projects inside Mexico would like to reiterate on that thank you.

Sure in terms of the new airport effect, it's still too early.

In the process. What we know is the government has been very clear about trying to decentralize traffic from Mexico City that is an opportunity for private airport groups like Homer.

When we see that our trend in which a lot of the traffic we will start to bypass Mexico City. We believe Monterrey is strategically located across the United States to take advantage of this situation.

During the quarter, we opened new routes to Santa Lucia Airport due to look at what we think of shift might be might happen, but it is going to be.

It's not going to be an immediate effect.

As to new projects, while we are executing the MVP plan. We're in year two of the flattened our main works, our Monterey will again add to that wider major terminals and <unk>.

And as for expansion abroad, we're always looking at potential opportunity to expand so far we don't have any concrete.

The transaction in the table, we're always open to listen to opportunities we were participating as you know when the Barbados.

Privatization process, but it was our understanding is that it was Canada was reasonably can.

Okay, great and if I may.

I just have one follow up.

So on the tariffs.

You said that Youre expecting increases for next year do you see any probably <unk> of this rolling off due to.

Two.

Large tariff increases that you've seen last year.

Or hawks.

We're still working internally what that should be and that will be also an effect on what are the inflation expectation that we're seeing next year, but it's too early in the budgeting process.

Okay, great. Thank you. Thank you very much.

Our next question is from Rod Macedo with G M.

Please proceed.

Hi, Thanks for the call and congrats on the results. My question is regarding the Christian payroll could you give us some detail on that.

<unk> was it related to last years housing starts are low.

And do you expect more increments.

Hi, yes.

Yes.

So yes.

Yes.

Was.

Partially due to that.

<unk>.

I think that at this time.

Stabilized.

We do have certain openings of new VIP lounges in the upcoming call.

<unk>.

So headcount will continue to.

Increased slightly but in terms of amounts I think that it has stabilized.

Okay great.

Second question, if I could ask you.

Could you give us some color on the sriracha expansion alright.

And then what the rates are now what it what impact do you expect from this expression.

Well we are.

As I mentioned.

<unk> hour.

One of our warehouses that we have in inventory.

Skull.

As you know Amit caviar continues to post double digit growth.

Already well above the 2019.

Nevertheless, we do see strength maintaining in the next.

Few years, so we are anticipating additional expense.

Expansion will allow us.

To capture that underlying demand that we see in that in that market. So we should continue to expect double digit growth in the Mackay River for the foreseeable future.

Great. Thanks for the answers and congrats on the results.

Thank you.

Our next question is from Gabriel Melissa with Scotiabank. Please proceed.

Hi, good morning, everyone and thanks for the color.

A quick question about the MVP.

You take the planet level.

And BP could be modified in inflation.

Construction materials, and PC, maybe payroll or it might dose increasing labor.

Cost increasing.

So.

A third of the regulation.

The commitment of all investments in the five year period from 2021 to.

2025 is.

In real terms.

As you May remember we announced.

The MVP.

The illustration of results.

We committed to a roughly 12 billion pesos.

Spreads in vessels of 2000 and December 2019.

We have a cumulative inflation from December 2019 through September of this year, the total NDP commitments.

Has increased $16 billion vessels so that is.

The amounts expressed in real terms.

With vessels purchasing by where as of today.

To just add up and had unlevered, so mvps inflation protected because it's adjusted annually.

But by inflation and and in case, you see inflation in some certain aspects that are higher or above that level, there's always opportunities to value engineer some of those projects.

Okay. Thank you very much.

Our next question is from Ed set Edson Mark Yeah with semi cap. Please proceed.

Hi, Good morning, Thank you for taking my questions I have 12 months.

First one is related to two new routes.

This third quarter.

The company.

And international carriers, often nuanced so.

Through the end of 2022 are you expecting opening more routes.

<unk>, Mexico only parts of the U S.

That will be my first question.

The second one is related to construction cost.

This quarter.

Construction costs increased 56%. So I was wondering can you bring this.

It is related to the MVP or.

Only because of the already explained.

I know the operational costs. Thank you.

So the construction.

On your second question the construction cost that you see in the P&L equals the construction revenues.

Have a net effect of zero.

Our operating income.

<unk>.

What they reflect is the higher execution of MVP investments relative to last year.

Okay, Okay makes sense.

And with respect to.

New route that we're expecting.

Some of the carriers that.

We have announced already.

Frequencies.

<unk> capacity is starting in December two markets.

Was it flat.

That will.

And in international fronts.

Some.

Recovery of the Canadian.

Markets that.

One primarily to master.

The plan, which last year was not.

As a stroke system as it usually has been so we are expecting.

A further increase in charter flights from Canada.

Our Muslim airports.

Winter season that starting basically.

Tomorrow is starting in November .

We see additional frequencies to capacity to markets, such as Detroit, The Los Angeles as well on the <unk>.

Last quarter or so.

This should bode well for a strong quarter and.

For OMA.

Okay. Thank you so much.

Our next question is from Alberto Valerio with UBS. Please proceed.

Hi, <unk>.

Thank you for taking my question.

You too.

I ask about the cycle they demand.

No.

<unk>.

The first time.

Lebowitz butter and.

Im wondering whether.

Particularly room.

Next we've had.

Sure.

Sorry.

I'll bet.

I'm going to ask can you repeat and repeat your question that the line is not.

Great.

Okay no problem.

My question is about the cycle off the demand where we are at this moment. So we widened the top of the cycle.

<unk> of the cycle you just see Omar.

The global traffic pre pandemic levels at this quarter and my second one is category. One next school as it relates to that you had.

The categories for stage two in Mexico.

You may see some.

Craft's growing away from Mexico that distribute U S routes and impact the domestic traffic.

My question about the demand.

Well, let me take the second part so regarding category too.

Was.

There was news during the weekend us public.

Public officials from.

For Mexico went to meet these F <unk> personnel in the United States.

There was a public release this weekend.

They say that the meeting was very good that in January <unk> is going to send a group.

Mexico to review the process and where we are and the expectation apparently but from the information that we have is that we could return to category ran somewhere to category one somewhere around the first quarter of next year.

That is going to be very important it's going to have an impact and this is in Mexican carriers, which right now they don't have an opportunity to increase new routes to the United States or in those existing ones to increase frequencies.

Yes.

So in terms of the outlook for this.

Just a few months.

We expect.

Some economic deceleration.

In the U S.

Overall demand however.

Gentlemen, we see as growth.

Our strong effects as well as the recovery.

The business routes that have been lagging.

The other.

The other type of markets.

Like VFR or is this shortage with coverage.

Oster.

So we think that.

It will even out.

We'll continue to see some positive growth.

Over the next quarters.

Fantastic. Thanks, so much we took aggressive.

Thank you. Thank you.

We have reached the end of our question and answer session I would like to turn the conference back over to Ricardo for closing comments.

Thank you all for your participation today Grupo <unk> are always available to answer your questions and we hope to see you soon thank you and have a good day.

Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

Okay.

Yeah.

Goodbye.

Okay.

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Okay.

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