Q2 2023 Grupo Aeroportuario del Centro Norte SAB de CV Earnings Call
Greetings. Welcome to the Grupo Aeroportuero del Centro North OMA second quarter 2023 earnings conference call. Welcome to the Grupo Aeroportuero del Centro North OMA second quarter 2023 earnings conference call.
At this time, all participants are in a listen-only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star-0 on your telephone keypad. Please note this conference is being recorded.
I will now turn the conference over to your host, Emmanuel Camacho. You may begin.
Thank you, Shimali. Hello, everyone. Welcome to OMA's second quarter to 2023, our next conference call. Participating today are CEO Ricardo Ruínez and CEO Rufo Perez-Plego.
Please be reminded that certain statements made during the course of our discussion today may constitute poor one-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, including factors that may be beyond our control.
And with that, I will turn the call over to Ricardo Léonas for his opening remarks.
Thank you, Manuel. Hello, everyone, and thank you for joining us today. This morning, I will briefly comment on several events and milestones that occurred during the quarter. Then I will review our operational performance and financial results, and finally, we will be pleased to answer your questions.
Today, I am pleased to announce that last Tuesday we released our 2022 Sustainability Report. This report is a testament to our commitment to transparency, accountability, and our unwavering dedication to environmental, social, and governance principles. We are proud of the progress we have made in our sustainability.
Initiative and the Sustainability Accountant Standards Board frameworks.
These frameworks have guided us in creating a comprehensive and accurate portrayal of our sustainable practices and progress over the years.
One of the essential aspects of this report is the reevaluation of materiality, where we conducted a thorough analysis to identify the most critical issues that affect our stakeholders and our business.
We have identified and addressed 15 material topics that reflect the core sustainability challenge and opportunities we face as an organization.
By focusing on these areas, we can drive meaningful change and create a positive impact to our stakeholders.
Some significant achievements showcased in the 2022 sustainability report include the substantial reduction in our carbon footprint during last year. Last year 95% of our energy consumption was sourced from renewables, resulting in a 48% reduction in our total scope.
consumption. We managed to reduce water usage by 17% in 2022 despite a 29% increase in passenger traffic as compared to 2021.
As we embrace sustainability, we recognize that this is an ongoing commitment to responsible business practices.
We understand that there is still much work to be done and we remain committed in our determination to promote sustainability sustainable mobility.
In addition, alongside the release of our 2022 sustainability report, we also published our Green Bond Progress Report pursuant to OMA's Green Bond Framework.
This report provides information about allocation of proceeds and the impact of projects financed with a 1 billion peso green bond issued in 2021.
These initiatives, which include our solar panels already in operation, are projected to reduce over 15,000 megawatt-hour in energy consumption annually. On our two new water treatment plants in San Luis Potosí and Chihuahua airports will allow us to treat an additional 24,000 cubic meters of water per year.
I invite you all to explore this report in detail. Both documents provide comprehensive insights into our sustainable practices, achievements, and ongoing initiatives. We welcome the opportunity to engage in meaningful discussions with all of you about our sustainability efforts.
Moving on to recent CAPEX developments, as part of our efforts to enhance the services and capacity of the Monterey Airport, on June 20, 2023, we started operations of the Wing 1 building, which is part of the airport's expansion and remodeling project.
This new wing serves passengers traveling through Terminal C, has an area of 5,600 square meters, seven boarding gates, and a nano capacity of 1.4 million passengers.
As we continue developing the Monterey Airport, we look forward to welcoming more passengers to experience the enhanced facilities and services offered by our expanded airport.
Regarding growth of our industrial park in Monterey, during the quarter we started the construction of two new industrial warehouses of 14,000 square meters and 10,000 square meter respectively. These warehouses are expected to start generating revenues in the second quarter of next year. In addition, since the end of 2022, we have been...
86% to 116,000 square meters, representing 83% of the total reasonable space in the industrial park.
As another highlight of the quarter, in Terminal 2 NH Collection Hotel at the Mexico City Airport, we successfully finished the remodeling.
All 287 rooms underwent a full transformation, along with public areas and the restaurants of the hotel.
creating an enhanced experience for our guests, which should translate into solid occupancy factor in subsequent years.
Finally, in line with our strategy to improve passenger experience in our airports, we have successfully opened another OMA Premium Lounge in Tampico Airport.
With this addition, we now directly operate a total of 10 lounges in 8 of our airports.
In addition, we are in the process to start operations of new lounges in Arderango, Reynosa, and see what the NAHOL airports.
Turning to our main second quarter, 2023 results.
OMA delivered solid financial and operating results in the second quarter of this year. Adjusted EBITDA grew 25% in the quarter to 2.3 billion pesos and adjusted EBITDA margin reached 78.6%, setting a new record high.
largely as a result of the increase in both aeronautical and non-aeronautical revenues and our successful cost control strategy. In the second quarter, OMA's passenger traffic reached 6.6 million, an increase of 13% versus the second quarter of last year.
During the quarter, our Monterey Airport delivered an outstanding passenger traffic performance, contributing with 544,000 additional passengers in the second quarter of 23 versus second quarter of last year, equivalent to 73% of OMA's total passenger growth in the quarter.
The top five destinations driving the airport's growth in the quarter were Toluca, Cancun, Queretaro, Felipe Angeles, and Houston, which collectively accounted for half of the airport's overall growth.
Besides Monterey, the airport of Ciudad Juarez at Capulco and Massa Plan also contributed most to passenger growth. And the routes from this airport were with the strongest traffic growth compared to the second quarter of last year, where the Ciudad Juarez, to Guadalajara and Cancun routes.
Acapulco to Felipe Angeles and Guadalajara routes, and Massa-Planto, Mexico City, and Tijuana routes. On aggregate, these six routes added 130,000 additional passengers, equal to 17% of OMA's total passenger increase in the quarter.
Primarily as a result of the strong passenger traffic performance, our aeronautical revenues grew by 26% in the quarter to 2.3 billion pesos.
On the commercial front, revenues increased 23% compared to the second quarter of last year driven by parking, car rentals, restaurants, and VFP landers.
Occupancy rates for commercial space stood at 94.3% at the end of the quarter.
Diversification revenues increased 5%. Our hotel services contributed most to this growth.
In the second quarter of 2023, occupancy rate of our Terminal 2 NH Collection Hotel increased 420 basis points to 84.7%, reflecting the successful completion of the remodeling project, while the Hilton Garden Inn had an occupancy rate of 76.2%, 90 basis points higher.
On the capital expenditure front, total investments in the quarter, including MDP investments, major maintenance and strategic investments were 184 million pesos.
During the quarter, some of the most relevant projects we are working on are the expansion and remodeling of the Monterey Airport Terminal, A Building, as well as Ciudad Juarez, Culacan, Durango Terminal buildings.
the reconfiguration of the MAFSA plant terminal building, major rehabilitations and reconfiguration of platforms and taxiways in several airports, and construction of four industrial warehouses.
I would now like to turn the call over to Rufus Perez-Piello, who will discuss our financial highlights for the quarter.
Thank you Ricardo and good morning everyone. I will review our financial results for the quarter and then we will open the call for your questions.
I'm going to do all my second part for financial results.
I would also like to say that the revenues increased 25.8% relative to the second quarter of 2022, driven primarily by the 13% increase in passenger traffic and high revenue per passenger.
Non-iron revenues increased 15.7%, with commercial revenues increasing 23%, and the categories with highest growth were parking, car rentals, restaurants, and VIP lounges.
Parking increased 21% as a result of an increase in passengers and higher penetration in the Monterrey, Chihuahua and Reynosa airports, as well as higher turnover in short-term state parking across all airports.
VIP lounges increased 44% as a result of the increase in passenger traffic and the opening of the Tampico launch in May, as well as the Ciudad Juarez launch opened in November of 2022.
De-bersification activities increased 4.5% as the strong hotel revenue growth was partially upset by a decline in OMA cargo, which was affected by decreased operations from our clients in the ground import cargo activity.
Total ERO and non-ERO revenues grew 23.4% to 2.9 billion pesos in the quarter.
Construction revenues amounted to 710 million pesos in 2Q23, an increase of 27%, as a result of higher MVP investment execution.
The cost of airport services and G&E expense increased 11.2% relative to the second quarter of 2022, mainly due to higher payroll costs and an increase in the number of parking and OMA VIP launch staff. Other increases came at the minor maintenance and other cost and expenses line items.
which grew due to overall higher activity in our airports as well as inflationary effects.
Major maintenance provision was 82 million pesos as compared to 298 million pesos in 2Q22.
OMA's second quarter adjusted the beta was 2.3 billion pesos and the adjusted beta margin was 78.5%
Our financing expense was 282 million pesos, mainly due to a higher interest expense as a result of additional debt issuance and higher average cost of debt.
Consolidated net income was $11.
Consulated netting 1.3 billion pesos in the quarter, an increase of 37% versus 2Q22.
Turning to our cash position.
Cash generated from operating at 50s in the second quarter amounted to 1.7 billion pesos, and cash at the end of the quarter stood at 2 billion pesos. On June 22nd, we made the payment for the first installment of the ordinary dividend of 1.8 billion pesos, in accordance with the resolutions of our shareholders meeting in April .
The remaining five million will be paid no later than September thirtyeth 2023, and we will provide you with the timely update on the matter.
At the end of the quadrant, total debt amounted to 10.8 billion pesos and we ended the quadrant with a healthy net debt to adjusted EVTA ratio of 1.1 times.
This concludes our prepared remarks. Smalley, please open the call for your questions.
At this time we will be conducting a question and answer session.
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Our first question comes from the line of Rodolfo Ramos with Redesco BBI. Please proceed with your question.
Good morning Ricardo, Rufo, Manuel. Thanks for taking my questions and congratulations on the strong results there. Two questions here, if I may. The first one is can you remind us what is your expectation for traffic roads this year and can you frame for us the kind of discussions that you're having with...
that you take there on business outperforming leisure potentially within your network. So that would be my first question. And second question, when you think of the different projects that you're currently developing in Entire and as part of your MVP.
and also other terminal expansions at other airports. I mean, how do you see your cost structure growing in the next two years, now focusing on the projects that are probably gonna hit this or next year?
So how do you see costs growing in the next two years until your next MVP in 2025? Thank you.
Thank you Rodolfo. On the first part of the question, in terms of traffic growth, we expect something close to 26 million passengers per year is achievable. You're right, during the quarter we opened 8 new routes, most of them from Aéroos and Vívárogús, Vívárogús for Mexicali and Bogotá.
The rest in AERUs, mostly business traffic. As you know, business traffic was lagging during COVID. But now that we're starting to see an increase in your shoring activity, we're starting to see a strong pickup in business traffic, and that's been reflected in our numbers.
With respect to your second question on costs, certainly we are going to see a slight pickup on some of the fixed costs that we have as a result of the openings. We opened a substantial facility in Monterey at the end of the quarter. We are also making good progress with expansions in the quarter.
in cost above inflation as a result of these expansions.
Thank you.
Our next question comes from the line of...
Peter Mendez with JP Morgan. Please proceed with your question.
Good morning and afternoon everyone, Ricardo, Rufo, Emmanuel. Thank you for taking my question. Two questions. The first one is a follow-up to the previous questions. You mentioned about the traffic for this year. Just wondering what's your expectations for traffic in the longer term. Think of all the near-term discussions and investments in Monterey.
I know the ERMDP is too far away but what kind of traffic increase maybe we could expect for the upcoming years? And the second question is related to cash distribution capital allocation. So what kind of deep dents slash buybacks?
should we expect on the verge of these additional investments on the commercial front. Thank you.
For the first part, it's important to remember that during the first half of this year, we're comparing to a slightly lower base from last year when we have the Omicron variant. So we expect growth to start normalizing a big.
and we also expect business traffic to have a better performance than the one we've seen in the last couple of years.
And with respect to cash distributions, as you know, this year we had an extraordinary dividend paid in March and the ordinary dividend that was declared in the April shareholders' meetings, 500 million of which are still pending to be paid.
We have yet to define what the cash distributions are going to be for next year. That's something we need to propose to shareholders.
Okay, super clear. Thank you very much.
Our next question comes from the line of Alberto Valerio with UBS. Please proceed with your question.
Hi, thank you for taking my questions. I have two on my side as well. About maintenance, major maintenance for the quarter, would you like to know if there was any special item for this quarter to be decreased year over year and what should we expect for the remaining of the year?
And the second one about tariffs, what percentage of maximal tariffs are you guys running and should we expect any increase for the remainder of the year? Thank you very much.
Hi, Roberto. With respect to major maintenance, I think if you take the semiannual amount, the community amount for the six months, annual license, that will be our forecast for the year. The reason versus the decline of last year is that a lot of the
projects included in that major maintenance provision, which as you know is a no-cash item, are close to being fully provisioned. And the going forward rate is going to be lower than what we were experiencing in previous years.
And with respect to your second question, I think that we're targeting for 2023 which went up above 95% levels of tariff compliance.
We also don't expect an increase in tariff for the remaining of the year.
Fantastic. Thank you very much. Very clear.
Our next question comes from the line of Jay Singh with Citi. Please proceed with your question.
Thank you for taking my question. Can you provide any high level color regarding what's driving such strong traffic goals from Acapulco at over 21% year over year? Thank you.
So Acapulco in terms of percentage points was the highest growth in our network. I think there are no new routes that were opened this quarter. So it's mostly improved.
load factors in the existing routes that we have to Atapulco.
the airport. It's important to keep in mind that with the saturation of the Mexico City airport, what we have seen with most of the airlines as they are starting to
and that's also impacting a lot of that type of traffic. Yeah, one clarification is, even though some of these routes were opened before, last year they were not in operation and we got about 19,000 passengers.
from Philippines, to the airport that are new and were not last year to Acapulco. So that explains half of the growth of doing the quadrant.
No, that's super helpful. I also would like to know what caused the 4.9% drop in cargo unit volumes versus a year ago. Would you say that was due to more competition from third-party storage facilities or what would you say led to that?
No, that's super helpful. I also would like to know, you know, what caused the 4.9% drop in cargo unit volumes versus a year ago? Would you say that was due to more competition from third party storage facilities? Or what would you say led to that? You said in cargo?
Yes. Yes, so in CARBO it's... So yeah, CARBO just decreased 4.9% versus 2Q22. This was mostly due to CARBO at the Monterey Airport.
And we are seeing a deceleration on cargo activity in these months.
Thank you so much.
Also, just to keep in mind, the currency, the strong face will also have some effect in the level of exports.
Our next question comes from the line of Edson.
or here with some of the CAHPS. Please proceed with your question.
Hi, good afternoon. Thank you for taking my questions. I have two of them. The first one is related to the cost of hotel services. This quarter they increased 24%. So could you give us a little bit more code about the question of the increasing?
And the second one is regarding the sustainable report. You mentioned about the ACA, that you got the Level 1 this first half of 2023, and you are pursuing Level 2. But could you give us a little bit more details about what will be mean getting Level 2 from the ACA? Thank you.
So with respect to hotel costs, there has been a strong pickup in hotel activity and that has resulted in some
and health costs primarily I would say in the line items of payroll and food and beverage consumables. And as we expect growth to continue recovering in the two hotels, we should see at least for the rest of the year similar.
increases in the cost of hotels. And with respect to sustainability efforts, as you mentioned, we already have a Level 1 certification for the 13 airports of Roma that were granted in February . We are already working towards the Level 2 certification, which we would...
Just follow up on this, but what is the difference?
So the difference with level one is basically you have to have like a carbon map and a diagnosis of your footprint and in level two you have to have specific KPIs for a long-term downward trend in those.
Okay, makes sense. Thank you so much.
Our next question comes from Gabriel Hemelafar with the Scott Shipbank. Please proceed with your question.
Gabriel, are you there?
Sorry, yeah, can you hear me now?
Yes, we can proceed.
Okay, so yeah, thank you. Thanks for the call. Can you give us a bit of color on the new route opening on, for example, the Tamolipas, Matamoros, Piedra Negras? Is that a thing about near-shoring and manufacturing facilities being built there, or is it more like higher demand?
operates such roads. Is it a large airline, a small, a low-cost carrier, or how's the dynamics of those roads? Thank you.
Thank you, Gabriel. That's mostly related to the new airline called AERUS. It has smaller planes, Cessna planes, and it's going to be focused on more regional routes. So out of the eight routes that we opened during the quarter, six of them are related to this.
new airline. And yes, it's regional activity mostly related to near-flowing activity.
Okay, so it's like a plane for about 20 passengers or something like that or bigger, a bit bigger, a bit lower? No, no, you're right. It's around 20 passenger aircraft.
Okay, thank you very much.
Welcome. Thank you.
Our next question comes from the line of Fernando Retia with BTG Actual. Actual, please proceed with your question.
Hi, thank you for taking my question. I have two actually. The first one, if you could further explore the capacity expansion at your Monterey Airport, when do you expect to reach the full capacity of these 1.4 million passengers? How can we think of the incremental telecommunications, what kind of
and when do you expect to reach 100% of capacity? And the second, I was curious to hear your opinion because as you comment, Mexican Airlines have been adding domestic capacity because of the restriction regarding the category 1 status.
I was wondering when the Mexico recovers the category one, we can have some shift of traffic from domestic to international flow. Given that you are the most exposed to domestic routes, I wanted to hear your thoughts.
or maybe you could have some impact because of this capacity shift. Thank you.
Thank you, Fernando. In terms of capacity, our goal for this phase of expansion is to increase the current capacity of the airport by around 50%. Remember, the current terminal was for up to 12 million passengers. We're looking to expand to 16 million passengers.
We're going to keep evolving as traffic continues to grow. Fortunately, we don't see in the near term future any bottleneck either on the air side, meaning the runway, apron or taxiways, or on the terminal side. So we'll keep growing as demand expands, but the current phase that we're...
that wing to connect it to the current terminal A. Once that wing is connected to terminal A, we're going to use terminal C for cargo expansion projects. Then we'll evolve to a second pier, which will be the second wing, and then also another airside space. That's pretty much it.
And in terms of category two, once we get back to category one, we expect that to happen somewhere by the end of this year. We expect it to not have so much impact in our traffic, but we have seen in the last Tenned racial relationship with the local ogrefigure Wu.
In the last year, the last few months, it's all that capacity that hasn't been absorbed by local carriers, has been absorbed by foreign carriers. We believe that the growth that we're seeing in business routes is going to remain.
content even when we shift to Category 1. So we don't expect any major shifts in our traffic projections as a result of the shift to Category 1.
And our next question.
All right, next question comes from the line of Juan Mcdelta with GBM. Please proceed with your question.
Hi, thanks for taking my question and congrats on the results. My question is a quick follow up on the previous question on tariffs. I understand that you were at a 95% level of the maximum tariff allowed during the last quarter. Are you currently in that level? Or do you have a boundary variable or is it really suppIE that's something that you want to along with rates and I take those cries.
If I understood well, you expect to maintain a 95% by year end, right?
Yes, that's correct. Due to seasonality factors and mix between both ones would be harmful tov
airports during the year, it might shift, but overall for the full year, yeah, we are transmitting slightly above 95%.
Currently you are around that level, right?
Yes, we're around those levels.
Great, thanks for the color and the results.
results. Thank you.
And we have reached the end of the question and answer session. I'll now turn the call back over to Ricardo Anduanas for close remarks.
Thank you all for participating today. Ruth, Manuel, and I are always available to answer your questions and we hope to see you soon. Have a good day.
This concludes today's conference and you may disconnect your line at this time. Thank you for your participation.
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