Q2 2024 Grupo Aeroportuario del Centro Norte SAB de CV Earnings Call

Greetings and welcome to the Grupo Arab which aerial does central North take all my second quarter 2024 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Now I'll turn the conference over to your host Emmanuel Camacho you may begin.

Thank you Matti Hello, everyone welcome to Wamus second quarter, 2000, Fourteens country School.

We're delighted to have you join us today as we discuss our company's performance and financial results for the past quarter.

Participating today are CEO and.

The geopolitical based game.

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 recent uncertainties that could cause actual results to differ materially including factors that may be beyond our control.

Ill turn the call over to them together for yourself.

Thank you minority Hello, everyone and thank you for joining US today. This morning, I will review our operational performance and financial results. Then I will briefly comment on recent Capex milestones.

During the quarter and finally, we will be pleased to answer some questions.

In the second quarter of 2024, almost passenger traffic reached $6 5 million a decrease of two 4% versus the second quarter of last year.

<unk> passenger decreased four 3% <unk>.

Excluding a couple cool we're tourist infrastructure continues to recover from the impact of Hurricane at least in October 23, our domestic passenger traffic declined by three 1%.

This was primarily due to the Pratt and Whitney engine, we call affecting the fleet of Mexican low cost carriers.

The most impacted airports were Monterrey, and Culiacan, particularly on routes such as Monterrey to Cancun in Mexico City, and cooler count to Mexicali and Tijuana.

Despite a 10% decline in our routes to the Mexico City International Airport during the quarter, mainly due to the reduction if movements per hour announced by the Mexican government at the beginning of the year, our connectivity to the Mexico City Metropolitan area, including also to Luca and Santa Lucia Airport increased by two 8%.

This demonstrates that demand for flights to Mexico City remains robust with airlines responding by adding capacity to these alternate airports.

There has been a clear trend towards maintaining capacity within the Mexico City Airport system, while also utilizing available capacity to enhance international probably connectivity to the U S strengthening existing routes and introducing new ones.

International passenger traffic achieved a strong performance in the second quarter with a 12% increase compared to the second quarter of last year.

This growth was primarily driven by the Monterrey Airport with significant increase on routes to Atlanta, Las Vegas, Toronto and Orlando.

These routes along with mass Atlanta, Los Angeles Route accounted for approximately 60% of international passenger traffic increased during the quarter.

Additionally, in the first half of the year, we launched six new international routes four of which were based on the Monterrey Airport further strengthening our international connectivity.

Moving on to an almost financial performance.

Aeronautical revenue decreased by two 5%, primarily driven by the performance of our domestic passenger traffic.

Aeronautical revenue per passenger remained flat compared to the second quarter of last year.

Despite the decline in passenger traffic non aeronautical revenues grew by 13, 8% underscoring the successful execution and consolidation of several strategic projects throughout the year.

Commercial revenues increased 12% compared to the second quarter of last year, primarily driven by VIP lounges and parking revenues along with several other categories.

VIP lounges saw significant benefit this quarter due to higher access rates and the effect of the previously opened lounges in reynosa Tampico and Durango.

In addition leaves US up third party lounges in Monterey, we renewed under improved trends.

Parking revenues increased primarily due to an overall optimization of tariffs across our 13 airports.

Revenue from restaurants car rentals and retail group.

And by the contribution of commercial spaces opened during the previous quarters.

Finally duty free revenue increased due to our strategy of relocating international flights among terminals in Monterrey.

Boosting passenger exposure to commercial spaces and increase revenues per passenger.

The occupancy rate of commercial space stood at 95, 3% at the end of the quarter.

On the diversification front revenues increased 27%.

All my cargo contributed most of this quarter's growth with an increase of 35%.

Mainly due to higher revenues from ground and air cargo operations in Monterrey.

In addition during May we began operations with our new client Lufthansa cargo, which did not operate previously in Monterey offering air cargo transport true, but there's services without initial frequency of one flight per week between Mexico City, Monterrey and Frankfurt.

This new route is part of our strategy to establish our airport I say key logistics hub.

In addition, we will soon begin expansion over all my cargo Monterey warehouse capacity by almost 50%, allowing us to capitalize on near shoring opportunities.

Hotel services grew by 16%, mainly as a result of an increase in operations in both hotels.

In the second quarter of this year occupancy rate of our terminal to NH was 85%, while the Hilton Garden Inn Hotel had an occupancy rate of 79%.

Additionally, we recorded a double digit increase in average room rate per night on both hotels.

Moving onto capital expenditure front I would like to highlight that during the quarter, we achieved a significant milestone in our long term infrastructure development at the Monterrey Airport.

As part of an expansion and remodeling project, we successfully inaugurated the terminal E Sport Lake area expansion.

Covering over 6000 square meters. This new area of features double documentation counters commercial outlets airport services and other facilities.

These enhancements contribute to improving our services and increasing airport capacity.

This completion marks a third phase of our initial expansion project. Following the early openings of the West public area, Chairman Lai and the wing one building.

As a result of this initiatives Monster race current terminal capacity has grown to $13 9 million passengers annually.

Additionally, during the quarter, we invested 816 million pesos in M. D P investments major maintenance and strategic projects.

Notably we are actively working on expanding and remodeling German on buildings in Monterrey, Ciudad Juarez, Tortillon, Culiacan, Durango and Master plan.

This projects reflect our commitment to enhancing airport facilities and services for passengers and stakeholders.

I would lie allowed I would now like to turn the call over to Rupert, but its player who will discuss our financial highlights of the quarter.

Okay.

Thank you Ricardo and good morning, everyone I will briefly review our financial results and then we will open the call for your questions.

Speaker Change: I don't know just got revenues decreased two 5% relative to the second quarter of 2023, driven primarily by lower passenger traffic.

With a four 3% decrease in domestic passenger traffic, partially upset by 12, 4% growth in international passenger traffic.

Hello neighbor revenues increased 38% commercial revenues increased 11, 9%, we have got doors with the highest growth being VIP lounges parking on restaurants.

Suffocation activities increased 26, 5%, mainly due to higher revenues from our Mcdonough and wholesale services.

As a result total I don't know, what's the color and then nine one logical revenues grew one 1% to two 9 billion peso seen the QUADRA.

Construction revenues amounted to $5 56 million pesos in the single quarter, a decrease of 22% as a result of lower MVP investments execution speed.

The cost of services and G&A expense increased 16, 5% compared to Q 'twenty three.

The rise was primarily due to the expansion of the new operational areas in previous quarters, primarily in the Monterrey Airport, coupled with higher unit costs. Consequently, several of our costs and expenses. So adjusted Traci T contracted services and maintenance have increased as compared to the same periods of last year.

Consistent tax increased 71% to 203.

$9 3 million as a result of the rate increased from 5% to 9% apply on the revenues generated by almost airports those sessions.

On the Italian regulation basis effective October 22, Hudson Phase III payments made to the government related to ideological readiness in excess of those including the most recent downward revision will be added to the reference value to be used in the next maximum tariff revision there.

Therefore, starting January 2026, D success concession tax and most basically b will begin to be recovered through maximum tariffs.

In the second quarter, we're still doesn't pay for the 4% surplus of concession Texel were analytical revenues amounted to 92 million pesos equivalent to three 2% of its almost almost idle and then that'll revenues.

The surface is included in the $239 4 million recorded associated concession tax expense for the QUADRA.

Major maintenance provision that was 43 million vessels as compared to 82 million in the so called Black drove last year.

As a result of the variation in the person's value over the major maintenance provision caused by an.

An increase in discount rates for its calculation.

Almost second QUADRA adjusted EBITDA was $2 2 billion vessels and the adjusted margin was 73, 3%.

Excluding the 92 million pets, a surplus of concession tax and its impact on financials results. Our adjusted EBITDA would have been $2 3 billion pesos with a margin of 76, 3%.

For the six months ended on June 32, listen paid for adjusted EBITDA would have been for both 4 billion pesos with a margin of 77.0%.

Our financing expense amounted to 834 million vessels. This figure includes the effects, resulting from changes in the present value of the major maintenance provision due to an increase in the discount rates used for its calculation.

Consolidated net income was $1 3 billion Pepsi, the QUADRA, which increased by one 5% as compared to the second quarter of last year.

Turning to our cash position.

Cash generated from operating activities in the second quarter amounted to 1 billion peso some cash at the end of the QUADRA stood at $1 6 billion vessels during.

During the pledge or we paid the first installment of the dividend declared by the hour. So in all the previous shareholder meeting.

At June 32024, total debt amounted to $10 9 billion pesos and we ended the QUADRA with a healthy net debt to adjusted EBITDA ratio of one times.

This concludes our prepared remarks.

Molly Please open the call for questions.

Thank you at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Information tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the queue. The participant participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.

Our first question comes from the line of Pablo <unk> with Santander Mexico. Please proceed with your question.

Speaker Change: Yeah, Hello on my team.

Congrats on the results.

Just wondering if you can provide your expectations for traffic for the second half of the year in Mexico, We kept telling me slightly better expectation from low cost carriers, but I want to see your thoughts for a topic for a second.

Yes, Hello, Pablo we remain with the same projects than we had in the previous call, which are we believe we're going to be in the low single digit decrease in traffic as a result of the Pratt Whitney issue.

Okay perfect. Thanks.

Thank you.

Our next question comes from the line of Rodolfo Ramos with Bradesco <unk>.

Please proceed particularly.

Good morning.

Manuel.

Congratulations on the impressive growth on the <unk>.

Non aeronautical business side.

Couple of questions on my side.

First one is I wanted to get a sense of how do you look at the potential for northern non aeronautical revenue per passenger in Martin the medium to long term I mean, you're you're structure is unique and it sounds like you have the industrial business the cargo.

Power, which might make it more difficult to draw comparisons there, but what kind of benchmarking have you done with perhaps other airports in advance.

Portfolio just to get a sense of the current.

<unk> hundred 14 peso per passenger.

Narrow.

Go from from this level. So that's the first one and then secondly, it was interesting your comments around the Metropolitan area. The Mexico City slot restriction has been something that has been a concern for us and these bottlenecks. So how relevant my question is how relevant do you think from Luca me to serve as an alternative.

Philippe on delays and the <unk> family. Thank you.

Sure.

What he says this is rueful. So so in terms of all the known idle revenue the way we view it as we separate what's a commercial tool to other diversification activities.

On the commercial side lot of around a 58.

Peso per passenger.

Revenue I think that is sustainable for the next six.

Six months and that's consistent with our expectations for full year and going forward, we would expect that number to increase at least a week.

Inflation and be maintained in real terms.

As for other diversification activities there.

Performance does not necessarily relate to the passenger growth. So obviously you're right now we are.

With 85% capacity occupancy ratio in the NH hotel as well as the 79% occupancy ratio in Hilton in the Monterrey Airport.

They are basically at full capacity.

In the main business days of the week.

So we would expect some improvement entirety scope for what but they would not be correlated to passenger growth.

And Oh Macau to.

It also continues to perform very strongly.

We saw a very good first half results, which we think they they are let's see it's been lethal who would expect for the second half.

<unk> of the year, but also their revenues would not be correlated to passengers. So so therefore, we don't necessarily have this 14 peso per passenger targets.

For the upcoming <unk>.

<unk> or or yours.

So that's the target.

Oh, but.

And just I guess just to point out where we're having some strategic initiatives within the amount we have a lot of energy in the non aeronautical revenues, whereas for example, cargo we're expanding our warehouses by 50%.

We're looking to expand also our industrial park, we brought as a management team are in place for four to revamp all the non Aero side.

So we have good expectations. There are we want to our our objective is tack to capitalize on all the near shoring activity that we're seeing in most of our airports and relating to look on a 95.

I mean, I think the government has been clear they want to have a of metropolitan Sistema airports are composed of the Mexico City Airport to Luca and Santa Lucia, we believe that the excess traffic will go with mostly to Santa Lucia instead of to look at that the government has very clear.

<unk> that that that's their strategy. So we believe all that most of the access will go more to Santa Lucia that Luca.

And just to complement that regarding the second quarter of 2024.

The <unk> represented a five 4% of total AUM as passenger traffic.

While the lookout represented one 6% of total simple bunch of trust.

Great. Thank you and congrats again.

Thank you.

Our next question comes from the line of Matt <unk> with Morgan Stanley. Please proceed with your question.

Yes, Hello, everybody.

Two questions.

I saw that decided the.

Monthly can coonrod well with this being one of the main drivers of the traffic decrease of Monterrey.

What's the reason behind that the airlines at least frequency you thought or is it lower load factors.

So a bit more color than that.

Surprised to see this.

And.

You already mentioned that you plan to or are looking into expanding capacity, maybe at the industrial Park what's.

Speaker Change: What's the current capacity roughly the capacity utilization in Europe.

Having at that park in other words.

Would you be able to sustain high growth rates.

Before investing in new capacity.

So regarding the first question yes.

Monterey can consolidate a decline in traffic and difficult quarter, primarily related to a cut off of capacity by some of the carriers operating that's the route that was one that was most affected by the breadth of Whitney issue.

As the engine recall effect fades.

Speaker Change: Uh huh.

Behind Us we would expect this to be one of their roads with it because our recoveries.

And regarding the second question could you repeat your second question. Please.

Oh, yes on the industrial Park I mean, what's approximately the capacity utilization you have there just to SaaS. So how long you could have these high growth rates before you invest in additional capacity.

I'll say industrial not so well.

We're currently working on they're either on expanding a couple of existing warehouses on building also a couple of new warehouses.

Once those four projects are completed basically the bar would be around 98% of its buildup area.

Speaker Change: Built.

So so.

These warehouses, we would expect to be generating revenue towards the last some of them in the second half of the year.

Although I havent seen the fourthquarter.

Of this year. So so so after two lessons middle of 2025.

If we need who went to still grow with these leases.

This line item will need to invest in additional infrastructure.

<unk> basis in the Monterrey Airport.

Perfect.

Right and then expenses implant.

Okay. Thank you alright.

Thank you.

Okay.

Okay. Thank you.

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

Good morning, everybody and thanks for taking my question just.

One from me.

I noticed your.

Competitors have done.

A couple of overseas projects and invested.

And airports outside of Mexico are you guys considering doing anything along those lines.

And if so.

Is this something that.

And you could do jointly with Vinci or.

Nothing like that.

<unk> anticipated at the time thank you.

Hi, Steven.

We're looking for opportunities to expand internationally, obviously that would have to be I joined decision with Vinci, but we're currently not not in working in in any tender bidding process internationally.

Okay I appreciate that thank you.

Thank you.

Our next question comes from the line of Isabella Zhao with GBM. Please proceed with your question.

Hello, and thank you for taking my question.

I was wondering.

Pardon me.

Close you are to reaching the maximum tariff.

Yes. Thank.

Thank you Yeah, we're close to a 99, 3% compliance with maximum tariff at this point.

Thank you.

Thank you.

Our next question comes from the line of Andreas <unk> with GBM. Please proceed with your question.

Hi, Thanks for the column.

So how.

Commercial growth.

Speaker Change: This disclaimer is important.

It needs a deployment.

Momentum.

Hum.

Additionally, considering the higher mix of international passengers and commercial revenues.

Cool.

I haven't seen a dozen years.

They've been between passenger and commercial sorry.

Could you repeat your line is it's cutting.

Could you please repeat it well your question Jess.

Jess: Uh huh.

Yes.

Keith.

If you can't make it your traffic mix.

Emission standards.

So I think the increase in commercial revenues.

Hum more related to our overall strategy, obviously, you saw an increase in duty free.

Obviously, a component of that.

Benefits from higher international passengers than the last year, but overall are the increases that you see in food and beverage and restaurants and car parking is part of our overall strategy to improve our commercial revenues.

That's helpful.

Okay.

Jess: Thanks.

Thank you.

Our next question comes from the line of aggressive Laredo with who is a private investor.

With your question.

Hi, Good morning. Thank you for taking my question. So I have a follow up here on the maximum tariff question. So you mentioned that you are close to a 99.2% compliance rate. So just wondering how the DSA Keith you configure to duration.

The discounts that were agreed agreed of its government last year.

The data on that.

If you have a plan.

<unk> increased service for their and before your next <unk>. Thank you.

Speaker Change: So the compliance ratio that we have.

<unk> mentioned.

So really are still giving effect to all our.

These codes that were agreed upon.

Last year and the inflationary increase.

At the beginning of this year.

Next year would.

Just to expect any inflationary increase in our idled ethical tariffs.

Perfect. Thank you.

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

Hi, good morning, and thank you for the call.

One question that at this point in time.

Can you give us an idea of the level of Capex you would be expecting.

For the next Master development plan.

If it's the same level as the previous.

Or higher or lower thank you.

Alright.

We're still in early stages of the MVP. We are working very closely with <unk> to have a very optimized our capex, but it's it's too early to have some numbers.

What I can tell you is going to be Oh.

Very optimized capex.

Thank you.

Thank you.

Our next question comes from the line of Anthony Martin Coty with GBM. Please proceed with your question.

Hello, guys. Thank you for the call. My question is a bit of a follow up on <unk> question.

Related to the commercial revenues per passenger a few cool sure some color.

Have you seen any significant impact on this metric due to having a higher share of international passengers or or maybe some distortion due to the commercial revenue has seen a holdco given that you have now a lower passengers.

Or is this not significant thank you.

I think at the end.

But all of a couple of call is needed.

As you remember a couple of Clos are covered for approximately three 5% of our total traffic and even though it's obviously a tourist markets which is.

Province to maybe how you expect tourists, especially industrial side the international component of our political was well it was a very small less than to the future for your revenues for example that we have a lumpy way or.

Or mass Atlanta, so so.

I wouldn't.

Uh huh.

The mix of passengers right now.

Except for the duty free line item.

This is driven by the international passenger growth.

For example, parking revenues increased and it's mostly it is primarily a domestic traffic in that line item.

A lot of the VIP, sorry, food and beverage and retail outlets.

Don't necessarily attack.

International market, but mostly to the domestic market.

So I would think that the increasing commercial revenues is driven by overall the strategy.

And it does not depend on international traffic growth.

Perfect. Thank you.

Thank you and we have reached the end of the question and answer session I will now turn the call.

And then as this group for closing remarks.

Yes, we would like to thank everyone for participating in today's call Rufo Manuel and I are always available to answer your questions and we hope to see you. Soon thank you once again and have a great day.

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

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