Grupo Aeroportuario del Centro Norte Q1 2023 Earnings Call Transcript

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Provided by Quartr
April 27, 2023

Key Takeaways

  • Shareholders approved an ordinary cash dividend of MXN 2,300 million to be paid in two installments by September 30, 2023.
  • OMA issued MXN 3,200 million in sustainability-linked notes, using proceeds to refinance debt and fund future investments under a carbon-reduction framework.
  • Q1 2023 Adjusted EBITDA rose 41% YoY to MXN 2,000 million, with EBITDA margin reaching 77.5% thanks to 40% aero and 36% non-aero revenue growth.
  • Passenger traffic grew 30% YoY to 6 million in Q1, led by Monterrey, Ciudad Juárez, Chihuahua and Culiacán, with business routes adding 470,000 passengers (42% growth).
  • Strong balance sheet with MXN 2,800 million cash on hand, net debt/EBITDA of 1.1x and Q1 operating cash flow of MXN 1,300 million after dividend payments.
AI Generated. May Contain Errors.
Earnings Conference Call
Grupo Aeroportuario del Centro Norte Q1 2023
00:00 / 00:00

There are 10 speakers on the call.

Operator

And welcome to the Grupo Aeroporte Areo del Centro Norte OMA First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Emmanuel Camacho, Investor Relations Officer.

Operator

Thank you, Emmanuel. You may begin.

Speaker 1

Please be reminded that certain statements made during the course of our discussion today may constitute forward looking statements, which are based on current management expectations and beliefs 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. With that, I'll turn the call over to Ricardo Duenas for his opening remarks.

Speaker 2

Thank you, Manuel. Good morning, everyone. This morning, I will briefly comment on several events Then I will review our operational performance and financial results. And finally, we will be pleased to answer your questions. Last Friday, we held our 2023 Annual Shareholders Meeting, where shareholders approved, among other matters, The declaration and payment of an ordinary cash dividend to shareholders of COP 2,300,000,000 in 2 installments.

Speaker 2

The first one of MXN 1,800,000,000 no later than June 30 and the second one MXN 500,000,000 no later than September 30. In addition, on March 10, we successfully completed our MXN 3,200,000,000 issuance in long term sustainability linked notes in the Mexican market. Pursuant to the framework of the notes, we have set an ambitious carbon footprint reduction target. Proceeds were used to amortize our OMA 13 notes for MXN 1,500,000,000 and to repay MXN 1,200,000,000 in short term loans. The remaining MXN 500,000,000 will be used for general corporate purposes, including the funding of future investments.

Speaker 2

Moving on to our main Q1 of 2023 results. OMA delivered solid financial and operating results in the Q3 of this year. Adjusted EBITDA grew 41% in the quarter to COP 2,000,000,000 and adjusted EBITDA margin reached 77.5 percent, largely as a result of increase in both aero and non aero revenues. In the Q1, OMA passenger traffic reached dollars 6,000,000 an increase of 30% versus Q1 of last year. The airports that led passenger traffic growth During the quarter were Monterrey, Ciudad Juarez, Chihuahua and Culiacan.

Speaker 2

And the routes with the strongest traffic growth compared to the Q1 of last year, Most of them considered mainly business routes were the Monterrey to Mexico City, Guadalajara, Santa Lucia, Toluca and Cancun routes and the Ciudad Juarez to Guadalajara routes. On aggregate, these six routes added 470,000 additional passengers in the quarter, an increase of 42% versus the Q1 of last year. Primarily as a result of the strong passenger traffic performance, our aero revenue grew 40 On the commercial front, revenues increased 36% compared to the Q1 of last year, driven by parking, restaurants, retail and car rentals. Occupancy rate for commercial space stood at 93.6% at the end of the quarter. Diversification revenues increased 22%.

Speaker 2

Our hotel services and OMA cargo contributed most to this growth. In the Q1 of this year, occupancy rate at our Terminal 2 NEJ Collection Hotel was 80.3%, while the Hilton Garden Inn Hotel had an occupancy rate of 73.4%, signaling a further recovery of business travel. OMA cargo revenues increased 14%, mainly driven by the handling of air and ground import cargo. On the capital investments on the capital expenditure front, total investments in the quarter, including MDP Investments, Major maintenance and strategic investments were MXN757,000,000. During the quarter, Some of the most relevant projects we are working on are: the expansion and remodeling of the Monterrey Airport Terminal A Building as well as the Ciudad Juarez, Culiacan and Durango Terminal Buildings reconfiguration of the Mafatlan Terminal Building and major rehabilitation and reconfiguration of platforms and taxiways in several airports.

Speaker 2

I would now like

Speaker 3

to turn the call over to Ruffo Perez Diego, who will discuss our financial highlights for the quarter. Thank you, Ricardo, and good morning to everyone. I will briefly review our financial results and then we will open the call for your questions. Turning to OMA's Q1 financial results. Aeronautical revenues increased 40% relative to the Q1 of 2022, driven primarily by 29% increase in passenger traffic.

Speaker 3

Sunaira revenues increased 25.7% With commercial revenues increasing 35.5 percent, the categories with the highest growth were our parking, restaurants, retail and car rentals. Parking revenues increased 58% due to increased penetration in the Monterrey, Chihuahua and Reynosa airports as well as higher The increased activity in our parking revenues is the result of an overall higher business dynamism at our airports. Restaurants retail and car rentals rose 49%, 43% and 20%, respectively, due to higher revenue sharing and the impact of the different initiatives that were implemented throughout 2018. Diversification activities increased 21.5 Total aero and non aero revenues grew 36 percent to MXN 2,600,000,000 in the quarter. Construction revenues amounted to of R664 million as a result of the higher NBP investment execution.

Speaker 3

The cost of airport services and G and A expense increased 14.9 percent relative to the Q1 of 2022. And this is due to an increase in payroll expenses results Primarily of increased headcount and higher labor costs versus last year. Other increases came at the minor maintenance and contracted services line items, which grew Overall due to overall higher activity in our airports as well as inflationary adjustments. Major maintenance provision was MXN 77,000,000 as compared to ARS 82,000,000 in the Q1 of 2022. OMA's 4th quarter adjusted EBITDA reached ARS 2,000,000,000 and the adjusted EBITDA margin reached 77.5%.

Speaker 3

Our financing expense was MXN 229,000,000, mainly due to a higher interest expense as a result of additional debt issuances and a higher cost of debt. Our consolidated net income was BRL 1,100,000,000 in the quarter, which reflects an increase of 43.5% relative to 1Q 'twenty two. Turning to our cash position. Cash generated from operating activities in the Q1 amounted to MXN 1,300,000,000 and cash at the end of the quarter stood at MXN 2,800,000,000, which already recaps the payment of the special dividend of MXN 1,450,000,000 made during the month of March. At the end of the quarter, total debt amounted to MXN 10,700,000,000 And we have a healthy net debt to adjusted EBITDA ratio of 1.1 times.

Speaker 3

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

Operator

Thank you. We will now be conducting a question and answer session. Thank you. Our first question comes from Carlos Periologna with BOA. Please proceed with your question.

Speaker 4

Thank you. Good morning, gentlemen. Congratulations on the strong results. Two questions, if I may. First one is related to passenger traffic, very strong, obviously, on the quarter.

Speaker 4

If you could give us some idea of your expectations for the remainder of the year, it looks like business traveling is coming back strongly. What should we In terms of the remainder of the year, that would be the first. And the second is related to margins. Again, a very solid expansion there. If you could provide some color as to whether that is sustainable or you expect some headwinds over the remainder of the year in terms of additional costs?

Speaker 4

Thank you.

Speaker 2

Thank you. Thank you, Carlos. Yes, passenger traffic, remember that we're comparing to the Q1 of last year when we have the omicron Variant, COVID. So we have we had an easier comp base. Obviously, it's going to become more challenging as the year moves along.

Speaker 2

But we're comfortable that something in the high single digits, it's achievable. And then in terms of margin, we believe We're consistent, as mentioned before, between 76% and 77% EBITDA margin is attainable.

Speaker 4

Perfect. Thank you.

Operator

Thank you. Our next question comes from Josh Milberg with Morgan Stanley. Please proceed with your question.

Speaker 5

Hey, everyone. Thank you for the call. I was hoping you could give On the outlook for return to Category 1 later this year just with the latest legislative developments? And Also, if you could just give a little bit of your take on what that could mean for OMA on the international side in terms of Route additions by Mexican carriers to U. S.

Speaker 5

Destinations from Monterrey or your other airports, thinking about next year. And then related to that, I just wanted to ask if you think eventually a postponement of that return Where you guys obviously have more exposure? That's my first question.

Speaker 2

Sure. Well, yes, Category 1, as you know, this week, one of the prerequisites to go back To category 1 is that the approval of the airport and law, it's going to be it's already approved in the

Speaker 3

Yes. With respect to and then I mean so we would expect a return to Category 1 towards the end of the year once the It's Arif. In terms of new route developments, as you know, category 1 does affect Mexican carriers, but it has not affected U. S. Carriers.

Speaker 3

So in the past couple of years, we have seen New airlines coming into our airports from the U. S. To serve the demand of international travel. So I do not think that the return to Category 1 for OMA will have a significant impact nor a delay in the attention of this Regaining of the category 1.

Speaker 5

Okay. That's great. And then my second question was just if you could give a High level view on this news around the bill that's out there that could give the government an ability So if that's really just noise and not something that we should be concerned about?

Speaker 2

I mean, I think it's too early to anticipate. We know the bill is not going to be discussed in this period. It's going to move towards the end of the year. The next period is going to be September December, we believe it's going to be discussed there. We need to wait what's going to be the final language of that bill.

Speaker 2

So it's really Still too early to say what impact it could have. Not in airports, but in every Business that has any permit or concession regarding the government.

Speaker 5

Okay, fair enough. Thank you for the detailed responses.

Operator

Thank you. Our next question comes from Guilherme Mendez with JPMorgan. Please proceed with your question.

Speaker 6

Hi, everyone. Jigarado Ruffo. Thank you. The first question is related to the MDP maximum tariff after the recent increase that we saw in the beginning of the year. How far are you from the maximum level and if you do expect to achieve the maximum level by early next year?

Speaker 6

And the second question is in term of capital allocation. You already saw the dividend announced for this year. But OMA continues to operate at a low leverage. So how should we think about the capital allocation going forward, if you can expect some additional dividends or buybacks or potentially some M and A activities outside Mexico?

Speaker 3

Thank you. Hi, Ian. So with respect to maximum tariff recovery last year, We were slightly below the 90% mark. I think that for this year, we're targeting to be around 95 Percent for the full year. And with respect to capital allocation, we in this year already Approved and paid a special dividend of €1,450,000,000 As Ricardo mentioned, the dividend was approved by shareholders last Friday in total of €2,300,000,000 So the total distribution to shareholders would be this year of €3,750,000,000 And as cash flow generation permits, I mean, in future years, I mean, we'll see what the level of dividends are, but We do not expect to have an increase in leverage with respect to current levels.

Speaker 6

Super clear. Thank you.

Operator

Thank you. Our next question comes from Rodolfo Ramos with Varesco BBI. Please proceed with your question.

Speaker 7

Good morning and good afternoon, everyone. Thanks for taking my question. I have a couple. The first one is on your non aeronautical revenue per passenger. We're still above Those levels that we saw before the pandemic struck.

Speaker 7

So just wanted to see whether you have a normalized Target that you're looking at, especially as traffic continues to recover. So that would be my first question. And then my second question is, can you remind us, I'm not sure if you have that information, but what would be the requirements or restrictions for a foreign company to acquire all of Oma's shares. I know there's something in the regulation or something else that could make that more difficult? Thank you.

Speaker 3

Sure. With respect to commercial revenue sorry, non idle per box levels, We see it separately, but it's purely commercial to what is non idle. As you know, all of the Hotel, cargo and other diversification activities do not have a specific relationship to passengers. So as passengers go increase going forward, it will not necessarily have an impact in the total nonair revenue. But On the commercial revenue per box level, we do expect to continue to see increases.

Speaker 3

We have For example, in this year, to open new outlets in the areas that are going to be inaugurated in the Monterrey Airport and the Ciudad Juarez Airport. So that will continue to provide a boost to our commercial revenues per packs in the next quarters. Thank you. And with respect to restrictions, yes, I believe the law establishes That in order for a foreign company to acquire more than 50% of the or 51% of the shares Of concessionaire, certain special permits need to be obtained by the Foreign Investment Commission. So that would be a process that would need to be carried out with that authority.

Speaker 7

Great. Thank you. And just An extra hue, if I may squeeze it in. You've been now with Vansy for a full quarter operating. Just wanted to get your Just kind of an informal feedback on how is that coming in different commercial areas working together or Any synergies that you've seen over the quarter?

Speaker 7

And how is that working out? Thanks.

Speaker 2

Yes. It has been very positive. There's a lot of synergies where they have been adding value. Obviously, we're leveraging a lot of their platform in terms of Yes, permanent design, non aero revenues, relationship with airlines, route development, our DNAs And both companies are very similar, so it has been a relatively easy integration.

Speaker 7

Great. Thank you for the color.

Operator

Thank you. Our next question comes from Alberto Valerio with UBS. Please proceed with your question.

Speaker 1

I would like to know about tariffs. We just see an increase real increase in this quarter. And we also see some pressure from the press for the tariffs in the airport recently. So I'm wondering how can we expect further increase? You just mentioned you were at 95%

Speaker 3

Hi, Alberto. So yes, as we're mentioning, We were targeting around a 95% recovery This year next year, I mean, we shall see what the impacts are with respect to inflation. There are some factors That do affect or benefit the recovery of maximum tariff, which include, for example, the FX rate movements or the growth The different growth in different airports that have different levels of charges. So I think that towards the end of the year, we'll make a decision Towards any further adjustments. But at this time, we're thinking of this 95% recovery for the year.

Speaker 1

Okay. And in terms of CapEx, if I may do one more. What do you expect This year in terms of full CapEx and if you are looking abroad, Mexico, airports for a potential expansion in the future. That's my 2 questions. Thank you.

Speaker 3

So full CapEx execution, and this includes both investments in concession assets As well as major maintenance execution should be around the EUR 3,500,000,000 level. And with respect to potential M and A activity, I think that any Pension outside Mexico will be first analyzed by VINCI Airports and not Certainly to be performed through OMA.

Speaker 1

Fantastic. Makes sense. Thank you very much.

Operator

Thank you. Our next question comes from Bruno Marien with Goldman Sachs. Please proceed with your question.

Speaker 1

Thank you. I actually have 3 questions for you. The first one on the outlook on the regulatory side. The question is actually unrelated with the potential changes Just wanted to understand where do we stand vis a vis the prior forecast made at the time of the last revision. Correct me if I'm wrong, but I guess your last revision happened at the end of 2020 during the pandemic.

Speaker 1

So traffic Those were pretty much depressed. We saw a sharp rebound over the past couple of years. So the question is, where do we stand now? Because this is what The forecast at that moment for traffic in early 2023, is the company running above, in line or below? And also could you please confirm if at the moment when you had the revision In MGP, at the end of 2020, the level of interest rates that were used as a proxy for risk free and then for the calculation of the So that's kind of the first question.

Speaker 1

The second question on reassuring, can you share with us evidence of impact On your traffic or inactivity around your main airports coming from Yes, sure. Do you think it's already material impacting traffic? Should we expect more impact going forward? And then the third question is just a clarification. Can you please let us know why you I've not been able to run closer to the maximum tires.

Speaker 1

Why not running closer to 100%? What prevents the company from being, let's say, more in line with the ceiling in terms of the tariffs? Thank you so much.

Speaker 3

So Bruno, Those are your questions, not necessarily in the order you presented them. But with respect to near shoring evidence, I mean, we have seen some news. There was a big announcement of a major electric vehicle manufacturer That we'll have a significant investment in the Monterrey area and some other announcements by other foreign companies to establish presence around the Monterrey area. So right now, that is the type of evidence that it's being Given publicly, obviously, as time passes and that investment starts announced Investments starts to translate into direct foreign investments. I mean, we'll probably be able to present more hard data on that.

Speaker 3

But what we do see is an increase primarily in our Monterrey and Ciudad Juarez routes. As you know, Monterrey had the best performing growth in the quarter in our network, and we do believe that A lot of that is linked to the renewed interest in Monterrey as a major industrial and manufacturing center. And we have seen that since the pandemic Ciudad Juarez, well, has positioned itself as a very strong Destination for Matiladoras and other type of industrial businesses, and we that's one of the reasons we are growing our terminal capacity in Chula Juarez to attend that demand. So that's with respect to near Sure, Inc. With respect to the NBP negotiation, we It's still early in the process.

Speaker 3

We have not started to see what the potential impacts of the Different variables that affect the calculation will be, we have to submit a definitive plan to the authority in the middle of 2025 And at the end of 2025, reached a new investment program and tariff outlook for the next 5 years. So right, the current levels of interest rates to us are not will not be impactful. The interest rate formula takes the 24 month average before June of 2025. So we'll see what the average is over that time frame, which has not yet started. And in the case of our maximum tariff, Most of the reason, it's twofold.

Speaker 3

I think the larger than expected inflation that we had In 2021 2022, obviously, make us get farther away from the 90 And also, we had different passenger mix in some of our airports That do impact the average calculation. So I think that is Primarily, the impact that we have had in trying to get closer to the 100% mark in the recovery of tariffs.

Speaker 1

Thank you very much. And just a very quick follow-up. If you look at traffic now at the beginning of 2023, Is it below, above or in line with the traffic curves that you and the regulator agreed on at the end of

Speaker 3

It's slightly above, but it's not significantly above, yes.

Speaker 1

Perfect. Thank you so much.

Operator

Thank you. Our next question comes from Lucy Romiz with Compass Group. Please proceed with your question.

Speaker 8

Hi, good morning. Thank you for taking my question. It's Just a quick follow-up on what you've been talking about the maximum tariff, but I just want to ask What was the year over year increase that you made this trimester in tariff?

Speaker 3

Hi, Lucie. So the increase that we implemented in the Quarter of this year was in the double digit area.

Speaker 8

Okay. Thank you. And is it fair to assume that maybe moving forward on the next quarters we could see similar not maybe not double digits, but similar increases?

Speaker 2

I think that will depend on how inflation behaves and how far away We're from the 100%. So that decision will be taken somewhere around the second half of this year.

Speaker 8

Okay. Thank you.

Operator

Thank you. Our next question comes from Anton Morte Corto with DBN. Please proceed with your question.

Speaker 9

Hi, guys. Thank you for the call and Congrats on your results. I just have a quick follow-up on Rodolfo's question regarding VINCI's involvement in the company. Could you provide some more detail on any Project initially for an example to help us better understand how you're leveraging from VINCI's expertise and how it is expected to possibly The business?

Speaker 2

Sure. I mean just to give you a few examples in The design of our new terminals, they operate in 70 airports around the world. So they know what has worked in other countries, what hasn't So there's a lot of information to leverage there. There's a lot of relationships that we can lever, for example, with potential suppliers. They have more purchasing power with a lot of them.

Speaker 2

We are able to get on that to get the benefit of that. They talk since they have 70 airports around the world, they have conversations with basically every airline around the world or most airlines around the world. That's a great opportunity for us to have access to the right people and try to bring some attention into Ooma and potentially open some new routes. Same thing in non aero business, They also have the knowledge and they have a team of specialized people in each field in their Paris We're currently tendering some non narrow retail space. Most of the retail companies Competing for those for that space.

Speaker 2

They previously have relationships with them. They know and they give us a very You're better negotiating power with them.

Speaker 9

That's pretty clear. And just another one related to that. Just on the law reform, the aeronautical one, I mean, I understand there's no significant impact on you guys. Just wondering if there is Back operationally wise from the involvement of Savenas in the industry?

Speaker 3

Not well, the law does permit governments to both operate Airlines and airports at the same time, which under the previous law was prohibited. So I believe that From a theoretical standpoint, yes, some Serenna or the Navy could operate airlines and airports at the same time. But in our airports, there is no additional activities or oversight contemplated by the Cielo.

Speaker 9

Super clear. Thank you.

Operator

Thank you. Our next question comes from Fernando Rocha with BTG. Please proceed with your question.

Speaker 8

Hi, good morning everyone. Thank you for taking my question. I have 2 on my side. The first one is still on tariff. When we compare Monterrey to us with other airports, Monterey has one of the highest to us.

Speaker 8

And considering your speech regarding still increasing tariff along this year and your exposure to Veeva, which is a neutral low cost carrier, just wanted to understand if you are thinking of Providing any kind of discount for airlines that have higher route frequencies in Monterrey Or how do you think of this high exposure to VIVA in this scenario of high to us? And my second one regarding Monterrey Airport, just wondering if you have any plans maybe to anticipate

Speaker 3

So with respect to a potential second runway In Monterrey, yes, it is contemplated in the final stages of the development of the airport. So That was not post 2,035. So it's nothing that we are currently, I mean, analyzing or starting to discuss, and certainly no works We'll be done in the next few years in that regard. But I mean towards the latter part of the concession, yes, depending On the traffic outlook, a second runway may be needed to continue supporting the growth of Guenter Bay. And with respect to our Monterrey airport and our exposure to Viva, as you know, Viva has around a 40% market share in all our Airports, it's the highest market share that we have, followed by Volaris and Aeromexico.

Speaker 3

And our incentive policy is general, so we cannot discriminate 1 airline versus others, and they are based on new routes, openings and things like that. So no specific policy with respect to an airline is going to pay.

Speaker 8

Great. Thank you.

Operator

Thank you. There are no further questions at this time. I would like to turn the Floor back over to Ricardo Duenas, Chief Executive Officer for closing comments.

Speaker 2

Thank you all for your participation today. Rufo, Manuela and I are always available to answer your questions and we hope to see you soon. Thank you and have a good day.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your

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