Grupo Aeroportuario del Centro Norte SAB de CV
BMV:OMAB
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
140.53
189.26
|
| Price Target |
|
We'll email you a reminder when the closing price reaches MXN.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Grupo Aeroportuario del Centro Norte SAB de CV
You don't have any saved screeners yet
Greetings. Welcome to Grupo Aeroportuario del Centro Norte OMA First Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded.
I'll now turn the conference over to Emmanuel Camacho, Investor Relations officer. Mr. Camacho, you may now begin.
Thank you. Good morning, everyone. Thank you for standing by, and welcome to OMA's First Quarter 2019 Earnings Conference Call. We have today Ricardo Duenas, OMA's Chief Executive Officer; and Ruffo Pérez Pliego, Chief Financial Officer. We will be discussing OMA's first quarter 2019 results announced yesterday.
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 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.
I will now turn the call over to Ricardo Duenas.
Thank you, Emmanuel, and good morning to everyone. Thank you for joining us today. I will start by briefly reviewing our first quarter operational results.
OMA delivered sound financial and operating results in the first quarter of 2019. Adjusted EBITDA grew 18.4% in the quarter and adjusted EBITDA margin reached an all-time high of 72.6%, largely as a result of the increase in both aeronautical and non-aeronautical revenues as well as cost-cutting initiatives. The cost-cutting initiatives implemented last year and aimed at reducing overhead expenses were to our performance resulting in a decrease of 6.6% in cost of airport services and G&A during the quarter, with decreases in most line items.
Our cash flow generation was strong, with 3-month cash flow from operations reaching MXN 1.1 billion. This enabled us to fund our Master Development Program and strategic investments out of funds from operations.
OMA has now delivered 37 consecutive quarters of growth in aeronautical and non-aeronautical revenues and 31 quarters of adjusted EBITDA growth. Passenger traffic reached 5.1 million passengers in the first quarter, up 4.3%. 8 airlines increased passenger volumes. The largest contributions to growth came from Volaris and VivaAerobus.
Total available seats increased 5.3%, as airlines have deployed more capacity and increased frequencies, particularly on the highest volume routes. On our single highest volume route Monterrey-Mexico City, total available seats grew 17% compared to the first quarter of 2018.
On 4 other high volume routes in the quarter, Monterrey-Cancún, Monterrey-Guadalajara, Culiacán-Tijuana and Chihuahua-Mexico City, the total available seats grew a combined 16% versus the first quarter of last year. Additionally, airlines opened 11 routes in the quarter, while 4 closed.
On the commercial front, we implemented 14 initiatives in the quarter, including bank services, passenger services and car rentals primarily. Commercial revenue grew 20%, and occupancy rate for commercial space in our terminal was 99%. Diversification activities delivered a solid performance with revenue growth of 9%, driven primarily by increases in OMA Carga and the Industrial Park.
Total investment in the quarter, including Master Development Program investments, major maintenance and strategic investments, were MXN 241 million. Major projects underway include a new passenger terminal building in Reynosa, expansion and remodeling of the Chihuahua and San Luis Potosí terminal buildings, construction of remote commercial aviation platforms in Monterrey, works on runways, taxiways and aviation platforms in several airports and construction and expansion works at our Industrial Park.
The Chihuahua and Reynosa terminal projects are scheduled to be completed in the third and fourth quarter of this year. These passenger terminal projects will enable OMA to provide better services to our clients, improve the passenger experience and increase our leasable commercial space. We expect that these investments will help OMA continue on our path of higher aeronautical and non-aeronautical revenues.
Finally, I would like to highlight that we will celebrate our annual meeting next Monday, where a cash dividend of MXN 1.6 billion or MXN 4.06 per share is being proposed. And if approved, it will be paid in a single installment next month. The meeting will also vote on increasing the share purchase reserve to MXN 1.5 billion. I invite all shareholders to respond to the meeting call and attend or be represented at the meeting on April 29.
I would now like to turn the call over to our CFO, Ruffo Pérez Pliego who will now discuss our financial highlights of the quarter.
Thank you, Ricardo. Good morning, everyone. I will briefly review our financial results, and then we will open the call for your questions.
Turning to OMA's first quarter financial results. Aeronautical revenues increased 10% mainly because of passenger traffic growth. Aeronautical revenue per passenger rose 5% in the quarter, while non-aeronautical revenues rose 13% with commercial revenues making the largest contribution to growth. Commercial revenues increased 20%. The best performing categories were parking, advertising, car rental and restaurants.
Parking revenue was up mostly because of higher volume of operations and increased stay at the Monterrey, Ciudad Juárez, and Chihuahua airports as well as additional capacity at the Reynosa airport. Advertising revenues grew 53% as a result of a new contract agreement signed in October of 2018. Car rental revenues rose 17% because of the leasing of 25 new rental locals throughout 2018 and improved contractual terms.
Diversification activities grew 9%, mostly driven by revenues from OMA Carga and Industrial Park. Total aeronautical and non-aeronautical revenues reached MXN 1.7 billion in the quarter. Construction revenue decreased 45%. This is noncash item that is required under applicable accounting standards. It is equal to construction cost of improvements to concession assets, so it has no effect in earnings.
OMA's initiative to reduce overhead expenses implemented throughout 2018 were also a major contributor to our results in the first quarter. The cost of airport services and G&A expense decreased 7%. During this quarter, we had 13% reduction in subcontracted services and a 6% decrease in payroll as a result of reductions in professional fees and corporate payroll expenses primarily.
The impact of implementation of IFRS 16 resulted in a reduction in rent expense in 1Q versus 1Q '18 of MXN 9.7 million, including the cost of hotel services. OMA's first quarter adjusted EBITDA increased 18% to MXN 1.3 billion. And the adjusted EBITDA margin was 72.6%, up 471 basis points. Primarily as a result of all these factors, consolidated net income rose 25% to MXN 760 million.
Our cash flow generation from operations was also strong. Total cash from operating activities rose 42% to MXN 1.1 billion during the quarter. This principally reflects the strong operating performance of the company. This concludes our prepared remarks.
Rob, please open the call for questions.
[Operator Instructions] First question comes from the line of Mauricio Martinez with GBM.
We have seen cost cutting for quite a long, and this is -- this turnaround particularly started at the end of 2017. We felt that in this year, it will normalize, something that this quarter did not happen. So I was wondering if you can share with us what are the main initiatives the company is undertaking to continue with such improvements, when do you expect it to normalize and if there is any sort of targets for your EBITDA margin going ahead?
Sure. This is Ruffo. We did implement several initiatives during 2018. Most of them started to be implemented in the second quarter of 2018. So the first quarter still reflects a high base -- cost base of comparison.
Starting second quarter, we should see more normalized levels of year-on-year growth in our cost and expenses. Related to our target EBITDA margin, we believe it's sustainable to target a 71% to 72% margin for the full year and going forward.
Great. And my second question, if I may, it's regarding the construction front. I mean, it would be very helpful if you give us an update. I mean, I'm aware that you gave some updates in your remarks about the Chihuahua and Reynosa terminal, but maybe if you can give us an update on the expansions and new terminals that are to be completed in the remainder of the current MDP, that would be great.
Yes. We currently are in the final stages of the Reynosa and Chihuahua and San Luis Potosí investments. These, as Ricardo mentioned in the call, should be completed in third quarter last part of this year.
Starting in the second quarter of 2019, we will begin with 2 major projects. The most important one is the expansion of Terminal A in Monterrey airport. This is a project that consists of several stages and should account for most of our MDP investments for 2019 and 2020.
We'll also start an expansion of the Tampico terminal, which should also be operational by 4Q of 2020. And those 2 projects are the most important ones in terms of terminal expansions. We will also have some major maintenance works in certain runways, specifically the Zihuatanejo, Chihuahua, and I think that's it in terms of major runway renovations.
But going back to Monterrey, this is a key project for us, since it will improve significantly the space in -- that some airlines have right now for operations, and we think that passengers will have a more comforting visit to the airport that will also result in improved commercial revenues for us.
Also just to add up, this -- all this -- all those projects are in line and in compliance with our Master Development Program that we closed for this 5-year plan.
The next question comes from the line of Alan Macias with Bank of America.
Just one quick question on traffic. Are you still thinking of being able to deliver, I guess, around 6% to 7% year-on-year traffic growth for this year? Is that still feasible?
Yes, that is still our objective, and we believe it's reachable. As we mentioned in the call or in the press release, 11 routes opened in the first quarter. Just in April, an additional 4 new routes also were opened. And from April to October of this year, we have confirmations of new routes being opened by airlines that are already started to being sold in systems for 22 new routes, of which as I mentioned, 4 are already opened in April.
So I believe these new routes as well as the organic growth in our existing core set of routes are primarily the ones we mentioned in the call, the Monterrey to Mexico City, the Monterrey to Cancún, the Chihuahua-Mexico City, et cetera. The organic growth of those routes will allow us to achieve the 6% to 7% target for this year.
Just to add on, most of the growth for this year will be coming from the low-cost carriers. And we believe we're well positioned to absorb that traffic.
The next question is from the line of Alejandro Zamacona with Crédit Suisse.
My first question is a follow-up question on the cost of service. I don't know if you believe it, if there is more space to continue cutting labor expense without affecting the level of service in the airports?
I think the current levels are where we plan to stay. Obviously, as the quarters will pass, we will face inflationary increases. But we do not expect further cuts in this line item.
If it was a cut on -- I mean, less compensation, I mean, the cut of labor expense was by less compensation of or well driven by less employees?
No. Most of it has come from -- we have been optimizing the shifts from the people working in our airports. So we have -- for example, the extra hours that some of the airports have been paid, we've been adjusting that by just optimizing the shifts. So we've been more efficient just managing the hours of our personnel.
Okay.
At the airport level and also as we mentioned in previous calls, that we did have in the corporate overhead adjustments to head count.
The next question comes from the line of Andrés Nieto with Signum Research.
I have 2 questions. The first one is regarding the new norms about the rent.
I'm sorry, Could you repeat that last part?
Yes, sure.
Rob, we are unable to listen to the question.
Next question is from the line of Marcos Barreto with Citi.
Just a couple of them. First, we've heard about both complaints from the airlines about higher landing fees. Could you give us a little color of what happened there, your response to that?
And my second question is if you could give us a little bit more detail on what happened with the working capital this quarter? I thought it was a strong benefit to operation -- -- to the CFO. And also the new publicity contract that benefited the commercial revenues, if you could give us a little bit more detail about that.
Sure. Starting from your last point. Advertising contract with a new operator was signed in October of last year. And it had a transition period, and it fully kicked in, in January of this year. The levels that we saw in 1Q in terms of advertising revenue, I think, are in line with our annual targets of around MXN 80 million of total revenues in that line item. And we expect, if you visit our airports, improvements in the type of advertising more digital, and more modern spaces for advertising, that's what we used to have until a few months ago. So that is still work in progress, but the contract is performing currently well.
In terms of our working capital, we have maintained a very healthy receivables portfolio. And even with the increase in revenues and in operations, we are facing current performance from all of the airlines. And that has helped the receivables to be very healthy. And also the EBITDA generation overall in the quarter was very strong. So cash flow from operations benefited from that front.
And finally, with respect to your first questions regarding landing fees, we, for several years since I believe 2004, 2005, have entered into agreements with the local airlines association called CANAERO. And under those agreements, we increased by inflationary terms, our airport fees every year. So it is something that has been going on for several years that we have agreed upon with CANAERO, and we believe our airport fees are competitive in the region.
There are no additional questions at this time. I would like to turn the floor back to Ricardo Duenas for any closing remarks.
Well, thank you. Thank you, everyone, for being in the call. Just to remind you that our CFO, our Investor Relations department and I are always welcome for available and additional questions. And we hope to see you soon at our offices in Monterrey. Thank you all, and have a good day.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.