Grupo Aeroportuario del Centro Norte SAB de CV
BMV:OMAB
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Grupo Aeroportuario del Centro Norte SAB de CV
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Greetings, and welcome to the Grupo Aeroportuario del Centro Norte First Quarter 2021 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to your host, Emmanuel Camacho. You may begin.
Thank you, Ishmael. Good morning, everyone. Thank you for standing by. Welcome to OMA's First Quarter 2021 Earnings Conference Call. Ricardo Duenas, OMA's CEO, Ruffo Perez Pliego, CFO, will be joining this morning and will discuss OMA's first quarter 2021 results. 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, which include the impact of COVID-19. I will now turn the call over to Ricardo Duenas.
Thank you, Emmanuel. Good morning, everyone, and thank you for joining us today. I hope that all of you and your families are safe and healthy. This morning I will review the evolution of our business as well as our first quarter performance. But before starting our discussion, I would like to highlight a couple of recent milestones and events. First of all, on April 16, we successfully completed our MXN3.5 billion issuance in the Mexican market through 2 tranches issued jointly. One of these tranches was placed as a green bond, and I am proud to say that we have become the first airport operator to place a green bond in the Mexican market and the only one with an outstanding green bond in Latin America.
The majority of proceeds from the green bond will be used on solar energy projects and energy efficiency projects throughout our airports as well as other projects that reduce energy consumption. Proceeds from the second tranche were used to prepay, on April 19, MXN3 billion of our long-term notes issued in 2014. Additionally, on April 21st, we held our 2021 Annual Shareholders Meeting where shareholders approved, among other matters, the declaration and payment of a cash dividend to shareholders up to MXN2 billion and delegated to the Board of Directors the power to determine the amount to be paid out, which will come from any accumulated earnings as well as the date or dates and forms of payment. The declaration of this dividend will become effective as of the date the Board makes its determination.
Turning to our passenger performance during the first quarter, in January and February, the recovery trend that we had experienced since June of last year came to a pause. Events such as the second wave of contagions after the year-end holidays, the suspension flights from Canada since January 26th, and the requirement of negative COVID-19 tests by the U.S. of incoming travelers had an impact in air travel. In February, the level of contagions began to recede and epidemiological alerts levels in the country decreased as well. In March, passenger traffic showed clear signs of faster recovery with a sequential increase of 53.4% as compared to February 2020 firsts. Currently, of the 9 states where OMA has operations, one state is in orange status, 7 states are in yellow, and one is in green. We expect passenger traffic to continue its recovery path in the following months as contagion levels decrease and the health alert levels in the states where we operate and those of our main destinations, allow for an increased mobility and economic activity.
At the end of March, a total of 128 origin-destination routes were in operation compared to the 140 at the end of December 2020 and 183 routes in operation at the end of December 2019. On the cost and expense side, our actions taken in previous quarters resulted in an important decline in cost of airport services and general and administrative expenses of 11%, mainly driven by lower security and cleaning costs, minor maintenance and payroll expense. At March 31, our cash position was MXN3.2 billion. We believe that our cash position, along with cash generated from operations, will allow us to meet our investment and operating obligations for this year.
Turning to our first quarter operational results. Total passenger traffic reached 3 million in the quarter, resulting in a decline of 38% versus the first quarter of 2020. The best-performing airports, which had the lowest decline in passengers in recent -- in percentage terms compared to the first quarter of '20, were Culiacan, Ciudad Juarez, Reynosa, Chihuahua and Mazatlan. From a route perspective, the route that experienced the greatest negative impact on total passenger traffic during the quarter due to the reduction of capacity, are Monterrey and Culiacan under Mexico City routes and Monterrey on Guadalajara routes. Adjusted EBITDA reached MXN808 million in the quarter with a solid margin of 6.9%. On the commercial front, revenues decreased 38%, with the largest impact on parking, restaurants, car rentals and retail. Occupancy rate for commercial space in our terminals was 87% at the end of the quarter. During the quarter, we continued to support our tenants through a new discount program based on passenger traffic performance. Diversification revenues decreased 16%, mainly due to lower revenues from hotel services. During the first quarter of 2021, the occupancy rate of our Terminal 2 NH Collection Hotel was 53%, while the Hilton Garden Inn Hotel at the Monterrey airport had an occupancy rate of 34% during the quarter. OMA Carga delivered an outstanding performance during the quarter with an increase in tonnage handled of 27%, which resulted in a revenue increase of 30%. Air import cargo operations contributed most to this growth in the quarter.
Total investments, including MDP investments, major maintenance and strategic investments were MXN360 million in the quarter. Some of our major projects underway include the expansion and remodeling of the Monterrey Airport Terminal A, expansion and remodeling of the Tampico Terminal Building, expansion and remodeling of the Ciudad Juarez terminal building, modernization of the Zihuantanejo terminal building, and works on runways, taxiways and aviation platforms in several airports. I would now like to turn the call over to Ruffo Perez Pliego, who will discuss our financial highlights for 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 decreased 31.6%, driven by the 37.8% decline in passenger traffic. Non-aero revenues decreased 27.8%, with commercial revenues having the largest impact. Commercial revenues decreased 37.8%. The categories with the largest impact were parking, restaurants, car rentals and retail. Parking revenues declined 43%, and the decrease is mostly driven by a slower recovery in the Monterrey airports relative to the average of the other airports. Restaurants, car rentals and retail decreased 45.5%, 13.6% and 44.4%, respectively, due to the decrease both in fixed rents and participations on sales.
Diversification activities decreased 15.8%, mostly driven by lower revenues from hotel services, which were partially offset by an increase in revenues of OMA Carga and the industrial park of 29.9% and 40.2%, respectively. Total aeronautical and non-aeronautical revenues were MXN1,190 million. Construction revenues increased 62.0%. This is a noncash item that is required under applicable accounting standards, and it has no impact on earnings. The cost of airport services and G&A expense decreased 11%. During the quarter, we recorded savings on subcontracted services and payroll expenses, mainly as a result of the initiatives implemented to reduce costs during 2020. Additionally, minor maintenance costs decreased 28% as a consequence of deferrals of nonessential works.
OMA's first quarter adjusted EBITDA reached MXN880 million, and the adjusted EBITDA margin was 67.9%. During the quarter, we recorded an increase in the major maintenance provision of 63.8% to MXN78 million. This reflects increased future major maintenance works under the new NDP that was approved by the authority last year. During the quarter, our financing expense was MXN33 million and consolidated net income was MXN416 million. Cash generated from operating activities in the first quarter amounted to MXN736 million, and cash at the end of the quarter reached MXN3.2 billion. As mentioned before, following the issuance of the MXN3.9 billion 5 and 7-year debt securities, OMA prepaid the OMA 14 bonds with a principal amount of MXN3 billion. As a result, the maturity profile of OMA's debt was extended with a net significant maturity due until March 2023 in the amount of MXN1.5 billion. This concludes our prepared remarks. Shinali, please open the call for questions.
[Operator Instructions] Our first question is from [ Alan Garcia] (sic) [ Alan Macias ] with Bank of America.
Just 2 quick questions. I guess the first one is if you can tell us what percentage of your maximum tariffs did you reach during the quarter? And what percentage do you expect to reach during the year? That would be my 2 questions.
We expect that for the full year, the maximum tariff recovery will be around 95% on average for some airports. In the first quarter, it was slightly lower than that, given that the increase in tariffs that we implemented occurred in the middle of February. So basically, you have half of the quarter with the effect of the tariff increase to passengers and to airlines, and we will see that impact going forward for the full quarter. So that's why overall for the year, it would be better than in the first quarter. Just be mindful that the price -- tariff increases that we implemented was about half of the tariff increases awarded last year under the MDP revision. So we would expect to reach close to 99% recovery of the maximum tariffs towards the first quarter of 2022 when we pass through the other half of the increase.
And our next question is from Alejandro Zamacona with Crédit Suisse.
Hi, Ricardo. Hi, Ruffo. Hi, Emmanuel. I guess my question is, what's the latest on the potential tender offer from Fintech? I understand that this is an external topic to OMA, but I also understand that the Best Practices Committee at OMA must assess the offer to give their opinion to the Board, so any color around this would be very useful.
Thank you, Alejandro, for your question. We don't have any additional information other from the one that we published on December last year. The one that mentioned that Fintech had the intention of acquiring up to 40%, that's an additional 25%. But since then, we don't have any additional information at the moment.
Okay, Ricardo. And just my second question if I may, on the domestic airlines, I understand that Interjet was a relevant airline for OMA's traffic. So the airline has stated their intention to restart operations, although they are also starting Chapter 11 process. So have you had any discussions with the airline to restart operations in the near future?
Thank you, Alejandro. Yes, it's true Interjet mentioned yesterday that they are going to Chapter 11. We don't believe there's any impact for OMA. First of all, they stopped having operations in December last year. They didn't have any route that was covered only by themselves. So the impact has been the seats that they have been releasing. The competition has absorbed them really rather quickly. So even though Interjet had an exposure to OMA around 11%, it hasn't been material because the other airlines have captured all the seats available. And the second part is we didn't have any exposure to Interjet, any economic exposure to Interjet.
Our next question is from Pablo Monsivais with Barclays.
I just want to pick your brain on the announcement of Volaris Aeromexico of its split expansion going forward. We're seeing that the Mexican market has recovered quite strongly. Have you talked to Aeromexico and Volaris already under expansion plans? And how active have you been with this airline team trying to open new routes or what type of market do you think they can work with you to use that new fleet that is entering the market?
Sure. We have continuous dialogue with the main airlines in Mexico, including Volaris and Aeromexico. Certainly, in our airports, the recovery has been driven primarily by VivaAerobus relative to Volaris and Aeromexico, so we welcome this type of news. We have not yet discussed any specific routes where they can deploy this capacity. But certainly, it's positive for our airport group that they have excess capacity going forward. We still have to deploy it somehow. So we would expect a faster recovery in the second half of the year of these 2 airlines relative to what they have been doing since the pandemic started with us. But at this time, we have not yet identified specific routes where they can increase their offerings.
Our next question is from [ Edson Murjua ] with [ Somerset ].
The first one is regarding on your expectation about the recovery. Last quarter you mentioned that you expected the recovery through 2022. But it seems that even airlines and a couple of minutes ago, Buoyant mentioned that they expected through 2023 or maybe 2024. So I was wondering if you can give us more color about that. And the second one is regarding your construction costs. Are we going to see an increase during 2021, more likely like we have seen in this quarter?
Let me start with the second part of your question on construction works. More or less, around 300 million per year, slightly higher perhaps, is going to be major maintenance works, which does not flow through the construction income or cost. So in order to reach our 2.5 billion commitment, more or less for the full year construction costs would have to amount around MXN2 billion. So for the next quarters, you would have to see an increase so that we get closer to that MXN2 billion mark on construction income and construction works. Then regarding the recovery in traffic, I think that our base case is that we would reach pre-pandemic levels around 2023. We actually think there might be upside to this timing because of our larger exposure to domestic travel as opposed to international traffic. But I think it's an expectation to, original expectation, to believe that in 2023 we would be reaching the pre-pandemic levels.
And our next question is from Andressa Varotto with UBS.
I just have a follow-up on the traffic question. In March, you saw better traffic levels than in the first month of the year. If you could tell us like if there was already some recovery of already seeing some recovery of corporate traffic or not yet? And my second question is actually regarding some recent news in the Mexican threads about a potential downgrade of Mexico by the FAA to category 2. So I'd like to just have like a clarification on that. It seems like more of procedural issue, or I mean there is a potential negative impact expected there?
So the line was a little bit noisy, but just regarding your first question, it's regarding the corporate travel recovery?
Yes. If you already started to see that in March, there was a positive rebound in traffic than in the first months of the year?
Not yet. March, certainly, there was a benefit of having the Easter holiday falling in the last week of March and the first week of April. So for example, in the case of our Monterrey airports, the routes that experienced growth was the Monterrey-Cancun airport, sorry, the Monterrey-Cancun route. Whereas the Monterrey-Mexico City continues to have significant declines year-on-year. So we have seen the recovery in domestic leisure routes. We have seen recovery in VFR routes, such as for example, Culiacan Tijuana or Chihuahua Tijuana. But the corporate travel has yet to recover. We would expect the corporate demand that we serve, which is to a large extent what we call as a blue-collar corporate travel, being more linked to the recovery of industrial production and clearer GDP growth. But right now, leisure and VFR is what's driving the recovery. And as for our expectations for the FAA audit, it is in process right now. We are -- it is a sensitive issue for the industry. Actually, this morning, the Director of the [ IFAC ] came out saying that he's very confident that we won't lose Category 1. So we stick to that and we think we're positive that we are going to come out from this audit in good terms.
Our next question is from Gabriel Himelfarb with Scotiabank.
Just a quick question. Can you give us a bit of color about the ports that you have been giving to tenants and how they have been affecting your commercial revenue?
Sure. We had a program that started in the second half of last year, with discounts based on the percentage decline of traffic in the OMA airports. We introduced discussions with tenants in January and February and perhaps plus until March when we reached an agreement with the major tenants, not necessarily all, to extend that program. However, the terms of the program now have a lower percentage decline than the previous program in last year. And it would be our expectation to phase out these support programs over the second quarter of this year. If we hadn't had the discounts in the first quarter, our commercial revenues would have probably been about 7% higher than we reported.
[Operator Instructions] And our next question is from [ Juan Ponce ] with Bradesco.
Thanks for taking the question which is more on the legislative side. The Mexican Congress recently passed a bill that will prohibit outsourcing and insourcing, except for qualified specialized labor. What do you think is the potential impact on operating expenses, if any?
Thank you, [ Juan ], for the question. We have been working on it, and it's still work in progress. We know that some of our services that we currently have today like cleaning and security will still be considered as outsourcing. We're still working on the analysis, but we believe the impact on the cost side of OMA will be nonmaterial.
And we have reached the end of our question-and-answer session. I will now turn the call over to Ricardo Duenas for closing remarks.
I want to thank all of you again for participating in this call. Ruffo, Emmanuel and I are always available to answer your questions and we hope to see you soon. Thank you very much and have a good day.
This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.