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 OMA teleconference. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Emmanuel Camacho. Please go ahead, sir.
Thank you, Kevin. Good morning, everyone. Thank you for standing by, and welcome to OMA's Second Quarter 2019 Earnings Conference Call. We have today Ricardo Dueñas, OMA's Chief Executive Officer; and Ruffo Pérez Pliego, Chief Financial Officer. They will discuss OMA's second 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 Dueñas.
Thank you, Emmanuel. Good morning, and thank you for joining us today. This morning, I will review our second quarter operational performance.
OMA delivered another solid financial and operating performance in the second quarter of 2019. Adjusted EBITDA grew 22.4% in the quarter, and adjusted EBITDA margin reached an all-time high of 73.9%, largely as a result of the increasing both aeronautical and nonaeronautical revenues, which grew as a consequence of the performance of passenger traffic during the quarter as well as cost efficiency.
The cost control initiatives implemented last year, mainly aimed at reducing overhead expenses, continued to be to our performance, resulting in an increase of only 3% in cost of airport services and G&A during the quarter. Our capital generation was strong, with 6 months cash flow from operations reaching MXN 1.7 billion. This enabled us to fund our Master Development Program, strategic investments and a cash dividend paid to shareholders out of funds from operations. OMA has now delivered 38 consecutive quarters of growth in aeronautical and nonaeronautical revenues and 32 quarters of adjusted EBITDA growth.
Passenger traffic reached 6 million passengers in the second quarter, up 10.7%. Nine airlines increased passenger volumes. The largest contributions to growth came from Volaris and VivaAerobus.
Total available seats increased 8.2%, as airlines deployed more capacity and increased frequencies on both touristic routes and the some of the highest volume routes during the quarter. On our 5 most important routes, Monterrey-Mexico City, Monterrey-Cancún, Monterrey-Guadalajara, Culiacán-Tijuana, Chihuahua-Mexico City routes, the total available seats grew a combined 5% versus second quarter of 2018. If we take our 10 most important routes, total available seats grew a combined 9% in the same period. It is also worth noting that in the Acapulco-Mexico City routes, which is our 8th most important route, total available seats grew 46% compared to the second quarter of 2018. Additionally, airlines opened 11 routes in the quarter, while 1 closed.
On the commercial front, we implemented 16 initiatives in the quarter, including bank services, hotel promotions and car rentals primarily. Commercial revenues grew 20%, and the occupancy rate of commercial space in our terminal was 99%. Diversification activities delivered a solid performance, with revenue growth of 7%, driven primarily by increases in hotel services and the Industrial Park.
Total investment in the quarter, including Master Development Plan investments, major maintenance and strategic investments were MXN 269 million. We expect capital expenditures to accelerate in the upcoming months as we already have started works on the following major projects during the quarter. Expansion of the public area in the Monterrey Airport Terminal A; expansion of Terminal C in Monterrey; expansion and remodeling of the Tampico terminal building and a modernization of the Zihuatanejo terminal building. Also 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 and work on runways, taxiways and aviation platforms in several airports. I am also glad to announce that the new Chihuahua and San Luis Potosí terminal projects have been completed and are scheduled for inauguration in August.
These passenger terminal projects will enable OMA to provide better services to our airline clients, improve the passenger experience and increase our leasable commercial space. We expect that these investments will have OMA continue on our path of higher aeronautical and nonaeronautical revenues.
I would now like to turn the call over to Ruffo Pérez Pliego, our CFO, who will discuss our financial highlights for the quarter.
Thank you, Ricardo. Good morning, everyone. I will briefly review our financial results. Then we will open the call for your questions.
Turning to OMA's second quarter financial results. Aeronautical revenues increased 18%, driven by the 11% growth in passengers. Aeronautical revenue per passenger rose 7% in the quarter. Nonaeronautical revenues rose 14%, with commercial revenues making the largest contribution to growth. Commercial revenues increased 20%, and the best performing categories were car parking, restaurants, car rentals and advertising.
Parking revenue was up mostly because of higher volume of operations and an increased average ticket per user, mainly in the Monterrey, Ciudad Juárez and Chihuahua airports. Restaurant revenues grew 20%, as a result of higher revenues from royalties in Monterrey, Ciudad Juárez and Mazatlán as well as the beginning of operations of restaurants in our commercial spaces in Monterrey, San Luis Potosí and Acapulco airports.
Car rentals increased 18% because of the leasing of 17 new rental locals in the last 12 months as well as improved contractual terms. VIP lounges grew 54% due to a higher number of users in the existing lounges as well as the openings in Acapulco, San Luis Potosí and Terminal B in the Monterrey airport lounges. As a result, commercial revenues per passenger increased 8.4% to MXN 38.8. Diversification activities grew 7%, mostly because of revenues from the hotel services and the Industrial Park.
Total aeronautical and nonaeronautical revenues reached MXN 2 billion. Construction revenues decreased 32%. This is a noncash item that is required under applicable accounting standards, and it is equal to construction cost of improvements to concession assets. So it has no effect on earnings.
OMA's initiatives to control overhead expenses implemented throughout 2018 continued to bear fruit in the second quarter. The cost of airport services and G&A expense increased 3%. During this quarter, we had a 13% increase in contracted services primarily because of professional services required in the period. This increase was partially offset by a lower cost of basic services such as electricity, water as well as insurance premiums. The electricity cost reflects a onetime savings of MXN 5.8 million in the quarter. The impact of implementation of IFRS resulted in a [ construction ] in rent expense in 2Q '19 versus the second quarter of 2018 of MXN 8.7 million, including the cost of hotel services.
OMA's second quarter adjusted EBITDA increased 22% to MXN 1.4 billion, and adjusted EBITDA margin was 74%, up 334 basis points. Primarily as a result of all these factors, consolidated net income increased 20% to MXN 848 million. Our cash flow generation from operations was also strong. Total cash from operating activities rose 7% to MXN 1.7 billion during the first semester. This principally reflects the strong operating performance of the company.
This concludes our prepared remarks. Kevin, please open the call for questions?
[Operator Instructions] Our first question today is coming from Alejandro Zamacona from Crédit Suisse.
My first question is related to the cost of services and mainly on the basic services [indiscernible] the decrease on the electricity cost. So please give us more details on what we can [indiscernible]
Sure, Alejandro. As you mentioned, utilities cost decreased 35% in the quarter. Of the reduction, approximately 75% was related to electricity and 25% was related to water cost. In 2Q '19, our electricity contract with a renewable energy supplier fully became operational, and this contract is -- allows to supply 70% of our consumption, at least 70% of our consumption of electricity. In the quarter, we also benefited from a MXN 5.8 million reduction that's nonrecurrent that's related to that contract for prior periods. However, I can tell you that prices under the renewables contracts is -- are about 30% lower than with the [ CFE ], and this is a long-term contract for 10 years.
With respect to water, we have reduced the consumption in the Monterrey airport from the municipal supply. And we are using water from our well -- own well supply, and this has translated into the remaining of the savings in the contracted services costs.
Okay. And just a second question, if I may, and it's regarding the EBITDA margin [indiscernible]. So going forward, do you still expect cost control momentum and moreover at what level should we expect a normalization for EBITDA margin?
So our 2Q '19 margins -- EBITDA margins were quite high. As I mentioned, we have this MXN 5.8 million onetime savings in electricity. But we also benefited from about 15, 1-5, MXN 15 million of other costs and expenses that are expected to be incurred in the second half of the year. So we believe our margin for the full year 2018 should be around 72%.
Our next question today is coming from Alan Macias from Bank of America.
Just a follow-up question on the margin previous question. Going forward, in 2020, do you think the 72% level is sustainable and any other possibility to increase the margin?
We're confident the 72% is achievable. I think there are upsides, particularly in the electricity where, if under the renewables contract the supplier fulfills 100% of our needs, that should also benefit further. As I mentioned earlier, the contract only states for 70% of our consumption. But if the supplier has excess power and we receive it, we can further reduce our electricity cost. And we are keeping a tight rein on costs as well as in overhead expenses. So -- I mean hopefully, we can increase our margin above what we stated. But I think to be conservative, we should think about the 72% margin for the year.
Our next question today is coming from Mauricio Martinez from GBM.
Congratulation on some strong results. My first question would be on the Industrial Park, if you can give us an update on the total GLA and the occupancy rate this quarter?
Yes, the Park, as we mentioned in the press release, has 6 leased warehouses as compared to 3 leased warehouses in the same quarter of last year. Currently, we have 2 5,000 square meters warehouses that have already been completed and are in the process of commercialization. So at least -- we expect at least one of those warehouses to be leased in the second half of the year.
Great. And my second question, if I may, after this very strong quarter in terms of passengers growth, are you staying with your guidance -- with your previous guidance of -- from 6 to 7? Or you could have higher growth for this year?
I think based on the strong performance of the first semester of the year as well as the confirmed new routes that airlines will to be opening in the second half of the year, we're confident traffic will reach about 7%.
Our next question is coming from Lucas Barbosa from Morgan Stanley.
Congratulations for the results. My question is regarding nonaeronautical revenues per passenger. It's kind of a follow-up on the last question. So this quarter, the nonaeronautical revenues per passenger increased 2.8% on a year-over-year basis. Despite all the recent efforts to boost this revenue line, this lower growth level seems to have been affected by hotel services and logistics business. I just wanted to hear your view for the upcoming quarters, if you expect a rebound in logistics revenues in the upcoming quarters. You just mentioned a little bit about some new contracts coming online on the next half? If you can quantify how much you think that could boost revenues. And also if -- I wanted to know also if we can expect the same level of growth in commercial revenue per passenger in upcoming quarters. So a similar growth level as we saw in the second quarter, which was 8% growth per passenger? That's my question.
Lucas, this is Ruffo. I think we have to see the commercial revenues per passenger in one bucket and the diversification revenues in a separate bucket. Starting with commercial revenues. We have implemented -- are now implementing a series of actions taken to improve the terms of our existing contracts. Just as an example, typically, when a lease expired for a major [ local ], we typically renew it under the same terms just adjusted by inflation. Now we are putting the space for bids and we're requesting bids from different operators. So that has resulted in -- and it's expected to result in increased revenues per square meter in our existing spaces. Also we should see in the second half of the year the contribution from the new spaces in Chihuahua and San Luis Potosí airports, which as Ricardo mentioned, are -- have -- expansions have been finished and are pending inauguration in the next month. So I think that the commercial revenue per passenger will continue to show improvements over the following quarters.
With respect to diversification, specifically hotel and Industrial Park, I don't think it's fair to see it on a per PAX basis because their dynamics are completely different from the passenger dynamics of rest of OMA. And particularly, with the Industrial Park, as I mentioned, we should expect one additional warehouse to be leased in the second half of the year. So contribution should not be that significant also although passengers will continue to increase.
So on a per PAX basis, if you use that metric, then contribution from this Industrial Park will decrease, but as I mentioned, we should not see it on a per PAX basis. And in the case of hotel, hotels in Monterrey is performing very well, but I think it has reached its potential. That hotel from Mondays through Thursdays is around close to 100% occupancy. And then Fridays and Saturdays, it declines dramatically because there is -- I mean the Monterrey airport is far away from the metropolitan area. In terms of the financial health, we did see an improvement over Q2 '18 occupancy as well as relative to Q1 occupancy. So I think it will have incremental improvements for the rest of the year.
Our next question today is coming from [indiscernible].
Congratulations on the results. I only have 1 or 2 questions on the logistics business. You mentioned in the release increased competition in the segments. So just wondering if you could give some more color on that.
Could you repeat the question, sorry?
Yes, sure. You mentioned in the release a increased competition in the [ freight ] logistics business. So I just was wondering if you could give some more color on that.
Yes. We have, as you know, a physical warehouse in Monterrey airport, which is 95% of the revenues of the cargo division. There are other physical warehouses in the same estate of [indiscernible]. And we have seen in recent quarters that some clients have gone to those warehouses. We believe the service that we provide is far superior in terms of security, in terms of hours of operation, and we are starting to be more close with our clients to see what services can we provide that would that benefit them and keep them in our -- under our warehouse contracts.
I think just to add up on that point and just to remind you that during the quarter, we had the few weeks of the closing of the borders in terms of cargo. So the terrestrial cargo, not the air cargo, but the terrestrial cargo had a slight decrease during the quarter, but it should normalize in the next coming quarters.
[Operator Instructions] Our next question is coming from Lucas Laghi from Citibank.
We have 2 from our side. The first one, did you happen to see any changes on your long-term growth outlook regarding the uncertainties around in Mexico City airports plans from the government. And the second one if you noticed any shift or improved stability in the financial health of domestic airlines in Mexico, that would be our two questions.
All right. To the first point, I think the saturation of the Mexico City airport could represent for us an opportunity as we can build our business model of making Monterrey as a secondary hub for Mexico City as well as establishing and increasing regional hubs such as Culiacán or Chihuahua, for example. So I believe our strategy is aligned with the government to decentralize traffic, and we can benefit and help at the same time the saturation of Mexico City airport. And to your second point?
In terms of financial health of airlines, I think, at this time, we have a very healthy receivables portfolio. We monitor that very closely. And at this time, we have not seen anything that should become a yellow sign. And so -- I mean we know that our clients are operating with normality, and we would expect that to continue in the foreseeable future.
Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.
I want to thank all of you again for your participation in this call. Ruffo Pérez Pliego, Emmanuel Camacho and I are always available to answer questions, and we hope to see you at our offices in Monterrey. Thank you, and have a good day.
Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.