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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Good morning. My name is Emma, and I will be your conference operator. [Operator Instructions] This is OMA's Fourth Quarter 2020 Conference Call. [Operator Instructions] If you did not receive the report, please contact OMA's IR department, and they will e-mail it to you. Please note that this call is for investors and analysts only, and questions from the media will not be taken nor should the call be reported on.
I would now like to turn the call over to Emmanuel Camacho, OMA's Investor Relations Officer.
Thank you, Emma. Good morning, everyone. Thank you for standing by, and welcome to OMA's Fourth Quarter 2020 Earnings Conference Call. Ricardo Dueñas, OMA's CEO; and Ruffo Pérez Pliego, CFO, will be joining this morning and will discuss OMA's fourth quarter 2020 results.
Please be reminded that certain statements made during the course of our discussion today, they 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 Dueñas.
Thank you, Emmanuel. Good morning to everyone, and thank you for joining us today. I hope that all of you and your families are safe and healthy.
Today, we look back at an abnormal year, 2020, in which COVID-19 impacted significantly our traffic levels and result of operations. In 2020, we served 11 million passengers in all our airports. This is equivalent to the number of passengers handled in our Monterrey airport alone during 2019.
I am proud to say that our actions taken to mitigate the impact of COVID-19 resulted in resilient and remarkable results for the year, even with half the passengers we were used to handle. In order to cope with the pandemic effect, in 2020, we implemented initiatives to optimize the utilization of our terminal buildings through temporary partial closures as well as to reduce cleaning and security costs and electricity consumption.
We also reduced headcount across various levels of the organization. As a result, even with passenger traffic declining 52%, we reached an adjusted EBITDA of MXN 2.5 billion, implying a margin of 62%. Additionally, during the year, we implemented a number of standards regarding safe travel for the benefit of our employees, customers and passengers in order to increase their confidence when visiting our airports. All of our airports were granted the Safe Travels certification given by the World Travel and Tourism Council, and our Monterrey airport was granted the Airport Health Accreditation from Airports Council International.
Turning to our fourth quarter. While our overall results were stronger than during the second and third quarters, we started experiencing a slowdown in our passenger recovery in December. We attribute this to the uncertainties related to a second wave of contagions from COVID-19 and the increased health alert levels in most regions of the country towards the end of 2020 and early 2021, including Nuevo León and Mexico City.
Beginning in February, the level of contagions had begun to recede, and the health alert levels have been reduced accordingly. Currently, of the 9 states where OMA has operations, 1 state is in red status, 4 states are in orange and 4 are in yellow. We expect passenger traffic to resume 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 December, a total of 140 origin-destination routes were in operation compared to 117 at the end of September 2020 and 183 routes in operation at the end of December 2019. Today, this number is 137 routes.
We continue to apply the health and safety protocols that were implemented in previous quarters and maintained a close continuous dialogue with aeronautical and health authorities. In addition, in response to the new measures implemented by United States since January 26, in which all inbound passengers are required to provide a negative test for COVID-19, we have installed modules for antigen test application at the 11 airports in which international flights operate.
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 18%. At December 31, our cash position was MXN 3 billion, which allow us to meet our investment and operating obligations for 2021, along with our cash generated from operations.
Additionally, we started the process for the refinancing of our bond maturing in June 2021. The refinancing is expected through the issuance of a new bond in the local markets, seguro. The terms and conditions are still being worked out, and we expect the issuance to close towards the end of March or beginning of April. We have already filed with the National Banking and Securities Commission a request for authorization of a new seguro program.
As part of this process, the CNBV require us to make some minor nonmaterial modifications to prior annual and quarterly information. This minor modifications are expected to be filed later today, and no changes to previously reported financial information were made as a result of this process. Most of those changes were informed but no substance.
Turning to our fourth quarter operational results. Total passenger traffic reached 3.3 million in the quarter, resulting in a decline of 44% versus the fourth quarter of 2019 and a sequential increase of 43% when compared to the third quarter of 2020. The number of seats offered by airlines in our airports in fourth quarter grew 38% relative to the third quarter.
The best-performing airports, which had the lowest decline in passenger in percentage terms compared to 4Q '19, were Mazatlán, Culiacán, Reynosa, San Luis Potosí and Zacatecas. Conversely, from a route perspective, the routes that experienced the greatest negative impact of total passenger traffic during the quarter due to the reduction of frequencies or suspension of flights were Monterrey, Chihuahua and Acapulco on the Mexico City route.
Adjusted EBITDA reached MXN 153 million (sic) [ MXN 853 million ] in the quarter, with a margin of 69.6%, reflecting our efforts to control and optimize our cost and expense structure. On the commercial front, revenues decreased 38%, with the largest impact on parking restaurants and retail. Occupancy rate for commercial space in our terminal was 90% at the end of the quarter.
During the quarter, we continued with our support program of our tenants through which we offered discounts based on passenger traffic performance. The program was applied from July to December 2020. Diversification revenues decreased 33%, mainly due to lower revenues from hotel services. During the fourth quarter of 2020, the occupancy rate at our Terminal 2 NH Collection Hotel was 42%, while the Hilton Garden Inn Hotel at the Monterrey airport had an occupancy rate of 25% during the quarter.
OMA Carga delivered a solid performance during the fourth quarter, with an increase in tonnage handled of 4%, which resulted in a revenue increase of 6%. Air import cargo operations contributed most to this growth in the quarter.
Total investments in the quarter, including MDP investments, major maintenance and strategic investments, were MXN 472 million. Some of our major projects underway include: The expansion and remodeling of the Monterrey airport Terminal A; the expansion and remodeling of the Tampico terminal building; the modernization of the Zihuatanejo terminal building; and works on runways, taxiways and aviation platforms in several airports. I would also like to announce that we're about to open the Reynosa terminal next week.
Finally, I would like to highlight that we received approval from the Federal Civil Aviation Agency of our master development program for the '21-'25 period. The expected investment level for the next 5 years is approximately MXN 12 billion, expressed in pesos of December 2019. Our new investment program includes important improvements and capacity increases in our largest airports in terms of passenger traffic contribution.
Some projects worth mentioning include: Monterrey Terminal A project, which will increase its annual capacity by 39% to 16.3 million passengers in 2025; Culiacán terminal expansion and remodeling, which will result in an increase in annual passenger capacity of 74% to 3.3 million passengers by 2024; Ciudad Juárez terminal expansion and remodeling with an increase in annual passenger capacity of 113% to 1.9 million passengers by 2022.
I would like now to turn the call over to Ruffo Pérez 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 our questions.
Turning to OMA's fourth quarter financial results. Aeronautical revenues decreased 36.3%, driven by the 44.5% decrease in passenger traffic. Non-aero revenues decreased 35.1%, with commercial revenues having the largest impact. Commercial revenues decreased 37.7%, and the categories with largest impact were parking, restaurants and retail. Parking revenues declined 53%. The decrease is mostly driven by slower traffic recovery in the Monterrey airport relative to the average of other airports.
Restaurants and retail decreased 37.2% and 38.8%, respectively, due to a decrease in the fixed rents and participation on sales as well as some discounts that were applied during the quarter. Diversification activities decreased 33.3%, mostly driven by lower revenues from hotel services.
Total aeronautical and nonaeronautical revenues were MXN 1.226 billion. Construction revenue increased 13.9%. As you know, this is a noncash item that is required under applicable accounting standards. It is equal to construction cost of improvements to concession assets, so it has no impact on earnings. The cost of airport services and G&A expense decreased 17.7%.
During the quarter, our payroll decreased 12.5% as a result of reduction of headcount during the third quarter. We recorded savings on electricity and subcontracted services as we have maintained a strict cost control despite a sequential increase in the level of passengers. Additionally, minor maintenance costs decreased 18.6% as a consequence of deferrals of nonessential works. As a result, OMA's fourth quarter adjusted EBITDA was MXN 853 million, and the adjusted EBITDA margin was 69.6%.
During the quarter, we recorded an increase in the major maintenance provision of 55% to MXN 208 million. This reflects the approval of the major maintenance projects in the new MDP that was approved by the aeronautical authorities in November. The recording of this provision also had an impact in deferred taxes, which reduced the effective tax rate for the quarter. The effective tax rate for future quarters is expected to go back to normalized levels of around 30%.
During the quarter, our financing expense was MXN 270 million, and consolidated net income was MXN 239 million. The cash generating from operating activities in the third quarter amounted to MXN 602 million, mainly due to a lower operational result. Cash at the end of the quarter stood at MXN 3 billion.
This concludes our prepared remarks. Emma, please open the call for questions.
[Operator Instructions] Our first question comes from the line of Alejandro Zamacona.
This is Alejandro Zamacona from Crédit Suisse. My first question is on the commercial business and discounts we have been seeing in the [ MAG ] contract. So what can we expect for 2021? Is it fair to say you will continue to run this kind of discounts to simulate the [ MAG ] based in traffic decline?
And my second question is on the airport fees. We understand that since last week, we're now charging higher fees. So relative to the maximum tariffs, how close you are now with this recent increase? And if there is some additional room to increase fees in some airports?
Thank you, Alejandro, for your question. For the first part, we don't have a policy for this year. We will see how things evolve with traffic. So far, the only discounts that we've been granting to our tenants were the ones we have mentioned in the past from July to December, which was variable on passenger traffic. But we -- so far, we haven't planned to extend that for the first quarter of this year. But as the epidemic evolves, we will evaluate.
And for airport fees, our plan has been to path to make the pass-through to the maximum tariff in 1 year. You're correct, we implemented the first increase a week ago, the beginning of this month, and we will implement the second increase somewhere around January next year to reach the 100% maximum rate.
So could we expect another similar increase in airport case, similar to what we saw last week?
Not for this year. You will experience it probably somewhere in January next year.
Okay. But the increase for next year would be similar to increase same...
Yes. Yes, it will be around, yes, half of the increase was this year, half of the increase will be in January.
And that applies speaking over, I mean, general terms for all the airports, right?
Correct.
Our next question comes from Mauricio Martinez.
This is Mauricio from GBM. My question -- I have 2 questions. My first question is regarding the debt refinancing. I would like to know if you expect the current interest rate levels to aid your financial costs comparing with the current debt, the bond that is maturing in June. And if you can give us any color on the -- which level should be comfortable for you in terms of net debt-to-EBITDA going forward? That would be my first question.
And the second question is on the cost reductions that we saw this quarter. We saw impressive cost cutting results. How sustainable do you expect these cost reductions to be in the next quarters? And as the traffic level starts to recover, do you expect these cost levels to maintain? That would be my 2 questions.
Thank you, Mauricio. I'll answer the first part. For the bond issuance, the specific terms of the bond are still being analyzed, but we would expect an insurance of about MXN 3.5 billion, MXN 3,500 million, of which MXN 3,000 million would be used to refinance the bond and MXN 500 million to fund the additional CapEx under the MDP. We expect interest rates to be very similar to the ones we currently have.
And regarding the second question on sustainability of our cost reduction measures, in the first part of this year, we will be having annual reviews on some of our contracts, such as cleaning, security and labor contracts. So certainly, you should expect at least an inflationary increase in many of those line items. However, in terms of head count, we believe the level of headcount should be maintained, irrespective of the traffic recovery expected in 2021 relative to 2020.
And regarding electricity, certainly, in terms of gigawatt consumption, last year on an annual basis, our consumption was reduced around 33% year-on-year relative to 2019. Some of that consumption will be lost when traffic recovers. But we have made a lot of investments in substituting, for example, led lights in many of our airports in runways and in terminal lighting. So we should look at back to the 2019 levels anytime soon.
Our next question comes from Rodolfo Ramos [indiscernible].
My name is Rodolfo Ramos from Bradesco BBI. Most of my questions have been answered to this point. But just maybe if you can elaborate a little bit on the -- on this restatement or these modifications to previous statements. That will be very much appreciated.
Sure. As Ricardo mentioned during the call, those were no substantial changes, specifically to the XBRL files that have been trialed with CNBV and the Bolsa. And many of the changes, if not most, referred to making cross references to certain sections of the same file. So it's basically that. There is no change in any financial numbers. And certainly, there is no substantial changes at all.
And congratulations on the results.
Thank you.
Our next question comes from [indiscernible].
Do you listen?
Yes.
Okay. I'm [indiscernible] from [indiscernible]. I have 2 questions. The first one is related to the tender offer from Fintech because I was reviewing the amendment filing to the Securities Exchange Commission. And it says that even in your report as [indiscernible] last December said, they probably had comply all the regulatory elements, the first week or the last week of January or first week of February, if I correct. So I was wondering if you can give us more color about if it's still ongoing? Or it's going to be on hold?
And the second one is regarding to -- what are your expectations for passenger traffic recovery, not only for 2021, I mean, what are your expectations to be at the same level before the pandemic? Because many analysts says that probably it's going to take more time that we will expect.
Thank you, [ Murguia ], for your question. Regarding the first part, the tender offer, our information is the same that we reported on December. Our understanding is that they were going through the regulatory approvals. But if this goes through, we expect no relevant changes in OMA operations or decision made, if we can. Before the transaction, Fintech had indirect control of OMA through ICA and SETA. So the sale to SETA shares to Fintech is mainly an administrative matter, but the information we currently have is the one we mentioned in December.
And for the second part?
For this year, certainly, we experienced a slowdown in recovery levels in January as already been reported. We do expect traffic to pick up towards the second half of the year once health alert levels are further reduced and the vaccination program is fully rolled out. We expect traffic this year to be between 35% to 30% lower than 2019. And more longer-term vision is that we would expect traffic to reach 2019 levels towards the end of 2022 or beginning of 2023.
Our next question comes from Stephen Trent.
This is Steve Trent from Citi. Can you hear me?
Yes, we can.
Okay. I was just curious if you could maybe provide some longer-term color on what OMA might be thinking about outside investments. So it seems, for example, that airport in Tulum might or might not be coming out of nowhere again. And tenders here and there in the Caribbean basin, in the past, you guys had maybe talked about minority stakes in some of these projects. And just curious to get your thoughts going forward.
Yes. Trent, thank you for your question. No, for the Tulum report, there's not much information. That's the only information that we have. I mean our information is from the regular press which the government has mentioned, they have the intention to build the Tulum airport that will have joint military and commercial operations, but that's what so far we know. It's not out of interest of OMA to get involved in that airport, and I believe it's not the intention of the government to have private operators in that airport.
And then more broadly in the Caribbean basin center of Central America, any interest at all? Or...
Yes. Stephen, we mentioned in the past, we were involved in the Barbados airport process. We are currently part of the prequalified bidders for the concession process. However, the process has been delayed, and we understand it will resume after April this year.
[Operator Instructions] Our next question comes from the telephone line ending 811. [Operator Instructions] We'll come back to the question from the phone line later. And we'll now take a question from Alan Macias.
We can't hear you, Alan.
Can you hear me now?
Yes.
Just my question is quickly on business traffic. If you can tell us what percentage 2020 represented versus 2019? And what are you looking there in terms of recovery for the business traffic?
We don't have a specific figure of how much relative traffic changed year-over-year. Certainly, we know that one of our most affected routes last year was the Mexico to Monterrey route, which is our main route in the OMA system. And the traffic in that route is primarily business related. We still see that the leisure destinations and some VFR markets, specifically like from our Culiacán airports are recovering faster than our Monterrey airport.
We would expect the business traffic starts to recover more quickly towards the end of the year once economic activity is wrapped up in the country overall and travel restrictions from international companies are lifted. We do know that a lot of corporates in the Monterrey -- that have operations in Monterrey are now not taking place because of restrictions to corporate travel from international companies. But once those companies lift those restrictions, we should see also a pickup in traveling in Monterrey airport.
And just last question, do you have a percentage of traffic coming from Canada? Or what percentage represents of your total traffic?
Sure. In 2019, it was 0.9% of our total traffic. In 2020, it was 1.1% of our total consolidated traffic. However, for the airports of Zihuatanejo and Mazatlán, Canadian traffic represented about 15% and 9%, respectively, last year. So that is one of the reasons why the numbers reported from these 2 airports in January traffic were lower than expected because of the reduction of Canadian travel.
Our next question comes from Gabriel Himelfarb.
It's Gabriel from Scotiabank. Just a quick question. Have you seen -- or do you think that you might -- that aero capacity coming from international carriers might be allocated into more frequent routes or even in new route origination?
I think at this time, carriers, both international and domestic, are working towards rebuilding their networks that were already in place prior to COVID. So we should expect to recover those first -- those routes that have been in operation prior to the pandemic. And afterwards, new routes that were not in operation before the pandemic. And that behavior is both applicable for international as well as domestic carriers.
We will now return to the question from the phone line ending 811. [Operator Instructions]
Hello?
Yes. We can hear you.
Can you hear me?
Yes, we can now.
Okay. Just one quick question. Thinking that corporate passenger that market can be reduced structurally going forward, are you right now thinking about any potential changes on your commercial strategy for Monterrey because you have perhaps less corporate passengers and more VFR? Or how should we think about non-aeronautical revenue per passenger in Monterrey by 2022 or 2023, if you have a reduction in corporate travelers?
Thank you for the question. I think it's important to remember that most of the business travel of the Monterrey airport and -- or in OMA in general is mostly industrial business related. We expect that kind of business traffic, not have the same impact us as other kind of business traffic. Monterrey for the near term has been focused on a big percentage for low-cost carriers. We expect that trend, and we expect that trend to continue. I'm not sure if you have anything else to add there?
No, no. I think that at this time, it's very speculative to try to assess the structural change if any in our passenger type in Monterrey, but we agree with what Ricardo said about our traffic being more industrial than purely corporate or consultant type of traffic. So that should recover as the economy picks up as well and the benefits from the new [ T-MAG ] agreements are also being felt more evidently.
And if anything, most of the -- for the non-aero revenues, what I believe would have the most impact in the next few years will be the new square footage for the new terminal. We mentioned before, we're building the new Terminal A, which will include a lot of new area for potential non-aeronautical revenue.
Okay. And can I have a follow-up? How do you think like then your investment in the hotels that you have in Monterrey and Mexico City, how do you think they will perform going forward because of this?
We have seen the NH Hotel performing better than the Hilton Monterrey airport. Main reason is a rather diversified base of clients. In the case of the NH, you have cruise, you have passengers staying overnight for connecting flights. You -- it's in the middle of the city. So you also have some clients that are -- you use the hotel as location for their visits to Mexico City.
In the case of Monterrey, the May -- in 2019, the client base for the Hilton Hotel was mostly international. Hilton awards program clients. Since that segment has declined significantly over the year, now the hotel is also looking for domestic type of travelers and groups, and we are in the process of marketing the services of the hotel to those new segments.
So -- but in any case, we would expect yet to see the NH to outperform the Hilton Garden this year in terms of occupancy. And for new projects, we're constantly evaluating other airports to see if there's potential for a new airport. So far, we don't have any concrete project going forward.
Our next question comes from Guilherme Mendes.
Here's Guilherme Mendes with JPMorgan. I have 2 questions. The first one actually is a follow-up. When you mentioned about the traffic recovery that you expect to be back to '19 levels by the end of 2022, beginning of '23, I'm just wondering, I mean, how do you see the potential mix on your air traffic, meaning that if you could potentially see more leisure traffic when you compared to the mix we had before the pandemic?
And the second question is regarding your dividend policy. I recall that I think on the last call, you mentioned that you'll be evaluating the dividend policy again by the beginning of 2021. Just wanted to double check if you have any updates on that?
Well, in the case of the dividend policy, we still have -- are evaluating how the year is going to look like. But I mean we still do not have had our Board meetings. That would be probably announced by late March prior to the Annual Shareholder Meeting, which is expected to take place towards the end of April.
And the traffic recovery?
And could you repeat, again, your question about the traffic recovery?
Yes. Sure. It's -- when you mentioned about traffic being back to 2019 levels by the end of 2022, I was just wondering if -- how do you see the mix of air traffic in your airports? If you could potentially see more VFR and leisure routes when compared to the pre-pandemic levels?
Those of leisure, we only have 3 airports that are leisure: Acapulco Zihuatanejo and Mazatlán. Certainly, we would expect a strong recovery, especially in the next winter season, the one that starts December of this year and hence in April of next year for the Canadian and West Coast market in Zihuatanejo and Mazatlán. And we probably see the rate of growth in Culiacán performing better in the in Monterrey and Culiacán is primarily VFR traffic.
But given the size of our Monterrey airport, certainly, the recovery in absolute terms will have to be driven by business travel and domestic travel as well in our industrial airports, such as Monterrey, San Luis, Chihuahua and Juarez, et cetera.
I think once we return to business as usual, I would expect the mix to be very similar to the one that we had pre-pandemic. I think what will be different is the path of recovery. Some segments are recovering faster than others. For example, we know domestic travel recovering faster than international. VFR and leisure is also recovering faster than business. But once we return to business as usual, you should expect somewhere similar mix that we had before.
[Operator Instructions] We have not received any further questions at this point. So that concludes our question-and-answer session. I would now like to hand the call back over to Ricardo Dueñas for some closing remarks.
I just want to thank all of you again for your participation in this call. Ruffo, Emmanuel and I are always available to answer your questions, and we hope to see you soon. Thank you, and have a good day.
That concludes today's call. You may now disconnect.