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, Fourth Quarter 2021 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I will now turn the conference over to our host, Emmanuel Camacho, Investor Relations Officer. Thank you. You may begin.
Thank you, Neil. Good morning, everyone. Welcome to OMA's Fourth Quarter 2021 Earnings Conference Call. Participating today are CEO, Ricardo Duenas; and CFO, Ruffo Perez Pliego.
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's 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 for his opening remarks.
Thank you, Emmanuel. Good morning, everyone. We appreciate you joining us today.
Let me begin by saying that I am pleased to deliver strong results for the quarter. Notably, our passenger traffic performance, our ability to expand revenue generation across all of our business units and our cost discipline have resulted in remarkable results worth highlighting in this call. I will first discuss our full year 2021 highlights, and then I will move on to our main fourth quarter '21 results.
Our 2021 results reflect a year of strong and consistent recovery in our operational and financial fronts. In the year, our passenger traffic grew 63% to $18 million in all our airports as compared to 2020 and stood at 22% below 2019 levels. Notwithstanding our adjusted EBITDA of MXN 5 billion, only 8% below 2019 with a record high annual adjusted EBITDA margin of 73.7%. I am proud of OMA's ability to have delivered outstanding financial results each quarter, outperforming our own expectations despite still prevailing unprecedented challenges worldwide.
In 2022, we -- in 2021, sorry, we benefit mostly from different domestic leisure markets as well as regional VFR-related destinations For example, our Monterrey to Cancún route was 6% above 2019 levels. It is important for me to highlight that by second half of 2021 we observed improved dynamism in business routes. To give you an example, our Monterrey to Mexico route went from a minus 50% in the first quarter of 2021 to a minus 20% in fourth quarter 2021 versus the same quarters in 2019, and Chihuahua and Ciudad Juarez routes to Mexico City are already above 2019 levels.
On the commercial front, our revenues performed well. A higher number of passengers serving our airports allowed us to increase parking revenues by 72% versus 2020. In terms of commercial spaces, we benefited from improved sales performance of our tenants with revenue share from tenants growing 76% versus the previous year. Importantly, our financial performance, coupled with clear skies ahead, allow us to make significant dividend distributions in December 2021 and January 2022, which are aligned to our objective of optimizing our capital structure. The cumulative distributions on December and January amount over MXN 6.3 billion and represent a yield of approximately 12%.
Turning to our fourth quarter. Total passenger traffic reached 5.4 million during the quarter, which was 5% above our third quarter performance. In absolute terms, Monterrey, Mazatlan and Culiacan were the main contributors. As compared to the fourth quarter of 2019, total passenger traffic stood at 90%. The airports have net passenger traffic recovery was Ciudad Juarez, Mazatlan and Reynosa.
In terms of outperformance versus the fourth quarter of '19, those that experienced the greatest traffic growth in volume terms during the quarter were Monterrey on its Cancun Dallas and San Antonio route, Ciudad Juarez on its Mexico City route and Mazatlan on its Tijuana route. Finally, in January 2022, our passenger traffic recovery level decelerated due to surges caused by Omicron variant and the rise in positive cases at the beginning of the year. We expect passenger traffic to rebound during the following weeks as contagion levels continue to reside. From February 1 to 20 of this year, passenger traffic has decreased 13% versus the same period of 2019 and has improved in percentage terms week after week.
Turning to our fourth quarter operational results. Our passenger traffic performance during the quarter, coupled with revenue expansion of our different business units and our cost discipline allowed us to deliver strong operating results. Adjusted EBITDA increased 9% versus the fourth quarter of 2019 to MXN 1.5 billion with a margin of 75%. On the commercial front, revenues increased 57% compared to the fourth quarter of '20. Parking revenues doubled versus 2020, and we observed higher penetration levels in long stays mainly in Monterrey, Ciudad Juarez and Chihuahua. This reaffirms the higher dynamism observed in the business traveler segment. In addition, restaurants, retail and advertising also contributed most to the growth.
Occupancy rate for commercial space in our terminals was 87% at the end of the quarter compared to 85% in the third quarter, reflecting a steady recovery path. Diversification revenue increased 53%. Our hotel services on OMA Carga contributed mostly to this growth. During the fourth quarter of 2021, the occupancy rate at our terminal to NH Collection Hotel was 78.3%, while the Hilton Garden Inn Hotel at Monterrey Airport at 60.1%. OMA Carga had another outstanding quarterly performance with an increase in tonnage handled of 26%, resulting in a revenue increase of 20% versus fourth quarter of '20. Revenues from handling and custody of ground import cargo drove the increase in revenues.
On the capital expenditure front, total investments in the quarter, including MDP investments, major maintenance and strategic investments were MXN 752 million. We continue with the major expansion and remodeling of the Monterrey Airport Terminal A. We expect to open an expanded land side area in the spring of about 9,000 square meters. Additionally, we are working on the following major projects: the expansion and remodeling of the Ciudad Juarez terminal building; the expansion and remodeling of the Tampico terminal building; the reconfiguration of the Mazatlan terminal building; platform reconfiguration at Monterrey Airport; modernization of the Zihuatanejo terminal building; and green investments related to solar panels in our 13 airports.
And with that, I will now turn the call over to Ruffo Perez Pliego over more detail on 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 fourth quarter financial results. Aeronautical revenues increased 69% relative to 4Q '20, driven by the 62% increase in passenger traffic. Non-aero revenues increased 56%, with commercial revenues being the largest contributor. Commercial revenues increased 57%. The categories with the highest growth were parking, restaurants, retail and advertising. Parking revenues increased 102% due to the increased penetration in the Monterrey, Ciudad Juarez and Chihuahua airports. Restaurants, retail and advertising increased 52%, 55% and 93%, respectively, mainly due to the end of discounts granted during previous quarters as well as higher revenues from revenue sharing. Diversification activities increased 53%. Both non-aeronautical and aeronautical revenues were MXN 2.0 billion in the quarter and grew 66% versus last quarter of last year. Construction revenues increased 64% as a result of increased MDP investments.
The cost of airport services and G&A expense increased 24% relative to the fourth quarter of 2020, mainly due to an 18% growth in payroll expense, which is the result of changes in labor regulation in Mexico during the year and higher expenditures in electricity, materials and other line items as a result of the overall higher activity in our airports. Nonetheless, it's worth highlighting that our cost of airport service and G&A expense was only 2% higher than that of the fourth quarter of 2019.
OMA's fourth quarter adjusted EBITDA reached MXN 1.5 billion and the adjusted EBITDA margin was 75%. Our financing expense was MXN 30 million, which was largely benefited from an exchange gain as compared to an FX loss in 4Q '20. As a result, consolidated net income was MXN 1 billion. OMA's financial position remains strong. Cash generated from operating activities in the fourth quarter amounted to MXN 1.3 billion, and cash at the end of the quarter stood at MXN 6 billion. During the quarter, we paid a MXN 2 billion dividend. Total debt amounted to MXN 7.7 billion, which includes short-term loans of MXN 2.7 billion. Our net debt to adjusted EBITDA ratio stood at 0.4x at the end of the quarter.
This concludes our prepared remarks. Operator, please open the call for questions.
[Operator Instructions] Our first question comes from Alejandro Zamacona with Credit Suisse.
A quick question on the aeronautical tariffs. Just can you confirm that you have already incorporated the higher fares for 2022 amid the MDP negotiation, which I understand that was partially implemented in 2021. And if so, since then -- since when they are being charged and what would we expect for margins?
Yes, thank you, Alejandro. So yes, as everyone remembers, we were approved around 13% increase in real tariffs. We said we were going to increase them in 2 tranches. We implemented the one last year in January. It was executed in February, and that was for 10%. This year, we did the same thing. We increased them by slightly above 11%. We said that a couple of weeks ago and will start being executed this month. And as for how much we will be reaching the maximum tariff, it will really depend on what will be the inflation for this year.
Ricardo, and in that same line, so assuming this higher tariffs, what can we expect for margins for this year after reaching the open high margins that we saw in the last 3 quarters? I remember that in the last conference call, you mentioned that margins around 75% could be sustained. But this would mean that the higher tariffs could be offset by a catch-up in cost. Or what am I missing here?
No. We believe that, that 75% that we've mentioned is sustainable going forward.
Our next question comes from Guilherme Mendes with J.P. Morgan.
Hi Ricardo, Ruffo, Emmanuel. I have 2 questions. The first one is in terms of traffic. Recall on the last call, you mentioned about being back to full '19 figures by early 2023. Just wanted to double track if that's still the case if Omicron impacted your expectations by any means? And the second question in terms of capital allocation, how should we think your dividend policy going forward, especially considering your low leverage numbers?
Well, yes, we expect passenger traffic to be from 3% to 5% below 2019 levels for this year. However, we expect by the third quarter of this year, passenger traffic to be above that of the same quarter of the second -- of 2019. And as for the dividend, we expect to maintain our 2000 -- our MXN 2 billion dividend -- ordinary dividend that we've maintained in the past.
Our next question comes from Javier Gayol with GBM.
Hi Ricardo, Ruffo, and Emmanuel. It's a follow-up question to the previous one regarding the capital allocation. And you mentioned during your remarks that you're seeking to optimize the capital structure of the company. And I was wondering in terms of leverage and given the changes that you've made to your bylaws, which level of net debt-to-EBITDA, let's say, or any other metric that you might have, could you feel comfortable with closing 2022 with?
Sure. Javier, this is Ruffo. So the numbers of year-end 2021 do not reflect the MXN 4.3 billion dividend that was phased in the middle of January. So in addition to our base case expectation of maintaining the same marginal dividend of MXN 2 billion as we currently mentioned, we would estimate that by the end of this year, we would end up around 1x net debt-to-EBITDA and probably peaking around the summer in June at around 1.2x EBITDA -- adjusted EBITDA.
Okay. So this means that you are not seeking to or looking into increasing debt for the company. Basically, that 1.5 that you mentioned is basically just incorporating the -- what has happened over 2022, right?
That is correct. I think it will depend on the use of proceeds of initial leverage without any acquisition in size, I think it's going to be harder to continue increasing leverage.
Our next question comes from Rodolfo Ramos with Bradesco.
My question is on -- a follow-up on the traffic one, and it was encouraging to hear that the Monterrey-Mexico route, it's already gone from 50% to 20% below pre-pandemic levels. But I just want to get a little bit more color on what you've seen in January, February. We saw that also GAP announced resuming the [indiscernible] Monterrey route. So just wondering how you're seeing these other legacy business routes like Monterrey-Guadalajara perhaps so far this year? And any color that you can provide on new routes. And then I have a follow-up on the tariff question.
Rodolfo, so generally, we saw a deceleration on generally speaking, in all of our markets. We actually acted to Omicron variant, which maybe make people not tried as much as they have been doing towards the end of the year. And also, we had some cancellation of flights, resulting from lack of crews, which were subject to contagions and we’re not able to do [indiscernible]. In February, we saw a normalization of those events. So for the first 20 days of February, we're seeking -- or looking, sorry, towards improvement. And with respect to business routes, we do see improved performance over the coming weeks and months. I mean we see that there are events, I mean, like trade first and conferences that are already planned, especially for the summer for in-person events. And I think that, that is an indication that corporate travel is starting to pick up towards the summer and the following months. So we would expect business routes to have a much better performance than what we saw last year.
And just a follow-up on the tariff -- on the maximum tariff question. So you mentioned you implemented an 11% increase this year. So taking that into account, how much would you be short, I mean, if you want to look at maybe as a percentage growth this year, how much short you would be to reach the maximum tariff this year, just to see what the upside in terms of revenues can be?
Yes. So last year, for 2021, we ended up at around 92.1% recovery of the maximum tariff. Despite the 10% increase that we implemented in February, obviously, much of that was a result of unexpected inflation towards the end of the year, which, as you all know, ended up at around 7.4% for the year. So that ate a lot of the nominal increase that we have planned for the year. As Ricardo mentioned, in the middle of February, we already implemented another 11% increase in passenger charges. And to the extent that inflation received towards mid-single digits, I think that we can get to around 97% recovery for 2022.
Our next question comes from Pablo Monsivais with Barclays.
Just a follow-up on the 75% EBITDA margin level that you mentioned. I wonder why do you think this is a sustainable level? Considering the traffic, for example, in the fourth quarter, is it still 10% below pre-COVID? And I'm assuming that there should be some operating leverage in 2022. Maybe are you expecting higher cost per passenger for some reason? Or why shouldn't we expect a slightly higher margin given there's still traffic is yet to recover? And also thinking that this kind of passenger thinking about a corporate passenger has a higher commercial revenue per passenger process. So if you can provide some color would be appreciated?
Sure. Pablo, yes, we would expect margins to be slightly north of 75% for this year, which would be around a 200 basis point improvement relative to overall margin achieved in 2021. So we do see some margin expansion. In terms of cost, yes, we're experiencing inflation in some of our cost base, such as energy, labor and maintenance. So I mean, there may be some slight margin expansion given the operational leverage, but we wouldn't think it will be more than a couple of hundred basis points above the full year 2021 level.
Our next question comes from [Philippe Nelson] with Citi.
I have 2 questions on my side. The first one is if you can refresh my memory a little regarding the interplay between oil prices and airport tariffs. If there is any correlation in what would be an index for us to look, if there is any? And I'll do the next one following.
So in terms of the direct correlation between airport tariffs and oil prices, there is no direct one. Under the contractual regulatory framework, our tariff increase, the maximum charge that we are allowed to charge and increase based on the national producers price index, excluding the auto component. So the increase in maximum tariff would not be linked to oil prices.
Okay. And the second one is regarding maintenance provision. I'd like to hear a little why do we see so much decline year-over-year at maintenance provision, especially when you have a pipeline of expenditures and the competitors also talking about increasing maintenance expenditures to help the customer experience?
Sure. Our maintenance provision actually for the full year increased around 30% from MXN 392 million to MXN 512 million. That reflects, in our case, a greater amount of major maintenance, which primarily involves repayment of runways and taxiways and works in surfaces as part of our committed MDP investments for the 2022 to 2025 period. And just to clarify, in the fourth quarter of 2020, we already have started to make provisions towards what was the new MDP plan approved by the authority at the end of last year. So our last quarter of 2020 reflect the increase in provisions as a result of the new plan that was approved towards the end of last year.
And our next question comes from [indiscernible]
Just a follow-up because I didn't get it specifically about the maintenance provision. Just trying to understand as this maintain provision, it's going to be a number that you are feeling comfortable with possibly to trend tendering, I didn't quite get the explanation. The second question is regarding the routes. Do you have a pipeline of other country needs, legacy airlines to establish international routes between Monterrey and other countries? And I don't know, probably Europe or Canada or something related that is similar there could be during the fourth quarter?
So starting with your last question, we do have constant conversations with airlines to increase our connectivity -- international connectivity in our airports, not only in Monterrey, but also other airports, particularly the usual destinations that we have in the Pacific Coast. At this time, the more advanced leads that we have are with existing airlines, such as Aeromexico, Volaris and VivaAerobus to expand service into the US. But I mean, we -- as I mentioned, constantly attend events and trade fares and have new leads to bring new airlines into our airports. And with respect to your first question, the connection was a bit noisy, so if you could repeat it, please?
Sure. I just want to follow up on the maintenance provision. So I was trying to understand in which level of maintenance provision are you comfortable on average from 2019 to 2021, on average, it increased around MXN 400 million on average. So I was trying to understand in which level of maintenance provision are you comfortable with?
It's not necessarily what we are comfortable with. It's rather accounting standards that we need to make provisions for expected works in paved surfaces in the next few years is covered at a certain discount rates. But I think that given our committed investments in the MDP, the 2021 level is a good indicator for the next following few years.
[Operator Instructions] Our next question comes from Gabriel Himelfarb with Scotiabank.
Just a quick question about the new route openings. Can you give us a bit of color about you think or you believe there's going to be new opening this year for international destinations like, for example, Canada, as we saw you open 2 routes to Canada. Do you think there's more route openings this year or more demand coming from Canadian travelers? And a second question about the new route you opened from Monterrey to Madrid. Do you think that the Network Group shifting from intrinsic model toward bypassing Mexico City airport and creating new routes from other airports rather than Mexico City like Monterrey that could generate route long-haul growth?
Gabriel, yes. So for the first question, new routes, yes, we will incorporate 11 orange and restoration routes. Out of those 11, 5 are brand new routes. Out of those so far, 5 are national and the rest are international. During the first half, we're going to open those international art to Canada. So yes, there -- we believe there's still more room to improve to Canada. And as for your second question, we cannot speak on behalf of airlines, but it is definitely our intention to try to become an alternative for the saturation that we're seeing in the metropolitan area of Mexico City. And so yes, that's the conversation we're having with the airlines, trying to make regional hubs out of our other airports.
Okay. Just how many routes to Canada?
There's 6. No, sorry, it's 3 new routes so far as of today. So out of those -- out of the international ones, 3 are to Canada, 2 are to the US and on to Cuba.
Our next question comes from Juan Ponce with Bradesco BBI.
I mean just a clarification regarding the adjusted EBITDA margin expansion you expect in 2022. I don't know if I heard 200 bps, but I just wanted to make sure.
Sure. For full year 2021, we have 73.7% margin. So yes, probably not more than that would be the expansion that we would expect for 2022.
Our next question comes from Guilherme Mendes with J.P. Morgan.
In terms of growth strategy, you guys previously mentioned about the Barbados airport. I just wanted to double check in what situation the current auction being? And if you guys might be interesting on the regions, such as in Brazil?
So the Barbados processes for us has been placed on hold for quite a few months. And we continue to be interested in it. But at this time, the government of Barbados hasn't provided guidance on when and if the process would be restarted. And with respect to other regions, certainly, we're interested in Caribbean, South America, Central America. In the case of Brazil, given the structure of concessions whereby it's a group of several airports, some of them quite large, some of them very small, we have decided not to participate in those auction processes.
Our next question comes from [indiscernible].
A couple of questions, Ruffo. The first one just to check, when you mentioned the increase in tariffs, this 11% is in nominal terms or in real terms? This is the first question.
It's nominal terms versus the tariffs of 2021.
Perfect. And the second one is commercial revenues. When I see the line, you are almost flat against 4Q of '19 when your traffic is minus 10%. Do you see -- or do you have enough capacity to continue to increase commercial revenues even if you go to same level of '19 in the third quarter of this year?
Yes, we see room to improve our occupancy -- commercial occupancy ratio at the end of the last year was around 87%. Before the pandemic, it was well above that. Probably for the end of this year, we would expect to -- for 2022, we would expect to end around 92% or 93% occupancy ratios. So rate or occupancy improved passenger demand and the revenue-sharing mechanisms that we have with tenants, I think would provide a good support to increase our commercial revenues.
And also, if I may add, what you're seeing and the reason you're seeing same commercial revenues with less traffic was also the result of some of the measures that we have taken in the last couple of years that probably hadn't been seen due to COVID and then make some of these measures, for example, is -- we conducted some competitive process in new commercial locations. We took direct operation of VIP lounges, we optimized some of the contracts by increasing the percentage revenue, et cetera.
Okay. And the last question, if I may. In industrial services, you have camping in the fourth quarter in revenues against the third quarter. This is a new a new plant -- industrial that you launched? How much room do you have in the business to grow?
So yes, some additional rent picking for fourth quarter as opposed to a partial quarter that was the case in the third quarter. We are currently building on other industrial warehouse of around 10,000 square meters. And after that new construction, which is currently being done, probably the part would be at around like 60% of its capacity. So there's still some room to grow as well in the next couple of years.
Thank you. There are no further questions at this time. I'll turn the call back to management for closing remarks. Thank you.
I'd like 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, and have a good day.
Thank you. This concludes today's conference. All parties may disconnect. Have a great day.