© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Greetings. Welcome to the Grupo Aeroportuario del Centro Norte OMA First Quarter 2024 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to your host, Emmanuel Camacho, of investor Relations. You may begin.
Thank you, Shamali, and hello, everyone. Welcome to OMA's First Quarter 2024 Earnings Conference Call. We're delighted to have you join us today as we discuss our company's performance and financial results for the past quarter. Participating today are CEO, Ricardo Duenas; and CFO, Ruffo Perez del. 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.
And with that, I'll turn the call over to Ricardo Duenas for his opening remarks.
Thank you, Emmanuel. Good morning, everyone. We appreciate your presence in this call today. This morning, Ruffo and I will review our quarterly operational financial results, and then we'll be pleased to answer your questions.
In the first quarter, OMA's passenger traffic reached 5.9 million, a decrease of 1.5% versus the first quarter of last year. Excluding the Acapulco Airport where hotel infrastructure continues to be affected by the impact of Hurricane Otis that hit in October 2023, terminal passenger traffic in our other 12 airports increased by an aggregate of 0.9% during the quarter. Excluding Acapulco, OMA experienced a decline in domestic traffic of 1.2% in the quarter, driven by lower domestic seat capacity, which declined by 9.1%.
The main airports affected were Culiacan and Ciudad Juárez Airports, notably on routes such as Culiacan to Tijuana, and Ciudad Juárez to Mexico City. International passenger traffic recorded a strong performance with a 10% increase compared to the first quarter of last year, driven by airlines expanding capacity and international routes. During the quarter, international seat capacity grew by 7.1%. This international growth was primarily led by the Monterrey Airport, which saw a 14% rise in international passenger traffic. The routes with the highest increase from Monterrey were to Atlanta, Toronto, Las Vegas, Bogotá and Dallas. These routes, along with San Luis Potosí to Houston, and Zihuatanejo and Zacatecas to Dallas routes contributed to approximately 80% of the international passenger traffic increased during the quarter. Furthermore, in the first quarter, we launched 4 new international routes, 3 of which were based at the Monterrey Airport. In terms of airline participation, VivaAerobus represented 48% of our total traffic during the quarter. With a notable 16% increase in terminal passenger numbers compared to the first quarter of '23, while Volaris, which accounted for 20% of our total traffic, experienced a 24% decrease during the quarter, largely due to the Pratt & Whitney engine recall affecting their fleet.
Moving on to OMA's first quarter financial highlights. Aeronautical revenues increased 5.3% and aeronautical revenue per passenger rose 7% in the quarter. Commercial revenues increased 12% as compared to the first quarter of last year, driven by car rentals, restaurants and parking. The car rental and restaurant line item benefited from the opening and consolidation of new business units across our airports during the past quarters.
Occupancy rate for commercial space stood at 95.3% at the end of the quarter. On the diversification front, revenues increased 21%. Hotel services contributed most to this growth, mainly as a result of an increase in operation in both hotels. In the first quarter, occupancy rate at our Terminal 2 NH was 89%, while the Hilton Garden Inn Hotel had an occupancy rate of 77%. OMA Carga increased 2%, mainly as a result of an increase in revenue related to import cargo services.
OMA's first quarter adjusted EBITDA increased by 3% to MXN 2 billion, and the adjusted EBITDA margin was 74.6%. For comparative purposes with the first quarter of last year, we exclude the surplus of the concession tax over aeronautical revenues, resulting from the rate increase from 5% to 9% for this concept pursuant to the Mexican Federal Duty Law, which amounted to MXN 86.3 million and was recorded as a concession tax expense in the quarter, along with its impact on OMA's financial results.
Our adjusted EBITDA would have been MXN 2.127 million with a margin of 77.7%. On the capital expenditure front, total investments in the quarter, including MDP investments, major maintenance and strategic investments were MXN 1.1 billion. During the quarter, some of the most relevant projects we are working on are the expansion and remodeling of the Monterrey Airport Terminal A building as well as Juárez, Torreón, Culiacan and Durango Terminal buildings. Reconfiguration of the Mazatlan Terminal building. Major rehabilitation and reconfiguration of platform and taxi ways in several airports and construction of 4 industrial warehouses.
Lastly, I want to mention that tomorrow, we will hold our 2024 Annual Shareholders Meeting. Shareholders will vote on several matters, including the declaration and payment of MXN 4.25 billion cash dividend. We extend our sincere gratitude to our shareholders for their valuable participation and unwavering commitment to our company. I would now like 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 for the quarter, and then we will open the call for your questions. Aeronautical revenues increased 5.3% relative to the first quarter of '23, driven primarily by higher aeronautical yields as well as the increase in international passenger traffic.
Non-aeronautical revenues increased 13.3%. Commercial revenues increased 11.6%, the categories with the highest growth were car rental, restaurants and parking. Car rentals rose 25.4%, mainly due to an increase in revenue as a result of the consolidation of initiatives implemented in past quarters. Restaurants increased 18.6% due to an increase in fixed rent as well as the consolidation of initiatives also implemented in previous quarters. Parking increased 8.3%, driven by an increase in average tariffs in our airports as well as higher penetration in e Ciudad Juárez, Chihuahua and Monterrey Airports. Diversification activities increased 20.6% mainly due to higher revenues from hotel services as occupancy levels increased in both hotels. Total aeronautical and non-aeronautical revenues were 7.2% to MXN 2.7 billion in the quarter. Construction revenues amounted to MXN 1.01 million in 1Q '24, an increase of 53% as a result of higher MDP investment execution.
The cost of services and G&A expense had a 6.4% growth versus the first quarter of '23, primarily driven by a 6.5% increase in payroll and a 16.5% growth in contracted services as a result of overall inflationary increases and the effect of minimum wage increases. Additionally, our cost of hotel services grew by 20.7% due to the increase in operations in both hotels. Concession tax increased 87% to MXN 223 million as a result of a change in the rate from 5% to 9% applied on revenues generated by airport concessions. Under the tariff regulation basis effective October 2023, payments made to the government related to aeronautical revenues in excess of those included in the most recent tariff revision, will be added to the reference value to be used in the next maximum tariff revision.
Therefore, starting in January 2026, the success concession tax payments will begin to be recovered through the maximum tariffs. In the first quarter of 2024, the 4% surplus of the concession tax on the aeronautical revenues amounted to MXN 86.3 million, equivalent to 3.1%, sum of our aeronautical and non-aeronautical revenues. This surplus is included in the MXN 223 million recorded as concession tax expense for the quarter. Excluding this amount, our adjusted EBITDA would have been MXN 2.12 billion with a margin of 77.7%.
We continue to analyze alternative accounting treatments of the recoverable amount of the excess concession tax. However, until the final decision is made, we decided to record it as an expense. Major maintenance provision was MXN 71 million compared to MXN 77 million in the first quarter of '23.
Our EBITDA was MXN 2.0 billion, and the adjusted EBITDA margin was 74.6%. Our financing expense was MXN 276 million, mainly due to a higher interest expense as a result of an increase in financing costs and the variation in the present value of the major maintenance provision. Consolidated net income was MXN 1.1 billion in the quarter, which was flat relative to last year. Turning to our cash position. Cash generated from operating activities in the first quarter amounted to MXN 1.5 million on cash at the end of the quarter stood at MXN 3.4 billion. At the end of the quarter, total debt amounted to MXN 10.7 billion. We ended the quarter with a healthy net debt to adjusted EBITDA ratio of 0.8x. This concludes our prepared remarks. Shamali, please open the call for your questions.
[Operator Instructions] Our first question comes from the line of the Guilherme Mendes with JPMorgan.
My first question is regarding the traffic outlook. Ricardo, recalling on the last conference call, you mentioned about an expectations of having a flattish traffic performance in 2024 when compared to last year. Is this still the case? I mean, how should we think about traffic performance going forward, given the latest assessment on the aircraft grounding? And the second question also related to this, it's on Acapulco specifically. We continue to see how it perform naturally, but how should we think about the pace of recovery going forward?
Thank you, Guilherme. We're monitoring very closely traffic. It's really depending on how the Pratt & Whitney engine issue evolves. We're looking right now for the year in terms of traffic somewhere in the mid- to low negative single digit. As for Acapulco, we're currently seeing -- we're operating around 50% of the capacity that we were handling pre Otis. We're also monitoring this very closely, and it will depend on the recovery of the city.
Our next question comes from the line of Alejandro Fuchs with Itaú.
Congrats on the results. I have two quick ones from my side. First, looking at the release, I was curious to see that the national carrier was up 5% year-over-year. I was wondering how we can relate this in context of last year's [Indiscernible] which for the last few months of the year was 10% down. Even if with inflation, how do we get to the plus 5% on the national carrier? That's the first question.
And then the second one on the non-aeronautical revenue per passenger was up 15% year-over-year. I mean, it is very good result. Congratulations on that. Maybe I was wondering if you can share with us a little bit more color, different strategies that you've been implementing in the last 2 quarters, and maybe if VINCI is also adding to the strong performance, anything that you could comment and if we should expect to continue to see strong performance on the non-aeronautical side going forward?
Alejandro, with respect to the aeronautical yield, it has to do with the basis of comparison. As you point out, at the end of last year, we started to have a 10% reduction in certain airports. We did some inflationary increases in January of this year, and we also plan to do them in January of next year. But last year, our tariff base was adjusted until the end of March. So that's why you see the benefit of the basis of comparison primarily.
And with respect to commercial initiatives, yes, we have been working very closely with VINCI since they become the major shareholder of the company. Part of the strategy is to develop extra aeronautical revenues. We have being aggressive in renegotiating packages of spaces in the food and beverage and retail segments. And also a new outlets become available given the expansions that we are finishing, primarily in the Monterrey Airport. We expect the strong performance to continue in the next following quarters.
Our next question comes from the line of Alan Macias with Bank of America.
Just I have one question on the technical assistance, I guess, expense. Is that what we saw in the first quarter should we continue to expect going forward at those levels?
Alan, yes, technical systems fee has not been modified. Currently, it stands at 3% of the revenues -- sorry, of the EBITDA generated by the airport concessions. So there is no modification in that respect. Going forward, it will depend on the level of EBITDA generated by the airport concessions. And whether it goes up or down, it depends on the airports' performances.
Our next question comes from the line of Rodolfo Ramos with Bradesco BBI.
Congratulations on the results OMA team. I have a couple, on the traffic side. Thinking a little bit more long-term, medium term, how do you see this reduction or like these bottlenecks that we've seen in Mexico City impacting your system given that how important the Mexico City metropolitan area is for the Monterrey Airport? So that will be my first question.
And then second, I don't know if you've heard any additional news around the [Indiscernible] Airport in Monterrey. I think the transfer of operations to the military should have happened or is about to happen any day now. Obviously, the military is not a good place struggling with Mexicana [Indiscernible], but how likely do you think it is for them to start commercial operations and how could that impact?
Thank you, Rodolfo. In terms of slot reduction in Mexico City, what we're expecting is traffic -- what the government is expecting is traffic from the Mexico City airport to shift into either Santa Lucia and probably to [Indiscernible], mostly Santa Lucia. So what we're expecting medium term, long term is that traffic will start either shifting to the other alternative airports like Santa Lucia, not 100%, but the rest we'll find a way around the network of airports. So that's where we believe that we are part of that solution and traffic will start at some point, that excess traffic that it's not moving to other airports to bypass the airport of Mexico City.
So we're not expecting a medium-term impact. Traffic, it's challenging this year because of the Pratt & Whitney issue. But other than that, aside from that, nearshoring is still there. Fundamentals are still there. So we're bullish on traffic going forward.
So like network -- just a follow-up there. Just network development, do you think it's going to be more key like providing point-to-point Monterrey to other smaller cities, did I get that correct?
Yes. Yes. I think that's fair to say. And in terms of the airport in the north, at this point, there's no -- we haven't had -- there's no official announcement besides what we heard in December. We don't know if -- there's a lot of investment that the military would have to do. Monterrey Airport doesn't have a capacity constraint. So the technical need, it would have to be analyzed. But at this point, there's -- we don't see that project right now. It's in action.
Our next question comes from the line of Fernanda Recchia with BTG Pactual.
Two from our side. The first, I wanted to get the update on the MDP negotiation. I know we are a bit far from the time line for it. But considering all the moving parts that we saw at the beginning of this year with the two others come increasing concession fee, just wanted to get your latest view on the tariff that you should get on the next MDP, if you're expecting a flattish tariff as you were previously expecting, or if you're now looking for a small tariff increase?
And second, on margins. Margins were decent considering all these moving parts. As you are expecting now a slightly lower traffic, do you still expect to keep these margins over 75% going forward? How should we look at it?
Yes, Fernanda, thank you for your question. You're right. We're still in an early stage of the MDP as were we will have to submit that until June of next year. Right now, we're working on the projection -- the traffic projections, on the CapEx needs that we'll be looking forward. We're working very closely with VINCI development this next MDP. We're using all their expertise, their experience that they have. They are very good and very efficient at optimizing CapEx, which is what we are currently working on.
So it's still early to say and have some guidance into where we think we would land on tariffs. And in terms of margins, I think something between 72%, 74% it's fair to assume considering that the concession tax will be considered an expense.
Our next question comes from the line of Pablo Ricalde with Santander Mexico.
Maybe a follow-up on the concession fee. You didn't recognize it as an intangible asset because you are like still thinking on that or because the accountant didn't approve that?
Sorry, Pablo, can you repeat the last part of your question, I couldn't probably hear it?
Sorry about it, maybe -- regarding the concession fee, [Indiscernible] and expense, is that an intangible asset? So just trying to understand the rationale behind that, if it was a matter of like an internal decision or it was a matter of the accountant?
So we're still assessing alternative accounting treatments for this line item. We haven't reached a final decision. We're still in conversations with our auditors in this respect and would expect to have a resolution in the upcoming quarters. The way we reported was the more conservative approach. And obviously, this does not have any impact in the recoverability of the excess amount based push on to the tariff basis, but that's still a discussion more internally and with our auditors.
Our next question comes from the line of [Indiscernible] with Citi.
It's [Indiscernible] from Stephen Trent's team. I just have 2 at my end. The first thing I want to ask is, is it too early to say where the next administration will begin discussions to extend concession contracts beyond rather than approving large tariffs increases every 5 years?
[Indiscernible] we haven't had that conversation, and it seems that it's too early to have that type of conversation considering the year remaining on the concession.
Okay. And my next question is any general high level view over what investors could expect regarding tariffs and CapEx for the next regulatory review?
As we mentioned, it's still too early in the process. We are submitting the next MDP until June. So we're currently working in traffic and CapEx projections. We're working with VINCI, our partners to develop a very efficient and optimized CapEx, leveraging their international expertise.
Our next question comes from the line of Gabriel Himelfarb with Scotia Bank.
Just a quick follow-up question about the concession. It's my understanding that the increase in the concession fee will be somehow offset in the new master development plan in 2026. But in the meantime, is there any offsetting mechanism to offset the impact on profitability increase of the concession fee? Or is it just pure cost control?
So irrespective of the accounting treatment, the cash flow benefit will come until the next tariff negotiation. Certainly, not only because of this accounting treatment that we did, but also to compensate for some of the passenger loss that we're experiencing. We continue to be very aggressive on our cost containment measures. We're always looking to optimize our expense base, and that is part of the philosophy of running our company.
Okay. So in the meantime, there's no kind of regulatory offset or even increasing a bit faster the maximum grade to 100% or something just pure cost control?
Well, last year, we ended up at 97.5% of maximum tariff recovery. This year, we are expecting to be above that. So in that sense, those are mitigant measures to compensate for the additional outflow of concession tax that we are experiencing.
Congrats on the results.
Thank you, Gabriel.
And we have reached the end of the question-and-answer session. And I'll now turn the call back over to Ricardo Duenas for closing remarks.
We would like to thank everyone for participating in today's call. We appreciate your insightful questions, engagement and continued support. Ruffo, Emmanuel and I are always available, should you have any further questions or require additional information. Thank you once again, and have a great day.
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.