Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NASDAQ:OMAB) Q4 2023 Earnings Call Transcript
Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NASDAQ:OMAB) Q4 2023 Earnings Call Transcript February 23, 2024
Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings, and welcome to Grupo Aeroportuario del Centro Norte OMA Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Emmanuel Camacho, Investor Relations Officer. Thank you. You may begin.
Emmanuel Camacho: Thank you, Doug, and hello, everyone. Welcome to OMA's fourth quarter 2023 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 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 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. With that, I'll turn the call over to Ricardo Duenas for his opening remarks.
Ricardo Duenas: Thank you, Emmanuel. Good morning, everyone. We appreciate your presence on this call today. This morning, Ruffo and I will review our annual operational and financial results, and then we will be pleased to answer your questions. I will start by discussing our full year 2023 highlights and then I will move on to our main fourth quarter results. OMA achieved another exceptional financial and operational performance, setting new records for the full year 2023. We achieved record-breaking results in passenger traffic, revenues, adjusted EBITDA with an impressive adjusted EBITDA margin of 78.4%, and then consolidated net income. Our full year performance was propelled by a robust increase in both aeronautical and non-aeronautical revenues, underpinned by our successful cost control strategy.
During 2023, the airport that contributed most to the growth of passenger traffic was Monterrey, which grew by almost 22% during the year. The performance of passenger traffic from Monterrey to the metropolitan area of Mexico City, including Mexico City, AIFA and Toluca airports, is notable. During the year, traffic in the market represented 15% of our total passenger traffic and grew collectively by almost 600,000 passengers, an increase of 18% as compared to 2022. It is also important to highlight the positive performance on routes from Monterrey to Queretaro, Cancun, Guadalajara, Houston and Tijuana, which collectively add almost 700,000 passengers in the year and grew by 19%. As a result of our performance, 12 month passenger traffic stood at a new record level of 26.8 million passengers, which represents a 15% growth as compared to 2022.
Regarding our financial performance, aeronautical and non-aeronautical revenues reached again record levels in 2023, growing 27% and 18%, respectively, versus 2022. As a result, our adjusted EBITDA for the year was MXN9.1 billion, an increase of 28%, and we set a new record of our adjusted EBITDA margin at 78.4%. Consolidated net income for the year reached a record of MXN5 billion and increased by 28% compared to 2022. In reviewing the significant events of the past year, it is clear that we face both challenges and opportunities. We have remained consistent in our commitment to transparency, sustainability and operational excellence, reflecting our dedication to generating long-term shareholder value. Throughout 2023, we achieved notable milestones, including the opening in June of Wing 1 in the Monterrey airport as part of the major expansion project to enhance our capacity to serve passengers and accommodate growth in the airport.
We also made significant investments in improving and expanding our diversification activities, such as the completion of the remodeling of the NH Terminal 2 Hotel at Mexico City Airport and the construction of six industrial warehouses at our industrial park in Monterrey, of which, we have completed two. In addition, we opened three new OMA premium lounges facilities at Tampico, Reynosa, and Durango airports. Furthermore, in 2023, we effectively managed regulatory adjustments as shown by our proactive approach and respond to changes in our basis for tariff regulation. Despite challenges such as Hurricane Otis that impacted Acapulco Airport, we demonstrated agility and determination, ensuring minimal disruption to our operations. As we move forward, we remain focused on delivering value to our shareholders, while maintaining our commitment to sustainability and operational excellence.
We are aware of the challenges posed by the capacity reductions in aircraft due to the Pratt & Whitney engine recall program affecting two of the most relevant Mexican airlines. However, opportunities persist, particularly in terms of nearshoring in northern Mexico and the potential for increased commercial revenue per passenger. I will now move on to our fourth quarter performance. OMA delivered another strong financial operational performance in the quarter of 2023 -- in the fourth quarter of 2023. Adjusted EBITDA grew 16% in the quarter to MXN2.3 billion and adjusted EBITDA margin reached 77.7%, largely as a result of the increase in both aeronautical and non-aeronautical revenues, as well as our continuous cost efficiencies. In the fourth quarter, OMA's passenger traffic reached 6.8 million, an increase of 5.2% versus the fourth quarter of '22.
It is worth noting that excluding Acapulco, passenger growth in the quarter was 7.1%. Outstanding results in the quarter were guided by the performance in Monterrey, which contributed with 96% of OMA's total passenger growth as compared to the fourth quarter of '22. The routes from Monterrey that experienced the highest growth in terms of passenger volume were Querétaro, [Tlaquepaque] (ph), Tijuana, Mexicali, Tapachula, Toluca, and Cancun, which collectively accounted to 47% of the traffic growth during the quarter and grew by 20%. Primarily as a result of the strong passenger traffic performance, our aeronautical revenues grew by 13% in the quarter to MXN2.2 billion. Commercial revenues increased 14% as compared to the fourth quarter of '22, driven by restaurants, parking, and VIP lounges.
The restaurant line item benefitted from the operating of new food and beverage shops across the -- across our airports as we have sought to optimize and increase the revenues from leased commercial space, as well as from participation of sales. Additionally, as part of our strategy to directly operate and renovate our existing OMA preview lounge facilities, we have also increased the number of lounges available at our airports. In the fourth quarter of '23, revenues benefit from three openings that occurred during the year. Today, we operate 12 lounges in 10 of our airports. Occupancy rate for commercial space stood at 95% at the end of the quarter. On the diversification front, revenues increased 15%. OMA Carga contributed most to this growth, mainly as a result of an increase in the number of tonnage handled, particularly for service related to storage and custody in both ground and air import cargo.
In the fourth quarter of '23, occupancy rate of our Terminal 2 NH was 92%, while the Hilton Garden Inn Hotel had an occupancy rate of 68%. Regarding the industrial park in Monterrey, we have initiated the construction of two new warehouses for 6,000 and 9,000 square meters, respectively. These warehouses are projected to begin generating revenues in the second half of '24. With the addition of these warehouses, the lease area will expand to approximately 131,000 square meters, representing 95% of the total leasable capacity of the industrial park. On the capital expenditure front, total investments in the quarter, including MDP investments, major maintenance, strategic investments, were MXN1 billion. During the quarter, some of the most relevant projects we're working on are the expansion and remodeling of the Monterrey Airport Terminal A building, as well as the Ciudad Juarez, Torreon, Culiacan, and Durango terminal buildings, reconfiguration of the Mazatlan terminal building, major rehabilitation and reconfiguration of platforms and taxiways in several airports, and construction of four industrial warehouses.
Finally, I'm delighted to share that we have achieved airport carbon accreditation level 2 certification in our 13 airports. This achievement signifies not only our commitment to reducing our carbon footprint, but also aligning with global sustainability goals and maintaining our role as a leader in the aviation industry efforts to combat climate change. I would now like to turn the call over to Ruffo Perez Pliego, who will discuss our financial highlights for the quarter.
Ruffo Perez Pliego: Thank you, Ricardo, and good morning, everyone. I will briefly review our financial results for the quarter and then we will open the call for your questions. Turning to OMA's fourth quarter financial results. Aeronautical revenues increased 13.4% relative to 4Q '22, driven primarily by the 5.2% increase in passenger traffic and higher revenue per passage. OMA revenues increased 13.9%, with commercial revenues increasing 14.3% and the categories with the highest growth were restaurants, car parking, VIP lounges, and retail. Restaurants rose 38%, mainly due to the opening of spaces that Ricardo mentioned earlier in the Monterrey and Tampico airports, as well as higher revenue sharing. Parking increased 10.4% as a result of an increase in passengers and higher penetration in Monterrey, Culiacan, San Luis Potosi and Torreon airports.
VIP lounges increased 25.6% as a result of the increase in passenger traffic and the opening of the Durango lounge during the quarter, as well as the Tampico lounge opened in May of 2023 and the Reynosa one opened in August of 2023. Diversification activities increased 14.9%, mainly due to higher revenues from OMA Carga and hotel services. Total aeronautical and non-aeronautical revenues grew 13.5% to MXN2.9 billion in the quarter. Construction revenues amounted to MXN805 million in the fourth quarter, a decrease of 27% relative to the same quarter of last year, as a result of lower MDP investments in the quarter. The cost of airport services and G&A expense remained flat relative to the fourth quarter of '22. We had a decline in payroll, which decreased 10%, which was offset by an increase in other costs and expenses, as a result primarily of higher information technology expenses in the quarter.
Also contracted services grew 13.7% due to the beginning of operations of Wing 1 in the Monterrey airport and higher unit costs charged by third-party service suppliers for cleaning and other services. Major maintenance provision was MXN95 million, as compared to MXN41 million last year. OMA's fourth quarter adjusted EBITDA was MXN2.3 billion and the adjusted EBITDA margin reached 77.7%. Our financing expense was MXN224 million, mainly due to a higher interest expense as a result of additional debt issuance during 2023 and the higher average cost of debt. Consolidated net income was MXN1.3 billion in the quarter, an increase of 11% versus 4Q '22. Turning to our cash position. Cash generated from operating activities in the fourth quarter amounted to MXN1.7 billion, and cash at the end of the quarter stood at MXN2.6 billion.
At the end of the quarter, total debt amounted to MXN10.7 billion, and we ended the quarter with a healthy net debt to adjusted EBITDA ratio of 0.9 times. This concludes our prepared remarks. Doug, please open the call for your questions.
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