Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (OMAB) Q2 2025 Earnings Report, Transcript and Summary

Greetings, and welcome to OMA's Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Emmanuel Camacho, Investor Relations. Thank you, sir, you may begin.

Thank you, Thierry, and hello, everyone. Welcome to OMA's Second Quarter 2025 Earnings Conference Call. We are delighted to have you joining us today as we discuss our company's performance and financial results for the past quarter. Joining us today are CEO, Ricardo Duenas; and CFO, Ruffo Perez del Castillo. Please be reminded that certain statements made during the course of our discussion trade may constitute forward-looking statements which are based on current management expectations 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 will turn the call over to Ricardo Duenas for his opening remarks.

Thank you, Emmanuel. Good morning, everyone. This morning, I will briefly comment on several key developments during the quarter including highlights of our upcoming master development program negotiation. Then I will review our operational performance and financial results. And finally, I will be pleased to answer your questions. Let me begin with an update regarding our senior management team. During August and September, we will implement changes in two key leadership positions. First, our Chief Operating Officer, Enrique Navarro will be retiring in August after 21 years of dedicated service to OMA. On behalf of the entire team, I want to express our gratitude of his leadership commitment and contributions throughout this years. We are pleased to announce that Raful Zacarias will succeed him as Chief Operating Officer. Raful has been with OMA since 2006 in various operational positions, most recently as airport administrator at our Monterrey Airport. Second, in September, Pierre Grosmaire will join OMA as Chief Commercial Officer, taking over from Alvaro Leite who will be assuming new responsibilities within VINCI Airports. We thank Alvaro for his valuable contributions to our commercial strategy. Pierre brings extensive commercial experience in the airport sector. He served as Chief Commercial Officer of Lyon Airports from 2018 to 2025. He also served as Global Aviation Development Director at VINCI Airports. Under Pierre's leadership, we will continue to grow our extra aeronautical activities. Moving on. On June 27, we successfully completed our MXN 2.75 billion issuance in long-term notes in the Mexican market. Proceeds will be used to repay MXN 600 million in short-term loans and the remainder will be used to fund committed investments as well as for general corporate purposes. Finally, let me provide an update of the ongoing negotiation process of the 2630 master development program. At the end of June, we submitted our proposed MDP to Mexico's Federal Civil Aviation Agency, or AFAC. The total committed investment is similar in real peso terms to the amount committed under our previous MDP program, '21 to '25. From early August through late September, AFAC will be conducting technical visits to our 13 airports to review and discuss the proposed projects. Following that, we would expect negotiation of the tariff model to take place between October and November. Final approval of the MDP and the new maximum tariff is expected in early December, at which point, we also anticipate disclosing the outcome to the market. Our investment proposal is designed to enhance efficiency and optimize operations while maintaining the high standards of safety and service quality. Approximately 49% of the investment will be allocated to our Monterrey Airport. Key projects there include the third phase expansion of Terminal A, payment reconfigurations such as platform expansions, the construction of fast taxiways and several others as well as a number of technology upgrades across our airport network. Other airports with significant investments include Culiacan, [ Ciudad Juarez ], Mazatlan. This proposal reflects a balanced and disciplined approach with a strong emphasis on optimizing capacity of our current infrastructure as well as enhancing passenger experience and long-term value creations. In terms of tariff expectation, based on our proposal, we anticipate low single-digit increase in the maximum tariff in real terms. Moving on to our main quarterly operational highlights. In the second quarter of '25, OMA's passenger traffic totaled $7.2 million, an 11% increase year-over-year. Seat capacity during the quarter increased 12%. On the domestic front, passenger traffic grew by 10%, driven primarily by the Monterrey Airport which saw increase on routes to the metropolitan area of Mexico City, including the Mexico City, AIFA and Toluca Airports. Guanajuato, Hermosillo, [indiscernible]. These routes collectively added over 360,000 passengers during the quarter, representing 65% of the total domestic passenger growth. International passenger traffic increased by 19%. This growth was also driven by Monterrey Airport with passenger traffic increase on routes to Los Angeles, Miami, Chicago, San Francisco, San Antonio and Denver. This routes collectively added more than 106,000 passengers during the quarter, accounting for 66% of the total international passenger traffic increased in the quarter. In terms of airline participation, [ VivaAerobus ] represented 51% of our total traffic during the quarter, with a 14% increase in terminal passenger numbers compared to the second quarter of '24 while Volaris, which accounted for 24% of our total traffic, recorded a 31% passenger increase during the quarter. Moving on to OMA's second quarter financial highlights. Aeronautical revenues increased 17% with aeronautical revenue per passenger rising 5% in the quarter. Commercial revenues had a strong 20% growth with commercial revenue per passenger increasing by 8% to MXN 62 in the quarter as compared to the second quarter of last year, mainly driven by restaurants, parking, VIP lounges and retail. The occupancy rate for commercial space stood at 96% at the end of the quarter. On the diversification front, revenues increased 11% with industrial service contributing most to this growth. During the quarter, we completed the construction of a 5,000 square meter warehouse as part of the expansion plan of one of our tenants. OMA second quarter adjusted EBITDA increased by 19% to MXN 2.6 billion and adjusted EBITDA margin of 74.6%. On the capital expenditures front, total investments in the quarter, including MDP investments, major maintenance and strategic investments were MXN 965 million. I would now like to turn the call over to Ruffo Perez Pliego, who will discuss our financial highlights for the quarter.

Thank you, Ricardo, and good morning, everyone. I will briefly walk you through our financial results for the quarter, after which we will open the call for your answers. Aeronautical revenues increased 17% relative to 2Q '24, driven primarily by higher aeronautical yields as well as the increase in both domestic and international passenger traffic. Non-aeronautical revenues increased 16%. Commercial revenues increased 19.7%. The line items with the highest growth were restaurants, parking, VIP lounges and retail. Restaurants increased 41.1%, driven by a greater customer penetration and the opening or replacement of outlets in previous quarters in airports, such as Monterrey, Ciudad Juarez and Durango. Parking grew 12.7%, mainly due as a result of higher domestic and international passenger traffic. VIP lounges rose 34.6%, mainly due to an increase in rates and higher number of users as well as the opening and consolidation of the [indiscernible] launch, which started operations on last year's July. Retail increased 27.4% and similar to restaurant revenues -- this was mainly due to a greater customer penetration and the opening or replacement of spaces in previous quarters in airports like Ciudad Juarez, Monterrey, Torreon and Culiacan. Diversification activities increased 10.7%, mainly due to higher revenues from industrial services and hotel services. Industrial Services grew over 100%, mainly due to an increase in leased square meters in our industrial park as compared to the second quarter of 2024. Revenue from hotel services increased 4% year-over-year, reaching MXN 112 million, primarily driven by an increase in average run rates in both of our hotels, partially offset by lower occupancy rates. Total aeronautical and non-aeronautical revenues grew 16.8% to MXN 3.4 billion during the quarter. Construction revenues amounted to MXN 916 million in 2Q '25, an increase of 64.7% as a result of increased MDP investments. The cost of services and G&A expense increased 5.6% year-over-year. Primarily due to an 11% rise in payroll, contracted services rose 8.2%, mainly due to higher costs for security and cleaning services following contract renewals in prior quarters. Concession tax increased 18.1% to MXN 283 million, in line with the increase in revenues. Major maintenance provision was MXN 50.4 million compared to MXN 43 million last year. As Ricardo mentioned, OMA second quarter adjusted EBITDA reached MXN 2.6 billion and the adjusted EBITDA margin was 74.6%. Our financing expense increased by $184 million, reflecting a $185 million variation in noncash interest expense related to major maintenance provision as a result of lower discount rates used for it calculation. Consolidated net income was MXN 1.3 billion in the quarter, an increase of 3.8% versus 2Q '24. Turning to our cash position. Cash generated from operating activities in the second quarter amounted to MXN 1.8 billion and investing activities used cash for MXN 575 million. Financing activities reflect interest expense payments, the first installment of the ordinary dividend of EUR 2.25 billion, the long-term debt placement of EUR 2.75 billion and the prepayment of MXN 600 million of short-term loans, resulting in a net cash outflow of EUR 138 million. As a result, our cash position at the end of the quarter stood at EUR 3.4 billion. At the end of June and including the latest debt issuance, total debt amounted to MXN 13.6 billion. We maintained a strong balance sheet, ending the quarter with a net debt to adjusted EBITDA ratio of 1x. This concludes our prepared remarks. Thierry, please open the call for questions.

[Operator Instructions] Our first question is from Guilherme Mendes with JPMorgan.

The first one is a follow-up on the MDP and thanks for providing more color. Just wanted to confirm if I got it right, Ricardo, you mentioned about a similar level of CapEx in absolute perfect. And then the second point is on the traffic outlook. We have been seeing a very strong performance month after month. On the previous call, you guys mentioned about an expectation for a mid-single-digit increase for the year, which looks conservative at this point. So I just wanted to get a fresh view on what you're expecting for the second half of this year.

Yes. Thank you, Guilherme. Yes, so we had a very good first half of the year. So we anticipate for the rest of the year to be in the mid to high single-digit traffic growth. We expect some of the growth that we've seen in the first half of the year to reduce as we move along for the rest of the year based on the reduced capacity announced by some of the airlines, and also by tougher comps compared to last year. But in the mid- to high single digits would be a fair and accurate.

Perfect. And if I may have a follow-up on what is driving the traffic performance. So we have seen the new routes coming into Monterrey -- but is this related to near shoring in some way? Or if there's anything else explaining the strong performance.

This is Ruffo. So certainly Monterrey has been the airport that has grown most dynamically during this year. Both in domestic and international terms. And certainly, industrial activity -- we continue to see very strong industrial activity and low occupancy -- very high occupancy factors in the industrial park business, which is an indicator of a very strong economic performance in the region. So yes, we attribute traffic growth to strong economic performance in that market.

Our next question is from Juan Ponce with Bradesco BBI.

Monterrey's international traffic has been increasing a lot new routes, et cetera. What are you expecting in terms of the network development in this airport over the next 12 months?

So we still see new openings particularly in the domestic side in the Monterrey Airport in the second half. And we expect consolidation of some of the routes that were opened recently, particularly since last November. But as you -- as we mentioned, there are some capacity cuts being announced and they started to kick in, in June. So therefore, we don't expect that much acceleration in the second half of the year in terms of passenger growth in the international market in Monterrey, but we do still see a pretty good growth for the full year.

Our next question is from Alberto Valerio with UBS.

Thanks Ricardo, Emmanuel. One follow-up on the MDP question. You mentioned about the high single-digit tariffs. Should we expect any concentration in an airport or there should be some divergence between among the own airports on tariffs?

I'm sorry, could you repeat your question, Alberto.

Yes. About the tariff for MDP, Ricardo mentioned in the initial remarks that probably will be high single digits. Is that correct? And so low single digits. And should we see difference between -- among the airports. Some airports with higher increase in tariffs, some others with maybe a decrease in tariffs?

It's still part of the negotiation, Alberto. We don't see a decrease in any of them. So -- but we're still work in progress with the authorities. But it's in the growth we expect is in the low single digits. And we believe that would maximize -- and this -- we believe that this is what maximizes the net present value of the company.

Our next question is from [ Abraham Jens ] with Banco Santander.

I wonder if you can give us more color about the growth in the commercial revenue per passenger that you are expecting in the mid- to long term specific with your MDP that you are in good...

So commercial revenues obviously have increased by a number of measures that we have been implementing over the last couple of years. Renegotiation of contracts, opening of new outlets, refresh of the decoration and the feel and look of the stores as well as some use of technology to maximize passenger I would say, exposure to retail outlets and food and beverage outlets. We expect those activities to continue and -- but just in the second part of your question, you mentioned MDP, remember that MDP refers to aeronautical investments. So therefore, we don't see that much relationship between the MDP and the commercial growth of revenue per passenger.

Our next question is from Gabriel Himelfarb with Scotiabank.

Quick question. Are you perhaps looking at the possibility of new assets or investments perhaps in Brazil now that Motiva CCR is selling its airport assets. .

Thank you, Gabriel. We're not formally -- as OMA, we're not formally involved in that specific process. We're always looking for potential opportunities in airports, but we're not involved in that specific -- we're not involved in the formal process as of today.

Our next question is from Federico Galassi with TRG.

Two questions, if you can give us the number. But in general terms, how much of the commercial revenues are coming from Monterrey if you have a number for that, thinking that you will increase the commercial capacity at the end of this year and next year.

I don't have the specific number Federico, we'll get back to you. But yes, I'll look for you and get back to you.

Okay. And the second one Ruffo, is related to the MDP, the investment in Monterrey. Can you give us -- and I understand it's more related to aeronautical than commercial. But can you give us some clue of what are the focus of these new investments?

Yes. So we mentioned that about 49% of the next MDP will be focused on Monterrey. But we are doing is a lot of expansion in April and platform capacity to maximize the use of existing gates and be able to use also remote gates to service our airlines and passengers. We're doing new fast lane exit taxiways from the wrong way also to increase its efficiency. And we are also expanding -- continue to expand the Terminal A of Monterrey throughout the 5-year period as well to be able to cope with the expected demand that we anticipate in Monterrey. So basically, that's the key highlights of those investment airport, coupled with a lot of technology operates. So we can also be able to process passengers more efficiently and provide better experience to passengers.

Our next question is from [ David Soto ] with Scotiabank.

Just a quick one. Do you see any upside risk on passenger growth due to the U.S. actions at Mexico?

Can you repeat, please?

My question was, do you see -- do you see any upside risk on passenger growth due to the recent U.S. DOT actions at Mexico? .

Your question is if we see risk on passenger outlook because of the DOT announcements recently.

Yes, correct. Sorry, for all the back noise.

Yes. So yes, we do not expect any major impact in the following months, but we will continue to monitor closely any measures taken by the U.S. DOT.

[Operator Instructions] Our next question is from Alan Macias with Bank of America.

Just a question regarding dividend policy. Given your expected CapEx for the next 5 years, could we expect the change in dividends, an increase there? .

Yes. In terms of the dividend policy, we have been in past recent years distributing between 85% to 95% of net income. And we would expect to continue with a similar policy for the foreseeable future. So as EBITDA and net income growth, yes, there will be available cash flow for distribution.

There are no further questions at this time. I would like to turn the floor back over to Ricardo 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.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.