Greetings. Welcome to the Grupo Aeroportuario del Centro Norte, OMA, Q1 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Emmanuel Camacho, Investor Relations Officer. You may begin.
Thank you, Shamali. Good morning, everyone, and welcome to OMA's Q1 of 2022 earnings conference call. Participating today are CEO, Ricardo Dueñas, and CFO, Ruffo Pérez 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. I will now turn the call over to Ricardo Dueñas for his opening remarks.
Thank you, Emmanuel. Good morning, everyone. We appreciate you joining us today. This morning, I will review the evolution of our business and our Q1 performance. First, let me begin by highlighting several milestones and events. Last Friday, we held our 2022 annual shareholders meeting, where shareholders approved, among other matters, the declaration and payment of a cash dividend to shareholders of MXN 2.3 billion in two installments. The first one of MXN 1.8 billion no later than May 31st, and the 2nd one of MXN 500 million no later than July 31.
In addition, on March 31, we successfully completed our MXN 4 billion issuance in long-term sustainability-linked notes in the Mexican market, and I am pleased to announce that we have become the first airport operator to place a sustainability-linked bond or SLB in the Americas and the 2nd worldwide. As part of our SLB framework, we set an ambitious target to reduce our carbon footprint by decreasing OMA's greenhouse gas emissions per passenger by 58% by December 31st, 2025.
We have positive expectations about passenger traffic growth in the coming years, coupled with an important level of additional square meters from our infrastructure projects in development, which will translate into higher energy costs and operational requirements. We are working our best to create a more sustainable operation in our airports.
Proceeds from the SLB were used to pay MXN 2.7 billion in short-term loans, and the remaining will be used to fund MVP investments and for the corporate uses. Finally, as a commercial milestone during the quarter, we transitioned to a direct operation of OMA Premium Lounges, which will allow us to improve customer experience significantly and generate additional revenues. Currently, we operate eight lounges in three Monterrey terminals as well as our Acapulco, Culiacán, Chihuahua, Mazatlán, and San Luis Potosí airports. We expect to open four additional lounges in Reynosa, Zihuatanejo, Ciudad Juárez, and Tampico in 2022.
Turning to our main Q1 of 2022 results. We started off the year with a challenging passenger traffic recovery scenario as a result of the Omicron variant and the rise in positive cases.
However, the effect of Omicron on passenger performance vanished rapidly, which allowed us to get back on track. During the quarter, total passenger traffic reached 4.6 million, 52% above the first quarter of 2021. As compared to the Q1 of 2019, total passenger traffic stood at 90%. During the quarter, the routes that experienced the greater traffic growth in volume terms versus the Q1 of 2021 were Monterrey on its Mexico City and Guadalajara routes, and Chihuahua, Ciudad Juárez, and Acapulco on the Mexico City route.
All of them considered mainly business routes, which reaffirms our expectations of increased activity and better performance from the business travel segment. Turning to our Q1 operational results. We're able to deliver positive results in the quarter.
Our revenue expansion and our operational efficiency translated into an adjusted EBITDA increase of 74% versus Q1 of 2021 and a margin of 75%. On the commercial front, revenues increased 62% compared to the Q1 of 2021. Parking revenues increased 76% versus 2021, and we observed higher penetration levels in long stays, mainly in Monterrey, Ciudad Juárez, and Reynosa. In addition, car rentals, restaurants, and retail also contributed most to growth together with VIP lounges. Occupancy rate for commercial space in our terminals was 87.7% at the end of the quarter. Diversification revenues increased 38%. Our hotel services and OMA Carga contributed most to this growth.
During the Q1 of 2022, the occupancy rate of our Terminal 2 NH Collection Hotel was 74%, while the Hilton Garden Inn Monterrey Airport had an occupancy rate of 60%. OMA Carga revenues increased 50% versus the Q1 of 2021. Revenues from handling, storage, and custody of ground import cargo drove the increase in revenues.
On the capital expenditure front, total investments in the quarter, including MVP investments, major maintenance, and strategic investments, were MXN 430 million. During the quarter, we started preliminary works for the expansion and remodeling project in the Culiacán Airport and continued to work on the following major projects, expansion and remodeling of the Monterrey Airport Terminal A, expansion and remodeling of the Ciudad Juárez terminal building, reconfiguration of the Mazatlán terminal building, platform reconfiguration at the Monterrey Airport, and modernization of the Zihuatanejo terminal building.
We have finished installing solar panels in our 13 airports, and by the end of the Q2 of this year, we will be fully operational. Our solar panels are expected to generate over 20% of our energy consumption for the remaining quarters.
With that, I will now turn the call over to Ruffo Pérez Pliego for more detail on our financial highlights for the quarter.
Thank you, Ricardo, and good morning, everyone. I will briefly review our financial results, and then we will open the call for your questions. Turning to OMA's Q1 financial results. Aeronautical revenues increased 60% relative to the Q1 of 2021, driven by the 52% increase in passenger traffic. Non-aeronautical revenues increased 52%, with commercial revenues increasing 62%, and the category with the highest growth were parking, car rentals, restaurants, retail, and VIP lounges. Parking revenues increased 76% due to increased penetrations at Monterrey, Juárez, and Reynosa airports.
Car rentals, restaurants, and retail increased 62%, 76%, and 71% respectively, mainly due to higher revenues from the revenue share and the opening of new projects.
VIP lounges increased due primarily to the recognition of revenues as a direct operation, as well as an increase in the number of users of the OMA Premium Lounges. Diversification revenues increased 38%. As a result, total aeronautical and non-aeronautical revenues were MXN 1.9 billion in the quarter and grew 58% versus the Q1 of 2021. Construction revenues increased 13% as a result of our MVP investments.
The cost of airport services and G&A expense increased 9% relative to the Q1 of 2021, mainly due to a 20% growth in payroll expense, which is the result of the effects of the changes in labor regulation in Mexico in 2021 and the incorporation of new business lines such as the operation of the OMA Premium Lounges.
Contracted services and basic services grew due to the overall higher activity in our airports. While materials and supplies also recorded growth as we recorded direct costs from the operation of the OMA Premium Lounges. OMA's Q1 adjusted EBITDA reached MXN 1.4 billion, and the adjusted EBITDA margin was 75%. Our financing expense was MXN 155 million, mainly due to the higher interest expense as a result of an increase in the average outstanding debt of OMA and an exchange loss recorded. Consolidated net income was MXN 753 million, 81% above that of 1Q 2021.
Turning to our cash position. Cash generated from the operating activities in the quarter amounted to MXN 717 million, and cash at the end of the quarter stood at MXN 3.3 billion.
During the quarter, we recognized the following relevant transactions. We paid a special dividend of MXN 4.3 billion in January. We issued MXN 4.0 billion sustainability bonds in the Mexican market in March, and we also prepaid MXN 2.7 billion of short-term loans in March. At the end of the quarter, total debt amounted to MXN 9.2 billion, and our net debt to adjusted EBITDA ratio stood at 1.0 times. This concludes our prepared remarks. We shall now please open the call for questions.
Thank you. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Our first question comes from Javier Gayol with GBM. Please proceed with your question.
Hi, thank you for taking my question. Congratulations on the results to the OMA team. I have two questions. The first one is regarding the maximum tariffs. It's 2 -part question. 1st, when are you guys projecting you might be charging the full maximum tariff? Then, the 2nd part of that question is how are the airlines reading those tariff increases? Have you seen any pushback from them? Are you having to lower tariffs or have to negotiate with them to bring in more routes into your airports? That would be my first question.
Thank you, Javier. For the first one, we're expecting to reach the maximum tariff somewhere in the Q1 of next year. As with airlines, we have been working very well with them, and we're currently working on searching for new opportunities for routes.
Okay. Great. My 2nd question is regarding the balance sheet of the company and the recent issuance, and congratulations on that. Still, the leverage ratio of OMA, even though compared to other Mexican airports is at 1x, and it could be reasonable. Other international concessionaires have much higher leverage. My question is, are you guys comfortable with the current level of leverage, or could you look into increasing the leverage of the company?
Thank you. Thank you, Javier. You're right. It's low level compared to other airports. It would depend on the use of proceeds. If we were to find opportunities to expand abroad, then there would probably be a corresponding increase in some healthy level of leverage.
All right. Great. Thank you for all your answers, and congratulations on the results.
Thank you.
Our next question comes from the line of Alejandro Zamacona with Credit Suisse. Please proceed with your question.
Thank you. Hi, Ricardo, Rufo, Emmanuel. Thank you for the call. 2 questions on our side. The first one, on the cost control. We have seen several quarters with this same trend, delivering operating leverage. I was wondering if it's fair to assume that OMA has become more efficient in terms of costs, considering these efficiencies as structural, or if once the traffic is fully recovered, we should expect an uptrend in costs, mostly assuming the higher inflation that we have seen recently.
Hi, Alejandro. This is Rufo. Yes, I mean, the company has been working in the past few years to instill culture of cost discipline at all levels. We're seeing the fruits of those efforts over previous years. Right now, in the quarter, we were just 10% below the traffic of the Q1 of 2019. We can assume that we are now operating at, I mean, pre-pandemic levels, basically. The cost that we are seeing should keep increasing slightly given the higher volume of traffic. We do expect to continue to benefit from operational leverage.
What you would be seeing on a quarter-to-date comparison through the Q3 of this year would be in the same line items that you saw in the Q1 , like payroll, because of the base of comparison last year. We will also continue to see some increases in subcontracted services such as cleaning and security, where we have, given the larger amount of our operation, increased the size of the crews and the frequency of certain services across our airports. I think that we are in the right setup in terms of cost structure to manage that interval adequately.
Just to add on to his point, we definitely believe we have become more efficient, and we think that the current levels of profitability are sustainable.
Okay. Thank you. I'm not sure if it's my line or if it's Rufo. I'm just hearing a lot of background noise.
I don't know. We're able to hear the figures now correctly?
Yes. Thank you, Rufo. I'm sorry. Just to conclude the question, I mean, you are looking at some, you're expecting some trends, upward trends in the costs, but you are also looking for some efficiencies in the costs going forward. Is that right?
We will continue to benefit from operational leverage. When you compare to the Q2 of 2021 and probably the Q3 of 2021, you will continue to see the increases in payroll expense basically because of the basis of comparison rather than by a future increase in our costs. In terms of subcontracted services such as cleaning and security, yes, given the additional passenger volume that we're handling, we'll see some increases going forward. Definitely the level of cost we are operating at, it's very efficient, and we do not expect to see significant increases to handle the amount of traffic that we're expecting for the rest of the year.
Okay. Thank you, Rufo. I will let someone else to jump in.
Our next question comes from the line of Guilherme Mendes with J.P. Morgan. Please proceed with your question.
Hi, Ricardo Dueñas, Ruffo Pérez Pliego, Emmanuel Camacho. Good morning. Thanks for taking the question. The 1st question is related to traffic. On the last conference call, as you mentioned about reaching to pre-pandemic levels by the Q3 and reaching full year figures dropping around 3% to 5% when compared to 2019 levels. Just wanted to double check if that's still the base case. The 2nd question is a follow-up question in terms of the capital allocation. As you guys mentioned, leverage is still pretty low. Think in terms of what could be potential capital allocation opportunities if growth opportunities beyond OMA's or even increasing dividends in the future, what can you talk about in terms of capital allocation? Thanks.
In terms of traffic, we're slightly more optimistic than the previous call. We are now expecting passengers to be close to 23 million for the end of the year. What we're seeing in April is we're very close to the April 2019 levels. Probably by May and June, we may already be surpassing the levels of those same months in 2019. With respect to capital allocation, as Ricardo mentioned, unless we find the right use of proceeds, it's going to be difficult to continue increasing leverage to comparable levels of international airports.
At this time, we are pre-qualified in the Barbados process. We heard from the IFC who is organizing the process that it could get restarted by May. We'll be looking into it once the process tender rules become public. At this time, they have not announced any update on the timeline. With respect to increasing dividends going forward, it will depend on continuing to increase our net income, so we can generate sufficient covering the effective tax net income to be able to distribute dividends in a tax efficient manner.
Okay, super clear. Thanks.
Our next question comes from the line of Rodolfo Ramos with Bradesco BBI. Please proceed with your question.
Thank you for taking my question. My question is a follow-up on the expense one. Just to clarify, you know, so the level of expenses that you reported in the Q1 , would that be a good base for us to go off on an inflation basis going forward? Or, how do you see that for the rest of the year?
I would say yes for most line items, and perhaps in the case of subcontracted services could grow slightly greater than inflation because of the passenger volume effect. On the rest of the line items such as payroll, insurance, et cetera, I think it's probably reflective of what we are expecting for the rest of the year.
Okay, thank you. Just a 2 -parter here on traffic. Can you talk a little bit about, you know, the dynamics that you're seeing in these routes that you mentioned in your earlier remarks in your opening remarks about Monterrey, Mexico City, Monterrey, Guadalajara? How do you see this in the short term? A 2nd part of this question is, how do you see Santa Lucía fitting into your system, particularly Monterrey? How are you seeing that route going forward? I mean, does this type of passenger bode well with your network? Or how should we think about that? Thank you.
Thank you, Rodolfo. I think that what's interesting to point out is that if you look at the route of Monterrey, Mexico, the variation versus the Q1 of 2021 was 70%. That compares, for example, to Monterrey, Cancún, which was only 10%. Now, the first route that I mentioned, it's a purely a business travel, business passenger. The latter one, it's tourism. We're seeing more dynamism in the business passenger segment. Same thing if you look at, for example, Monterrey, Guadalajara, the increase was 92%, compared to, for example, Culiacán, Tijuana, which is a VFR kind of traffic, which is 15%. We're finally seeing a recovery in the business segment. That's the whole point that we mentioned earlier.
As of Santa Lucía, they're operating right now six routes. There's only one operated by Viva to Monterrey, so it's too early to say what the impact would be. What we do know is that it's an opportunity to develop Monterrey as a potential hub.
Thank you.
Again, as a reminder, if anyone has any questions, you may press star 1 on your telephone keypad to join the question and answer queue. Our next question comes from the line of Gabriel Inostroza with Scotiabank. Please proceed with your question.
Hi. Thanks for the call. Just two quick follow-up questions. The 1st one, do you think or do you plan to open more routes from your network towards Santa Lucia and maybe probably in the future to Tulum Airport? The 2nd, can you give a bit of color about business travel, specifically on the industrial related business travel, what we call boots, and about what we the business travel related to corporate travel we call shoes. What are the trends what you're seeing or you're planning for this year as offices are coming. People are coming back to the office, new conferences schedule things.
I'll take that. The first one, no, at the moment we don't have plans to for new routes for Santa Lucia or Tulum. I didn't hear the 2nd one. Did you get it?
In the 2nd, if I heard correctly, you're asking for what are the trends regarding the industrial type of travel as opposed to other.
Yes.
type of travel?
Yes.
Yes, we continue to see, I mean, that as a core market for us. When we talk about business travel, it's not only the high executive consultant banker type, but we do rely a lot on the industrial type of traffic for the maquiladoras and the factories and the car and steel plants that are located nearby our airports. Yes, we do see that traffic continue to performing well. As Ricardo mentioned in the Q1 , most of our routes that drove the increase of passengers in the quarter were business-related routes.
We do expect that trend to continue in the next few quarters for our airports. Okay. Thank you.
Our next question comes from the line of Alan Macías with Bank of America. Please proceed with your question.
Hi. Thank you for the call. Just a follow-up question on the hub, Monterrey becoming a hub. What measures are you taking to make that happen? If you see any opportunities in changing your traffic mix, more tourism traffic or do you see this as an opportunity to capture traffic that Mexico City airports cannot handle? Thank you.
Sure. Thank you, Alan. It's an ongoing process. We're having conversations with the airlines. I think the opportunity comes from trying to move all that traffic that today doesn't have to go through Mexico City, having it through the Monterrey airport, and that's a conversation that we were having at the moment. We want to explore also the geographical advantage that Monterrey has close to the border of the U.S. as well.
Thank you. Just one further question. Any updates you can provide or any insight into Mexico's aviation safety rating, and Mexico's efforts to recover the category one. Any news you have heard about that? Thank you.
I think we have the same news you probably all have. What we've heard from the authorities that they're expecting to reach level one again by the Q3 of this year.
Thanks. Great.
Our next question comes from the line of Juan Macedo with GBM. Please proceed with your question.
Hi. Thanks for taking my question, and congrats on the results. I was wondering about the VIP lounges you have started to operate. Could you give us some more colour on the economics of the project? For instance, if you have the levels of IRR that you are expecting, it would be great to know.
Well, we just took the operations directly. We expect to have a margin of around 70% for that line of business. We have currently a project to modernize all the lounges in our airports and to be able to provide a much better product than we used to have. As for IRR levels, I think we would have to come back to you probably on that one. Well, I think the previous contract expired.
Yeah.
I mean, we're investing in renewing, but there's no per se a large investment being made. It's basically profitability levels reaching a certain target.
Exactly.
Before we used to have, we used to receive only 50% of the revenue from the lounges. The third party operator used to have the other half.
Now we're having 100% of the revenues, but we're adding a certain operating cost, and the margin will be around 70%. Overall you would see an increase in revenue. Yeah.
That's great color and congrats on the report.
Thank you. Thank you.
Our next question comes from the line of Alejandro Zamacona with Credit Suisse. Please proceed with your question.
Hi, guys. Sorry for jumping in again. Just an additional question. On the commercial business, can you remind us what's the current status of the discounts on the minimum annual guarantee contracts?
Since late 2Q of last year, we stopped granting discounts. Basically for the Q3 of 2021 through today, we are not granting any more discounts in relation to the COVID pandemic or any other type of support to tenants.
Okay. Are you charging the?
Sorry. With respect to how much is fixed rent versus variable, in the Q1 of 2022, out of our commercial revenue, excluding parking, around 65% of the revenue was derived from fixed rents and 35% was derived from variable. As a point of comparison, in the Q1 of 2021, also excluding parking, 72% of the commercial revenue was fixed and 28% was variable.
Okay. Thank you, Rufo.
We have reached the end of the question and answer session. I'll now turn the call over to Ricardo Dueñas Espriu, Chief Executive Officer for closing remarks.
We want to thank all of you again for participating in this call. Ruffo Pérez Pliego, Emmanuel Camacho, and I are always available to answer your questions, and we hope to see you soon. Thank you, and have a good day.
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.