Good and welcome to the Grupo Aeroportuario del Centro Norte OMA first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Emmanuel Camacho, Investor Relations Officer. Thank you, Emmanuel. You may begin.
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 Dueñas for his opening remarks.
Thank you, Emmanuel. Good morning, everyone. This morning, I will briefly comment on several events occurred during the quarter. Then I will review our operational performance and financial results. Finally, we will be pleased to answer your questions. Last Friday, we held our 2023 annual shareholders meeting, where shareholders approved, among other matters, the declaration and payment of an ordinary cash dividend to shareholders of MXN 2.3 billion in 2 installments. The first one of MXN 1.8 billion, no later than June 30th. The second one, MXN 500 million, no later than September 30th. In addition, on March 10th, we successfully completed our MXN 3.2 billion issuance in long-term sustainability-linked notes in the Mexican market. Pursuant to the framework of the notes, we have set an ambitious carbon footprint reduction target.
Proceeds were used to amortize our OMA 13 notes for MXN 1.5 billion and to repay MXN 1.2 billion in short-term loans. The remaining MXN 500 million will be used for general corporate purposes, including the funding of future investments. Moving on to our main first quarter of 2023 results. OMA delivered solid financial and operating results in the first quarter of this year. Adjusted EBITDA grew 41% in the quarter to MXN 2 billion, and adjusted EBITDA margin reached 77.5%, largely as a result of increase in both aero and non-aero revenues. In the first quarter, OMA passenger traffic reached six million, an increase of 30% versus first quarter of last year. The airports that led passenger traffic growth during the quarter were Monterrey, Ciudad Juárez, Chihuahua, and Culiacán.
The routes with the strongest traffic growth compared to the first quarter of last year, most of them considered mainly business routes, were the Monterrey to Mexico City, Guadalajara, Santa Lucía, Toluca, and Cancun routes, and the Ciudad Juárez to Guadalajara route. On aggregate, these six routes added 470,000 additional passengers in the quarter, an increase of 42% versus the first quarter of last year. Primarily, as a result of the strong passenger traffic performance, our aero revenue grew 40% in the quarter to MXN 2 billion. On the commercial front, revenues increased 36% compared to the first quarter of last year, driven by parking, restaurants, retail, and car rentals. Occupancy rate for commercial space stood at 93.6% at the end of the quarter. Diversification revenues increased 22%.
Our hotel services and OMA Carga contributed most to this growth. In the first quarter of this year, occupancy rate at our Terminal 2 NH Collection Hotel was 80.3%, while the Hilton Garden Inn Hotel had an occupancy rate of 73.4%, signaling a further recovery of business travel. OMA Carga revenues increased 14%, mainly driven by the handling of air and ground import cargo. On the capital expenditure front, total investments in the quarter, including MDP investments, major maintenance, and strategic investments, were MXN 757 million.
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 the Ciudad Juárez, Culiacán, and Durango terminal buildings, reconfiguration of the Mazatlán terminal building, and major rehabilitation and reconfiguration of platforms and taxiways in several airports. 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, and good morning to everyone. I will briefly review our financial results, and then we will open the call for your questions. Turning to OMA's first quarter financial results. Aeronautical revenues increased 40% relative to the first quarter of 2022, driven primarily by the 29% increase in passenger traffic. Non-aero revenues increased 25.7%, with commercial revenues increasing 35.5%. The categories with the highest growth were our parking, restaurants, retail, and car rentals. Parking revenues increased 58% due to increased penetration in the Monterrey, Chihuahua, and Reynosa airports, as well as higher turnover in short-term stays in most of our airports.
The increased activity in our parking revenues is the result of an overall higher business dynamism at our airports. Restaurants, retail, and car rentals rose 49%, 43%, and 20% respectively, due to higher revenue sharing and the impact of the different initiatives that were implemented throughout 2023. Diversification activities increased 41.5%, reflecting strong hotel revenue growth and to a lesser extent, continued OMA Carga growth. Total aero and non-aero revenues grew 36% - MXN 2.6 billion in the quarter. Construction revenues amounted to MXN 664 million as a result of the higher MDP investment execution.
The cost of airport services and G&A expense increased 14.9% relative to the first quarter of 2022, mainly due to an increase in payroll expense as a result primarily of increased headcounts and higher labor costs versus last year. Other increases came at the minor maintenance and contracted services line items, which grew overall due to overall higher activity in our airports as well as inflationary adjustments. Major maintenance provision was MXN 77 million as compared to MXN 82 million in the first quarter of 2022. OMA's fourth quarter adjusted EBITDA reached MXN 2.0 billion, and the adjusted EBITDA margin reached 77.5%. Our financing expense was MXN 229 million, mainly due to a higher interest expense as a result of additional debt issuances and a higher cost of debt.
Our consolidated net income was MXN 1.1 billion in the quarter, which reflects an increase of 43.5% relative to 1Q22. Turning to our cash position. Cash generated from operating activities in the first quarter amounted to MXN 1.3 billion, and cash at the end of the quarter stood at MXN 2.8 billion, which already reflects the payment of a special dividend of MXN 1.45 billion made during the month of March. At the end of the quarter, total debt amounted to MXN 10.7 billion, and we have a healthy net debt to adjust the EBITDA ratio of 1.1 x. This concludes our prepared remarks. Alicia, please open the call for questions.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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. Thank you. Our first question comes from Carlos Peyrelongue with BofA. Please proceed with your question.
Thank you. Good morning, gentlemen. Congratulations on the strong results. Two questions, if I may. First one is related to passenger traffic. Very strong, obviously on the quarter. If you could give us some idea of your expectations for the remainder of the year. It looks like business traveling is coming back strongly. You know, what should we expect in terms of the remainder of the year? That would be the first. The second is related to margins. Again, a very solid expansion there. If you could provide some color as to whether that is sustainable or you expect, you know, some headwinds over the remainder of the year in terms of additional costs. Thank you.
Thank you. Thank you, Carlos. Passenger traffic. Remember that we're comparing to the first quarter of last year when we had the Omicron variant, COVID. We had an easier comp base. Obviously, it's gonna become more challenging as the year moves along, but we're comfortable that something in the high single digits it's achievable. In terms of margin, we believe we're consistent, as mentioned before, between 76% and 77% EBITDA margin is attainable.
Perfect. Thank you.
Thank you. Our next question comes from Josh Milberg with Morgan Stanley. Please proceed with your question.
Hey, everyone. Thank you for the call. I was hoping you could give your perspective on the outlook for return to Category 1 later this year, just with the latest legislative developments. Also, if you could just give a little bit of your take on what that could mean for OMA on the international side in terms of route additions by Mexican carriers to U.S. destinations from Monterrey or your other airports, thinking about next year. Then related to that, I just wanted to ask if you think, you know, eventually a postponement of that return could actually help OMA in that it might compel the local carriers to direct more of their fleet capacity to the domestic market where you guys obviously have more exposure. That's my first question.
Sure. Well, yes, Category 1, as you know, this week, one of the prerequisites to go back to Category 1 is the approval of the airport and air law. It's already approved in the deputies chamber. It's going to the Senate. It's gonna be approved either today and tomorrow. I guess that.
Yeah, with respect to. We would expect a return to Category 1 towards the end of the year once the FAA conducts its audits. In terms of new route developments, as you know, Category 1 does affect Mexican carriers, but it has not affected U.S. carriers.
In the past couple of years, we have seen new airlines coming into our airports from the US to serve the demand of international travel. I do not think that the return to Category 1 for OMA will have a significant impact, nor a delay in the obtaintion of this regaining of the Category 1.
Okay. That's great. My second question was just if you could give a kind of high-level view on, you know, the this news around the bill that's out there that could give the government, you know, an ability to revoke concessions. Just your kind of high-level view again on, you know, what risk that presents or if that's really just noise and not something that we should be concerned about.
I mean, I think it's too early to anticipate. We know the bill is not gonna be discussed in this period. It's gonna move towards the end of the year. The next period is gonna be September to December. We believe it's gonna be discussed there. We need to wait what's gonna be the final language of that bill. It's really still too early to say what impact it could have, not in airports, but in every business that has any permit or concession regarding the government.
Okay, fair enough. Thank you for the detailed responses.
Thank you. Our next question comes from Guilherme Mendes with JPMorgan. Please proceed with your question.
Hi, everyone. Guilherme Mendes. Thank you. Thanks for taking my question. The first question is related to the MDP maximum tariff after the recent increase that we saw in the beginning of the year. How far are you from the maximum level, and if you do expect to achieve the maximum level by early, next year? The second question is in terms of capital allocation. You already saw the dividend announced for this year. OMA continues to operate at a low leverage. How should we think about capital allocation going forward, if you can expect some additional dividends or buybacks or, potentially, some M&A activities outside Mexico? Thank you.
With respect to maximum tariff recovery, last year, we were slightly below the 90% mark. I think that for this year, we're targeting to be around 95% for the full year. With respect to capital allocation, we in this year already approved and paid a special dividend of MXN 1.45 billion. As Ricardo mentioned, the dividend was approved by shareholders last Friday in a total of MXN 2.3 billion. The total distribution to shareholders would be this year of MXN 3.75 billion.
As cash flow generation permits, I mean, in future years, I mean, we'll see what the level of dividends are, but we do not expect to have an increase in leverage with respect to current levels.
Super clear. Thank you.
Thank you. Our next question comes from Rodolfo Ramos with Bradesco BBI. Please proceed with your question.
Good morning, and good afternoon, everyone. Thanks for taking my question. I have a couple. The first one is on your non-aeronautical revenue per passenger. You know, we're still above those levels that we saw before the pandemic struck. Just wanted to see whether you have a normalized target that you're looking at, especially as traffic continues to recover. That would be my first question. My second question is, can you remind us, I'm not sure if you have that information, but what would be the requirements or restrictions for a foreign company to acquire all of OMA's shares? I know there's something in the regulation or something else that could make that more difficult. Thank you.
Sure. With respect to commercial revenue, non-aero per pax levels, we see it separately, but it's purely commercial to what is non-aero. As you know, all of the hotel, cargo, and other diversification activities do not have a specific relationship to passengers. As passengers increase going forward, it will not necessarily have an impact in the total non-aero revenue. On the commercial revenue per pax level, we do expect to continue to see increases. We have made refurbishments and reconfigurations of the terminals in recent years, and we expect, for example, this year to open new outlets in the areas that are going to be inaugurated in the Monterrey Airport and the Ciudad Juárez Airport.
That will continue to provide a boost to our commercial revenues per pax in the next quarters.
Thank you.
With respect to restrictions, yes, I believe the law establishes that in order for a foreign company to acquire more than 50% or 51% of the shares of a concessionaire, certain special permits need to be obtained by the Foreign Investment Commission. That would be a process that would need to be carried out with that authority.
Okay, thank you. Just as an extra here, if I may squeeze it in. You know, you've been, you know, now with VINCI for a full quarter operating. Just wanted to get your just kind of informal feedback on how is that coming, you know, in different commercial areas working together or, you know, any synergies that you've seen over the quarter, and how is that working out? Thanks.
Yeah. It has been very positive. There's a lot of synergies where they have been adding value. Obviously, we're leveraging a lot of their platform in terms of terminal design, non-aero revenues, relationship with airlines, route development. Our DNAs are in both companies are very similar. It has been a relatively easy integration.
Great. Thank you for the color.
Thank you. Our next question comes from Alberto Valerio with UBS. Please proceed with your question.
Hi. Good afternoon. Good morning, Mexico. Thanks for taking my questions. I would like to know about tariff. We're just seeing an increase, real increase in this quarter. We also see some pressure from the press for the tariffs in the airport recently. I'm wondering how can we expect further increase? You just mentioned you are at 95% of maximum tariffs. The competitor is close to 99%. I'm wondering whether we could expect some real increase during the year or next, or if we should take it more stable in real terms. Thank you very much.
Hi, Alberto. Yes, as we were mentioning, we're targeting around in 95% recovery this year. Next year, I mean, we shall see what the impacts are in with respect to the inflation. There are some factors that do affect or benefit the recovery of maximum tariff, which include, for example, the FX rate movements or the growth in different growth in different airports that have different levels of charges. I think that towards the end of the year, we'll make a decision towards any further adjustments. At this time, we're thinking of this 95% recovery for the year.
Okay. In terms of CapEx, if I may do one more, what do you expect to do this year in terms of full CapEx? If you are looking abroad Mexico airports for a potential expansion in the future? That's my two question. Thank you.
Full CapEx execution, and this includes both investments in concessioned assets as well as major maintenance execution, should be around the MXN 3.5 billion level. With respect to potential M&A activity, I think that any expansion outside Mexico will be first analyzed by VINCI Airports and not necessarily to be performed through OMA.
Fantastic. Makes sense. Thank you very much.
Thank you. Our next question comes from Bruno Amorim with Goldman Sachs. Please proceed with your question.
Thank you. I actually have three questions for you. The first one on the outlook, on the regulatory side. The question is actually unrelated with the potential changes in regulation. Just wanted to understand where do we stand vis-a-vis, you know, the, the prior forecast made at the time of the last revision? Correct me if I'm wrong, but I guess your last revision happened at the end of 2020, during the pandemic. Traffic levels were pretty much depressed. We saw a sharp rebound over the past couple of years. The question is, where do we stand now? Because this was, you know, the forecast at that moment for traffic in early 2023. Is the company running above, in line, or below?
Also could you please confirm if at the moment when you had, you know, the revision in MDP at the end of 2020, the level of rates, interest rates that were used as a proxy for risk-free and then for the calculation of the allowed return reflected, you know, kind of the 10-year rates at that moment, which, if I'm not mistaken, were well below where we are today. That's kind of the first question. The second question on nearshoring. You know, can you share with us, you know, evidence of impact on your traffic or inactivity, you know, around your main airports, coming from nearshoring? You know, do you think it's already, you know, materially impacting traffic? Should we expect more impact going forward?
Then, the third question is just a clarification. You know, can you please, you know, let us know why you have not been able to run, you know, closer to the maximum tariffs? You know, why not run closer to 100%? What prevents the company from being, let's say, more in line with the ceiling in terms of the tariffs? Thank you so much.
Bruno, I'll go through your questions, not necessarily in the order you presented them. With respect to nearshoring evidence, I mean, we have seen some news. There was a big announcement of a major electric vehicle manufacturer that will have a significant investment in the Monterrey area, and some other announcements by other foreign companies to establish presence around the Monterrey area. Right now that is the type of areas that it's being given, I mean, publicly, obviously as time passes and that announced investment starts to translate into direct foreign investment. I mean, we'll probably be able to present more hard data on that.
What we do see is an increase primarily in our Monterrey and Ciudad Juárez routes. As you know, Monterrey had the best performing growth in the quarter in our network. We do believe that a lot of that is linked to the renewed interest in Monterrey as a major industrial and manufacturing center. We have seen that since the pandemic, Ciudad Juárez has positioned itself as a very strong destination for maquiladoras and other type of industrial businesses. That's one of the reasons we are growing our terminal capacity in Ciudad Juárez to attend that demand. That's with respect to nearshoring.
With respect to the MVP negotiation, we are still early in the process. We have not started to see what the potential impacts of the different variables that affect the calculation will be. We have to submit a definitive plan to the authority in the middle of 2025, and at the end of 2025, reach a new investment program and tariff outlook for the next five years. Right, the current levels of interest rates to us will not be impactful. The interest rate formula takes the 24th month average before June of 2025. We'll see what the average is over that timeframe, which has not yet started.
In the case of our maximum tariff, most of the reason, it's twofold. I think the larger than expected inflation that we had in 2021 and 2022, obviously, make us get farther away from the 99% goal. Also, we had different passenger mix in some of our airports that do impact the average calculation. I think that is primarily the impact that they have had in trying to get closer to the 100% mark in the recovery of tariffs.
Thank you very much. Just a very quick follow-up. You know, if you look at traffic now at the beginning of 2023, is it below, above or, you know, in line with the traffic course that you and the regulator agreed on at the end of 2020?
It's slightly above, but it's not significantly above. Yeah.
Perfect. Thank you so much.
Thank you. Our next question comes from Lucie Rozmes with Compass Group. Please proceed with your question.
Hi. Good morning. Thank you for taking my question. It's just a quick follow-up on what you've been talking about the maximum tariff. I just wanna ask what was the year-over-year increase that you made this tri-trimester in tariff?
Hi, Lucie. The increase that we implemented in the first quarter of this year was in the double digits area.
Okay. Thank you. Is it fair to assume that maybe, moving forward on the next quarters we could see, similar, not maybe not double digits, but similar increases?
I think that will depend on how inflation behaves and how far away we're from the 100%. That decision will be taking somewhere around the second half of this year.
Okay. Thank you.
Thank you. Our next question comes from Anton Mortenkotter with GBM. Please proceed with your question.
Hi, guys. Thank you for the call and congrats on your results. I just have a quick follow-up on Rodolfo's question regarding VINCI's involvement in the company. Could you provide some more detail on any project initiative or an example to help us better understand how you're leveraging from VINCI's expertise and how it is expected to possibly impact the business?
Sure. I mean, just to give you a few examples in the design of our new terminals. They operate in 70 airports around the world, so they know what has worked in other countries, what hasn't worked, so there's a lot of information to leverage there. There's a lot of relationships that we can lever. For example, with potential suppliers, they have more purchasing power with a lot of them. We're able to get on that to get the benefit of that. Since they have 7 airports around the world, they have conversations with basically every airline around the world or most airlines around the world.
That's a great opportunity for us to have access to the right people, and try to bring some attention into OMA and potentially open some new routes. Same thing in non-aero business. They also have the knowledge, and they have a team of specialized people in each field, in their Paris headquarters, which is, it's also very valuable to us. Another example is, for example, tendering processes. We're currently tendering some non-aero retail space. Most of the retail companies competing for those, for that space, they previously have relationships with them. They know, and they give us a very higher, better negotiating power with them.
That's pretty clear. Just another one on related to that. Just on the law reform, the aeronautical one, I mean, I understand there's no significant impact on you guys. Just wondering if there is any impact operationally wise from the involvement of SEDENA in the industry?
Not... Well, the law does permit government to both operate airlines and airports at the same time, which under the previous law was prohibited. I believe that from a theoretical standpoint, yeah, some SEDENA or the Navy could operate airlines and airports at the same time. In our airports, there is no additional activities or oversights contemplated by the SEDENA.
Super clear. Thank you.
Thank you. Our next question comes from Fernanda Recchia with BTG. Please proceed with your question.
Hi. Good morning, everyone. Thank you for taking my question. I have two on my side. The first one is still on tariff. When we compare Monterrey TUA with other airports, Monterrey has one of the highest TUAs. Considering your speech regarding still increasing tariff along this year and your exposure to Viva, which is a neutral low-cost carrier, just wanted to understand if you are thinking of providing any kind of discount for airlines that have higher route frequencies in Monterrey, or how do you think of this high exposure to Viva in this scenario of high TUAs? My second one regarding Monterrey Airport, just wondering if you have any plans maybe to anticipate the build of a new runway, in case your traffic remains performing strongly. Thank you.
So with respect to a potential second runway in Monterrey, yeah, it is contemplated in the final stages of the development of the airport, that's post 2035. So it's nothing that we are currently, I mean, analyzing or starting to discuss. Certainly no works will be done in the next few years in that regard. But I mean, towards the latter part of the concession, yeah, depending on the traffic outlook, a second runway may be needed to continue supporting the growth of Monterrey. With respect to our Monterrey airport and our exposure to Viva, as you know, Viva has around a 40% market share in all our airports.
It's the highest market share that we have, followed by Volaris and Aeroméxico. Well, our incentive policy is general, so we cannot discriminate one airline versus others. They are based on new routes, openings and things like that. No specific policy with respect to an airline is contemplated.
Great. Thank you.
Thank you. There are no further questions at this time. I would like to turn the floor back over to Ricardo Dueñas, Chief Executive Officer, for closing comments.
Thank you all for your participation today. Rufo, Emmanuel, 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 teleconference. You may disconnect your lines at this time. Thank you for your participation.