Greetings. Welcome to the Grupo Aeroportuario del Centro Norte, OMA, second 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. 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'll now turn the conference over to your host, Emmanuel Camacho. You may begin.
Thank you, Gimeli. Hello, everyone. Welcome to OMA's second quarter 2023 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. With that, I will turn the call over to Ricardo Dueñas for his opening remarks.
Thank you, Emmanuel. Hello, everyone, and thank you for joining us today. This morning, I will briefly comment on several events and milestones occurred during the quarter. I will review our operational performance and financial results, and finally, we will be pleased to answer your questions. Today, I am pleased to announce that last Tuesday, we released our 2022 sustainability report. This report is a testament to our commitment to transparency, accountability, and our unwavering dedication to environmental, social, and governance principles. We are proud to be, we are proud of the progress we have made in our sustainability journey, and we're committed to driving positive change in the years to come. The 2022 sustainability report is built upon Global Reporting Initiative and the Sustainability Accounting Standards Board frameworks.
These frameworks have guided us in creating a comprehensive and accurate portrayal of our sustainable practices and progress over the years. One of the essential aspects of this report is the reevaluation of materiality, where we conducted a thorough analysis to identify the most critical issues that affect our stakeholders and our business. We have identified and addressed 15 material topics that reflect the core sustainability challenge and opportunities we face as an organization. By focusing on these areas, we can drive meaningful change and create a positive impact to our stakeholders. Some significant achievements showcased in the 2022 sustainability report include the substantial reduction in our carbon footprint during last year. Last year, 95% of our energy consumption was sourced from renewables, resulting in a 48% reduction in our total Scope 1 and 2 carbon emission versus 2021.
Additionally, we have made remarkable strides in reducing our water consumption. We managed to reduce water usage by 17% in 2022, despite a 29% increase in passenger traffic as compared to 2021. As we embrace sustainability, we recognize that this is an ongoing commitment to responsible business practices. We understand that there is still much work to be done, and we remain committed in our determination to promote sustainable mobility. In addition, alongside the release of our 2022 sustainability report, we also published our green bond progress report pursuant to OMA's green bond framework. This report provides information about allocation of proceeds and the impact of project finance with the MXN 1 billion green bond issued in 2021. As of January 31st, 2023, we have contracted MXN 719 million in eligible green projects.
These initiatives, which include our solar panels, are already in operation, are projected to reduce over 15,000 MWh in energy consumption annually. On our two new water treatment plants in San Luis Potosi and Chihuahua airports, will allow us to treat an additional 24,000 cubic meters of water per year. I invite you all to explore this report in detail. Both documents provide comprehensive insights into our sustainable practices, achievements, and ongoing initiatives. We welcome the opportunity to engage in meaningful discussions with all of you about our sustainability efforts. Moving on to recent CapEx developments. As part of our efforts to enhance the services and capacity of the Monterrey Airport, on June 20, 2023, we start operations of the Wing One building, which is part of the airport's expansion and remodeling project.
This new wing serves passengers traveling through Terminal C, has an area of 5,600 square meters, seven boarding gates, and an annual capacity of 1.4 million passengers. As we continue developing the Monterrey Airport, we look forward to welcoming more passengers to experience the enhanced facilities and services offered by our expanded airport. Regarding growth of our industrial park in Monterrey, during the quarter, we started the construction of two new industrial warehouses of 14,000 square meters and 10,000 square meters, respectively. These warehouses are expected to start generating revenues in the second quarter of next year. In addition, since the end of 2022, we have been engaged in the construction of two additional warehouses.
Once these four warehouses are fully operational, total leased area will grow by 56% to 116,000 sq m, representing 83% of the total leasable space in the industrial park. As another highlight of the quarter, in Terminal Two, NH Collection Hotel at the Mexico City Airport, we successfully finished the remodeling. All 287 rooms underwent a full transformation, along with public areas and the restaurant of the hotel, creating an enhanced experience for our guests, which should translate into solid occupancy factor in subsequent years. Finally, in line with our strategy to improve passenger experience in our airports, we have successfully opened another OMA Premium Lounge in Tampico Airport. With this addition, we now directly operate a total of 10 lounges in eight of our airports.
In addition, we are in the process to start operations of new lounges in our Durango, Reynosa, and Zihuatanejo airports. Turning to our main second quarter 2023 results. OMA delivered solid financial and operating results in the second quarter of this year. Adjusted EBITDA grew 25% in the quarter to MXN 2.3 billion, and adjusted EBITDA margin reached 78.6%, setting a new record high, largely as a result of the increase in both aeronautical and non-aeronautical revenues and our successful cost control strategy. In the second quarter, OMA's passenger traffic reached 6.6 million, an increase of 13% versus second quarter of last year.
During the quarter, our Monterrey Airport delivered an outstanding passenger traffic performance, contributing with 544,000 additional passengers in the second quarter of 2023 versus second quarter of last year, equivalent to 73% of OMA's total passenger growth in the quarter. The top five destinations driving the airport's growth in the quarter were Toluca, Cancun, Querétaro, Felipe Ángeles, and Houston, which collectively accounted for half of the airport's overall growth. Besides Monterrey, the airport of Ciudad Juárez, Acapulco, and Mazatlán also contributed most to passenger growth, and the routes from these airports were, were the strongest traffic growth compared to second quarter of last year, were the Ciudad Juárez to Guadalajara and Cancun routes. Acapulco to Felipe Ángeles and Guadalajara routes, and Mazatlán to Mexico City and Tijuana routes.
On aggregate, these six routes added 130,000 additional passengers, equal to 17% of OMA's total passenger increase in the quarter. Primarily, as a result of the strong passenger traffic performance, our aeronautical revenues grew by 26% in the quarter to MXN 2.3 billion. On the commercial front, revenues increased 23% compared to the second quarter of last year, driven by parking, car rentals, restaurants, and VIP lounges. Occupancy rates for commercial space stood at 94.3% at the end of the quarter. Diversification revenues increased 5%. Our hotel services contributed most to this growth.
In the second quarter of 2023, occupancy rate, our Terminal Two NH Collection Hotel increased 420 basis points to 84.7%, reflecting the successful completion of the remodeling project, while the Hilton Garden Inn had an occupancy rate of 76.2%, 90 basis points higher. On the capital expenditure front, total investments in the quarter, including MVP investments, major maintenance, and strategic investments, were MXN 184 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 Ciudad Juárez, Culiacán, and Durango terminal buildings. The reconfiguration of the Mazatlán terminal building, major rehabilitations and reconfiguration of platforms and taxiways in several airports, and construction of four industrial warehouses.
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, then we'll open the call for your questions. Turning to OMA's second quarter financial results. Aeronautical revenues increased 25.8% relative to the second quarter of 2022, driven primarily by the 13% increase in passenger traffic and high revenue per passenger. Non-aero revenues increased 15.7%, with commercial revenues increasing 23%. The categories with the highest growth were parking, car rentals, restaurants, and VIP lounges. Parking increased 21% as a result of an increase in passengers and higher penetration in the Monterrey, Chihuahua, and Reynosa airports, as well as higher turnover in short-term stay parking across all airports.
Car rentals and restaurants rose 36% and 30% respectively, mainly due to higher revenue sharing and the impact of the opening of new spaces and improved contractual conditions. VIP lounges increased 44% as a result of the increase in passenger traffic and the opening of the Tampico Lounge in May, as well as the Ciudad Juárez Lounge, opened in November of 2022. Diversification activities increased 4.5%, as the strong hotel revenue growth was partially offset by a decline in OMA Cargo, which was affected by a decreased operations from our clients in the ground imports cargo activity. Total aero and non-aero revenues grew 23.4% to MXN 2.9 billion in the quarter.
Construction revenues amounted to MXN 710 million in 2Q, 2023, an increase of 27% as a result of higher MVP investment execution. The cost of airport services and G&A expense increased 11.2% relative to the 2Q, 2022, mainly due to higher payroll costs and an increase in the number of parking and OMA VIP lounge staff. Other increases came at the minor maintenance and other cost and expenses line items, which grew due to overall higher activity in our airports, as well as inflationary effects. Major maintenance provision was MXN 82 million, as compared to MXN 298 million in 2Q, 2022. Our second quarter, adjusted EBITDA was MXN 2.3 billion, and the adjusted EBITDA margin was 78.5%.
Our financing expense was MXN 282 million, mainly due to a higher interest expense as a result of additional debt issuance and higher average cost of debt. Consolidated net income was MXN 1.3 billion in the quarter, an increase of 37% versus 2Q, 2022. Turning to our cash position. Cash generated from operating activities in the second quarter amounted to MXN 1.7 billion, and cash at the end of the quarter stood at MXN 2 billion. On June 22, we made a payment for the first installment of the ordinary dividend of MXN 1.8 billion, in accordance with the resolutions of, of our shareholders meeting in April.
The remaining MXN 500 million will be paid no later than September 30, 2023, and we will provide you with a timely update on the matter. At the end of the quarter, total debt amounted to MXN 10.8 billion, and we ended the quarter with a healthy net debt to adjusted EBITDA ratio of 1.1 times. This concludes our prepared remarks. Gimeli, please open the call for your 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 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. Our first question comes from the line of Rodolfo Ramos with Bradesco BBI. Please proceed with your question.
Good morning, Ricardo, Ruffo, Emmanuel. Thanks for taking my questions and congratulations on the strong results there. Two questions here, if I may. The first one is, can you remind us what is your expectation for traffic growth this year? Can you frame for us the kind of discussions that you're having with airlines on their appetite? It seems like when you look at the routes opening, seems to be all the non-touristic destinations. Just wanted to get your take there on business outperforming leisure, potentially, within your network. That'd be my first question.
Second question, you know, when you think of the different projects that you're currently developing in Monterrey, and, you know, as part of your MDP and also other terminal expansions at other airports, I mean, how do you see your cost structure growing in the next two years? Not focusing on the projects that are probably gonna hit this or next year. How do you see costs growing in the next two years until your next MDP in 2025? Thank you.
Thank you, Rodolfo. On first part of the question, in terms of traffic growth, we expect something close to 26 million passengers per year is achievable. You're right, during, during the quarter, we opened eight new routes, most of them from Aerus and Viva Aerobus . Viva Aerobus from Mexicali and Bogota. The rest in Aerus, mostly business traffic. As, as you know, business traffic was lagging during COVID, now that we started to seeing increase in nearshoring activity, we're starting to see a strong pickup in business traffic. That's been reflected in our numbers.
Hi, Rodolfo, and with respects to your second question on costs, certainly, we are gonna see a slight pickup on some of the fixed costs that we have as a result of the openings. We, we opened a substantial facility in Monterrey at the end of the quarter. We are also making good progress with expansions in the Durango and the Ciudad Juárez airports. I mean, we should see a slight growth in cost above inflation as a result of these expansions.
Thank you.
Our next question comes from the line of Guilherme Mendes with J.P. Morgan. Please proceed with your question.
Good morning and afternoon, everyone, Ricardo, Ruffo, Emmanuel. Thank you for taking my question. I have two questions. The first one is a follow-up to the previous questions. You mentioned about the traffic for this year. Just wondering what your, your expectations for traffic in the longer term. Think of the near-term discussions and investments in Monterrey. I know your MDP is still far away, but what kind of traffic increase, maybe we could expect for the upcoming years? The second question is related to cash distribution, capital allocation. What kind of dividend/buybacks should we expect on the verge of these additional investments on the commercial front? Thank you.
For the first part, it's important to remember that during the first half of this year, we're comparing to a slightly lower base from last year, when we had the Omicron variant. So we expect growth to start normalizing a bit going forward. It's hard to tell what will be the projections, but we expect some sort of normalization, and we also expect business traffic to have a better performance than the one we've seen in the last couple of years.
With respect to cash distributions, as you know, this year we had an extraordinary dividend paid in March, and the ordinary dividend was declared in the April shareholders meetings. MXN 500 million of which are still pending to be paid. We have yet to define what the cash distributions are gonna be for next year, and that's something that we need to propose to shareholders.
Okay, super clear. Thank you very much. Our next question comes from the line of Alberto Valerio, Valerio with UBS. Please proceed with your question.
Hi, thank you for taking my questions. I have two on my side as well. About maintenance, major maintenance for the quarter, I'd like to know if there was any special items for this quarter to be a decrease year-over-year, and what should we expect for the remaining of the year? The second one about tariffs, what the percentage of maximum tariffs are you guys running? Should we expect any increase for the remainder of the year? Thank you very much.
Hi, Alberto. With respect to, to major maintenance, I, I think the, if you take the, the semi-annual amount, the cumulative amount for the six months, and annualize it, that will be our forecast for, for, for the year. The reason versus the decline of last year is that, a, a lot of the projects included in that major maintenance provision, which, as, as, as you know, is a non-cash item, are close to being fully provisioned. The, the going forward rate is gonna be lower than what we were experiencing in previous years. With respect to the, your second question, I think that, we're targeting for 2023 to end up above 95% levels of tariff compliance.
We also don't expect an increase in tariff for the remaining of the year.
Fantastic. Thank, thank you very much. Very clear.
Our next question comes from the line of Jay Singh with Citi. Please proceed with your question.
Thank you for taking my question. Can you provide any high-level color regarding what's driving such strong traffic growth from Acapulco at over, you know, 21% year-over-year? Thank you.
Acapulco in terms of percentage points, was the highest growth in our network. I think it's there are no new routes that were opened this quarter. It's mostly improved load factors in the existing routes that we have to Acapulco.
Got it.
It's important-
Thank you.
It's important, it's important just to keep in mind that at the, as with the saturation of the Mexico City Airport, what we have seen with most of the airlines, as they're starting to add higher capacity aircraft, and that's also impacting a lot of the, you know, of that type of traffic.
Yeah. Well, one, one clarification is, even though some of these routes were opened, before, last year, they were not in operation. We got about 19,000 passengers from Felipe Angeles Airport to that, that are new and were not last year to Acapulco. That explains half of the growth of during the quarter.
That's super helpful. I also would like to know, you know, what caused the 4.9% drop in cargo unit volumes versus a year ago? Would you say that was due to more competition from, you know, third-party storage facilities, or what would you say led to that?
You said in the cargo?
Yes.
Yes. Yeah, in cargo, it's.
Yeah. cargo units decreased 4.9% versus 2Q 2022. This was mostly due to cargo at the Monterrey Airport. we are seeing a deceleration on cargo activity in these months.
Thank you so much.
Also, just to keep in mind that the, the, the currency, the, the strong peso also has some effect in the, in the level of exports.
Our next question comes from the line of Edson Murguia with SummaCap. Please proceed with your question.
Hi, good afternoon. Thank you for taking my questions. I have two of them. The first one is related to, the cost of hotel services. This quarter, they increased 24%. Could you give us a little bit more color about the rationale of the increasing?
The second one is regarding, the sustainable report. You mentioned about the ACA, that you got the level one this first half, 2023, and you are pursuing level two. Could you give us a little bit more details about what will be mean getting level two from the ACA? Thank you.
With respect to hotel costs, there has been a strong pickup in hotel activity, and that has resulted in some additional costs, primarily, I would say, in the line items of payroll and food and beverage consumables. And as we expect growth to continue in recovering in the two hotels, we should see at least for the rest of the year, similar increases in the cost of hotels. And with respect to sustainability efforts, as you mentioned, we already have a Level 1 certification for the 13 airports of inaudible that were granted in February.
We are already working towards the Level two certification, which we would expect to get by the beginning of next year as well in all of our airports.
Just a follow-up on this, but what, what is the differences? I mean, regarding of the-
So the difference with, with Level one is basically you have to have, like, a carbon map and, and a diagnosis of your footprint. In Level two, you have to have a specific KPIs for a long-term downward trend in those KPIs.
Okay. Makes sense. Thank you so much.
Our next question comes from the line of Gabriel Himelfarb with Scotiabank. Please proceed with your question. Gabriel, are you there?
Sorry. Yeah, can you hear me now?
Yes.
Yeah.
You can proceed.
Yeah, thank you. Thanks for the call. Can you give a bit of color on the new, new route openings on, for example, the Tamaulipas, Matamoros, Piedras Negras? Is that a thing about nearshoring and manufacturing facilities being built there, or is it more like a higher demand for regional cities? Also, the airline that operates such routes, is it a large airline, a small, a low-cost carrier, or how's the dynamics of those routes? Thank you.
Thank you. Thank you, Gabriel. That's mostly related to the. It's a new airline called Aerus. They have smaller planes, Cessnas, Cessna planes, and it's gonna be focused on more regional routes. Out of the 8 routes that we opened during the quarter, 6 of them are related to this new airline. Yes, it's regional activity, mostly related to nearshoring activity.
Okay. It's like, like planes for about, 20 passengers or something like that, or bigger, a bit bigger, a bit lower?
No, no. You're right. It's around 20 passenger aircrafts.
Okay. Thank you very much.
Welcome. Thank you.
Our next question comes from the line of Fernanda Recchia with BTG Pactual. Please proceed with your question.
Hi, thank you for taking my question. I have two, actually. The first one, if you could further explore the capacity expansion at your Monterrey Airport, when do you expect to reach the full capacity of this 1.4 million passenger? How can we think of the incremental the passenger, and when do you expect to reach 100% of capacity? The second, I was curious to hear your opinion, because as you comment, Mexican airlines have been adding domestic capacity because of the restriction regarding the Category one status. I was wondering, once they, like, go recovers the Category one, we can have some shifts of traffic from domestic to international flow.
Given that you are the most exposed to domestic routes, I wanted to hear your thoughts on maybe you could have some impact because of this capacity shift. Thank you.
Sure. Thank you, Fernanda. In terms of capacity, our goal for this phase of expansion is to increase the current capacity of the airport by around 50%. Remember that this terminal was, the current terminal was for up to 12 million passengers. We're looking to expand to 16 million passengers. We're gonna keep evolving as traffic continues to grow. Fortunately, we don't see in the near-term future, any bottleneck, either on the airside, meaning the runway, aprons or taxiway, or on the terminal side. We'll keep growing as demand expands, but the current phase that we're working on is to increase by 50%.
Once, once we finish, we just finish this Wing One that is connected to Terminal C, we are already expanding that wing to connect it to the current Terminal A. Once that wing is connected to Terminal A, we're gonna use Terminal C for cargo expansion projects. We'll evolve to a second pier, which it will be wing, the second wing, and then also another airside space. That's pretty much it. In terms of, sorry, in terms of Category 2, once we get back to Category 1, we expect that to happen somewhere by the end of this, this year. It's, we expect it to, to don't, don't have so much impact in our traffic.
What we have seen in the last, in the last year, the last few months, it's all that capacity that hasn't been able to be that hasn't been absorbed by local carriers, has been absorbed by, by foreign carriers. We believe that the growth that we're seeing in, in, in business routes, is gonna remain constant even when we shift to, to Category one. We don't expect any major shifts in our traffic projections as a result of the, the shift to, to Category one.
Our next question, Oh, I'm sorry. Our next question comes from the line of Juan Macedo with GBM. Please proceed with your question.
Hi. Thanks for taking my question, congrats on the results. My question is a quick follow-up on the previous question on tariffs. I understand that you were at a 95% level of the maximum tariff allowed during the last quarter. Are you currently in that level? If I understood well, you expect to maintain a 95% by year-end, right?
Yes, that, that's correct. Due to seasonality factors and mix between airports, during the year, it, it might shift, but overall, for the full year, yeah, we are targeting slightly above 95%.
Great. Currently, you're around that level, right?
Yes. We're around those levels. Yep.
Great. Thanks. Thanks for the color. Congrats on the results.
Thank you.
We have reached the end of the question and answer session. I'll now turn the call back over to Ricardo Dueñas for closing remarks.
Thank you all for participating today. Ruffo, Manuel, 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. You may disconnect your line at this time. Thank you for your participation.