Grupo Aeroportuario del Centro Norte, S.A.B. de C.V.
Q2 2016 Earnings Call Transcript

Published: 26 Jul 2016

[Operator:]

Good day and welcome to the OMA Second Quarter 2016 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Vicsaly Torres, Chief Financial Officer. Please go ahead.

[Vicsaly Torres:]

Thank you. Good morning. Welcome to OMA's Second Quarter 2016 Earnings Conference Call. My name is Vicsaly Torres, OMA's Chief Financial Officer. Joining me this morning is the IR team made up by Emmanuel Camacho, Manuel de Leon and Laury Franco, as well as our Chief Accounting Officer, Jesús Villagómez. OMA had another strong performance in the second quarter, continuing the strong growth on profitability path we have been on for the past five years and we set a new record for adjusted EBITDA generation. I will quickly review our operational performance and financial results, update our outlook for 2016 and then we will be pleased to answer your questions. Turning to our second quarter operational performance, we continue to demonstrate the strong momentum in all areas of the business. Passenger traffic grew 9% in the quarter to MXN4.5 million, led by domestic traffic growth. 10 of our 15 airports grew passenger traffic. Passenger traffic has grown for 21 quarters in a row. The growth reflects the expansion of the airlines, new route openings and increasing load factors. During the quarter, 10 of the 16 main schedule airlines in our airports increased passenger volumes with the largest contribution to growth from Volaris, VivaAerobus, TAR and American Airlines. 11 new routes opened in the quarter

[Operator:]

[Operator Instructions] And we do have our first question from Pablo Barroso from Credit Suisse. Please go ahead.

[Pablo Barroso:]

Hi, good morning to you, and congratulations on the results. I have a couple of questions here. Can you give us more colouring on the industrial parks? When will the second park start generating revenue and how many will you be opening next year? And my second question is regarding maintenance expenditures in the first half. We've seen almost no maintenance expenditures. Should we expect them to accelerate in the second half? Thank you.

[Vicsaly Torres:]

Thank you, Pablo. Let me answer your first question about the industrial parks. At the Monterrey Industrial Park, the first warehouse was put into service and it started generating revenues in May, generating MXN1 million in the second quarter 2016. The second warehouse was completed in July and will begin contributing to results in the third quarter. Construction work has begun on the third and fourth warehouses, and we are in the leasing process for both of them. Their construction is scheduled to be completed at the end of 2016, and early 2017, we start to lease.

[Pablo Barroso:]

Okay. In terms of revenues, what should we expect on a normalized basis? This quarter was MXN1 million because it started in May, right?

[Vicsaly Torres:]

Yes, exactly. In the second part -- second half of the year, we will see revenues from the first warehouse and the second warehouse because the second warehouse will generate revenues in August.

[Pablo Barroso:]

Okay, thank you, Vicsaly.

[Vicsaly Torres:]

And your second question is about minor maintenance tasks, right?

[Pablo Barroso:]

Yes, exactly -- minor only. Minor maintenance expenditures in terms of maintenance, maintenance CapEx.

[Vicsaly Torres:]

Major maintenance then?

[Pablo Barroso:]

Yes.

[Vicsaly Torres:]

Okay, major maintenance. Major maintenance; it's related to the MDP projects. MDP includes major maintenance so as we are in the beginning of this cycle of this five-year period, we are planning all the projects. Yes, we are thinking that we are at this line, we'll be more aggressive, the expenditure for this line will be more aggressive in the second half of the year because we are putting into work these projects.

[Pablo Barroso:]

Okay.

[Vicsaly Torres:]

As major maintenance level recorded in our results, we are steady to maintain it in the same level for the year. If you look up the balance sheet, the level of the provision will be remained the same at the same level, quarter million.

[Pablo Barroso:]

Okay. Well, thank you, Vicsaly and congratulations on the results.

[Vicsaly Torres:]

Thank you, Pablo.

[Operator:]

And we will take our next question from Mauricio Martinez from GBM. Please go ahead.

[Mauricio Martinez:]

Good morning, Vicsaly. Thank you for taking my question and congratulations at the result. Can I have a follow-up question from the previous one about the industrial park? I was wondering if you can share with us the third and fourth contract. What is the size that we should expect for and also I'm curious about Ciudad Juarez traffic? Is it witness to a strong growth at the end of the year? Could you give us any insight about the main driver for this increase and if you expect such levels to continue for the remainder of the year?

[Vicsaly Torres:]

Thank you, Mauricio. Okay, let me give you more follow on industrial park. The third and the fourth warehouses, we don't have contract for those warehouses. We are in the building process. These two warehouses are set [ph] warehouses; one is for 5,000 square meters and the second one is for 10,000 square meters. We are in the process to get a contract. We have different clients, we give them the economical proposal and we are expecting they are interested in the warehouses. But now we are in the process to commercialize them and we expect that these two new warehouses will generate revenues next year in 2017.

[Mauricio Martinez:]

Great. And about Ciudad Juarez?

[Vicsaly Torres:]

Yes. And for your second question; as you mentioned Ciudad Juarez is having very good traffic volumes. Basically, we are seeing a very economic-activity reaction in the city. A lot of Maquiladoras are coming into the city from the U.S. to produce different products to export those products. Ciudad Juarez, why we expected to increase route in Ciudad Juarez in the year, so growth should continue in the second half of 2016. We are not confirmed what those routes, but if you look in July for example, this route will have an effect in the second half of the year. TAR Airlines open a route at Ciudad Juarez to Puerto Vallarta, I think. It's PPE? Puerto Peñasco in July 21. We will see a positive effect for that route and we are working with airlines to open more routes from and to Ciudad Juarez airports.

[Mauricio Martinez:]

Great. Thank you, Vicsaly and congratulations again.

[Vicsaly Torres:]

Thank you, Marizio, you're welcome.

[Operator:]

[Operator instructions] And we'll take our next question from Ricardo Alves from Morgan Stanley.

[Ricardo Alves:]

Hi, Vicsaly and everyone. Good morning. Had just two questions. The first one is kind of a follow-up with the very last question on Ciudad Juarez. Indeed, we saw your traffic up 9% this quarter and 9% year-over-year. Other smaller airports clearly driving this growth outpacing Monterrey; so my question was indeed to -- if you could provide a little bit more color on Ciudad Juarez which you already did, but also if you could give a little bit more information on Culiacan as well and Chihuahua because we've been seeing for a while now strong performance in those two airports. Maybe a little bit more perspective on those and why we could expect going forward? And then the second question would be a quick one. Your new EBITDA margin guidance, the mid-point I think it's 62%. So far this year, in the first half of the year, you had 63%. If you could give a little bit of color on why you're expecting this somewhat small contraction of profitability going forward? That's it. Again, thank you.

[Vicsaly Torres:]

Thank you, Ricardo. Okay, regarding traffic in other regional airport. For example in Chihuahua, in the second quarter were open at three routes

[Ricardo Alves:]

Thank you. That was very clear.

[Vicsaly Torres:]

You're welcome.

[Operator:]

And we'll take our next question from Steven Churns [ph] from Citi. Please go ahead.

[Unidentified Analyst:]

Hi, Vicsaly, good morning and thanks for taking my questions. Actually, some of them have already been answered, but two follow-ups; I wasn't sure if I heard you correctly. And I think you mentioned that the tariffs for this year, that you put through most of the tariff increases but not all of them. And I was wondering if that was accurate, one, and two, if you see room to reach specific arrangements with any of the airlines, which I believe back in 2007 or so, you had a deal with Airbus, a tariff discount in exchange for more traffic volume. So any color there would be appreciated.

[Vicsaly Torres:]

Thank you. Well, in terms of tariffs, we are allowed to adjust tariffs twice a year. The first adjustment took place in April for aeronautical services, around a 4.3% increase. And in May for passenger charges, around a 7.4% increase in domestic passenger charge and 6.2% increases in international passenger charges, in average. It is our intention to optimize our price during the year in order for us to be able to obtain the maximum benefit from our regulated revenues. As you know, our regulated revenues depend on variables outside of our control, such as inflation, passenger and/or cargo volumes at the end of the year, and exchange rate. Therefore, should any of these variables change from our current perspective, we will need to evaluate our prices and consider whether to increase them or not, so as to be able to optimize our targets for the year. So we can do a second increase during this year, but we need to review in terms of the other factors that I mentioned before. If we are in terms of the maximum time [ph] and what is the gap between the regulated revenues and the maximum regulated that we are allowed to get. In terms of discounts or incentives, that you mentioned be very good, actually, we are not giving incentives based on the passenger charge. The incentives that we provide to airlines is some discounts for aeronautical services. I mean, landing fees, the use of platforms, the cost of aeronautical services, the charges for aeronautical services. And we have a specific program if airlines open a new route in some of our airports or if they increase frequencies in existing routes.

[Unidentified Analyst:]

Okay, so new routes or increased frequencies. Very helpful, Vicsaly, thank you. And just one other quick question; just curious -- I know that there's been some unrest, there's a teacher strike, I guess, which primarily seems to be impacting the state capital of Oaxaca, from what I understand. As far as you can tell, you're not really -- are you seeing anything at any OMA facilities related to this, or it's still fairly quiet?

[Vicsaly Torres:]

Thank you. We have not had impacts or events in our facilities, in our airports, but as you are mentioning, it's a risk. Basically, the most important problem is in the state of Oaxaca, but we are in for some in Guerrero, also, I stated that that problem could be a risk. But we have not had an event in our facility.

[Unidentified Analyst:]

Okay, very helpful. I'll let someone else ask a question. Thanks, Vicsaly.

[Vicsaly Torres:]

You're welcome.

[Operator:]

[Operator Instructions] And we'll take our next question from Marco Monteñez [ph] from Victor Investments.

[Unidentified Analyst:]

Good morning, Vicsaly, and congratulations on the results. Thank you for the call, a follow-up in traffic. Could you share with us the increase in the number of seats in OMA airports and the load factor you registered in the first half of the year? And regarding the outlook in traffic, what is the expectation for the increase in seats and load factor also, that you expect for the rest of the year? Thank you.

[Vicsaly Torres:]

Thank you, Marco. We don't have that information in terms of what are the increases in seats in our airports. We only know the new routes or the type of aircraft that the airline is operating in that specific route. We know that load factors are increased in our airports because our operations are not increasing as much as higher than traffic. So that is only to say that the load factors are increasing. In terms of routes, that is information that I can give you. In the first half of 2016, we had 16 openings, 7 cancellations, so then we had 9 net new routes. And only in July, new routes were opened and it's confirmed another route in August for Tart [ph] from Guerrero to Mazatlán. So only for the third quarter, in one month of the third quarter, one month and a half, we have nine new routes in the third quarter. And we expect -- we are working other routes with airlines to try to open more. In the second half of the year, we are expecting around 15 or 20 new routes, in addition.

[Unidentified Analyst:]

Okay, Vicsaly, very helpful. Thank you so much.

[Vicsaly Torres:]

You're welcome, Marco.

[Operator:]

And we'll take our next question from Pablo Zaldovar [ph] from ZBM.

[Unidentified Analyst:]

Hello, good morning. Thank you for taking my question, just a quick follow-up on the maximum tariffs. If I recall correctly, you were expecting to achieve up to 94% of the allowed maximum tariff for the year. Is this goal still in place or do you intend to implement the 100%?

[Vicsaly Torres:]

Thank you, Pablo. It is difficult to reach 100% of the maximum tariff in the first year of the period, of the five-year period. And as you know -- as you mentioned, our goal is to achieve this year around 94%m 95% of the maximum tariff, in average, for all of our airports.

[Unidentified Analyst:]

Okay, thank you very much. That will be all.

[Vicsaly Torres:]

You're welcome, Pablo.

[Operator:]

And there are no further questions at this time.

[Vicsaly Torres:]

Thank you, all of you. On behalf of OMA, I want to thank all of you again for your participation in this call. And Manuel, Manuel, Laurie and I are always available to answer your questions, and we hope to see you soon at our offices in Monterrey. Thank you and have a good day.

[Operator:]

And that will conclude today's conference. We appreciate your participation. You may now disconnect.