Grupo Aeroportuario del Centro Norte SAB de CV (OMAB) 2013 Q1 法說會逐字稿

Ladies and gentlemen. Thanks for standing by. Welcome to the Grupo Aeroportuario Del Centro Norte OMA First Quarter 2013 Earnings Results Conference Call. During today's presentation the lines will be in a listen-only mode following the presentation the conference will be opened for question. (Operator Instructions) I would now like to turn the call over to Jose Luis Guerrero. Please go ahead.

Good morning. Welcome to OMA's First Quarter 2013 Earnings Conference Call. My name is Jose Luis Guerrero. I'm the Chief Financial Officer. Joining me this morning is Israel Magana, our Investor Relations Officer.

I will start with an overview of the major business developments in the first quarter. Then I will go over our outlook for 2013. We will then open the call up to questions. OMA had another strong quarter with good performance from our aeronautical activities, commercial activities, and our diversification initiatives.

The first quarter was also marked by business developments that will benefit OMA going forward. I want to highlight one of these developments. The first quarter is the first time that we see the check baggage screening service fully operational. While this service was partially operational last year, we have not yet reached an agreement with all our airline clients on compensation. That has now been done. And as a reminder, OMA gets compensated for check baggage screening in two ways, the cost of maintenance for equipment is included in our maximum rate agreement.

The SEC authorized the rate increase last year to reflect this. The rest of the operating cost are recovered through service fees charged to the airline. The check baggage screening service provides a better passenger experience as well as higher security.

Turning to our first quarter operational developments, passenger traffic volumes increased 4.6% with domestic traffic growing 5.1%, and international traffic up 2.6%. Seven of our airlines increased passenger volumes and this is the eighth quarter in a row of increasing passenger traffic for OMA.

In terms of route development and connectivity, Interjet covered the Monterrey/Las Vegas routes. And Aeromexico Connect opened three new domestic routes. Aeromexico added one plane to it's fleet and now has 115 planes in operations, while Volaris has 43%, Interjet 37%, and Viva Aerobus 18 planes.

On the commercial front we opened 15 retail and services in our airports and our lease occupancy rate increased to 93% compared to 92% in the first quarter of 2012. OMA Carga continues to grow particularly in our grand transit links with Dallas, Chicago, Los Angeles, and Mexico City. And had an increase of 40% in revenue in the first quarter.

The NH Terminal 2 Hotel had another good quarter. The occupancy rate was 81.4% and room rates increased 4% year-over-year.

Turning to our first quarter financial results, OMA recorded solid revenue growth, strong increases in adjusted EBITDA in net income, and a strong cash flow generation. The sum of our aeronautical and non-aeronautical revenues grew 10.7%. Aeronautical revenues increased 7.5% principally as a result of the growth in passenger volumes.

Non-aeronautical revenues increased 20.9% and seven of the nine non-aeronautical line items grew. The areas with the largest contribution to growth were the additional revenues from the start of the check baggage screening service, which is included in other revenues. OMA Carga, up 40.5%. The NH Terminal 2 Hotel up 5.3%. And advertising up 15.4%.

Non-aeronautical revenue per passenger was MXN60.7, up 50.5%. Excluding the hotel, non-aeronautical revenue per passenger was MXN47.4 up 20.5%. The first quarter of 2013 marks 20 quarters in a row, or five years where non-aeronautical revenues per passenger increased. The mix of revenues not including construction revenues was 74% aeronautical and 26% non-aeronautical. Compared to 18% at the time of the IPO in 2006.

The cost of airport operations, which is the cost of services plus G&A excluding the hotel, construction costs, and the maintenance provision increased 8.9%. The nine items that increased most were all related to the check baggage screening service. In addition, we included -- we incurred some maintenance expenses for work on several of our terminal buildings.

Total operational cost and expenses increased 10.3% in the quarter principally because of a higher level of construction cost recognized in accordance with IFRS, increases in concession taxes based on revenue growth, the technical assistance fee based on EBITDA, and higher depreciation on amortization charges.

The result is that our first quarter adjusted EBITDA grew 12.1% to MXN393 million. The adjusted EBITDA margin was 56% up 70 basis points over first quarter 2012. This is the seventh quarter in a row of EBITDA margin expansion. The tax provision decreased because of the application of the expense provisions. Consolidated net income rose 22.9% principally because of operating income growth and the lower tax provision.

Our cash flow generation has been particularly strong. Cash flow from operating activity generated cash of MXN279 million in the first quarter of 2013, or 11.6% above the 2012 level. The increases were principally because of higher revenues and improved working capital management. First quarter CapEx was MXN124 million.

The most important investments for the quarter included remodeling of the Zihuatanejo (inaudible) terminal building and the platform work in Torreon, San Luis, Reynosa, and Mazatlan airports. OMA continues to take advantage of a very favorable credit environment. In March, we placed MXN1,500 million in 10-year notes at a fixed rate of 6.74% initiated a commercial paper program with an initial placement of MXN100 million at a rate of 4.17%.

The procedures of these notes will be used to pay higher cost bank debt and to finance our 2013 investment program. Subsequent to the quarter end, we repaid MXN300 million loan from Scotiabank. At March 31st, 2013 OMA's cash balance was MXN2,893 million. On April 16, the annual shareholders meeting approved payment of a capital reimbursement of MXN1,200 million pesos in five installments in lieu of dividends of a dividend.

We will make an initial extraordinary payment of MXN400 million, or one peso per share at the end of June. We will then make four quarterly payments of MXN200 million each, or MXN0.50 per share at the end of July, October, January, and April.

Turning to our outlook for 2013, we expect another very solid year. OMA expects that 2013 passenger traffic will increase approximately 3.5% to 4.5%. And expects that the sum of aeronautical and non-aeronautical revenues will increase approximately 8% to 10%. The adjusted EBITDA margin for the full year is expected to be in the range of 50.5% to 52%. Total maximum development plan CapEx during 2013 is expected to be in the range of MXN700 million to MXN800 million pesos.

Investments for diversification activities are expected to be in the range of MXN100 million to MXN200 million pesos. OMA is providing this outlook based on internal estimates. A number of factors could have a significant affect of the estimates of traffic, revenue growth, adjusted EBITDA, and CapEx. This includes changes in airline expansion plans, fixed prices, and other factors affecting traffic volumes.

The evolution of commercial and diversification projects and economic conditions including old prices among others. OMA can provide no assurance that the company will achieve these results. This concludes our prepared remarks. We will now be happy to answer your questions. Operator, please open the call to questions.

Yes. Thank you. (Operator Instructions). And our first question comes from the line of Marco Montanez with Vector. Please go ahead.

Good morning Jose Luis and thank you for taking my question. Could you give more details about the drivers for the slowing down in the growth in traffic that you're also seeing for 2013? In particular, could you give more color about the non-aeronautical estimates including the diversification activities? On the other side, what's driving the lower adjusted EBITDA margins for this year compared with last year please?

Sure. Thank you for your questions. Regarding the drivers for the slow down in passenger traffic growth compared to last year's growth of 7%, first of all one is the comparison of last year was a strong year. This year it will all depend on when the airlines start bringing the new planes that they have forecasted.

As you know, Aeromexico has plans around the 110 new planes. 10 of them are Embraer's 190s that will be replacing the 145s. Some of them have already arrived. I believe three of them arrived this quarter. So they are expecting more 190s to arrive. Also they were expecting 100 more planes obviously in the next years. One of them is the Dreamliner which they could get at the -- this year and the second semester -- one of those planes. So it will depend on when these planes arrive.

Volaris and Interjet, they both have plans -- very strong plans. For example Interjet has an order of 60 planes, 20 of them are Sukhoi Superjets. The other ones are Airbus 320s. And also Volaris has an order of 44 new Airbus 320s as well. So there are very strong plans, but it would depend on when they arrive. So for this reason we're seeing a growth expected to be between the ranges that I explained.

Also we're seeing the first quarter a little bit slower in terms of government spending compared to last year. So as new projects start to pick up we might see some more flying in our airports. Regarding the non-aeronautical outlook, we're seeing strong growth for OMA. This quarter was quite solid in terms of non-aeronautical revenues. We're looking for new initiatives and new opportunities to successfully deliver the services that the passengers are looking for in our airports.

Today we have an application that OMA benefits from that application. We get payment for it. We didn't have to invest in the development of it. And passengers can see what times their flights are leaving or other services. We have new ways of providing as well publicity in our airports in places that are not regular places to provide publicity.

And also the stores that we have we're trying to have brands that are highly recognized by the passengers. Brands that are also in line with it's passenger type that we have in our airports whether I believe it to spend and the willingness to spend in our airports. And your -- so can you remind me of your last -- your last question was regarding adjusted EBITDA and the slowdown that you mentioned that we could see this year in terms of it's growth.

We're also considering that adjusted EBITDA will grow. Maybe the margin will not be as high as what we saw last year, but we definitely see an EBITDA -- adjusted EBITDA margin growing this year. And also as an amount we could see the growth as well. We have an important project which is the check baggage screening service. This service is -- it started operation last year, but it's fully operational this year with all of the airlines.

So we're going to be recovering the cost of maintenance through the maximum tariff and the cost of operations through charges to the airline. But it is still an important cost in the company and therefore the margins may not be as high as what we saw last year.

Okay. So this -- if I may another question. What effective tax rate are you expecting for this year, please?

The effective rate, we're still having benefits of some of the tax credits that we had in our airports as at the beginning of the concession. Monterrey no longer has that tax benefit and that's why we see a slight increase in the tax that we paid this year in the [ESR] tax. So we're going to see going forward maybe higher taxes from Monterrey, but we're still having the benefit of the other airports that are still having those tax benefits in those airports. So we will probably see something below -- there's 30% tax rate.

Okay. Great. Thank you so much Jose Luis.

Thank you. Our next question comes from the line of Stephen Trent with Citi. Please go ahead.

Hi. Good morning everybody and thanks for the time. Just two questions from me. The first is I noticed in page three of your release that three domestic routes were opened and six were closed. I happened to notice that VivaAerobus seems to be responsible for at least a good chunk of the routes that are closing. And what's your view as to what might be going on with that carrier?

Sure. As you know -- thank you Stephen for your question -- as you know VivaAerobus was very active in our airports. We have seen very strong growth from their passenger traffic in this quarter and in past quarters. And they -- so they open and close routes quite frequently. In this quarter, yes, what we see is that they're closing four routes and they're not opening any new ones.

But the other routes that are [existing] should be held to conditions. So for them, VivaAerobus needs a higher level of occupancy rate than the rest of the airlines because they are charging lowing tides. So they need to have their planes more -- with a higher occupancy. Therefore if under routes, it's not reaching that level of occupancy that they need, therefore they usually -- immediately they close it.

So that's why we see the close downs in VivaAerobus, but they have been growing passenger traffic with us and they're still a very strong airline today for us.

Got it. So the four routes they closed in the quarter would you say this is average, or above average, or below average in terms of the number of routes they open and close on a periodic basis?

So the traffic volumes have been growing. So I believe this is part of their strategy of finding the most profitable route that they can operate and put in their 18 planes in the best routes that they could find. So the airline is very strong today. And they're doing well. So it is an airline that for us is very important. And I believe this is part of their business plan of finding the routes that are more convenient and important for them.

Great. Thank you. And just one last question from me. Excuse me. I happen to notice on page 14 of your release and the cash flow statement. For the first quarter of 2012 you add net flow from operating activities at MXN250 million, but when I look back at your original 1Q 2012 release you reported MXN300 million in net operating cash flow. And I was wondering what you changed from that, if anything?

Yes. Thank you Stephen. And that's something that we will mention also in 20-F that we are expecting to release today. There was a request from our accounting firm to change a land investment that we paid in 2010 -- and the transaction took place in 2010, but the payment actually took place in 2011.

We registered that operation as an operating activity in the cash flows. And the recommendation from our accounting auditors was that we should change that to an investment activity. So that's why we're seeing that reclassification of the cash flow.

Okay. Got it. Let me leave it there. And thanks again for the time.

Thank you Stephen.

Thank you. (Operator Instructions). Our next question comes from the line of Bernardo Velez with GBM. Please go ahead.

Hi. Good morning. Thanks for taking my call. I was wondering regarding the gas station in Monterrey, if you could give us a big more number on sales and EBITDA margins. And are you considering these revenues as part of Monterrey's non-aeronautical revenues?

Thank you Bernardo. The gas station has started operating in December of 2012. So it's been in operation for a little bit more than four months now. It's doing quite well. We have a lot of clients coming into the gas station. It's on the exit of the airport -- basically on the exit of Terminal A and Terminal C. So we're capturing the passengers that leave those terminals. And it's paying us rent. We do not operate it. It's the company that operates that gas station is [Horsan].

So we only receive the rent payments. So it's doing well. It is an important project for our diversification initiatives in Monterrey. As you know, we're looking forward to grow our real estate projects that we have at the airport. This is one of them. The old corporate building that we used to have in the Monterrey airport is now almost fully leased. We also have the strip mall that has basically the first floor also leased and we're remodeling the second floor to have office spaces up there.

And we're also -- as we announced -- signed an agreement with [BIMSA], which is one of the most important industrial park operators in the northern region to help us develop industrial parts from Monterrey. So the gas station, it's a small project, but it's an important one for us because it's our first gas station that we have in our -- in one of our airports. And we look forward to developing more of these projects in other airports at OMA.

Okay. Thank you. And it is considered in Monterrey's revenues?

Yes. That is correct.

Okay. And I was wondering if -- regarding the guidance you just released. The planned CapEx, the MXN100 million to [MXN2,000 million] in divestments -- I'm sorry, in diversification activities. What are you planning on investing?

So most of that investment will probably take place for the development of the first industrial part in Monterrey. The industrial park in Monterrey, the plan is to have 10 slots for an industrial warehouse. We're planning to develop the first one and also to organize the roads -- the access to the industrial park. That's part of the investments in new strategic projects.

The other one could also be part of the hotel investments that could take place this year for the Monterrey airports. We haven't announced yet who would be the operator of that hotel, but we are in touch with several hotel operators. Also maybe investors as well. So we're -- that's what we're considering as the most important parts of these diversification, or strategic CapEx.

Okay. Great. And lastly, just to be clear, the 50.5% to 52% EBITDA margin, is it considering construction revenues?

No. This is the adjusted EBITDA margin.

Okay. Perfect. Thank you.

Thank you. (Operator Instructions). One moment please. And I'm not showing any further questions at this time. Please continue with any closing remarks.

Thank you. On behalf of OMA I want to thank all of you again for your participation in this call. As Israel Magana and I are always available to answer your questions and hope to see you soon at our offices in Monterrey or in future events. Thank you. And have a good day.

Thank you. Ladies and gentlemen that does conclude our conference call for today. Thanks for your participation. You may now disconnect.