Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. Price & Performance (OMAB)

Thank you, Melissa. Good morning, everyone. Welcome to OMMA's fourth quarter twenty twenty four earnings conference call. Joining us this morning are our CEO, Ricardo Reyes and our CFO, Grupo Perezpejo. Please be reminded that certain statements made during the course of our discussion today constitute forward looking statements 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. Now I'll turn the call over to the Catalano for his opening remarks. Thank you, Manuel. Hello, everyone. We appreciate your presence on this call today. This morning, Ruffo and I will review our annual and quarterly operational performance, financial results, and CapEx development.

Finally, we will be happy to answer your questions. Will start by discussing our full year 2024 highlights and then I will move to our main fourth quarter results. 2024 started off with challenges. Particularly due to aircraft capacity constrained, stemming from Pratt and Whitney engine inspection program. Which affected two of our largest airline partners, Viva Ambulares. Together, these airlines accounted for 71% of our total passenger traffic in our airports last year. In parallel, operational restrictions at the Mexico City International Airport posed another challenge for the industry limiting airline operations at the country's main hub and reshaping connectivity strategies.

These combined factors constrain airline capacity planning throughout the year, influencing both domestic and international traffic dynamics. Beyond these challenges, 2024 also brought interesting developments The combination of operational restrictions on Mexico City Airport and limited aircraft availability in the market created opportunities for ALIs to strengthen their international networks. We saw a clear new routes from Ooma's airports to The U. S, reinforcing existing markets and exploring entirely new ones. As 2024 progressed, the negative impact from reduced seat capacity gradually diminished. Towards the end of the year, we recorded a significant decrease in aircraft availability.

Which resulted in opening of new domestic and international routes and contributed to a strong passenger traffic performance. As a result, in the fourth quarter, total passenger traffic in our 13 airports grew by 4.6% with a 1.5% increase in domestic traffic and significant 26.4% growth in international passenger traffic. Looking at the full year, this dynamics reshaped our overall traffic performance. While domestic traffic declined by 3.5%, international traffic increased 15% as compared to 2023. Despite the limitations in the Mexico City Airport, demand on our most important routes, Monterrey to Mexico City Metropolitan Area, which adds the operations of IFA and Doleuca to those of Mexico City Airport, grew by 8.18% in 2024.

This was largely driven by a significant increase in traffic between Monterrey and IFAC. Providing that demand for flights to Mexico City remains robust, with airlines continuing to add capacity to these alternate airports. 2024 was also a year of strong performance across our various commercial and diversification lines of business.

Despite the passenger traffic decline during the year, we delivered outstanding results through strategic initiatives focused on maximizing revenues and optimizing operations. On the commercial front, we recorded meaningful growth across PREVA key revenue line items mainly as a result of contract renegotiations the opening of new outlets and introduction of new brands and operators. Restaurant revenues grew by 22%. VIP lounge revenues increased by 51%. On parking revenues increased by MXN33 million compared to 2023. Altogether, this initiative resulted in a record high commercial revenues per passenger of Ps. 60 in 2024, a 17% increase relative to 2023. Our Almat cargo business continued to post a strong yearly result. We made key organizational changes to improve efficiency, enhance customer service and attract new customers. Thanks to these efforts, Omar Cargo grew by 22% in 2024. In Hotel Services, we work closely with our operating partners to to refine rising strategies and optimize occupancy levels driving nearly 20% revenue growth in the hotel segment compared to 2023.

And finally, our Industrial The strong industrial activity in the Monterey region allowed us to continue with the construction and leasing of industrial warehouses. Last year, we announced six new warehouses under development and by the end of twenty twenty four, five of them were already generating revenue. Combined with contractual rent growth and the impact of the Mexican peso depreciation against the U. S. Dollar, our industrial service revenue grew by 61% for the full year. Regarding our financial performance, aeronautical and non aeronautical revenues grew 217%, respectively, versus 2023. As a result, our adjusted EBITDA for the year was MXN9.1 billion and we recorded an adjusted EBITDA margin of 74.3%. On the capital expenditure front, 2024, continue to invest in our long term infrastructure development, particularly as our Monterey Airport. Counters, commercial spaces and airport services. This expansion combined with the previous developments at the airport [indiscernible] [indiscernible] further reinforce Monterrey's position as a leading hub in Northern Mexico and in Looking ahead, we continue advancing with Phase two of the Monterey Airport expansion project. This next stage focuses on significantly expanding air areas of Terminal A. Once completed, this project would optimize passenger flows enhance commercial offers and services and further increase the airport's capacity to almost 16,000,000 passengers annually.

The new areas are expected to become operational Finally, September 2024, we completed the expansion and remodeling of the terminal building at Durango International Airport. This project allowed us to increase the air capacity to handle up to 760,000 passengers annually. This infrastructure investments reflect our commitment to enhance enhancing the passenger experience and supporting the long term development of our airports. I will now move on to our fourth quarter performance. In the fourth quarter, almost passenger traffic reached 7,100,000 an increase of 4.6% versus the fourth quarter of twenty twenty. This increase was mainly attributable to an increase in seed On the domestic front, passenger traffic grew by 1.5% This increase was primarily driven by our Montreal Airport, Which Shocked Expansion On Routes To Queretaro, the metropolitan area of Mexico City Ciudad Juarez, El Museo, Tulum and Guadalajara. Those routes collectively added more than 211,000 additional passengers during the quarter and were particularly offset by decreased capacity in routes from Monterrey to Cancun, Tijuana, Merida and Puebla. In contrast, international passenger traffic reached a historical quarterly record a 26% growth to 1,100,000 passengers as compared to the fourth quarter of twenty twenty three. This growth was primarily driven by the Monterey Airport with a significant passenger traffic expansion on routes to Chicago, San Antonio, Los Angeles, Las Vegas Orlando, Oakland, Miami, San Francisco, Austin and Denver.

These routes accounted for approximately 74% of the total increase in international passenger traffic during the quarter. Additionally, during the quarter of twenty four, we launched 16 new international routes from Monterrey, Mazatlan, Acapulco airports. Further improving our international connectivity. We also anticipate the launch of more 20 new domestic and international routes between February and July of this year including 11 international routes. Moving on to the OMA's financial performance. The sum of aeronautical and non aeronautical revenues reached a record high performance of COP 3,300,000,000.0 in the quarter. [indiscernible] Both revenue segments record growth in the quarter with Aeronautics revenue increasing 11% and non aeronautical revenue rising 22%. The positive performance of our non aeronautical revenue reflects the successful execution and consolidation of several commercial and diversified [indiscernible] initiatives throughout the year. Commercial revenues increased 19% compared to fourth quarter of twenty three primarily driven by restaurants, VIP lounges and retail revenues. Revenue for restaurants and retail grew 29% each versus fourth quarter of twenty three mainly due to the contribution of new commercial space and the replacement of several other outlets opened during the quarter. During previous quarters, sorry, In addition, VIP lounges grew by 59% as compared to the fourth quarter of twenty twenty three, mainly due to higher access rates and leases renewal of third party lounges in Mont Monterey under improved terms as well as the opening of new lounge airport at new lounges in Durango Airport.

Diversification revenues increased 28% Industrial services was the main growth driver this quarter, rising 130.8% to MXN 47,000,000, primarily due to an increase in leased square meters compared to fourth quarter of twenty twenty three. Mainly due to double digit increase in average room rates per night on both hotels. OMA cargo increased 18% in the quarter mainly due to higher revenues from Grand Cargo operations in Monterrey. Moving on to capital expenditure front. During the quarter, we invested MXN $951,000,000 in M investments, major maintenance and strategic projects. Finally, I am proud to announce that all 13 OMA airports have obtained Level three optimization certification on the airport cover accreditation program, strengthening our leadership in sustainable airport This milestone underscores our commitment to reducing carbon emissions and adopting innovative practices to minimize the environmental impact of our operations. We have not only optimized our own operations, but also collaborated closely with commercial partners and airlines to implement carbon management strategies across the entire airport value chain. Future for the airport industry. I would now like to turn the call over to Ruffo Perezplier, who will discuss our financial highlights for the quarter. Thank you, Ricardo, and good morning, everyone.

I will briefly go over our financial results for the departure before opening the call for questions. Aeronautical revenues increased 11.1%, profit to the fourth quarter of twenty twenty three driven primarily by the 26.4% growth in international passengers higher revenue per passenger. As well as the 1.5% growth in our domestic passenger traffic during the quarter. Non Naira revenues increased 21.7%. Commercial revenues increased 19.1% and the categories with the higher growth were restaurants, VIP lounges, retail and car rentals. Notably, commercial revenue per passenger increased 13.9% to MXN 60.4 in the quarter relative to the same quarter of last year. Diversification revenues increased 28% mainly due to higher revenues from industrial services, hotels and Omacara. It is important to note that revenues from Industrial Services in 4Q 'twenty four include approximately ARS 6,000,000 from invoicing of prior periods corresponding to a nonperforming client. Excluding these extraordinary revenue, Industrial Services grew 103% to COP42 million per quarter. Total aeronautical and non aeronautical revenues grew 13.6 reaching MXN3.3 billion in the quarter. Construction revenues amounting to MXN816 million in the fourth quarter. The cost of services and G and A expense increased by 14.9% compared to 4Q 'twenty three as the company has made efforts to contain its cost base despite inflationary pressures on external services and purchase.

The other cost and expenses line item as well as the materials materials and supplies line item grew mainly as a result of increase operations in our VIP launch business as well as higher higher operations in our Omicara warehouses. [indiscernible] our industrial power costs during the quarter, we recognized a MXN9.7 million bad debt expense due to a nonperforming tenant in the Monterey Industrial Park.

Additionally, due to the higher number of leased square meters, we recorded approximately MXN2 million in higher lease brokerage fees in the quarter. A result, our cost of industrial park services was COP 17,400,000.0 in the quarter. Consistent tax increased 97% to MXN $265,000,000. A result of the rate increase from 5% to 9% applied to the revenues generated by OMA's Airport Concessions, for SUSUAL TO Mexican tax duties law. Under the tariff regulation basis effective as of 10/20/2023, payments made to the government related to aeronautical revenues in excess of those included in the most recent tariff provision will be added to the reference value to be used in the next maximum tariff provision. Therefore, starting January 2026, this excess concession tax amounts will begin to be recovered through maximum tariffs. In the fourth quarter of twenty twenty four, the 4% surplus of the concession tax over agricultural revenues amounted to ARS101 million equivalent to 3.1% of the sum of OMA's ironautical and non ironautical revenues. This surplus is included in the ARS 265,200,000.0 as recorded as concession tax expense in the quarter. Major maintenance provision was MXN39 million as compared to MXN95 million million in 4Q twenty twenty three and the decrease is the result of updates in the timing of the execution of certain projects.

OMA's fourth quarter adjusted EBITDA reached MXN2.4 billion and the adjusted EBITDA margin was 73.8%. Excluding the surplus concession tax and its impacts on OMA Sanazza results, our adjusted EBITDA would have been MXN2.5 billion, with an adjusted margin of 76.7%. For the full year ended December 31, adjusted EBITDA would have been MXN 9,400,000,000.0, with a margin of 77.3%. Our financing expense amounted to MXN332 million as compared to MXN $224,000,000 in the fourth quarter of twenty twenty three. The English is mainly related to ARS103 million amount recorded in change of the present value of the major maintenance provision as a result of the decrease in the rates used for the calculation of such provision. This is a non cash effect. Consolidated net income was MXN1.2 billion in the quarter, which decreased 5.9% relative to the fourth quarter of twenty twenty three. Turning to our cash position. Cash generated from operating activities in the quarter amounted to MXN1.9 billion, And at the end of the quarter, cash balances stood at MXN1.7 billion. This refers the payment of the second installment of the ordinary dividend of ARS2.1 billion as well as the drawdown of MXN600 million in short term loans.

At December 31, the total debt including financial leases amounted to MXN11.5 billion and we ended the the quarter with a healthy net debt to adjusted EBITDA ratio of 1.1 times. This concludes our prepared remarks. Melissa, please open the call for questions. Thank you.

Our first question comes from the line of Rodolfo Ramos With Fradesco BBI.

Good morning, Ricardo, Grupo Manal. Thanks for taking my question.

I have a couple, if I may. Can you talk a little bit about your traffic outlook for this year? And related to this point, how far do you think you are in your efforts to develop Monterey's route network? So that would be my first question. And second, anything I know that it is early stages, but anything you can share as far as your MVP expectations Do you see room to ramp up CapEx in Monterrey just to get a sense of what kind of tariff increase we might see.

Hi, Guadalupe. This is Rufo. Regarding your first question, For this year, we're seeing a recovery in domestic capacity being deployed by by the main carriers in our network. We have seen that increase started since November of last year and has continued through January of this year. For full year, we are expecting around a mid single digit growth year over year. Regarding the Monterrey network, we believe that there is plenty of opportunity to continue developing it. We're just positioning it as a connecting hub. A lot of the routes that Ricardo mentioned during his opening remarks were opened in the second half of last year and they have still to mature. So I believe that going forward, Montreux will continue to consolidate as a major connecting hub in North America. Mexico.

And Raul, for regarding the MBP, we're still working on the CapEx plan that we're going to put forward. What we can anticipate an optimized version of the CapEx We're leveraging on our internal expertise, VINCI's expertise as well so that we can put up CapEx plan that will not put unnecessary pressure on tariffs. And will maximize the net present value of the company. Thank you. Our next question comes from the line of Jens Pies with Morgan Stanley.

Please proceed with your question.

Yes. Thanks for taking my question. So on the traffic outlook you just mentioned, mentioned of mid single digits, I mean we're seeing clearly a lot of capacity being deployed to your network. Which makes me think that maybe that assumption might be slightly conservative, but regardless, in terms of and this might be a dumb question, but in terms of this being the year where you negotiate your MDP, Having very good traffic numbers, I know it's always good, but in light of the negotiations you will be having, Does it? At any point might raise the bar too high or is it not even a concern in and it doesn't really matter?

Hi, gents. Ricardo here. The traffic projection is based on a long term view, a mid to long term view. It's a bottom up analysis which we're looking at many different things, not only at the last the last data We're looking at the demand in the future. We're looking at aircraft orders for airlines. We have independent traffic projections. The regulator has its own projections. So I don't think it puts it's not necessarily bad it's bad news. Because we're looking more at the mid to long term view of this traffic projection.

Okay. Understood. And if I may just add one question. On Congrats on the very impressive commercial revenues you had So just trying to to understand Obviously, simply due to the like full year effect of the existing run rate, you will see probably a benefit this year versus last year. But beyond that, any additional upside we should be factoring in?

I think for the following quarters, we should expect a similar amount in terms of Commercial income per passenger are around the MXN60 mark. We would expect a hike in that number once the Monterey areas are opened and we expect that to occur in early twenty twenty six. So 2026 will have a huge pickup [indiscernible] Perfect. And any color on the magnitude of that step up? In 2026?

We're still quantifying it and we will have more color towards the middle of the year. We'll be tendering those spaces. So the tenders will occur in towards middle of this year.

Thank you. Our next question comes from the line of Guillermo Mendez with JPMorgan. Proceed with your question.

Hi, Ricardo, Ruff, Emmanuel. Good morning. Thanks for taking my question. First one is a follow-up on the MDP. Any views on timing for the MDP announcement? Should we expect something by November or December or maybe a little bit earlier?

And second point on the costs and margin front, I guess Rufo mentioned about the cost control during the quarter. And do you see any significant pressure going forward into 2025? What kind of EBITDA margin can we expect going forward? Thank you.

In terms of Haiment, in terms of the timing, we will be presenting officially the MVP plan by the end of June, And we will take six months working within ministry and we expect this to go until the last weeks of December. That's our expectation.

And regarding our cost side, as we mentioned in the [indiscernible] had some extraordinary items on particularly in the initial park. But with respect to other cost and expenses for this year, we would expect inflationary based increases as relative to last year.

Okay. That's clear. Thanks. And just a follow-up. Terms of the margins, fair to assume this mid-70s kind of level going forward? Obviously, without assuming any tariff increase post MDP? Yes, that's fair to assume, Gilman.

Perfect.

Thank you.

Thank you. Next question comes from the line of Ferdinand Fernando Rechia [indiscernible] taking my question. To hear from our side as well, The first just a follow-up on traffic. If you could break down the mid single digit that you're expecting for 2025, between domestic and international. Will can since November international has been surprising. So I just wanted to understand how are you looking for the routes mix for this year? And second, just wanted to hear if there is any update regarding the intention to transform the Monterrey Airport from military to commercial activity. And it's so, do you expect to incorporate any impact of this into your MDP negotiation?

Hi. So I'll answer the second part. So the military airport, there's no official project. There's actually not no budget currently allocated to that project. So I think the probability of having a competing airport next door, it's very low and it's lower than it has been in the past.

And regarding the 25% outlook, It's still unclear what the mix is going to be. We depend a lot on how how the additional seat capacity that both Viva and Volaris will be deploying. For example, in the case of confirmed routes that we expect over the next few months, We have 20 new routes already confirmed. Nine of them are domestic and 11 routes are international. So I think that we'll still see a little bit more dynamism from the international side. But we'll see a recovery on the domestic front as converged to to the previous year.

Okay. Thank you. Thank you.

Our next question comes from the line of Pablo Ricarte with Dow. Please proceed with your question. We saw a huge increase in the quarter. Apparently, there was like this issue with the interest rate on the maintenance provision. I don't know if we can talk a little bit further this effect and if we should expect something more going forward. [indiscernible] We have, as you know, a major maintenance provision, which is a long term forecast of the repayment [indiscernible] the life of the concession. And it's quite sensible to interest rate variations. So yes, we adjusted downwards our interest rates that we used to value the provision and that comes noncash effect during the quarter. And we'll be still subject to those variations if rates either move up or or down. In the reports, we are now splitting up the breakdown of the interest expense. So you can see what the impact of that is in isolation. And I'll just highlight again that it's a non cash variation. Perfect. That was very clear. Thank you. Our next question comes from the line of Pablo Montovis.

Barclays. Please proceed with your question. Hello, your line is live.

Hi. Thanks for taking my question. Ricardo, you mentioned at the beginning of the call, Q and A session, that you are expecting for the MDP to be very CapEx optimal. Can you please share to us to what extent once the conversation with the government starts that variable moves up or down. Or to what extent this is based on yes, of course, technical considerations, but also a little bit on the negotiation.

Hi, Pablo. Thank you. Thank you for your question. The CapEx plan that you put forward is [indiscernible] purely on technical decision. We're going to sit down with the government We're going to look at the traffic projections that we both have our third party projections also have. We're going to look at the needs of the different stakeholders in the airport And we're going to come up with a technical CapEx plan. That is the one we're [indiscernible] We already know in anticipation the needs. We are constantly in conversation with the regulator and the tariffs will be a result of that technical analysis in our CapEx plan.

Thank you. Our next question comes from the line of Andres Averroto with UBS.

Hi, good morning. Thank you for taking my question. I just have a follow-up here on traffic. We are seeing growth and more roads in the international side. Maybe it can be explained by airlines, the Polymer Kappa capacity in the international side in this moment of more restriction. So But I wanted to explore more like how do you see this going forward Do you believe that this is indeed this opportunistic opportunity to allocate capacity there or do you see some improvement in demand drivers that can make this sustainable process and more roads to be added in the upcoming years. Thank you. [indiscernible] Can you repeat your question, Andreso?

We lost you, Beat. Sure. So yes, sorry. So is this about the international traffic how do you see this capacity allocation on the road, if you are saying this as a more opportunistic move from the airlines amid capacity restrictions or more sustainable demand driven movement?

Yes. Thank you. So what we have seen in 2024 is [indiscernible] interests from domestic carriers towards international routes. We attribute that to the recovery of of category one, where if you can remember, Mexican carriers were not allowed during the that period to open new routes or services to The U. S. That was lifted towards the end of twenty twenty three. So during '20 Most of the new capacity that airlines were able to deploy was focused on the international markets. We believe that the network out primarily out of Monterey to The U. S. Destinations will continue to be strengthened. Around 88% of our international traffic scope comes from The U. S. So we still believe that most of the international routes will be generated in and out of The U. S. To our airports. And I think that will continue to be the trend in the next few quarters.

Very much.

Thank you. Our next question comes from the line of Edson Raghuia with Sumitab. Please proceed with your question. It's in your line is live. I'm sorry, Thank you for taking my questions and congrats for the results [indiscernible] in the profit guidance for this year.

If we see the last three months in month rates have been growing at 15%, 16% When we imagine this mid single digit, [indiscernible] And the second one, continue with Monterey is, And you mentioned something, but in the last presentation, you are talking about the big expansion, the space expansion in Monterey. If you can give more update of that? Thank you.

Hi, Diego. So in terms of traffic guidance, yes, Monterrey will continue to be the driver of our growth. We do expect some airports to recover as domestic capacity turns back online towards the second half of the year. But in the foreseeable future, future, Monterrey will be driving our results. Also worth noting that our traffic projection already incorporates some volatility that we're seeing in the macro environment. So So we're being a bit cautious about that as well. And regarding the [indiscernible] We are right now Joining what we call the wing A to the terminal A sorry, Wing one to Terminal A, and that's should be completed by the first quarter of twenty twenty six and that will allow us to increase at least a couple of million yearly capacity of the airport and be able to sustain what we expect in the couple of years. And the commercial capacity is like [indiscernible] When you finish at least this stage? [indiscernible] Yes. Areas are all air sites. So yes, they will be accompanied by a development of a passenger concentration area, where we would expect most of passengers to flow through once the areas are completed. Our next question comes from the line of Alan Macias with Bank of America. [indiscernible] Just a follow-up question on the adjusted EBITDA margin for next year.

I guess if we assume that traffic is going to grow this year, is it a fair assumption to assume a margin expansion For next year, you're talking about 2025 or 2026? '25.

Okay. Yes, I think it's achievable to have a slight increase relative to twenty twenty. Twenty four, yes. Marginal increase [indiscernible] Thank you. Thank you. Our next question comes from the line of Edson Mervuia with Sumacap. Please proceed with your question.

Thank you. Apologies.

I have one question.

Related to the $600,000,000 short term loan, My question is what are the strategies with this I mean, it's due for May 25, [indiscernible] So what would be the strategy? I know you mentioned that you can use that line for different [indiscernible] Could you move closer to the microphone where you're hearing some noise in the background? We're unable to hear your complete question.

Yes.

My question was related to the 600,000,000 The long term short. So what is the strategy? [indiscernible] [indiscernible] So the short term loans that we had last year were just to strengthen our working capital position towards the end of last year and give some liquidity to the company in the first Charles. This year as we expect some CapEx execution. And the idea would be to [indiscernible] in the middle of this year with a long term that Okay.

Thank you. Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Doenas for any final comments.

We would like to thank everyone for participating in this call. Rufo, Manuel and I are always available to answer your questions and we hope to see you soon. You once again and have a great day.

Thank you. This concludes today's conference call. You may disconnect your