Earnings Call Transcript - OMAB Q2 2025

Luis Emmanuel Camacho Thierry, Investor Relations

Thank you, Thierry, and hello, everyone. Welcome to OMA's Second Quarter 2025 Earnings Conference Call. We are delighted to have you joining us today as we discuss our company's performance and financial results for the past quarter. Joining us today are CEO, Ricardo Duenas; and CFO, Ruffo Perez del Castillo. Please be reminded that certain statements made during the course of our discussion may constitute forward-looking statements which are based on current management expectations 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. And with that, I will turn the call over to Ricardo Duenas for his opening remarks.

Ricardo Duenas Espriu, CEO

Thank you, Emmanuel. Good morning, everyone. This morning, I will briefly comment on several key developments during the quarter including highlights of our upcoming master development program negotiation. Then I will review our operational performance and financial results. And finally, I will be pleased to answer your questions. Let me begin with an update regarding our senior management team. During August and September, we will implement changes in two key leadership positions. First, our Chief Operating Officer, Enrique Navarro will be retiring in August after 21 years of dedicated service to OMA. On behalf of the entire team, I want to express our gratitude for his leadership commitment and contributions throughout these years. We are pleased to announce that Raful Zacarias will succeed him as Chief Operating Officer. Raful has been with OMA since 2006 in various operational positions, most recently as airport administrator at our Monterrey Airport. Second, in September, Pierre Grosmaire will join OMA as Chief Commercial Officer, taking over from Alvaro Leite who will be assuming new responsibilities within VINCI Airports. We thank Alvaro for his valuable contributions to our commercial strategy. Pierre brings extensive commercial experience in the airport sector. He served as Chief Commercial Officer of Lyon Airports from 2018 to 2025. He also served as Global Aviation Development Director at VINCI Airports. Under Pierre's leadership, we will continue to grow our extra aeronautical activities. Moving on. On June 27, we successfully completed our MXN 2.75 billion issuance in long-term notes in the Mexican market. Proceeds will be used to repay MXN 600 million in short-term loans and the remainder will be used to fund committed investments as well as for general corporate purposes. Finally, let me provide an update on the ongoing negotiation process of the 2630 master development program. At the end of June, we submitted our proposed MDP to Mexico's Federal Civil Aviation Agency, or AFAC. The total committed investment is similar in real peso terms to the amount committed under our previous MDP program, '21 to '25. From early August through late September, AFAC will be conducting technical visits to our 13 airports to review and discuss the proposed projects. Following that, we would expect negotiation of the tariff model to take place between October and November. Final approval of the MDP and the new maximum tariff is expected in early December, at which point, we also anticipate disclosing the outcome to the market. Our investment proposal is designed to enhance efficiency and optimize operations while maintaining the high standards of safety and service quality. Approximately 49% of the investment will be allocated to our Monterrey Airport. Key projects there include the third phase expansion of Terminal A, payment reconfigurations such as platform expansions, the construction of fast taxiways and several others as well as a number of technology upgrades across our airport network. Other airports with significant investments include Culiacan, Ciudad Juarez, and Mazatlan. This proposal reflects a balanced and disciplined approach with a strong emphasis on optimizing the capacity of our current infrastructure as well as enhancing passenger experience and long-term value creation. In terms of tariff expectations, based on our proposal, we anticipate a low single-digit increase in the maximum tariff in real terms. Moving on to our main quarterly operational highlights. In the second quarter of '25, OMA's passenger traffic totaled 7.2 million, an 11% increase year-over-year. Seat capacity during the quarter increased 12%. On the domestic front, passenger traffic grew by 10%, driven primarily by the Monterrey Airport which saw increases on routes to the metropolitan area of Mexico City, including the Mexico City, AIFA and Toluca Airports. Guanajuato, Hermosillo, and other routes collectively added over 360,000 passengers during the quarter, representing 65% of the total domestic passenger growth. International passenger traffic increased by 19%, also driven by Monterrey Airport with passenger traffic increases on routes to Los Angeles, Miami, Chicago, San Francisco, San Antonio, and Denver. These routes collectively added more than 106,000 passengers during the quarter, accounting for 66% of the total international passenger traffic increase in the quarter. In terms of airline participation, VivaAerobus represented 51% of our total traffic during the quarter, with a 14% increase in terminal passenger numbers compared to the second quarter of '24 while Volaris, which accounted for 24% of our total traffic, recorded a 31% passenger increase during the quarter. Moving on to OMA's second quarter financial highlights. Aeronautical revenues increased 17% with aeronautical revenue per passenger rising 5% in the quarter. Commercial revenues had a strong 20% growth with commercial revenue per passenger increasing by 8% to MXN 62 in the quarter as compared to the second quarter of last year, mainly driven by restaurants, parking, VIP lounges, and retail. The occupancy rate for commercial space stood at 96% at the end of the quarter. On the diversification front, revenues increased 11%, with industrial service contributing most to this growth. During the quarter, we completed the construction of a 5,000 square meter warehouse as part of the expansion plan of one of our tenants. OMA's second quarter adjusted EBITDA increased by 19% to MXN 2.6 billion with an adjusted EBITDA margin of 74.6%. On the capital expenditures front, total investments in the quarter, including MDP investments, major maintenance, and strategic investments were MXN 965 million. I would now like to turn the call over to Ruffo Perez Pliego, who will discuss our financial highlights for the quarter.

Ruffo Perez Pliego del Castillo, CFO

Thank you, Ricardo, and good morning, everyone. I will briefly walk you through our financial results for the quarter, after which we will open the call for your questions. Aeronautical revenues increased 17% relative to 2Q '24, driven primarily by higher aeronautical yields as well as the increase in both domestic and international passenger traffic. Non-aeronautical revenues increased 16%. Commercial revenues increased 19.7%. The line items with the highest growth were restaurants, parking, VIP lounges, and retail. Restaurants increased 41.1%, driven by a greater customer penetration and the opening or replacement of outlets in previous quarters in airports such as Monterrey, Ciudad Juarez, and Durango. Parking grew 12.7%, mainly due to higher domestic and international passenger traffic. VIP lounges rose 34.6%, mainly due to an increase in rates and a higher number of users as well as the opening and consolidation of the new launch, which started operations last July. Retail increased 27.4%, and similar to restaurant revenues, this was mainly due to a greater customer penetration and the opening or replacement of spaces in previous quarters in airports like Ciudad Juarez, Monterrey, Torreon, and Culiacan. Diversification activities increased 10.7%, mainly due to higher revenues from industrial services and hotel services. Industrial services grew over 100%, mainly due to an increase in leased square meters in our industrial park compared to the second quarter of 2024. Revenue from hotel services increased 4% year-over-year, reaching MXN 112 million, primarily driven by an increase in average run rates in both of our hotels, partially offset by lower occupancy rates. Total aeronautical and non-aeronautical revenues grew 16.8% to MXN 3.4 billion during the quarter. Construction revenues amounted to MXN 916 million in 2Q '25, an increase of 64.7% as a result of increased MDP investments. The cost of services and G&A expenses increased 5.6% year-over-year, primarily due to an 11% rise in payroll. Contracted services rose 8.2%, mainly due to higher costs for security and cleaning services following contract renewals in prior quarters. Concession tax increased 18.1% to MXN 283 million, in line with the increase in revenues. Major maintenance provision was MXN 50.4 million compared to MXN 43 million last year. As Ricardo mentioned, OMA's second quarter adjusted EBITDA reached MXN 2.6 billion and the adjusted EBITDA margin was 74.6%. Our financing expense increased by MXN 184 million, reflecting a MXN 185 million variation in non-cash interest expense related to the major maintenance provision as a result of lower discount rates used for its calculation. Consolidated net income was MXN 1.3 billion in the quarter, an increase of 3.8% versus 2Q '24. Turning to our cash position. Cash generated from operating activities in the second quarter amounted to MXN 1.8 billion, and investing activities used cash for MXN 575 million. Financing activities reflect interest expense payments, the first installment of the ordinary dividend of EUR 2.25 billion, the long-term debt placement of EUR 2.75 billion, and the prepayment of MXN 600 million of short-term loans, resulting in a net cash outflow of EUR 138 million. As a result, our cash position at the end of the quarter stood at EUR 3.4 billion. At the end of June and including the latest debt issuance, total debt amounted to MXN 13.6 billion. We maintained a strong balance sheet, ending the quarter with a net debt to adjusted EBITDA ratio of 1x. This concludes our prepared remarks. Thierry, please open the call for questions.

Guilherme G. Mendes, Analyst

The first one is a follow-up on the MDP, and thanks for providing more color. Just wanted to confirm if I got it right, Ricardo, you mentioned about a similar level of CapEx in absolute terms. And then the second point is on the traffic outlook. We have been seeing a very strong performance month after month. On the previous call, you guys mentioned an expectation for a mid-single-digit increase for the year, which looks conservative at this point. So I just wanted to get a fresh view on what you're expecting for the second half of this year.

Ricardo Duenas Espriu, CEO

Yes. Thank you, Guilherme. Yes, we had a very good first half of the year. So we anticipate for the rest of the year to be in the mid to high single-digit traffic growth. We expect some of the growth that we've seen in the first half of the year to reduce as we move along for the rest of the year based on the reduced capacity announced by some of the airlines and also by tougher comparisons compared to last year. But in the mid- to high single digits would be a fair and accurate expectation.

Ruffo Perez Pliego del Castillo, CFO

This is Ruffo. Monterrey has experienced the most dynamic growth of all the airports this year, both domestically and internationally. We continue to observe strong industrial activity and high occupancy rates in the industrial park business, indicating robust economic performance in the region. Therefore, we attribute the traffic growth to the strong economic conditions in that market.

Ricardo Duenas Espriu, CEO

So we still see new openings, particularly on the domestic side in the Monterrey Airport in the second half. We expect consolidation of some of the routes that were opened recently, particularly since last November. But as we mentioned, there are some capacity cuts being announced, and they started to kick in in June. Therefore, we don't expect that much acceleration in the second half of the year in terms of passenger growth in the international market in Monterrey, but we still see pretty good growth for the full year.

Alberto Valerio, Analyst

Thanks Ricardo, Emmanuel. One follow-up on the MDP question. You mentioned about the high single-digit tariffs. Should we expect any concentration in an airport, or should there be some divergence among the various airports on tariffs?

Ricardo Duenas Espriu, CEO

I'm sorry, could you repeat your question, Alberto?

Alberto Valerio, Analyst

Yes. About the tariff for MDP, Ricardo mentioned in the initial remarks that probably will be high single digits. Is that correct? And should we see differences among the airports? Some airports with higher increases in tariffs, some others with maybe a decrease in tariffs?

Ricardo Duenas Espriu, CEO

It's still part of the negotiation, Alberto. We don't see a decrease in any of them. We're still working on it with the authorities. The growth we expect is in the low single digits. We believe that this maximizes the net present value of the company.

Unidentified Analyst, Analyst

I wonder if you can give us more color about the growth in the commercial revenue per passenger that you are expecting in the mid- to long term specific with your MDP.

Ruffo Perez Pliego del Castillo, CFO

So commercial revenues obviously have increased by a number of measures that we have been implementing over the last couple of years. Renegotiation of contracts, opening of new outlets, refresh of the decoration and the feel and look of the stores as well as some use of technology to maximize passenger exposure to retail and food and beverage outlets. We expect those activities to continue, but just in the second part of your question, remember that MDP refers to aeronautical investments. Therefore, we don't see much of a relationship between the MDP and the commercial growth of revenue per passenger.

Gabriel Himelfarb Mustri, Analyst

Quick question. Are you perhaps looking at the possibility of new assets or investments, perhaps in Brazil now that Motiva CCR is selling its airport assets?

Ricardo Duenas Espriu, CEO

Thank you, Gabriel. We are not currently involved in that specific process. We are always exploring potential opportunities in airports, but we are not engaged in that particular formal process at this time.

Federico Galassi, Analyst

Two questions, if you can give us the number. But in general terms, how much of the commercial revenues are coming from Monterrey if you have a number for that, thinking that you will increase the commercial capacity at the end of this year and next year.

Ruffo Perez Pliego del Castillo, CFO

I don't have the specific number, Federico, we'll get back to you. But yes, I'll look for you and get back to you.

Federico Galassi, Analyst

Okay. Ruffo, regarding the investment in Monterrey, can you provide insights on the focus of these new investments, even though I understand they lean more towards the aeronautical sector than commercial?

Ruffo Perez Pliego del Castillo, CFO

Yes. So we mentioned that about 49% of the next MDP will be focused on Monterrey. We are doing a lot of expansion in the terminal and platform capacity to maximize the use of existing gates and also to service our airlines and passengers. We're doing new fast lane exit taxiways as well to increase efficiency. We are also continuing to expand Terminal A of Monterrey throughout the 5-year period to be able to cope with the expected demand that we anticipate in Monterrey. Basically, that's the key highlights of those investment priorities, coupled with a lot of technology operations. So we can also be able to process passengers more efficiently and provide a better experience to passengers.

Unidentified Analyst, Analyst

Just a quick one. Do you see any upside risk on passenger growth due to the U.S. actions at Mexico?

Ruffo Perez Pliego del Castillo, CFO

Can you repeat, please?

Unidentified Analyst, Analyst

My question was, do you see any upside risk on passenger growth due to the recent U.S. DOT actions at Mexico?

Ruffo Perez Pliego del Castillo, CFO

We do not expect any major impact in the following months, but we will continue to monitor closely any measures taken by the U.S. DOT.

Alan Macias, Analyst

Just a question regarding dividend policy. Given your expected CapEx for the next 5 years, could we expect a change in dividends, an increase there?

Ruffo Perez Pliego del Castillo, CFO

Yes. In terms of the dividend policy, we have been in past recent years distributing between 85% to 95% of net income. We would expect to continue with a similar policy for the foreseeable future. As EBITDA and net income grow, there will be available cash flow for distribution.

Luis Emmanuel Camacho Thierry, Investor Relations

Our first question is from Guilherme Mendes with JPMorgan. Just a question regarding dividend policy. Given your expected CapEx for the next 5 years, could we expect a change in dividends, an increase there? Yes. In terms of the dividend policy, we have been in past recent years distributing between 85% to 95% of net income. We would expect to continue with a similar policy for the foreseeable future. As EBITDA and net income grow, there will be available cash flow for distribution.

Operator, Operator

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Ricardo Duenas Espriu, CEO

We would like to thank everyone for participating in today's call. We appreciate your insightful questions, engagement, and continued support. Ruffo, Emmanuel, and I are always available should you have any further questions or require additional information. Thank you once again, and have a great day.