Grupo Aeroportuario del Centro Norte S.A.B. de C.V.

Greetings.

Welcome to the Grupo Aero-Putero del Centro Norte OMAA First Quarter 2024 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. I will now turn the conference over to your host, Emmanuel Camacho, on the rest of the relations. You may begin.

Thank you, Shemeli. Hello, everyone. Welcome to OMAA's First Quarter 2024 earnings conference call. We're delighted to have you joining us today as we discuss our company's performance and financial results for the past quarter. Participating today are CEO Ricardo Reyes and CFO Rufo Pestiello. This year reminded that certain segments made during the course of our discussion today may constitute forward-looking segments which are based on current management expectations and beliefs, not just on the current situation. We 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'll turn the conference over to Ricardo Reyes for his opening remarks.

Thank you, Emmanuel. Good morning, everyone. We appreciate your presence in this call today. This morning, Rufo and I will review our quarterly operational financial results and then we'll be pleased to answer your questions. In

the first quarter,

OMA's passenger traffic reached 5.9 million, a decrease of .5% versus the first quarter of last year. Excluding the Acapulco Airport, where hotel infrastructure continues to be affected by the impact of Hurricane Otis that hit in October 2023, terminal passenger traffic in our other 12 airports increased by an aggregate of .9% during the quarter. Excluding Acapulco, OMA experienced a decline in domestic traffic of .2% in the quarter, driven by lower domestic seat capacity, which declined by 9.1%. The main airports affected were Culiacan and Ciudad Juarez airports, notably on routes such as Culiacan to Tijuana and Ciudad Juarez to Mexico City. International passenger traffic recorded a strong performance with a 10% increase compared to the first quarter of last year, driven by airlines expanding capacity and international routes. During the quarter, international seat capacity grew by 7.1%. This international growth was primarily led by the Monterey Airport, which saw a 14% rise in international passenger traffic. The routes with the highest increase from Monterey were to Atlanta, Toronto, Las Vegas, Bogotá, and Dallas. These routes, along with San Luis Potosito, Houston, and Cihuatanejo and Zacatecas to Dallas routes, contributed to approximately 80% of the international passenger traffic increase during the quarter. Furthermore, in the first quarter, we launched four new international routes, three of which were based at the Monterey Airport. In terms of airline participation, Viva Erebus represented 48% of our total traffic during the quarter. With a notable 16% increase in terminal passenger numbers compared to the first quarter of 23, while Golares, which accounted for 20% of our total traffic, experienced a 24% decrease during the quarter, largely due to the Pratt & Whitney engine recall affecting their fleet. Moving on to MOBA's first quarter financial highlights. Aeronautical revenues increased 5.3%, and aeronautical revenue per passenger rose 7% in the quarter. Commercial revenues increased 12% as compared to the first quarter of last year, driven by car rentals, restaurants, and parking. The car rental and restaurant line item benefited from the opening and consolidation of new business units across our airports during the past quarters. Occupancy rate for commercial space stood at .3% at the end of the quarter. On the diversification front, revenues increased 21%. Hotel services contributed most to this growth, mainly as a result of an increase in operation in both hotels. In the first quarter, occupancy rate at our terminal 2NH was 89%, while the Hilton Garden Inn Hotel had an occupancy rate of 77%. OMA cargo increased 2%, mainly as a result of an increase in revenue related to import cargo services. OMA's first quarter adjusted EBITDA increased by 3% to 2 billion pesos, and the adjusted EBITDA margin was 74.6%. For comparative purposes with the first quarter of last year, we exclude the surplus of the concession tax over aeronautical revenues, resulting from the rate increase from 5% to 9% for this concept pursuant to the Mexican Federal Duties Law, which amounted to 86.3 million and was recorded as a concession tax expense in the quarter, along with its impact on OMA's financial results. Our adjusted EBITDA would have been 2.127 million, with a margin of 77.7%. On the capital expenditures front, total investments in the quarter, including MDP investment, major maintenance, and strategic investments, were 1.1 billion pesos. During the quarter, some of the most relevant projects we are working on are the expansion and remodeling of the Monterey Airport Terminal A building, as well as the Juarez, Torreon, Culiacan, and Durango terminal buildings. Reconfiguration of the Massa Plan terminal building. Major rehabilitation and reconfiguration of platform and taxiways in several airports, and construction of four industrial warehouses. Lastly, I want to mention that tomorrow we will hold our 2024 Annual Shareholders' Meeting. Shareholders will vote on several matters, including the declaration and payment of a 4.25 billion peso cash dividend. We extend our sincere gratitude to our shareholders for their invaluable participation and unwavering commitment to our company. I would now like to turn the call over to Rufo Perez-Piego, 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, and then we will open the call for your questions. Aeronautical revenues increased .3% relative to the first quarter of 2023, given primarily by higher aeronautical yields, as well as the increase in international passenger traffic. Non-aerial revenues increased 13.3%. Commercial revenues increased 11.6%. The categories with the highest growth were car rental, restaurants, and parking. Car rentals rose 25.4%, mainly due to an increase in revenue as a result of the consolidation of initiatives implemented in past quarters. Restaurants increased .6% due to an increase in fixed rents, as well as the consolidation of initiatives also implemented in previous quarters. Parking increased 8.3%, driven by an increase in average tariffs in our airports, as well as higher penetration in the Ciudad Juarez, Chihuahua, and Monterrey airports. Diversification activities increased 20.6%, mainly due to higher revenues from hotel services, as occupancy levels increased in both hotels. Total aeronautical and non-aeronautical revenues were .2% to 2.7 billion pesos in the quarter. Construction revenues amounted to 1.01 million pesos in 1Q24, as an increase of 53% as a result of higher MDP investment execution. The cost of services and G&A expense had a .4% growth versus the first quarter of 2023, primarily driven by a .5% increase in payroll and a .5% growth in contracted services, as a result of overall inflationary increases and the effect of minimum wage increases. Additionally, our cost of hotel services grew by .7% due to the increase in operations in both hotels. Concession tax increased 87% to 223 million pesos as a result of a change in the rate from 5 to 9% applied on revenues generated by airport concessions. Under the tariff regulation basis effective October 2023, payments made to the government related to aeronautical revenues, in excess of those included in the most recent tariff revision, will be added to the reference value to be used in the next maximum tariff revision. Therefore, starting in January 2026, these success concession tax payments will begin to be recovered through the maximum tariffs. In the first quarter of 2024, the 4% surplus on the concession tax on the aeronautical revenues amounted to 86.3 million, equivalent to 3.1 of the sum of our aeronautical and non-aeronautical revenues. This surplus is included in the 223 million pesos recorded as concession tax expense for the quarter. Excluding this amount, our adjusted debit would have been 2.12 billion pesos with a margin of 77.7%. We continued to analyze alternative accounting treatments of the recovered amount of the excess concession tax. However, until a final decision is made, we decided to record it as an expense. Major maintenance provision was 71 million pesos compared to 77 million pesos in the first quarter of 2023. Our EBITDA was 2.0 billion pesos and the adjusted EBITDA margin was 74.6%. Our financing expense was 276 million pesos, mainly due to a higher interest expense as a result of an increase in financing costs and the variation in the present value of the major maintenance provision. Consolidated net income was 1.1 billion pesos in the quarter, which was flat relative to last year. Turning to our cash position. Cash generated from operating activities in the first quarter amounted to 1.5 billion pesos, and cash at the end of the quarter stood at 3.4 billion pesos. At the end of the quarter, total debt amounted to 10.7 billion pesos, and we ended the quarter with a healthy net debt to adjust the EBITDA ratio of 0.8 times. This concludes our prepared remarks. Somali, 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 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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 key. Our first question comes from the line of Jeme Mendez with JP Morgan. Please proceed with your question.

Thank you. Thanks for taking my question. Hi, Ricardo, Rufo, Emanuel. My question, my first question is regarding the traffic outlook. Ricardo, you called on the last conference call you mentioned about an expectation of having a flat-ish traffic performance in 2024 when compared to last year. Is this still the case? I mean, how should we think about traffic performance going forward, given the latest assessments on the aircraft groundings? And the second question also related to this, it's on NACAPUCO specifically. We continue to see a weak performance naturally, but how should we think about the pace of recovery going forward? Thank you.

Thank you. Thank you, Hilarie. We're monitoring very closely traffic. It's really depending on how the Pratt & Whitney engine issue evolves. We're looking right now for the year in terms of traffic somewhere in the mid to low negative single digit. As for ACAPUCO, we're currently seeing we're operating around 50 percent of the capacity that we were handling pre-OTIS. We're also monitoring theirs very closely and it will depend on the recovery of the city.

Got it. Thank you very much.

Thank you. Our next question comes from the line of Alejandro Fuus with AUTOC. Please proceed with your question.

Thank you. Hello, Ricardo. Thank you for the call and congrats on the results. I have two quick ones from my side. First, looking at the release, I was curious to see that the national tour was up 5 percent -to-year. I was wondering how we can relate this in context of last year's tour, which for the last few months of the year was 10 percent down. Even with inflation, how do we get to the plus 5 percent on the national tour? That's the first question. And then the second one on the non-Aeronautical revenue per passenger was up 15 percent -to-year. I believe you saw the congratulations on that. Maybe I was wondering if you can share with us a little bit more color and different strategies that we've been implementing the last two quarters. And maybe if Dean Seek is also adding to the strong performance, anything that you could comment. And if we should expect to continue to see strong performance on the non-Aeronautical side going forward. Thank you.

Hi, Alejandro. With respect to the Aeronautical yield, it has to do with the basis of comparison. As you point out, at the end of last year, we started to have a 10 percent reduction in tours in certain airports. We did some inflationary increases in January of this year, and we also plan to do them in January of next year. But last year, our tariff base was adjusted until the end of March. So that's why you see the benefit of the basis of comparison primarily. And with respect to commercial initiatives. Yes, we have been working very closely with Vansi since they become the major shareholder of the company. Part of the strategy is to develop extra Aeronautical revenues. We have been aggressive in renegotiating packages of spaces in the food and beverage and retail segments. And also as new outlets become available, given the expansions that we are finishing, primarily in the Monterey Airport, we expect the strong performance to continue in the next following quarters.

Thank you very much.

Thank you. Our next question comes from the line of Alan Macias with Bank of America. Please proceed with your question.

Thank you for the call. Just one question on the technical assistance, I guess expense. Is that what we saw in the first quarter? Should we continue to expect going forward those levels? Thank you.

Hi, Alan. Technical assistance fee has not been modified. Currently it stands at 3% of the EVDA generated by the airport concessions. So there is no modification in that respect. Going forward, it will depend on the level of EVDA generated by the airport concessions. Whether it goes up or down, it depends on the airport's performances.

Great. Thank you.

Thank you. Our next question comes from the line of Rodolfo Ramos with Bradesco BBI. Please proceed with your question.

Thank you. Congratulations on the results on my team. I have a couple. On the traffic side, thinking a little bit more long-term, medium-term, how do you see this lot reduction or bottlenecks that we've seen in Mexico City impacting your system, given how important the Mexico City metropolitan area is for the Monterrey Airport? That would be my first question. And then second, I don't know if you've heard any additional news around the ADN Airport in Monterrey. I think the transfer of operations to the military should have happened or is about to happen any day now. Obviously the military is not a good place, struggling with Mexicana and Felipe Angeles, but how likely do you think it is for them to start commercial operations and how could that impact? Thank you.

Thank you. Thank you, Rodolfo. In terms of a lot reduction in Mexico City, what we're expecting is traffic. What the government is expecting is traffic from the Mexico City airport to shift into either Santa Lucia and probably Toluca, mostly Santa Lucia. So what we're expecting medium-term, long-term is that traffic will start either shifting to the other alternative airports like Santa Lucia, not 100 percent, but the rest will find a way around the network of airports. So that's what we believe that we are part of that solution. And traffic will start at some point that excess traffic that it's not moving to other airports to bypass the airport of Mexico City. So we're not expecting a medium-term impact. Traffic, it's challenging this year because of the Pratt & Whitney issue. But other than that, aside from that, near-shoring is still there. Fundamentals are still there. So we're bullish on traffic going forward.

So like network, just network development, you think it's going to be more key, like providing -to-point Monterrey to other smaller cities. Did I get that correct?

Yeah. Yeah, I think that's fair to say.

Okay.

And in terms of the airport in the north,

at this point, there's no official announcement besides what we heard in December. We don't know. There's a lot of investment that the military would have to do. Monterrey Airport doesn't have a capacity constraint. So the technical need, it would have to be analyzed. But at this point, we don't see that project right now. It's in action. Thank you.

Thank you. Our next question comes from the line of Fernanda Rechia with BTG Actual. Please proceed with your question.

Hello. Thank you for taking my question. Chou from Ursaia. First, I wanted to get updates on the MVP negotiation. I know we are a bit far from the timeline for it, but considering all the moving parts that we saw at the beginning of this year with the two others coming, increasing concessions, I wanted to get your latest view on the tariffs that you should get on the next MVP if you're expecting a flat-ish tariff as you were previously expecting or if you are now looking for a small tariff increase. And second, on margins, margins were pretty decent considering all this moving part. As you are expecting now at slightly lower traffic, do you still expect to keep these margins of 75% going forward? Or should we look at it? Thank you.

Yeah, Fernanda, thank you for your question. You're right. We're still in an early stage of the MDP as we will have to submit that until June of next year. Right now, we're working on the traffic projections on the capex needs that we'll be looking forward. We're working very closely with Vinci Development, this next MDP. We're using all their expertise, their experience that they have. They're very good and very efficient at optimizing capex, which is what we are currently working on. So it's still early to say and have some guidance into where we think we would land on tariffs. And in terms of margins, I think something between -74% is fair to assume.

Perfect. Thank you very much. Considering that

the concession tax will be considered an expense.

Thank you. Our next question comes from the line of Pablo Recalde with Santander, Mexico. Please proceed with your question.

Hi, Ricardo. Thanks for that question. Maybe a follow-up on the concession fee. You didn't recognize it as an intangible asset because you're still thinking on that or there's something because the accountant didn't approve that?

Sorry, Pablo. Can you repeat the last part of your question? I could barely hear it.

Yes, sorry, Pablo. Maybe it's regarding the concession fee, where you said it's an expense instead of an intangible asset. So just trying to understand the rationale behind that. If it was a matter of like an internal decision or it was a matter of the accountant.

So we're still assessing alternative accounting treatments for this line item. We haven't reached a final decision. We're still in conversations with our auditors in this respect and would expect to have a resolution in the upcoming quarters. The way we reported was the more conservative approach. And obviously this does not have any impact in the recoverability of the excess amount paid pursuant to the tariff basis. But that's still a discussion both internally and with our auditors.

Okay, perfect. That makes sense.

Thank you. Our next question comes from the line of Jay Singh with Citi. Please proceed with your question.

Hey, it's Jay Dillingham from Stephen Trent's team. Thanks for taking my question. I have just two on my end. The first thing I want to ask is, is it too early to say where the next administration will begin discussions to extend concession contracts beyond 2048 rather than approving large tariffs increases every five years?

Hi, Jay. We haven't had that conversation and it seems that it's too early to have that type of conversation considering the years remaining on the concession.

Okay. And my next question is, is there any general high-level view over what investors could expect regarding Taras and CapEx for the next regulatory review?

As we mentioned, it's still too early in the process. We are submitting the next MDP until June, so we're currently working in traffic and CapEx projections. We're working with Venti, our partners, to develop a very efficient and optimized CapEx leverage of their expertise, their international expertise.

Sounds good. Thanks for the color.

Thank you. Our next question comes from the line of Gabriel Himalafar with Scotiabank. Please proceed with your question.

Hi. Good morning. Thanks for the call. Just a quick follow-up question about the concession fee. It's my understanding that the increase in the concession fee will be somehow offset in the new master development plan in 2026. But in the meantime, is there any offsetting mechanism to offset the impact on profitability, the increase of the concession fee, or is it just pure cost control? Thank you.

So irrespective of the accounting treatment, the cash flow benefit will come until the next tariff negotiation. Certainly, not only because of this accounting treatment that we did, but also to compensate for some of the passenger loss that we're experiencing, we continue to be very aggressive on our cost containment measures. We're always looking to optimize our expense base, and that is part of the philosophy of running our company.

Okay. So in the meantime, there's no kind of regulatory offset or even increasing a bit faster the maximum rate to 100% or something, just pure cost control?

Well, last year we ended up at .5% of maximum tariff recovery. This year we are expecting to be above that. So in that sense, those are mitigant measures to compensate for the additional outflow of concession tax that we're experiencing.

Okay. Thank you. Congrats on the results. Thank you.

Thank you, Ariel. Thank you. And we have reached the end of the question and answer session. I'll now turn the call back over to Ricardo Duena for a closing remark.

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

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.