Grupo Aeroportuario Del Pacifico, S.A. B. de C.V.

Good morning, and welcome to GAP's conference call. All lines have been placed on mute to prevent any background noise. After the presentation, we will open the floor for questions, and at that time, instructions will be given if you would like to ask a question. It is now my pleasure to turn the conference over to GAP's investor relations team. Please go ahead.

Thank you, and welcome to Grupo Aeroportuario del Pacifico's third quarter 2023 conference call. Presenting for the company today, we welcome Mr. Raul Revuelta, GAP's Chief Executive Officer, and Mr. Saul Villarreal, Chief Financial Officer. Please be advised that forward-looking statements may be made during this conference call. These do not account for future economic circumstances, industry conditions, company performance, or financial results. As such, statements made are based on several assumptions and factors that could change. this could cause actual results to materially differ from current expectations. For a complete note on forward-looking statements, please refer to the quarterly report. At this point, I'd like to turn the call over to Mr. Revuelta for his opening remark. Please begin, sir.

Thank you, Maria, and thank you to everyone who took the time to join us today. Let's begin by addressing the recent events. We know that the last week has been tough on the market given the decision made by the Mexican government. Today I would like to clarify the changes during this presentation and answer all the questions regarding this news. First I will start with the financial results and then I will go deeper into the regulation. Let's recap gaps of operational and financial performance for the third quarter of 2022 and then the recent events prior to taking questions. For the period, GAS has supported 16.2 million passengers throughout the 14 airports, representing a 10.8% increase. Together with the solid results we experienced during the first half of the year, these results keep us on track to reach our annual growth guidance. Aeronautical revenues increased by 8.2%. In GAS Mexican Airport, there was not increase in the produce price index, excluding petroleum. which led to zero inflation, increasing the maximum tariff approved. In addition, the nearly 16 percent depreciation of Mexican peso over the U.S. dollar negatively impact the consolidation of the two Jamaican airports during the three-quarter 23. Therefore, affecting our overall increasing revenue. As a result, there was a decline in the consolidated aeronautical revenue per passenger. Non-elastic revenue grew by 14%. Most of the increase was attributed to the opening of the new spaces in the airport of Guadalajara, Montego Bay, and Los Cabos. Passengers' traffic growth and the renegotiation of tenant contracts also contributed to this increase. It is remarkable that despite the nearly 16% peso appreciation during the inquiry, which affected 39% of commercial revenue, Nor did our revenue per passengers increase 3%. On that note, I want to mention that just this past week at the Guadalajara Airport, we opened a terrace, an upscale rooftop space featuring well-known restaurants and bars. Also at this airport, the mixed-use building is nearly complete and is expected to be fully operational during the first quarter of 2024. EBITDA reaches 4.3 billion pesos for the quarter, rising 4.5% with an EBITDA margin of 67.5%. This increase was not aligned with the passengers' traffic growth because of the almost null inflation in the maximum tariff and the appreciation of the peso, which impacted total revenues growth figures. In addition, cost increase was related to concession taxes, mainly in Jamaica. where we saw a positive catastrophic recovery, specifically in Montego Bay. If you recall, the concession fee in Montego Bay is variable based on the success earned about the project scenario that was established at the beginning of the concession. We have been below this project scenario with the pandemic. Hence, we haven't reflected additional concession fee in the past years. However, we are now seeing a recovery in Montego Bay and thus higher concession fees. Furthermore, inflation has caused higher cost of services and has the hiring of additional personnel and the changes in labor law. Additionally, the minimum wage increase has affected not only the figures for salaries, but also personal contracts, such as janitorial, security, and maintenance. Moving on to the CAPEX, this continues to be carried out in accordance with the Master Development Program, along with commercial investments. During the quarter, we deployed 2 billion pesos, which were mainly allocated to the Guadalajara and Puerto Vallarta airports. We have also continued with the acquisition process for the land reserve in the Guadalajara airport. In recent events, this past September, Pratt & Whitney, a world leader in aircraft engines, announced preventive accelerated inspections of the Airbus 320 and Airbus 321E engines. It is expected around 700 engines worldwide will undergo inspection from 2023 to 2026. These inspections are mandated by the FFA after a specific number of cycles, depending on the engine type. Currently, the FAA has only issued the first service instruction for the initial batch of engines. It is estimated that it will take from 250 to 300 days for P&W to remove and expect the engines to be returned to their operations. Volaris that represents 42% of our total of passenger traffic announced in its conference call that from the current 126 aircraft fleet, they have 22 Airbus 321neo and 55320neo that may be temporarily affected. The visibility is limited, but GAAP estimates that most of the impacts will be felt in 2024 and 2025. Vegetation is still evolving. We will keep you updated once more information is available. On the other hand, on October 19, the Mexican House of Representatives presented a bill regarding the Mexican federal duties laws changing the concession fee from 5% to 9%. This bill was passed by the Mexican Senate yesterday, going into effect on January 1, 2024. The amount paid in excess over the 5% of the aeronautical revenues due in 2024 will be included in the reference volume for 2025. For the 2025-2029 NDP preview, the new concession tax over aeronautical revenues will be included in our operational costs and will be recovered through the Joint Maximum Tariff. On October 4, we received a notification from the Civil Aviation Agency modifying the Rules of Tariff Regulation that have been in place since 1999. After two weeks of analysis on October 19, the Authority announced the amended rules clarifying the methodology for determining the Joint Maximum Tariff and defining the scope regarding supervision of compliance by the authorities. The full text of the new rules was disclosed in our press release on that same day and can be found on our website under press releases. I just want to briefly review some of the main changes in the rules for tariff regulation. changes in the discount rate going from cost of capital to weighted average cost of capital. We believe that this reflects the actual balance sheet position of the company, as well as the leverage strategy followed in recent years. Secondly, I throw back over 3% excess in warlock units for the 12th Airpods project in the The trigger for the calculation will be when the aggregate workload units of the period exceed 3% of the workload units projection established in the NDP. In that case, we will have to calculate the excess revenue generated offset by the concession fee paid for those revenues. The result will be subtracted from the reference value of the next quinquennium. It is important to mention that this will be reviewed for the workloads unit of the 2025 to 2029 period. Hence, it will be applicable in the 2030 reference value. Third, the change in the terminal value. In the former rules, we project the net cash flow from the year 16 to the end of the concession period. Now, the terminal value will begin in the year 6 until the end of the concession period. It is important to note that GAAP's joint maximum tariffs for 2023 and 2024, as well as the NDP, remain the same. Before we move to Q&A, I would like to confirm our guidance figures for 2023, published in the second quarter of 2023. I just want to underscore our confidence in the underlying fundamentals of our business and our commitment to our shareholders. Thank you for your attention. I will ask the operator to open the floor for your questions.