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

Good morning and welcome to GAP's fourth quarter 2023 conference call. Thank you for joining us. Please note that all lines have been placed on mute to prevent any background noise during the presentation. At this time, I am pleased to turn the call over to GAP so that the presentation may begin. Please go ahead.

Thank you and welcome to the call. I am pleased to have from the company today Mr. Raul Revuelta, Chief Executive Officer, and Mr. Saul Villarreal, Chief Financial Officer. Any forward-looking statements made during this conference call do not account for future economic circumstances, industry conditions, company performance, or financial results. Please keep in mind that any statements or assumptions made are based on current factors and information that could materially change, causing results to differ from current expectations. For a complete note on forward-looking statements, please refer to the quarterly report issued earlier this week. Thank you all for your attention. Mr. Zabuelta, please begin with your opening remarks.

Hello, everyone, and thank you for your attendance today. As we reflect on the year 2023, we reached the highest EBITDA level in the history of the company, even though we faced several challenges. In the end of the overcame them, the year started at a varying currency rate as we reached historic levels in terms of passenger traffic numbers, revenues, and expansion for airport areas. However, the positive start was offset by two main macroeconomic factors. One was the exchange rate rotation, and second was the low inflation rate applicable to maximum tariffs. To begin, depreciation of Mexican pesos impacted the American airport revenue, which are in US dollars. Depreciation also affected certain commercial revenues in Mexico, as well as international passenger fees. In total, this affected around 20% of our total consular revenue. At the same time, the national producer Price Index Exclusive Petroleum, which is adjusted to update trust tariffs in Mexico, remained mainly flat throughout the year. The standard firmed up below a 1% increase for the previous year, compared to inflation rates of around 6% during 2020-plus. Costs substantially increased during 2023, despite our greatest effort to remain within strict budget parameters. Mainly, we saw cost increases regarding maintenance, personnel, cleaning, and electricity. And with passengers traffic at a record 64 million passengers, we had a higher spending to maintain the quality level of service than higher number of passengers. In addition, the consumer price index in real terms has been sustainably increasing, Together with the higher minimum wage and changes in labor level, consequently, we are facing a growing challenge concerning costs, thus directly impacting our profits. By the end of 2023, we faced various challenges, starting with the passive traffic deceleration due to the problem with the preventive engine inspections. In addition, the major challenge we faced as well due to the regulatory changes and concession fee adjustments, which affected our market value. Nevertheless, we have prioritized this issue and have engaged in strategic negotiations with other relevant regulatory bodies to navigate these changes and preserve shareholders' value to the best of our ability. It is important to mention that despite these considerable headwinds, we achieved remarkable milestones in 2023. Adjusted evidence reaches another record of 17.7 billion pesos, up 9.7% compared to 2022. Commercially, 2023 was a groundbreaking year and one which we reached the highest commercial revenue in our history. Our strategic focus in the area of food and beverage, parking, retail and expansion projects is evidence of our commitment to improve the passenger experience and continue sustainable growth. We are constantly working to recognize market trends, adapt to them, and make them our own. Currently, we have several expansion projects underway as part of our strategic growth initiative. These include new layouts in the Guadalajara, Los Cabos, and Puerto Vallarta airports, as well as the additional mixed-use building. That includes a hotel, commercial spaces, and corporate office in the wildcard airport. Furthermore, we conclude the year with a strong balance sheet, reaching 10 billion pesos in cash at the end of the year, as well as a comfortable debt maturity profit, with a net debt to EBITDA ratio to 1.7 times. During 2023, we raised funds for capital expenses mainly aimed at the airport expansion and infrastructure improvement, as well as for refinancing of the debt maturity. A maturity payment of 3 billion pesos will be due during the first quarter of 2024, corresponding to the GAP-19 bond certificate, which will be refinanced through sustainable linked bond issuance in the coming weeks. Throughout 2023, we continue to focus on our long-term planetary sustainability strategy. The terminal processor building at the Tijuana airport obtained a gold LEED certification, which was the first time one of our airports was granted with this distinction. We also participate in the Edge Certification for Gender Equality and hosted our first ever gala to benefit our educational foundation, Fundación GAL. And during the year, we raised around 9.3 million pesos to benefit our schools. In line with that, we extend our education program to the high school grades in Guadalajara under our Tech of Monterey program, committing to provide excellent education to our students. Moving ahead in our 2025 guidance, we anticipate a 3% to 5% slowdown in passenger traffic across our airport network due to the challenge brought on by the review of the P&W engines. We base these figures in our view of the aircraft that is scheduled to grounded due to the accelerated preventive inspection, as well as the flight frequency and seat offerings on the various airlines. This decrease in passenger traffic will directly lead to lower aeronautical revenues. Thus, we foresee a decrease from 2% to 4% versus 2023. However, on a more positive note, non-aeronautical revenues are expected to grow from 12% to 14%. Despite the passenger traffic decrease, we are considering the development of additional business areas, such as the start of operations of the mixed-use building in Guadalajara. The building includes a hotel, corporate office, and commercial spaces. This is in addition to the opening of around 1,100 parking spots. The tariffs in Guadalajara additional commercial spaces in Los Cabos and in Puerto Vallarta, and the changes in the terms of the existing contract. We expect a 65% dividend margin plus or minus 1%. Debt contractions comes mainly from a higher concession fees in Mexican airports, from 5% to 9%, beginning January 2024, plus labor costs increase in Mexico of around 20% and a 40% for Jamaica. In terms of CAPEX, we expect to reach around 9 billion pesos in the coming year, Along with the annual committed investment in Mexico of 3.8 billion pesos, we are also allocating 1.5 billion pesos for the commercial projects, including the final phase of the mixed-use building in Guadalajara, parking lot expansions, and the opening of additional business lines operated directly by GAN. Additionally, we will purchase additional land in Guadalajara to be allocated to our future expansions which will cost approximately 1.5 billion pesos. We also have around 700 million of CAPEX deployed in 2023, but that will be paid in 2024. Lastly, we plan to invest around 1.5 billion pesos in the projects related to the Jamaican airports. I would like to conclude by emphasizing that despite the challenge, we remain and sustained growth, ensuring our continued success and value creation for all stakeholders. We at GAAP remain confident that the underlying fundamentals of our business remain strong. With this, I want to thank you all for your attention. We are now ready to answer your questions. Operator, please open the line for questions.