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 call over to GAP's investor relations team. Please go ahead.

Thank you and welcome to Grupo Aeroportuario del Pacifico's third quarter 2024 conference call. Presenting from the company today, we welcome Mr. Raul Revuelta, GAAP'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, the company's future performance, or financial results. As such, Statements made are based on several assumptions and factors that could cause actual results to materially differ from the 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 remarks. Please begin, sir.

Thank you, Maria. Good morning, and thank you for joining us today. I'm proud to share with you how we have been able to navigate the complex market environment while closing the gap for sustainable growth via diversification and strategy. Before discussing the quarterly results, let me start today's call with a recap of recent developments. First, with the approval of the 2025-2029 Master Development Plan for the 12 Mexican airports under maximum time, which occur under the new tariff regulation. Some key highlights of the new MDP include a total capex commitment for the five years of 43.2 billion pesos, measuring pesos as of December of 2022, that will be adjusted for the national producer price index construction sector. DuPont execution. Something important to remember is that in that amount, we have already made advanced payments of approximately 5.5 billion pesos during 2023 and 2024. This has been approved by the authority and are recognized during the new MDP, mainly for Guadalajara land reserves. Of these five years' capex, almost 40% will be invested in terminal buildings. Therefore, by the end of the quinquennium, will have an additional 54% in square meters, meaning more capacity and space throughout our 12 airports, besides 37% of additional security checkpoints and 26% of additional airports. Importantly, 87% of total committed investment will be in four of our airports. Key projects included. In Guadalajara, the construction of a second terminal, additional aprons, taxiways, new vehicle access, and the purchase of land reserves for future development. At the Tijuana Airport, the development of a terminal facility for domestic departing passengers, aprons, and the purchase of land. Besides that, in Los Cabos, the expansion of the apron and the international terminal building. In addition, it is important to remember that we expect to finalize the second term of building in Puerto Vallarta by the end of 2026. These investments are intended to support GAP's new growth phase for the upcoming years. Regarding maximum tariff determination, please note that the new methodology for calculating the score rate is now based on weighted average cost of capital compared to the previous when it was based on the cost of equity. In this regard, the new tariff will be gradually implemented in the following 15 months. Moving on to this quarter performance, as you can see, our operational resilience at the strength of our commercial strategy are key drivers for our long-term success. During this quarter, we faced several industry-wide challenges, most notably the 5.7 decline in passenger traffic during this quarter. was driven by the ongoing expansions of the craft and with the engines, which began in the late 2023 and are expected to continue throughout 2025. Despite these headwinds, financial results have remained strong, and this was largely due to the dynamic commercial revenue growth, which I believe is central to GAAP's future. Even with this setback, we have continued to expand our strength, our network. For example, during this third quarter, we opened two international routes, including the Guadalajara to Toronto route, and resuming the operation of the Tijuana to Beijing route, plus one domestic route, bringing the total number of routes added to our network this year to 16. These therefore are in the line with our air development strategies. Allow me to highlight our commercial revenue, which were a standout success. During the third quarter, We experienced an exceptional 39% increase in non-aeronautical revenues, driven mainly by the strategic expansion across our airport network and business acquisitions. This is the result of GAAP's ongoing deliberate and strategic effort to maximize commercial revenues wherever we see potential. The Carbon Fiscal Facility consolidation contributed to $354 million to non-aeronautical revenue and is a testament to the foresight of our strategy. Additionally, we have seen remarkable growth in terms of car rentals, retail, food and barriers, where new partnerships and expansions have yielded significant returns. For instance, our car rental business and VIP lounges, particularly in Guadalajara and Los Carlos, have performed exceptionally well. And the second VIP lounge in Guadalajara, which opened just this quarter, has already helped meet rolling demand at that airport. Non-aeronautical revenues per passengers grew, reaching 120 pesos during the first nine months, demonstrating how we are not only serving more passengers, but serving them better. by offering them an enhanced and more valuable experience at every opportunity despite lower overall traffic numbers. And while commercial revenues have been a clear highlight, our other revenue reclined by 3.8%. This was partly due to the lower passenger traffic and the fact that we are only rich around 94% of the maximum tariffs. Nonetheless, our overall revenue increased by 6%, Again, reflecting the strength of our business in terms of revenue source diversification. On the expenses side, operational expenses increased by 21%, largely due to the consolidation of the cargo and fiscal facility in service costs, employee-related expenses, and inflationary pressures. Without the new cargo business, the cost of service will increase by 8.8%. However, we will continue to effectively control the cost of service wherever possible, thus ensuring that our growth is sustainable at even an elevated cost. Our EBITDA margins, excluding Africa 12 effect, remain at a solid 67%, which is a slight decline compared to last year, but reflects the importance of our strategic investment in infrastructure and service. In terms of financial position, we maintain a healthy balance sheet with cash and cash equivalents totaled by 15.8 billion pesos at the end of September of 2024. We have also continued our CAPEX investments with approximately 5.2 billion pesos allocated to infrastructure projects. Our recent refinancing of credit facilities and the issuance of long-term bond certificates ensures that we remain well capitalized to pursue further growth opportunities, as well to leverage our committed capital investments. Currently, we have a net debt-to-editor ratio of 1.8 times for the trailing 12 months, thereby complying with all our debt covenants. In closing, this query has demonstrated that the future of airport management is no longer just about managing flights It is increasingly about building diversified operating and commercial ecosystems that generate sustained growth and profitability. GAP is leading that transformation, and I have very confidence that our strategy will continue to deliver value for all our stakeholders. Thank you for your time, and now I open the floor for your questions.

At this time, we will open the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad and you'll be placed into the queue in the order received. You may remove yourself from the queue at any time by pressing pound and one. Once again, to ask a question, please press star and one on your phone now. And our first question comes from Fernanda Recchia of BTG Pactual. Your line is open.

Hello. Thank you for taking my question. Two questions on our side. The first, regarding the initial remarks that you mentioned that the new tariff is expected to be gradually implemented, could you provide more details on this? When do you expect it to fully implement the tariff and how is the ground implementation. And second, could you please comment on your traffic expectation for next year? How are you seeing the protein main issue? Do you think Q3 will be the peak? And how do you see it impacting for next year? That's it from my side. Thank you.

Thank you, Fernanda. This is Raul. In terms of a specific time, we see that we will gradually implement the changes. At the end of the day, in terms of the Air Force law, we could change our specific tariff each six months. So our plan would be to change one time in January, one time in July, and one time in the next January. As you can see, our fulfillment on tariff this year is around 95%. when we add inflation and the growth in terminals in real terms of the new tariff, we think that this is better to the market to pass through all the tariff in a gradually way in all these during 2025 mainly. The second part related of what we are expecting in terms of traffic I would say that we are working really closely with the airlines to understand, first of all, some new deliveries and the coming back of some of the planes that were grounded for the . In that terms, with the information that we have today, we think that the next year is going to be with a growth close to the 5% Again, we right now are working with all the slots to understand how will be the growth in the coming year, but with the data that we have already reviewed, we think that could be a 5% increase. That was mainly the two questions.

Thank you. So just to clarify, the 25% will be fully implemented only by January 2026, is that what you said?

Hi Fernanda, this is Saul. Yes, that intention to be implemented in 2026, yes.

Okay, thank you.

Thank you. Our next question comes from Alan Macias of Bank of America.

Your line is open. Hi, good morning. Thank you for the call. Just two questions. The first, when do you expect the engine recall problem to be ended? Should this be during third quarter? Is that a... a good assumption. The second question is on the new cargo business, do you expect similar revenue levels as the one observed in third quarter? Thank you.

Thank you, Alan. This is Raul. Regarding the engine recall, some of the public information that, for example, Volaris my public, they saw that the complete effect of the grounded planes will be on the summer of 2026. But for sure, what we are expecting is on this summer, on 2025, we will begin to see an increase of first part at the coming back of some of the planes, not the full planes that were grounded, but an important amount of planes that will be again flying. Second, some new deliveries that Volaris and Viva El Bus and even Aeromexico will add to their fleet. And third, for sure we will have a good comparison or a more easy comps when we see the summer of 2022 versus the summer of 2024. So in general, Thursday, I will say that for the summer of 2025, we will begin to see a more important expansion on the number of passengers. Yes. Hi, Alan. This is Saul. Regarding your second question, yes, we do expect that same level of revenues. Indeed, probably will be a little bit better. with an EBITDA margin close to 50%, 55%. So there are a lot of opportunities to improve cost of operation and to continue improving the level of revenues. Again, it was a good transaction that provides more value to the company.

Thank you. Our next question comes from Juan Ponce from Bradesco, VBI. Your line is open.

Hi, Raul, Saul. Thank you for taking my question. I have a question on international traffic. Do you guys see any impact from the U.S. election? I mean, we have seen the leisure destinations take a hit in recent months. I mean, just to try to understand what is happening the main driver here? Is it the capacity? Is it demand? So just your thoughts here would be great. Thank you.

Thank you, Juan. I mean, we are seeing mainly leisure destinations at Cabos, Vallarta, and Montego Bay. In the case of that, but also for other airports in the region and in the Caribbean, as Cancun and other airports in the Caribbean, that September showed an important decrease of number of seats. For sure, that impact us directly on the growth of passengers. So if you could see, for instance, the third query of 23 versus 24, Los Cabos, Montego, Obeya, and Puerto Vallarta, three of them decreased 11%. What mainly we saw is an important decrease in some specific routes on the offer of seats. We think, or at least for the moment, we are seeing that demand is still there. The yields are still being super healthy. So we think that in the coming months and for the winter, we will begin to see the coming back of those feeds. I would say that for the moment, I would say it's almost impossible to understand if this comes from some kind of impact related of the US elections, but what is in front and what is a fact is that in the last months, we have seen an important increase of seats on leisure destination mailing. We are not seeing the same trend on traffic related with business or BFRs, or business friends and relatives. As you can see, for instance, Guadalajara is growing in a double digit. What is really, really important when we talk about international markets, Because for gas, for instance, the international market of Guadalajara is the highest one. So it's really relevant to see a double-digit growth in that specific market.

Our next question comes from Jay Singh of Citi. Hello, do you hear me? Please go ahead.

Thanks for taking my question. Do you guys hear me?

Yes.

Cool, yeah. So it's Jay dialing on for Steven Trent. Thanks for taking my question. I guess the first one I have is, looking at the customs capacity that's required, do you guys see that there's room for any other acquisitions anytime soon?

I would say that today we are working on consolidation of all these business of cargo facilities and fiscal areas. Let me begin with Alajara. We are working on how we consolidate this business. We are working how to, I would say, increase the margins and working on the cost. But in the other hand, we are also beginning to review other different opportunities related with this same kind of business. At the end of the day, the best way to understand this movement on the cargo facility business is related to have that gap has like a platform to increase or to generate new business related with logistics. On this year, we will work really hard to try to bring some additional optimization of the cost on this new business, but also we are working to the next movement through that acquisition, trying to bring new cargo terminal facilities on some of our work. I will say that we are reviewing for the moment, some opportunities that could come from Bajio, for instance, related with the automotive market. Also, we are reviewing some kind of opportunities for Tijuana. Even for the case of Puerto Vallarta and Cabos, that is a really specific market related with with the specific cargo related to hotels. So we are working on that. I will say that we are reviewing all the possible new business and that has ever been the DNA of GAP. Our discipline will be to bring additional value and to bring a creative value for our investors. We are just on that way. We have now the chance to have a new complete unit with all the experts related some cargo. Gradually, we will have and we will bring new opportunities to the table to analyze.

Yeah, I appreciate the thoughts. And I guess my final question is, considering the dip of the Mexican peso against the U.S. dollar, have you seen any changes in U.S.-originated tourism or even business travel? Or is that a little bit early to say?

I would say that this is really soon to begin to see some kind of really a change in the trend related for the exchange rate. Because, I mean, at the end of the day, we have been only in the three months we will begin to see some changes of the exchange rate. So, I mean, we should wait a little more to see some kind of impact.

Okay. Thanks a lot. Have a great day.

Thank you.

And once again, if you would like to ask a question, please press star and 1 on your touchtone keypad. And our next question comes from Isabella Salazar of GBM. Your line is open.

Hello, thank you for taking my question. My question is regarding the GWPC platform. If I'm not mistaken, GWPC has margins of around 40%. And I wanted to know if, now that it's fully incorporated, if it will generate synergies that could significantly impact GAAP's margins. And if so, what specific synergies we should expect to drive these changes? Thank you.

Hi, Isabella. This is Saul. Yeah, the dividend margin in terms of GWTC is around 55%. Last year, 2023, was around 40%. It's part of the process in acquisition that we will have an implemented cost control. that Raul already mentioned. And the idea is to improve not only the side of the cost of operation, but also the revenues. The revenues for this year will be very important, much better than previous year, around 25% more than previous year. So it will be an interesting year at the end of this last quarter, but we have very good positive thoughts about the 2026. So it would represent a creative transaction for GAAP.

I have a quick clarification. That 25% increase, is it for GAAP or for GWTC specifically?

No, it's only for this cargo facility. Oh, okay. Perfect.

Thank you. You're welcome.

And it appears that we have no further questions at this time. I will now turn the program back to our presenters for closing remarks.

Thank you again, everyone, for joining us today at our third quarter results conference. On GAP's behalf, we wish you a great day. Thank you.

Thank you. This does conclude GAP's conference call. Thank you for your participation. You may disconnect at any time.