Good morning, and welcome to GAP's First Quarter 2020 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 Maria Barona of i-advize Corporate Communications. Please go ahead..

Thank you, and welcome to the Grupo Aeroportuario del Pacífico's first quarter 2020 conference call. Today, from the company, 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, the company's future performance, or financial results. As such, statements made are based on several assumptions and factors that could change causing actual results to materially differ from the current expectations.

For a complete note on forward-looking statements, please refer to the quarterly report issued yesterday. Please note, that unless stated otherwise all comparisons in this call are versus GAP's results for the comparable period of 2019.At this point, I would like to turn the call over to Mr. Revuelta for his opening remarks..

Thank you, Maria, and thank you to everyone who took the time to join us for today's conference call. I hope you and your family are healthy and safe during these challenging times. Today, I will tell you about addressing the impact of the COVID outbreak on our operations.

After that, I will discuss some of the initiatives we are taking to protect both, passengers and employees. I will also discuss the measures we have to implement to lessen the financial and operational impact of the pandemic in our business.

And then, I will briefly review financial highlights for the first quarter of the year.As you all know, this pandemic is an extraordinary situation and one that is evolving rapidly. As such, we must remain flexible and open to making changes to our operations, taking on new measures and listening to others.

Like any other health crisis in the past, the aviation industries are hit. In the past, we have seen that it could have taken longer than other industries to recover, due to the fear of traveling and bringing large groups of people or family together.

But at GAP we are committing to doing our part to not only lessen the spread and protect employees and passengers, but ground operations is ranging more nearby to ensure that we're following the proper protocols and guidelines for the proper health output.I see this stand now as a company, and as an industry, we have no clear picture of the severity and the length of the pandemic.

However, we are trying to mitigate the impact as much as we can. Potential scenario from evasion consultants some financial experts seems to indicate from now that we are unlikely to reinitiate normal traffic operations before the third quarter of 2020.

And while there is a lot of data and prediction in the market, those specific factors that could delay are traffic recovery. As a result of the effect of COVID, the International Monetary Fund estimated GDP reduction of minus 6.6% for Mexico and minus 5.9% for the US in 2020, which is our main international destination.

High unemployment will be one of the most detrimental variables affecting the medium and long-term recovery of this occurrence.According to the Mexican-Jamaican [ph] health authorities, the peak of infection will likely occur by early May. The restarting of operations will be delayed more than expected.

Mobility restriction are in place until the end of May in both countries. These impacts may delay our air travel spending for both, BFR and leisure travellers based on two factors; disposable income and travel confidence.

And while business travellers are expected to return more rapidly, they are not expected to come back at the same rate rates as before.

Airlines have significantly lower capacity, some even are scrapping older planes; they are also expected to slowly bring back some of their current grounded planes, and in turn slowing down or rejecting delivery of new aircraft they previously had on orders.Prior to the pandemic, 2020 was shaping out to be one of the strongest years ever.

If we take a look at the first quarter results, you can still see the positive traffic trend that we have been experiencing until the 15 days before the quarter ended, when the pandemic really began to affect GAP.

Thus, for the first quarter, we transported 11.7 million passengers throughout our 14 airports; this amount represents the total decrease of minus 1.4% year-over-year. In terms of the performance on individual airports, Guadalajara traffic decreased 3.1% during this quarter.

The most affected domestic routes were Monterey and Tijuana, which both showed a decrease of more than 65%. The international route; Guadalajara to Los Angeles, Atlanta, San Francisco registered the most significant decrease. Tijuana is of the few airports in our networks that demonstrated growth during the first quarter, a 4.2% increase.

CBX continues to be an essential component of our airport growth with 32% market share and 5% growth during the first quarter of 2020.Flights from Tijuana to Guadalajara, to Aguascalientes and to Mexico City experienced significant declines in terms of passengers and aviation moving during this quarter.

In Los Cabos and in Puerto Vallarta, international traffic later declined due to the strong international passenger position with minus 10.3% and minus 13.6% respectively. It is not a surprise that the US and Canadian market made the most significant impact to this decline, especially as international travel bans were put in place.

On the other hand, the domestic markets grew during the first quarter.

In Jamaica, Montego Bay airport reaching minus 15.3% passenger traffic as a result of flight cancellations by leading airlines included American Airlines, Delta, West Jet, JetBlue and American Air.I want to take a little about some of the initiatives we have developed in airports to provide for passengers and employee safety, and we have a special mention of the business.

Regarding our flight initiative, we have implemented additional protocols to protect the health and well-being of our passengers and employees. Most of our employees are working from home. However, for the essential staff that is still working on location, we have provided protective equipment.

We have also put in place specific measures to ensure isolations between shifts.Our second initiative is on cost controls.

Approximately 85% of our cost of service is fixed; therefore, we are temporarily closing airport areas that are not dangerous [ph] in order to reduce utilities, maintenance, security, and cleaning services; always offering quality standards to provide excellent service to our passengers.

We have also put employees on hiring freeze and have made significant cuts to non-critical activities and professional services.

We expect that these measures will contribute to a decrease in the cost of service to around 40% for the month that our airports are operating at minimum passenger traffic levels.Our third initiative is a preservation of liquidity. We've concluded the first quarter with MXN10.9 billion in cash and equivalents.

In April, the company drilldown a credit lines [indiscernible] for MXN1 billion that will be used for corporate purpose. GAP also has access to preapproved credit lines for MXN2.5 billion in the bank if it is needed. We are currently analyzing the best options to finance a company forger if that becomes the case.

The bond in cash bound is around MXN500 million, we are considering capital expenditures.Moving on to the balance sheet; at the end of 2019, short-term debt reached MXN2.2 billion, this debt was already paid in this quarter. Additionally, in February, we should [indiscernible] Mexico for MXN3 billion.

The total debt as of March 31 was MXN18.3 billion, which represents our net debt EBITDA ratio of MXN0.73.Now, as I mentioned in order to preserve liquidity, we suspend all shareholder distributions.

We have also counseled now mandatory capital in business as we have begun discussions with the Mexican and Jamaican authorities in order to request deferrals for the business committee under the master development program for the year 2020 to the six months in 2021.

At this time, we are at the beginning of this process, I will be providing updates as they [indiscernible]. It is important to mention that around MXN600 million we're already invested during the first quarter of the year, including expansion growths and maintenance CapEx.

These were nothing but Mexican concession agreements of length that is the Mexican GDP will decrease by 6% [ph] or more. GAP will have the option of re-opening their MDP and tariff determination; those within 100% of functions considering the maximum size.

Jamaica has another provision and GAP may delay in business of MDT whenever it deems necessary.Let's move on to the airlines and how GAP is trying to help our most powerful clients. In order to give to some relief, GAP raised payments for landing, parking an overnight aircraft charges are more no less for the month of April and May.

Additionally, we will run fail [ph] in payments to some of our clients some tenants in order to help them preserve liquidity until they raise an operational activity.

In order to support our tenants who have offered them discounts over the minimum rental fee, we believe that partnering with them during times of crisis will strengthen our relationships and build goodwill.

So help them do through; so they are better prepared to be up and running.I just want to mention that we are confident in the underlying fundamentals of our business and we believe that once the operating environment returns to more subtle labels, we will be in a better position to return to this scenario we were operating in.

We are confident in our diversified network that will help us to recover one folder [ph] additional lift.Now to conclude with a brief recap of the first quarter results. EBITDA grew 13% reaching MXN2.8 billion and EBITDA margin of 68.2%.

Total Revenue rose by 17%, mostly driven by a stunning traffic performance in the first two months of the year and the application of the new tariffs approved in December 2019 since January 1, 2020. As a result of the actual performance of the commercial was up and larger.

Customer service increased by 12%, driven mainly by an increase initiated by both, security and maintenance expenses; mainly due to the addition of square meters internal greener buildings and higher energy price in Kingston.That concludes my remarks and now I ask the operator to please open the floor for questions..

Thank you. At this time, we'll open the floor for your questions. First, we will take the questions from the conference call, and then the webcast questions. [Operator Instructions] And our first question comes from Mauricio Martinez with GTM. Please go ahead..

Hello, good morning Raul and Saul. Thanks for taking my question. My first question is on the cost front. I just wanted to confirm if that that - the monthly burn rate that you said was MXN500 million, I just want to confirm that number..

Hi, Mauricio. Thank you for your call and the question. The money is correct; it corresponds to the cost of operation for the 14 airports, including financial costs and taxes..

And this is already considering the cost while the initiatives are in place for cost containment?.

Yes, it is including with a new vision of cost of operation..

Great.

And also, regarding the rents and the minimum guaranteed rent; maybe if you can give us more color on the agreements that you have reached with your tenants? And how much do you think is this - the minimum guarantee rents would be over the manner revenues reaches for this quarter?.

Okay. Hi Mauricio, this is Saul. In terms of the commercial revenues, we offer the tenants depending on the different business lines; discounts for April and May that goes from 50% of discount and even to the 75% of discount, it depends on the kind of business lines; and some of them that are more affected with the lack of international passengers.

So, in terms of how we are seeing the future today is really difficult in terms of all day volatility to have a clear view about what's going to happen, and which cannot be the final impact on the upcoming years for the market.

Saying that, we've seen that in some of the cases we should renegotiate some of the commercial revenues contract because at the end of the day we will have probably a completely different market, at least for the coming year.So, today we just offered these two months of discounts, but for sure depending on how could be the performance of traffic for the coming months, the discounts could take longer or even we should renegotiate some of the contracts..

Perfect. Very clear, thanks..

And our next question comes from Alejandro Zamacona with Credit Suisse. Please go ahead. Your line is open..

Hello, Raul. Congratulations for the growth, and two questions from our side. The first one is on the potential deferral of investments. And, I - so what has been the first reaction of the government? I know that they request only consider detailed outlook, but we want to confirm that we will not - we are not going to modify the investment plan.

And also, if they are saying possibility to reopen the negotiation, any - do you see any chance to quite reduction of the whole MDP? That's my first question..

Thank you, Alejandro. I wish in terms of deferrals investments, the Mexican government has declaration of emergency that don't allow us to construct on this time. For the moment this emergency declaration goes until May 31. So, in practical terms we will raise more than 80 days on the construction of our investments.

So, due to the fact that it is a major force, we are asking for the delaying of this investment for the coming year.

In terms of our possible review of our master plan, as you perfectly know, we have one of the councils of our concession agreement saying that in the case that the GDP of Mexico decreased for more than 5% in the last 12 months, we have the option for review the master plan.

It means that we should review everything, their forecasting of passengers, their forecasting of OpEx, their forecasting of CapEx; so it will be a completely new review or a new master plan.As we are seeing in the market, it will be important possibility that in the third quarter or even the fourth quarter of the year, we will be in the assumption of the 5% of deacceleration of the GDP.

So in that case we will be ready to file our asking for the review of the master plan..

Okay, thank you. My second question is regarding the discounts.

There are multiple discounts; I just want to confirm that these discounts does not apply for passenger fee insurance or the tours, right?.

Yes, that's correct. It's only for aeronautical services and the long-term parking. As you know, all around the places, not only Mexico but the world, there's a lot of older fleet that are stuck in the ground. So we give these special discounts for all the long-term parking for the aeroplanes..

Okay.

On the non-aeronautical side, those 50% to 70% discounts that you just mentioned, so would it be fair to say that the minimum annual guarantees contracts are not really applying in this time for the commercial expenses you're bearing in the terminals that have been built?.

I mean - I think that these discounts would happen for April, May, and maybe a part of June. But again, today it will be really difficult to say how it would look all the year. Just - it's a great probability that we will face a completely different market in the coming months.

So, I will say that we will keep - we are flexible in our contracts with the idea of give, in some cases, relief to our tenants. Because at the end of the day, as you know, and part of the philosophy of GAP is that we want tenants that made business because if those tenants make correct business, GAP will make a really correct business.

So, we think that is the time to give some kind of relief and support, and be ready for facing the new reality..

Okay. Thank you very much..

Thank you..

And our next question comes from Pablo [ph] with Barclays. Please go ahead..

Hi, Raul, Saul, and team. Thanks for taking my questions. I have two quick questions. I know this is too early to tell, but regarding your terminal processing facility in Tijuana, what are your initial views on that project? Are you delaying this process with U.S.

authorities or how are you seeing this? And my second question is just considering 2019, what is the percentage of your non-aeronautical revenue that could be considered as big? Thanks..

Okay. In terms of the Tijuana project and the process of building; I mean, either saying that this is difficult to say how are going to be the new market. Taking account the past, I will say that the DFR market, the royalty firm [ph] market; it's always the first one that comebacks.

So, we are seeing at the moment that the money that this DFR is to send to Mexico, for sure will decrease in the coming month. But we expect some kind of recovery due to the fact that the financial support and fiscal support of the U.S. government to put in the market in some way will help them for keeping their employment.

In that case, we are seeing that the DFR will be the first one that will recover, and we continue to think in our main assumption that the Tijuana airport should continue taking advantage of the South California market and in trying to use this catchment area of South California bringing passengers to old Mexico.And the second part of our assumption would be that the depreciation of peso gives us some additional advantage in terms of price for Tijuana airport.

So, we really think that the performance of Tijuana will be really interesting or some of the airports that will have the best and quickest recovery. In that way, we continue thinking that the process of building will happen, we think that this is a game changer, and that will give us the chance to attract new markets that today we don't have.

So yes, for the case of Tijuana, this first view and thinking on all the volatility of this they're having in this time, we think that this specific investment will continue in terms of the original plan..

Thank you.

And my second question on the aeronautical revenue share?.

I mean, it's - again, it's difficult in time of a service cost; even the aeronautical will also have a big decrease. But in general terms, I will say that it will maintain us really close to what happened in the last 12 months. At the end of the day, it will be really similar to one year ago in terms of share, be it aeronautical or non-aeronautical..

And the non-aeronautical, the part that is fixed, what percentage is roughly?.

I mean, on the last year it was - under the base, it was around 27%. So, I will say that is - in a roughly way to see how could they're now aeronautical..

And just to compliment, Raul, if you allow me, Pablo, about the 25%, 27% of our lease is talking about the non-aero running. The percentage peak is around 80%; so it means that with the minimum guarantee that we charge to the tenants, it could be guarantee the 80% of the non-aero revenue.

However, the circumstances into the discounts that we will provide, and the role already explained. We probably - we will have a decrease in this number. So, it's something that we will have to finalize because obviously, with a different size of market, the level of the minimal guaranteed should be adjusted..

Perfect. Thank you very much. Very clear..

And we will take our question from Rogelio Varoho [ph] with UBS. Please go ahead..

Hi, gentlemen. Thanks so much for the opportunity. A couple of follow-ups here. The first one is on the investments; so we noticed that in the first Q '20, about 10% of the MVP requirements for this year was concluded.

And so my question is, even if there is no guarantee the government will accept the delay of the investments, does any positive restrictions also imply that it's going to be very difficult to do the investment anyway this year? So, regardless of the government decision, we should expect lower CapEx versus what was expected to be the mandatory CapEx in MVP? That's my first question.

Thank you..

Thank you. Yes, you're right. We have almost 10% of the CapEx scheduled for this year. However, we're really - we're in middle of these talks with both governments, Mexican and Jamaica, and we will try to defer some of the investments.

But what is the problem is difficult to know now how much will be deferred according to this mobility restrictions in both countries, and how we'll end this situation. So, what we can expect is a lower CapEx, absolutely.

According to the formal communications with the governments, it's - they are very receptive, and they are willing to provide this deferral.The other thing is what we mentioned before, and we - Raul explained at the beginning of the Q&A is about the MDP negotiation; if that's different.

We right now have in front of us a deferral of the [indiscernible], which is pretty sure to have it..

Okay, very clear. Thank you.

So my second question is regarding a provision that was made of MXN46 million for doubtful accounts; is this related to a Mexican airline?.

Yes. Is it referred to a Mexican airline? Yes, it is. It's not Interjet, it's hard to say it; Interjets have been very committed with the payments, and they have been - they don't have to do dates with us. We are in the process of negotiating with different airlines about the permit.

But regarding the provision of these reserves, it's regarding another very small airline in Mexico, which is Calasia [ph], which represents 1% of our passenger traffic, less than 1%, and some other payments in commercial clients..

Okay, very clear. Thanks so much..

And we'll go to our next question from Gabriel [ph] with Scotiabank. Please go ahead..

Hi, thanks for the call. My question is related to the previous one.

We saw in the balance sheet an increasing accounts receivable for about 48.5%; does it relate with carriers, like, for example, Interjet?.

Thank you, Gabriel. Yes, it is in regarding to yes, regarding [indiscernible], Mexico, and all the US airlines that we have in our portfolio. According to the program of payment that we have with the airline, they stop doing payments in the last 15 days of March; therefore, we saw a significant increase in the receivables.

But it's all over - all the airlines that are working within our network, in the 14 airports, have the same view; stop premiums until to know how long or how deep is the situation. Right now, we are working with them about some specific arrangements in - now we're sharing some deferral in payments.

Fortunately, in the US airlines, they have firm financing from the US government; so, they will be able to continue with the payments. Different case for the Mexican airlines, they don't have some credit lines or additional credit lines to support their coming payments..

Okay. Thank you..

And our next question comes from Ruben López with Santander. Please go ahead..

Hi, Raul, Saul. Good morning, and thanks for the call. My question is from the debt profile; you clearly don't have any more amortization this year but in 2021, you have some brilliant amortizations.

So, first, I wanted to know if these amortizations are - most of them are at the beginning of the year or you still have 2021 to generate some cash to pay them towards the end of the year? And I mean, you clearly have some space for leverage, but - I mean, have you had any indication of potential demand for any issuance or do you have any Plan B that the markets are not there, thinking?.

Thank you for the questions. Regarding the first one, yes, indeed we have some maturities in the beginning of 2021 which is from the debt that we have from the acquisition of Montego Bay airport in 2015, it is with Scotiabank and BBVA. We have been in talks with them about the refinancing of these two bank loans.

In any case, we are expecting to have enough resources to do the payment in case we don't have or continue with this risk refinancing. But we don't foresight any problem in that line, but you are right, it's at the beginning of the year. We have another two maturities in July 2021, and we will try to have in to do the same; to try to refinance that.

According to the level of leverage, we are trying to continue with our health - financial health.

According to the circumstances, in any case we have a deferral of 2020 ground, and in case we have negotiation of the MDP in Mexico and Jamaica; they - obviously, the needs of investment will be lower and we expect to have lower commitment in business for the coming years.

Therefore, the level of leverage will be lower.So, it's in the - for now, this is what we have in mind. Obviously, we want to continue with our strategy about to finance the 100% of the CapEx. And we have also in the pipeline according to that, the new CapEx, the issuance of our opening bond in the debt market in Mexico..

Pretty clear. Thank you..

Thanks. We will now move on to the webcast question..

Okay, thank you. We have question from Marcos Barreto from Citi. And the question is, what percentage of your Mexico traffic comes from Interjet? And the answer; it is around 80%, and it was decreasing during the first quarter of this year.

I don't know, Raul, if you want to compliment something?.

The only thing important to say is that, yeah, in February - the fact number for February before the pandemic was 7% of our market. But why it's important to know this is, the non-competitive routes that has been operated by Interjet.

In other words, to say it, all the words today have or that used to be operated by Interjet in the GAP's net was other airline competing there. So, there was enough room in terms of a lot of factors to absorb all the possible decrease on seats that - could Interject bring to the market..

Okay. Next question is, approximately how many different airlines have flights to our airports in Mexico and Jamaica? Well, I can tell Marcos that the number of airlines that we have for commercial planes or commercial flights in Mexico is around 25%, 25 airlines, and cargo airlines are around 12.

And in the case of Jamaica, it is around 12 airlines in commercial flights, in regular systems.The next question is, I know there has been a long time but what is the role of a Grupo Mexico in the Board of the company? I remember all of you want the answer..

Yes. I will say that today, Grupo Mexico has one way has - has both member here affecting, I mean, all the rest of the board members of GAP are acting for the interests of the company; so I will say that is really a normal standard, a position of Grupo Mexico in our day-by-day on the Board of Directors..

Perfect. Next question is Rodolfo Ramos from Bradesco. And the question is, what is the level of monthly operating expenses that we are expecting after the cost control plan that is fully implemented? And I will say that we have different views.

One is to operate at minimum levels, and bring in demands that we will have almost traffic serial [ph], and we think there are coming different views that the operation of the Air Force in the first quarter of 2021.

What will be the operation in the second quarter with this two-month of almost fewer passengers? And what will be the new vision of the operation for the coming month? And during this month of the fewer passenger traffic is around 40% of decrease in the cost of operation, and we are stuck in this in April, May and June.

Obviously, we cannot assure that we will reach this amount, we are in middle of the negotiation with the current suppliers, with the service providers, and it is complicated to have it.

Obviously, we are close in some areas, the cost of energy will be decreasing, but we have to consider that it's complicated to assure but our target is to reach this 40%.After the situation in according to the operating profits in different level of the Air Force and according to the increase in the demand, we are expecting that the cost of operation on a regular basis will have 10% to 15% decrease in the cost of operation; that is a very, very roughly number that we are fine in line, but we will have to see what is the level of recovery of the traffic in the following months.And that's the final question from the webcast.

Operator?.

And I would like to turn the program back to Mr. Revuelta for any closing remarks..

Thank you, everyone for your time and interest on GAP. Please keep safe, have a great weekend, good morning..

This concludes today's conference. You may disconnect your lines at any time, and have a great day..