Good morning, and welcome to GAP’s Third Quarter 2021 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 the Grupo Aeroportuario del Pacifico’s Third Quarter 2021 Conference Call. Presenting from the company today, we have Mr. Raul Revuelta, Chief Executive Officer; and Mr. Saul Villarreal, Chief Financial Officer. Please be advised that forward-looking statements may be made during this 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 current expectations.

For a complete note on forward-looking statements, please refer to the quarterly report issued Wednesday. Due to the pandemic that took place in 2020, comparing 2021 results to 2020 results would reflect an extraordinary increase that is not inaccurate indication of real growth.

As a result, the company will be comparing third quarter 2021 results versus the third quarter 2019 instead. This will provide a better understanding of the financial and operating performance trends for GAP, and thus, are more realistic indicators. Thank you. At this point, I will turn the call over to Mr. Revuelta for his opening remarks.

Please go ahead, sir..

energy and emissions, biodiversity, solid waste management and water management. Moving on to the CapEx, if there was a higher report. We continue with the construction of the recycle runway as well as the construction of the new commercial mixed-use building, which will include a hotel, corporate office and commercial spaces.

We expect that this will be ready for during mid-2023. In Tijuana, we continue with the construction of the terminal processor building, which will be completed and ready to begin operations in December of this year. We believe that this new building will be a game changer for the airport by attracting more flags for international markets.

Indeed, we already have a new IATA code TIJ. This means that if a passenger is booking a flight to San Diego, they have the auctions to select either airports the San Diego airport or the Tijuana airport via the CDX complex. It is remarkable to see the shift in passengers’ profile in Tijuana.

Which despite the closure of CBX since March 2020 has already surpassed pre-pandemic passengers traffic levels. This data suggests that more American citizens have been using the bridge for the travel between the Mexico and the U.S. markets, mainly traveling to leisure destinations.

We also continue expanding the Los Cabos International terminal building as well as designated the second terminal building in Puerto Vallarta. Looking ahead, we expect that the continued recovery trend in passengers traffic posted in this quarter will further strength towards the end of the year as the winter season approaches.

Vaccination rollout accelerate and government continues to lift travel restrictions. While we are not sure what future issues may arise, we do expect sustained travel growth in the coming years. We are confident that our business remains strong and ready for the challenges that may face in the future.

To conclude, I wish to thank our team to their continued commitment with the implementation of our strategy. Thank you for your attention. Now I have the operator to please open the floor for the questions..

Thank you. Now I will take our first question from Alejandro with Credit Suisse..

Good morning, Rahul and Saul, thank you for the opportunity to ask questions. I just have a few questions regarding Jamaica.

I mean, could you give us some color on what’s going on there? How do you see the recovery coming? What is the current situation of the MDP renegotiation? And when could we expect it to conclude?.

This is Saul. Well, we have continued talking with the authority. They implemented a negotiating team, which will be integrated by different ministers. Indeed, we have a meeting in person next week, and we will be trying to speed the revision of our proposal. Currently, we don’t have any change. We are still in the middle of this negotiation.

We expect to conclude probably in the first half of 2022. It’s complicated because they have some travel restrictions, and they are expecting a better recovery in passenger traffic in the island. So we expect that it could take the following months in the first half of 2022. We expect a positive outcome..

Okay. Thanks a lot. And just if I may, just a follow-up regarding Montego Bay, where we have been seeing margins over 60% for the past two quarters, which is way above the historic average of around 50%.

How do you see this going forward? Should we expect them to normalize? Or is this level sustainable?.

It will be normalized, Diego, because according to the concession agreement in Montego Bay, we have an additional concession fee, which is paid according to a revenue projection in the concession agreement, in which during 2020, we were below that generates a credit, which is applied during 2021.

That means that for the following years will be normalized to the 50s in terms of EBITDA margin..

Okay. Perfect. Thank you..

Welcome..

We will take our next question from Guilherme Mendes with JPMorgan. Please go ahead..

Hi Saul, good morning, and thanks for the quick question. I have two questions actually. The first one, it’s a follow-up on this margin topic.

Can you expect the same trend in Mexico? So we saw once again strong margins for the quarter? Do you expect any kind of normalization? Or should we expect this low 70%s for the upcoming quarters? And the second question is regarding your traffic recovery. We have some of your airports already back to 2019 levels.

In terms of the corporate demand, what should we expect going forward to expect any changes going forward in terms of your normalized corporate demand? Thanks..

Okay, Guilherme. This is Saul. Regarding the EBITDA margin, it’s completed to see that we will continue -- or we will have 70%s. We expect to be normalized in the full year below 70%s. We have to consider that Mexican airports are around the 70%s EBITDA margin.

However, due to the consolidation of Montego Bay and Kingston, we will have around 68%, 69% as an EBITDA margin in terms of full year. So the low 70%s is fair to say that, that’s the range for GAP..

And, hi Guilherme, this is Raul. Talking about the traffic and specific on the corporate demand, I would say that we will begin to see a recovery for the coming year. I mean today, we have two kinds of -- in some way of effects on the corporate demand.

The first is related, for sure, for all the home working and in some way, the cancellation of meetings and exports that is happening not just in Mexico around the world. In the case of GAP, we have this important impact on the most important corporate routes at Mexico Guadalajara, Mexico or Mexico Hermosillo.

These three airports, as you can see the reports, has a lower recovery that the rest of our airports. But the effect of the corporate demand traffic, I think that also is affected by a lack of capacity in Mexico airlines.

And at the end of the day, it is important to remember that with the reduction of seats due to the fact of the interjet is not operating anymore. We lose almost 27% to 30% of the total Mexican market. So I will say that, for instance, in these corporate markets, we are seeing a really high low factors.

So we could expect that in the coming months or years as their lens begins to bring additional capacity, we will see a full recovery of these specific routes..

Thank you..

We will take our next question from Stephen Trent with Citibank. Please go ahead..

Hi, good morning, gentlemen and thanks for taking my question.

By the way, can you hear me, okay?.

Yes. Perfect, Steve..

Great. Great. Thanks, Raul. Sorry, I had a trouble with my phone here. Just two quick questions for you here. The first is, could you refresh my memory on whether there are plans by the hotel industry or kind of theme park industry to do build-outs in Mexico, Pacific Coast, near your airports.

And two, aside from Barbados, are there any other foreign airport opportunities that might be of interest to get?.

Hi, Steve, this is our Saul. Additionally to Barbados, we don’t have any other project right now. It’s complicated times for airports in general in the world. We will be looking for any other projects. But for now, only Barbados is in the pipeline..

Hi, Steve. This is Raul. For the case of what is happening mainly in Balata and Cabos, I could see that the construction of additional keys or additional hotel rooms is happening. I mean, the trading cabos shows that in the next two years, at least it will have around 12% additional rooms for – on that specific destination.

And in the case of Vallarta, all the area of Nayarit or Nuevo Vallarta also have a really important increase of kids. We have a really – for instant, a huge project from the Magan Resorts, they are developing the Sidosi hotel and parking in that area.

For almost eight months, that project, in some way, has slowed down their implementation, their construction due to the pandemic, but I could say that today, they are restarting all these projects. So I could say like in the coming two years that will open, for instance.

And the total number that we are seeing that will increase in the area will be around 10% in the next two years..

Okay. Very helpful. Thanks guys and I will let someone else ask you question. Thank you..

We will move next with Naoki Otsuka with GBM. Please go ahead..

Good morning and congratulations on the results. I was wondering if you could give us some color on tariff increments.

So do you expect to fully increase the tariff during this year?.

Hi, Otsuka, this is Saul. Well, we are in the path to reach the maximum tariff approved by the authority. We already adjust the specific tariffs in some airports due to that the business passenger is not recovered yet. Probably we will not reach the 100% of the maximum tariff.

We are trying to get closer to the maximum tariff but we are expecting to see the business travelers during the end of the year, basically for Alara, Guanajuato and Hermosillo airports. The traffic that we expect we are going to reach, hopefully, at the end of 2022, the levels of 2019..

And also, I will add that also, we are struggling with the fulfillment of the maximum tariff. We have – for the direct problem of some way of the inflation in some ways, going really even higher that our original projections. And as you can remember, as everybody knows, we only could change our specific tariff each six months.

So in some way, the inflation is going even higher than we originally project. So, we will need some additional increase on the specific tariffs to reach 100% of maximum tariff. But we expect that we will continue on that in this growing a specific tariffs to reach the target of the 100% in the coming months..

All right. Thank you very much..

We will move next with Gabriel Himelfarb with Scotiabank. Please go ahead..

Hi good morning. Congratulation on the results. Just two good questions. Do you think that rising inflation to impact the projected CapEx for the MDP? And the second question, do you think that some pressure – there could be some pressures about the labor incorporating the outsourcing into the cost? Thank you..

Thank you. This is Raul. In terms of the CapEx, for sure, we will have an impact. For sure, we are seeing a really high inflation on the construction industry. But it’s important to remember that our commitments in terms of our concessions contracts, is ultimately our commitments includes adjustments by the construction inflation index.

So for sure, we will see in nominal numbers, an increase on the CapEx and increase on the commitment. But in the other side, we will adjust our maximum tariff and our revenues for this additional inflation.

So for sure, we will see impact if the trend of inflation continue in the country, in the world, for sure, we will see impacts on the CapEx, but also in the revenues..

Yes. And regarding your question about labor changes, we already applied all these changes. And we don’t expect a very – a huge impact in the cost of service. We foresee around MXN40 million to MXN50 million at the end of the year, that is not very relevant to the cost of services..

Okay. Thank you..

We will take our next question from Manuel Barra with Barclays. Please go ahead..

Good morning. Just a quick question on my side.

Did you see the new airport of Satalia as a significant driver for the Mexican travel industry in the coming years, considering the recent comments from Volaris and Viva, who are willing to operate there?.

I mean in general terms, I will say and just about what for instance, Volaris mentioned, we know that the area of Santalucia airport has almost 4 million people living in the area. So the catchment of this Santalucia airport by itself, I would say that it’s interesting. It’s importing. It’s a midsized city.

So it will be natural that some specific routes or the most robust routes will appear on that airport.

So I will say at this beginning, we are seeing the announce of the Cancun, Tijuana routes, it will be normal that in the coming months or years, we will see something on Guala Rara or Monterrey or other of the robo spares that still or exist in our market.

But I mean, in general terms, I will say that always, as an ARPU net, we want to be really happy to receive additional infrastructure and to receive additional planes. For instance, for the case of Tijuana, the announcement of the Santalucia Tijuana route, we are more than happy to receive this additional seat.

I will say that it will not be, in the case of these specific routes, some kind of competition or transfer of passengers from Mexico to Santalucia, we think that the direct route from that area of Pachuca, Santalucia will incentivize the flies for the region, and we will bring additional passengers to the net of airports..

Thank you..

At this time, we will take the webcast questions. I will now turn the call over to management..

Well, we have a few questions, and this is from Kuantan from Bradesco.

How are you seeing traffic recovery in Guadalajara and the business segment?.

Thank you. This is Raul. We are seeing that the recovery on traffic on business segment will happen in the coming months and in a much bigger way in the coming year.

But for instance, for the case of the Guadalajara, one of the most important, I would say, demand of this business segment came from the Expo, the exposition center here, the biggest one in Latin America, we are expecting for some good news foreseeing the recovery of this market.

And I could say that, for instance, the announcement of the first week of December that the field, the book exposition, one of the biggest book expositions in the world will be, again, happening on this year on the first week of December. This is the kind of good news that we need foreseeing the most robust recovery of the segment.

That is the first part. And the second, for sure, as I say, we are seeing a more than healthy load factors in the business segment routes in Guadalajara, so it will be a matter of time to see additional seats coming from deeper and airline to see a more stronger recovery on these specific markets..

Thank you, Raul. We have some questions from Pablo Coloma from MetLife.

The first one is, can you tell us your plans about future dividends, share repurchase program and capital distributions?.

Hi, Pablo. This is Saul. Well, we will continue making distributions to our stakeholders according to tarsus are coming. We expect a very good year for 2021 due to the passive traffic recovery, the commercial revenues, spend per head and everything, all the decisions and strategies followed by the management.

So we will continue, as historically we have distributed. We will continue with the same policy. So it’s not changes for the future. So you will see in the next years, the same trend..

Thanks, Saul.

The second one from Pablo also regarding CapEx, what can we expect for 2022 and 2023?.

Hi, Pablo. This is Saul also. Regarding CapEx, we have a huge commitment with the government according to our master development program. And we will make some additional investment in terms of a commercial projects like the construction of the hotel and the UX mix complex with corporate offices and commercial areas in the well Guadalajara airport.

We are also planning to expand the parking lots for Guadalajara, Tijuana and some other airports. So we will continue with this expansion, with this investment. By the way, we will continue leveraging the 100% of the CapEx according to our last year’s strategy. And so we have that.

The MDP committed with the government plus all the commercial investment..

And the last one also from Pablo.

Could you give us some guidance about your net debt-to-EBITDA ratio for 2021 and 2022?.

Well, regarding this and in line with our previous comments, the net debt EBITDA ratio for the end of 2021, including that recently the bond certificate issue during this month. We are expecting around 1.65. And for 2022, we expect to receive the approval for the new bond issuance from the Board.

But for – we are not expecting to exceed the 2x of net debt-to-EBITDA ratio for that year..

Thank you, Saul. This was the last question..

And we have no further questions over the phone either. I will now like to turn the program back to management for any closing remarks..

Thank you, everyone, again, for joining us today in our third quarter results conference. We appreciate your interest in our company, and we look forward to providing updates on our business initiatives and they become available. In the meantime, the teams remain available to answer any questions that you may have.

On behalf of GAP, we wish you a great day..