Good morning and welcome to GAP's First Quarter 2022 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 first quarter 2022 conference call. Presenting from the company today, we welcome Mr. Raul Revuelta, GAP 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 the forward-looking statements, please refer to the quarterly report issued earlier this week. At this point, I'd like to turn the call over to Mr. Raul Revuelta for his opening remarks. Please begin sir..

Thank you, Maria. Good morning, everyone, and thank you for joining us today. GAP experienced solid results during the first quarter of 2022, reflecting the recovery that has been prevailing throughout the Mexican travel industry. We reached almost 30 million passengers and recovered almost 70% comparing to 2021, an increase of 6% versus 2019.

This outstanding result was mainly driven by growth of the Tijuana and Los Cabos to our strongest performing airports for the year 2021. Notably, Guadalajara also did well and for the first time since the pandemic, experienced positive passenger traffic numbers during March, evidence of the straining business crowded market.

The results, Aeronautica revenues increased by 47% compared to the 2019 driven by the passenger traffic recovered throughout GAP's network as well as an increase in the maximum tariff reaching 97% of the appropriate maximum tariff. Moving on the commercial revenues, rose by 33%, compared to 2019.

Most of the increase came from foot and beverage, retail operation as well as duty free. The tenant discounts that we have discussed previously continue in place. However, given the passenger's traffic recovery, most tenant paying the revenue share.

As we mentioned in the previous call, we went to set the terms of several contracts, which resulted in financial conditions that were more positive for the company. In addition, we opened more square meters, both reflective in the extra increase of 87%, which we can see in the total commercial revenues compared to 2021.

The only business land that continues to lock is advertising with a minus 48% versus 2019. That however, several strategies that we are working on to mitigate this impact, including the development of digital advertising, using the actual airplane spaces to enhance brand experience, for instance, the use of marketing showrooms.

EBITDA reached MXN3.7 billion for the quarter with an EBITDA margin of around 74%. This was the result of the outstanding passenger traffic recovery, higher maximum tariff and solid commercial revenues, that were partially offset by the 26% increase in cost of service by 2019.

Only 15% increase excluding the consolidation of Kingston airport, since this airport did not enter our portfolio October of 2019. We have worked hard to maintain our cost control policy, but we do expect some higher cost coming in accordance with our expansions and inflationary effects.

Moving on to the financial performance, cash and cash increased by 15% reaching a total of MXN15.9 billion. On that front, this figure reached MXN31.2 billion. This includes the new issues of another trench of debt bonds in the Mexican market for a total of MXN5 billion.

A portion of this proceeds were just to pay the GAAP 17 bond that was due March, 2022, for MXN1.5 billion. The remaining portion will be allocated towards mandatory CapEx for this year, as well as other commercial investment.

It is important to mention that the rating agencies of S&P gave this both a AAA rating on a local scale, due to the GAAP solid result and a strong fundamental. In accordance with these figures, we continue with healthy levels reaching a net debt to EBITDA ratio for trailing 12 months of 1.1 times complying with all our debt covenants.

Moving on to the CapEx in Tijuana, the construction of the terminal processor building progressed as planned if you update our GAAP date 2022 event, you were able to see the first half an almost finished project. Same event a lot of work has been finalized and we are scheduled for the official opening in May 22.

This new building will add around 40,000 square meters and it will rarely expand our ability to better serve international markets complementing the great functionality of the cross border bridge. In the airport, we continue with the construction of the second runway as well as a new commercial mixed use building.

We expect that this building will be completed during 2023 and we look forward to sharing those updates with you in the future communication. The international terminal building Los Cabos, continuously it's expansion adding around 20,000 additional square meters, which also includes commercial expenses.

I want to mention that the construction project has reached 50% priority rate. Additionally, we are currently working on the design for the second terminal building in port , which is already in the first stage of construction.

To conclude, I want to mention that our ordinary and external shareholder meeting took place last week and another proposal in the end that were successfully approved with accrual of 82.9% for the ordinary shareholders meeting and 86% for the external shareholders meeting.

As I mentioned, we have a very successful GAAP Day in the new terminal processor building in Tijuana. I just want to say a special thank you to all those who attended as well as our team who put to it together. At this point, that's it for my remarks. I will ask the operator to please open the floor for your question..

And the first question comes from Guilherme Mendes with JPMorgan. Your line is now open.

Hi guys. Good morning Raul, Saul. I have two questions. The first question is regarding the margins.

My question is how sustainable you see margins going forward? You just mentioned about cost pressures going forward, but what can we expect in terms of the margins over incoming quarters? And the second question is in terms of traffic performance, what is the outlook for traffic in 2022? Thanks..

Guilherme, this is Raul.

In general terms, I will say that exactly with all the pressure that we will have on cost for one hand, the inflation that is happening around the world and in the second part, additional square meters that we are putting into our portfolio with expansion of Tijuana airport, for instance, or airport on this year, we for sure want to have some additional pressure on the cost.

So I will say that talking around margins that would realigned with that 70% to 72% will be something that could be sustainable on time. But again, we are in a, I would say in a really shaky moment when we are talking about inflation. So I would say that that could be the one off area of pressure for this year.

Talking about the outlook for traffic in 2022, we have, as we said, in our guidance, we are expecting going from the range of 14% of increase to 20% of increase.

Again, we also talk about this guidance, assuming that there's no other additional problem with pandemic or all the deliveries for planes or additional planes, the fleets of the Mexican air length, of course in times, but we are aligned on that guidance of traffic,.

Very clear Raul. Thanks..

And the next question comes from Alejandro Zamacona with Credit Suisse. Your line is now open..

Hi Raul. Thank you for taking my questions. Two question on.

So is it fair to assume that the MXN10.5 billion R&D revenue MXN13.4 in some way a catch up for the dividend and how should we take for going forward ?.

Yes. hi Alex, this is Raul Revuelta. Well as we have mentioned before in the previous quarters, we will try to normalize our dividend payment. We just recently announced the shareholders meeting approved the payment of MXN14.4 per share for this year.

Indeed, we are applying to make two different to pay in two tranches during the year, but it's fair to see the normalization of the dividend as we have in the previous to the pandemic. So 2020 was the only year that we didn't pay any dividend, but we are concerned to continue and normalize for the coming years..

Okay, thank you, Raul.

And then my question if I may, in terms, of labor cost, do you have any plans for hiring new staff in the upcoming bonds or the quarters and the terminal expansions, this could be a potential impact on cost the upcoming quarter just curious in that point?.

Yes.

Alejandro, this is Raul, just as we talked in different conference calls, it is important to remember that all the airports works with some kind somewhere the economies of scale? So always the cost arise first than the passenger because at the end of the day, when we put in place a new facility is the facility is designed for GAAP or expand the possibility of attempt passengers for at least five to six years.

So I will say that for sure, as we put in place, or we put in operations, the different terminals, we going to see slightly jumps on the cost. The first one would happen in the coming weeks that we will in operation of the Tijuana Airport, the new building.

At the end of the day, we are increasing more than 80%, the total square meters of the airport with this new terminal facility.

So yes, we are going to see a jump in cost, because for this example, we're going to ask our maintenance, additional including services, additional security services, energy, consumptions, insurance, everything for a new building.

So I would say that for sure, we are going to see some kind of a jump in the cost of operation and for terminal Tijuana in May for sure, for and we'll end up the expansion of the T2 in Los Cabos also when they have some additional jump, but I will say for this year, this will be the two only facilities that we will begin to operate and that could have some kind of impact in the cost of operation.

I will say for the site of the management, these are the more clear effects that we want to see in the coming months, but for sure, we also know that in such scenario effect, will give us some additional pressure for sure. We will try to avoid as possible on all this impact with the negotiation of our different contractors.

But the truth is that is something that is happening around the world. So it will be difficult to say that GAAP will be maintained natural to this effect..

Okay, thank you very much..

And the next question comes from Juan with GBM. Your line is not open..

Hi, thanks for the call and congrats on the report. My question is regarding CapEx. We saw a lightly weak deployment for the quarter, considering your guidance for the year.

Could you give us some color on a possible timeline you have for the full deployment of the CapEx?.

Hi, Juan. Yes, it is in the first quarter of the year is complicated because we have to conclude some projects, but according to we advancing in the year, we will make deploy in a higher level and a higher pace the CapEx, not only for the mandatory CapEx, which is the MDP, but also for the commercial projects.

We have several projects like the second runway Guadalajara, which is already on way. We have the construction of the mixed use building in Guadalajara, which is already on the way. Also we are finishing the CapEx for the Tijuana Airport, and we are also finishing the expansion of the Los Cabos terminal 2 expansion.

So it will be accelerated in the following months. So we are pretty confident to reach the level of CapEx that we announce in our guidance..

Okay, great. Thanks for the caller and congrats on the results..

And the next question comes from Bruno Amorim with Goldman Sachs. Your line is not open..

Thank you. Thank you for taking my question. I have a question on your traffic growth guidance for the year.

If we just multiply your first quarter traffic by four, as a way to simplify the forecast for the full year, this implies on a 17% growth year on year, which is pretty much in the midpoint of your guided range and to the extent that there could be additional growth during the year, don't you think the guidance is kind of conservative? Is it a fair assumption to make? Thank you very much..

Yeah, for sure. We are being someway calculated because let's think for a second that some different changes with the pandemic is happening that in Mexico, for instance what used to be the biggest airline in terms of domestic traffic that used to be stop operations for the pandemic.

So we know that in Mexico, we are having a lack of capacity in terms of the domestic planes. So for sure we know that the demand is there, but in some way, we know just seeing the load factors of the different airlines, that the space for instance, and some are getting in a really higher low factor in their plane.

So what I'm trying to say to say is that all the sort of fleet that the airline has announced for sure will give us some additional jump, or even could give us some more possible result on the traffic, but at the end of the day, depends on more in their capacity to bring additional fleet.

And in that area, one of the other additional big question that everybody in the market is in some way asking is for new planes. There's some parts that in some way, job prioritizing by the world, Ukraine. Some of the titanium parts of the planes for instance, have a shorter -- a shortness in terms of investor tariff.

So at the day I see some kind of risk coming for additional fleet, but in general terms, I could say that if the Mexican airlines fulfil their original plans or the plan that have announced for sure, we could be more in the positive side of the guidance or even higher, but for sure, I will say Bruno that our were numbers as always cash and taking account different risks that we are seeing on the horizon.

But for sure if this risk will not occur for sure we're going to be in a more positive result for the end of the year..

Thank you very much, very clear. And if I may just a follow up question, interest rates, the 10-year rates in Mexico are on the rise. They are now near multiyear highs, and they are an important components of the tariff adjustment and process every five years.

Do you think, let's say, let's assume for the sake of simplicity the 10-year rates remain where they are near 9%.

Is it straightforward for you to see that being reflected into the allowed return during the MDP process? Or is there any sort of subjectivity around that?.

Hi Bruno this is Raul. Yes, you're right. The interest rates are higher right now and obviously it depends at the moment of the exclusion of the review of the MDP in the new tariff approval for this, but we are going to consider the new at that moment, the new rates. So it's something in our favor.

Yes, absolutely because, this is a moment that we have in some way, a defence position, because we have 78% of our interest rates fixed. We have an average cost of a finance of around 7%, which is very good, according to the circumstances, but for the tariff negotiation, we will consider the last 24 months of the average of the interest rates.

So it implies that in case that we are in middle of the negotiation, we will consider a higher level of rates. So you are correct..

Thank you very much..

And the next question comes from Filipe Nielsen with Citibank. Your line is not open..

Hello and thank you for taking my question. I have two questions from my side. The first one is regarding traffic recovery.

How do you see Jamaican traffic recovery in the coming quarters versus Mexico recovery? And how do you see it building up like stealing some tourism traffic from South Mexico? And how do you see this tourism in Jamaica building up compared to the Mexican tourism? That's the first one and then I'll ask the second one..

Okay. Thank you. Talking about the recovery of the traffic in Jamaica, let's remember that the Jamaica authority has been more in the past has been more aggressive in the way that they manage the COVID and some time the last year they close completely the island.

What is important also to remember is that the peak time for the peak season for the travelers in, in Jamaica runs from November to March. So part of the restrictions that the Jamaica government put in place, of course, or part of the winter season in the last year and part of the year.

So I will say that we are really positive of the results that Jamaica will have for the next winter season, in the next November.

We are seeing that the most important I would say is true to change for our leisure destination is happening is the expansion of key rooms and Montego developed is right now, in area of the Montego Bay is happening at enormous road of additional key rooms.

So I will say that we are positive in the middle and long term of Jamaica because the attraction of new hotels still happening. For the case of is also happening the same. We are here, huge construction of at least in our key rooms in the case of Barta.

One example of that project is the delay of group that is a put in place that really important project for the coming years on. The first stage of this project will be open and on November of this year. Also in Cabos, it's interesting boom in real estate that give us the sense that the future will be also really excellent for Los Cabos.

I'll say that assuming we are seeing that in all our recognition of Cabos, Puerto Vallarta, Manzanillo, there's important growth of key rooms and hotel, the development of real estate that give us in some way the ability of that really optimistic future for coming years, and also when this is mixed or blended with the change in some of the trends of traffic in the world, that the long haul is not working as good as in the past, that we are seeing some kind of trend of people going for vacation in a more closer area than in the past.

We're also seeing that US will be a market that will for sure accelerate the result of leisure destination at Cabos, Vallarta or Montego Bay..

Thank you for the answer.

And then I have a second question if I may, do you see any new projects aside of Barbados that very interested in, and how are the negotiations or studies for new airports in the future?.

For the moment the only project that we are seeing is Barbados. We are as you know, really careful about and disciplinary about all the strategies. So for the moment, I will say that the only project that we are seeing is like Barbados..

Great. Thanks very much..

And the next question comes from Lucila Gomez with Compass Group. Your line is not open..

Hi, thank you for taking my question. So I have two question.

My first one would be, do you feel confident on your, the current maximum tariff that you have in place, and are you may be looking forward on the coming month quarter to reach 100%, and my other question would be in the commercial side, do you currently have any discounts to help increase the, for example, on the restaurants and stores to help them out or during the pandemic, or are you no longer giving any more discounts on rent?.

Hi Lucila? This is Raul Revuelta. Thank you for your questions. Yes, we feel confident about the maximum tariff. Right now we are in the level of 97% of fulfilment. We just adjust some of the passenger charges from April so in some of our bigger airports in Mexico.

So we believe if we continue with this trend and the passenger traffic continues, so we will reach the total of the maximum tariff. We have to consider and taking an account, the exchange rate with effect in favor, the fulfilment of the maximum tariff and we have to consider also the inflation.

Higher inflation is more complicated to reach higher or the 100% of the maximum height. So it depends of those two external factors, but for now, we are pretty confident to reach the 100%. In terms of the commercial side, we have been given some discounts according to our program of incentives and supporting some of our tenants in our airport.

However, due to our passenger traffic training and recovery, we are -- the effect is very, very irrelevant. We do not see that we will continue providing. We have to take in account that the discounts are over the minimum rental, and most of our clients are paying already the royalty fee, which is higher than the minimum rental.

So the fact of the discounts are not relevant at this moment..

Perfect. Thank you..

The next question comes from Pablo Monsivais with Barclays. Your line is not open..

Hi thanks for taking my question. I have a quick one. I recall that you said at the beginning of the call that you renegotiated some contracts commercial contracts at your airport.

Can you please give us some caller on what is your expectations on the non-revenue per passenger growth? And because we have seen an improvement over the last few quarters but I want to see if there's a chance that we should see that number increasing, I don't know, 5% or 10% or it's just going to be flattish or following an inflation just a little bit more detail on that would be great.

Thank you..

Thank you, Pablo. I will say that there's two big parts that are in some way helping us to, or three parts that are helping us to, to get a better result on commercial revenues. The first for sure is the passengers.

So the key part there for sure is the volume, but also if we see a better, even a better recovery on international passengers in Vallarta, Cabos and Montego, we will see some additional jump on the commercial revenues.

The second is related in the US spaces, for instance, as you know, everyone Cabos has one of the biggest, ratio revenue per commercial, commercial revenue per passengers in Mexico.

So as we have the new, buildings or the expansion of the building in Cabos in time for November or the new system of passenger in Cabos, we're going to have some additional jump on the results. And I will say last some of the contract that we have, we negotiate our related mainly in Vallarta.

What happened in Vallarta, as everybody knows, we are beginning the construction of the new terminal building. That will be operative on two more years or for the last quarter of 2024. So in the mid-term, we have at least two years and a half in the actual terminal that we need to take some advantage of the recovery of the passengers.

So we begin some negotiation of really short time of two years and a half contracts to get some additional revenues for the case of Vallarta. So I would say that in general terms, we are optimistic to maintain or even increase more our results on the ratio of commercial, passive commercial revenue for passenger.

We have almost MXN85 per passenger for the first quarter. I will say that we will continue that trend of growing for the end of the year..

Perfect. Thank you very much..

And you have a follow up question from Guilherme Mendes with JPMorgan. Your line is not open..

Hi, everybody.

Quick follow up question in Jamaica, how has been the negotiation regarding potential rebalance on the contract?.

Hi Guilherme, we have been working with the government of Jamaica regarding this. The authorities are hiring some advisories in terms of begin with the negotiation.

Our perception is that we will finalize at the end of the year, even though we have a very good relationship with the government, it is important that the negotiation will be done by a special team integrated by different ministers from government.

So we have to wait until this is fully integrated and the advisors are ready to begin with the negotiation. So our best estimate is to begin in June and in order to finalize at the end of the year..

Okay. Very clear. Thanks..

And there are no further questions over the phone at this time. And at this time, I would like to hand the call over to the team for any closing remarks..

Thank you everyone again for joining us today in our first choir results conference. We want to remind you that we are always open and available to answer any question. On behalf of GAP, we wish you a great day..

Thank you. And this does conclude today's call. Thank you for your participation. You may now disconnect..