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This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.: Operator: 00:03 Greetings. Welcome to the Grupo Aeroportuario del Centro Norte OMA First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. 00:25 I will now turn the conference over to your host, Emmanuel Camacho, Investor Relations Officer, you may begin. Emmanuel Camacho: 00:32 Thank you, Shimade. Good morning, everyone and welcome to OMA's first quarter 2022 earnings conference call. Participating today are CEO, Ricardo Duenas; and CFO, Ruffo Perez Pliego. 00:43 Just a reminder that certain statements made during the course of our discussion today may constitute forward-looking statements, which are based on current management expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including factors that may be beyond our control. 01:00 I'll now turn the call over to Ricardo Duenas for his opening remarks. Ricardo Duenas Espriu: 01:04 Thank you, Emmanuel. Good morning, everyone. We appreciate you joining us today. This morning, I will review the evolution of our business and our first quarter performance. But first, let me begin by highlighting several milestone and events. Last Friday, we held our 2022 Annual Shareholders Meeting, where shareholders approved among other matters, the declaration and payment of a cash dividend to shareholders of MXN2.3 billion in two instalments. 01:31 The first one of MXN1.8 billion no later than May 31 and the second one, a MXN500 million (ph) no later than July 31. In addition, on March 31, we successfully completed our MXN4 billion issuance in long-term sustainability linked notes in the Mexican market and I am pleased to announce that we have become the first airport operator to place a sustainability linked bond or SLB in the Americas and the second worldwide. 02:04 As part of our SLB framework, we set an ambitious target to reduce our carbon footprint by decreasing OMA's greenhouse gas emission per passenger in 58% by December 31, 2025. We have positive expectations about passenger traffic growth in the coming years, coupled with an important level of additional square meters from the infrastructural projects in development, which will translate into higher energy costs and operational requirements. So we are working our best to create a more sustainable operation in our airports. 02:38 Proceeds from the SLB were used to pay MXN2.7 billion in short-term loans and the remaining will be used to fund MDP investments and for the corporate uses. Finally, as a commercial milestone during the quarter, we transitioned to a direct operation of OMA Premium Lounges, which will allow us to improve customer experience significantly and generate additional revenues. Currently, we operate eight lounges in three Monterrey terminals as well as our Acapulco, Culiacan, Chihuahua, Mazatlan and San Luis Potosi airports and we expect to open four additional lounges in Reynosa, Zihuatanejo, Ciudad Juarez and Tampico in 2022 . 03:23 Turning to our main first quarter of 2022 results. We start off the year with a challenging passenger traffic recovery scenario as a result of the Omicron variant and the rise in positive cases. However, the effect of Omicron on passenger performance vanished (ph), rapidly which allowed us to get back on track. During the quarter, total passenger traffic reached 4.6 million, 52% above the first quarter of '21. As compared to the first quarter of 2019, total passenger traffic stood at 90%. 03:59 During the quarter, the route that experienced the greater traffic growth in volume terms versus the first quarter of 2021 were Monterrey on its Mexico City and Guadalajara routes and Chihuahua, Ciudad Juarez, Acapulco on the Mexico City route. All of them considered namely business routes, which reaffirms our expectations of increased activity and better performance from the Business Travel segment. 04:23 Turning to our first quarter operational results. We're able to deliver positive results in the quarter. Our revenue expansion and our operational efficiency translated into an adjusted EBITDA increase of 74% versus first quarter of '21 and a margin of 75%. On the commercial front, revenues increased 62% compared to the first quarter of '21. Parking revenues increased 76% versus 2021 and we observed higher penetration levels in long space mainly in Monterrey, Ciudad Juarez and Reynosa. 05:02 In addition, car rentals, restaurants and retail also contributed most to growth together with VIP Lounges. Occupancy rate for commercial space in our terminals was 87.7% at the end of the quarter. Diversification revenues increased 38%, our hotel services and OMA Carga contributed most to this growth. During the first quarter of 2022, the occupancy rate on our Terminal 2 NH Collection Hotel was 74%, while the Hilton Garden Inn Hotel at the Monterrey Airport had an occupancy rate above 60%. OMA Cargo revenues increased 50% versus the first quarter of '21. Revenues from handling, storage and custody of ground import cargo drove the increase in revenues. 05:55 On the capital expenditure funds, total investments in the quarter including MDP investments, major maintenance and strategic investments were MXN430 million. During the quarter, we started preliminary works for the expansion and remodeling projects in the Culiacan Airport and continue to work on the following major projects. Expansion and remodeling of the Monterrey Airport Terminal 8, expansion and remodeling of the Ciudad Juarez terminal building, reconfiguration of the Master Plan Terminal building, platform reconfiguration at the Monterrey Airport and modernization of the Zihuatanejo terminal building. 06:35 Finally, we have finished installing solar panels in our 13 airports and by the end of the second quarter of this year, we will be fully operational. Our solar panels are expected to generate over 20% of our energy consumption for the remaining quarters. 06:50 And with that, I will now turn the call over to Ruffo Perez Pliego for more detail on our financial highlights for the quarter. Ruffo Perez Pliego: 06:58 Thank you, Ricardo and good morning, everyone. I will briefly review our financial results and then, we will open the call for your questions. 07:07 Turning to OMA's first quarter financial results. Aeronautical revenues increased 60% relative to the first quarter of '21, driven by the 52% increase in passenger traffic. Non-aeronautical revenues increased 52%, with commercial revenues increasing 62%, and the categories to the highest growth were parking for rentals, restaurants, retail and VIP lounges. 07:35 Parking revenues increased 76% due to increase in operations at Monterrey, Juarez and Reynosa airports. Car rentals, restaurants and retail increased 62%, 76%, and 71% respectively, mainly due to higher revenues from the revenue shared and the opening of new projects. VIP Lounges increased due primarily to the recognition of revenues as a direct operation, as well as an increase in the number of users of the OMA Premium VIP lounges. 08:08 Diversification revenues increased 38%. As a result, total aeronautical and non-aeronautical revenues were MXN1.9 billion in the quarter, and grew 58% versus the first quarter of '21. Construction revenues increased 13% as a result of our MDP investments. The cost of airport services and G&A expense increased 9% relative to the first quarter of 2021, mainly due to a 20% growth in payroll expense, which is a result of the effects of the changes in labor regulation in Mexico 2021, and the incorporation of new business lines such as the operation of the OMA VIP Lounges. 08:58 Contracted services and basic services grew due to the overall higher activity in our airports. While materials and supplies also reported growth, as we reported direct costs from the operation of the OMA Premium Lounges. OMA's first quarter adjusted EBITDA reached MXN1.4 billion, and the adjusted EBITDA volume was 75%. Our financing expense was MXN165 million, mainly due to higher interest expense as a result of an increase in the average outstanding debt of OMA, and an exchange loss recorded. Consolidated net income was MXN753 million, 81% above that of 1Q '21. 09:49 Turning to our cash position. Cash generated from the operating activities in the quarter amounted to MXN717 million and cash at the end of the quarter stood at MXN3.3 billion . During the quarter, we recognized the following relevant transactions. We paid a special dividend of MXN4.3 billion in January. We issued a MXN4.0 billion sustainability-linked notes in the Mexican market in March and we also prepaid MXN2.7 billion of short-term loans in March. At the end of the quarter, total debt amounted to MXN9.2 billion and our net debt to adjusted EBITDA ratio stood at 1.0 times. 10:36 This concludes our prepared remarks. Shimade, please open the call for questions. Operator: 10:44 Thank you. And at this time, we'll be conducting a question-and-answer session. Our first question comes from Javier Gayol with GBM. Please proceed with your question. Javier Gayol: 11:20 Hi. And thank you for taking my question. Congratulations on the results to the OMA team. I have two questions. The first one is regarding the maximum tariffs. Are you guys -- it's a two part question. First, when are you guys projecting -- you might be charging the full maximum tariff? And then the second part of that question is, how are the airlines reading the tariffs increases? Have you seen any push back from them? Are you having to lower tariffs or have to negotiate with them to bring in more routes into your airports. That will be my first question. Ricardo DuenasEspriu: 12:09 Thank you, Javier. For the first one, what we will reach -- we're expecting to reach the maximum tariff somewhere in the first quarter of next year. As with the airlines, we have been working very well with them and we're currently working out -- searching for new opportunities for routes. Javier Gayol: 12:31 Okay. Great. And my second question is regarding the balance sheet of the company and the recent issuance and congratulations on that. But still the leverage ratio of OMA, even though compared to other Mexican airports is at one time and it could be reasonable. Other International -- early international concessionaries have much higher leverage. Did you guys are -- so my question is, are you guys comfortable with the current level of leverage or could you look into increasing the lever -- increase the leverage of the company. Ruffo Perez Pliego: 13:13 Thank you, Javier. You're right, it's low level compared to other airports and it will depend on the use of proceeds. So if we were to find opportunities to expand abroad then I would -- that there will probably be a corresponding increase in some healthy level of leverage. Javier Gayol: 13:33 All right. Great. Thanks for all the answers and congratulations on the results. Ricardo DuenasEspriu: 13:39 Thank you. Operator: 13:41 Our next question comes from the line of Alejandro Zamacona with Credit Suisse. Please proceed with your question. Alejandro Zamacona: 13:49 Thank you. Hi, Ricardo, Ruffo and Emmanuel. Thank you for the call. Two questions from our side. The first one on the cost control. So we have seen several quarters with this same trend delivering operating leverage. So I was wondering, if it's fair to assume that OMA has become more efficient in terms of costs considering these efficiencies as structural or if once the traffic is fully recovered, we should expect uptrend in costs, mostly assuming the higher inflation that we have seen recently. Ruffo Perez Pliego: 14:36 So hi, Alejandro. This is Ruffo. So yes, the company has been working in the past few years to fulfill culture of cost discipline at all levels and we're seeing the airports over previous years. Right now, in the quarter, we were just 10% is all the traffic of the first quarter of 2019, so we can assume that we are now operating that at pre-pandemic levels basically and the cost that we are seeing should keep increasing slightly even the higher volume of traffic, but we do expect to continue to benefit from operational leverage. What you would be seeing on a quarterly basis comparison through the third quarter of this year, would be in the same line item that you saw in the first quarter like pay roll concentrate comparison to last year and we also continue to see some increases in the traffic services such as claiming and security where we have even with the larger amounts of our operation increase the size of the services at most of our airports, but I think that we are in the right set up in terms of our constriction we managed by Ricardo DuenasEspriu: 16:14 And just to add on today's point, we definitely believe we have become more efficient and we think that the current levels of profitability are sustainable. Alejandro Zamacona: 16:29 Okay. Thank you. I am not sure if it's my line or Ruffo Perez Pliego: 16:40 to hear, can you hear it now correctly? Alejandro Zamacona: 16:48 Yes, Thank you, Ruffo. So I'm sorry. So just to conclude the question that I mean you are looking up some, you would -- you're expecting some trends -- upward trends in the costs but you are also looking for some efficiencies in the costs going forward. That's right. Ruffo Perez Pliego: 17:14 So we will continue to manage from operational leverage but when you compare to the first -- the second quarter of 2021 and probably the third quarter of 2021, you will continue to see the increases in payroll expense basically because of the basis of comparison rather than by a future increase in our cost. And in terms of subcontracted services such as cleaning and security, yes, given the additional capacity of volume that we're handling we will see some increases going forward, but definitely the level of cost we are operating that it's very efficient. And we do not expect to see significant increases to handle the amount of traffic that we're expecting for the rest of the year. Alejandro Zamacona: 18:11 Okay. Thank you, Ruffo. I will let someone else to jump in. Operator: 18:19 Our next question comes from the line of Guilherme Mendes with JPMorgan. Please processed with your question. Guilherme Mendes: 18:25 Hi, Ricardo, Ruffo, Emmanuel. Good morning, and thanks for taking my question. The first question is related to traffic on the last conference calls, you mentioned about reaching to pre-pandemic levels by the third quarter and reaching full year figures dropping around 3% to 5% when compared to '19 levels. Just wanted to double check if that's still the base case? And the second question is in terms of -- is a follow-up question is in terms of the capital allocation, as you guys mentioned leverage is still pretty low. So thinking in terms of what could be potential capital allocation opportunities if growth opportunities outside the Barbados ones, or even increasing dividends in the future. What can you talk about in terms of capital allocation? Thanks. Ruffo Perez Pliego: 19:12 So in terms of traffic, we're slightly more optimistic than in the previous call. We are now expecting passengers to be close to 23 million for the end of the year. What we're seeing in April is, we are very, very close to the April 2019 levels. So probably by May and June, we may already be surpassing the levels of those amounts in 2021. And -- sorry with adjusted to May and June of 2019. And with respect to capital allocation, as Ricardo mentioned, unless we find the right uses of proceeds, it's going to be difficult to continue increasing leverage to comparable levels of international airports. At this time, we are pre-qualified in the Barbados process, we heard from the IFC guys are addressing the process that it could get restarted by May. So we'll be looking increase once the process tend the rules are we can public, but at this time, they have not announced any update on the timeline. 20:41 And with respect to increasing dividends, going forward, it will depend on continue to increasing our net income. So we can generate sufficient the tax, net income to be able to distribute dividends in a tax efficient manner. Guilherme Mendes: 21:05 Okay. Super clear. Thanks. Operator: 21:09 Our next question comes from the line of Rodolfo Ramos with Bradesco BBI. Please proceed with your question. Rodolfo Ramos: 21:16 Thank you for taking my question. My question is a follow-up on the expense one. So just to clarify the -- so the level of expenses that you reported in the first quarter, would that be a good base for us to go off on an inflation basis going forward, or how do you see that for the rest of the year? Ruffo Perez Pliego: 21:40 I would say, yes, for most line items and perhaps in the case of subcontracted services could grow slightly greater than inflation because of the passenger volume effect. But on the rest of the line items, such as payroll, insurance, et cetera., I think it's fairly reflective of what we are expecting for the rest of the year. Rodolfo Ramos: 22:13 Thank you. And just a two-parter here on traffic. Can you talk a little bit about the dynamics that you're seeing in these routes that you mentioned in your earlier remarks, in your opening remarks about Monterrey, Mexico City, Monterrey Guadalajara. How do you see this in the short term? And a second part of this question is how do you see Santa Lucia feeding into your system, particularly Monterrey, how are you seeing that route going forward? I mean, does this type of passenger bode well with your network or how would you -- how should we think about that? Thank you. Ricardo DuenasEspriu: 22:56 Thank you, Rodolfo. I think that what's interesting to point out is that if you look at the route of Monterrey, Mexico, the quarter -- the variation versus the first quarter of '21 was 70%. That compares, for example, to Monterrey Cancun, which was only 10%. Now the first route that I mentioned, it's about purely a business travel, business passenger, as for and the latter one is tourism. So we're seeing more dynamism in the business passenger segment. Same thing, if you look at, for example, Monterrey Guadalajara, the increase was 92% compared to, for example, Zihuatanejo (ph) which is a VFR kind of traffic, which is 15%. So we're finally seeing a recovery in the Business segment, that was the point that we mentioned earlier. 23:54 And as of Santa Lucia, they're operating right now six routes. There's only one operated by Viva to Monterrey, so it’s too early to say, what the impact would be. What we do know is that it's an opportunity for them to develop Monterrey as a potential hub. Rodolfo Ramos: 24:16 Thank you. Operator: 24:18 Our next question comes from the line of Gabriel Himelfarb with Scotiabank. Please proceed with your question. Gabriel Himelfarb: 24:35 Hi. Thanks for the call. Just two quick follow-up questions. The first one, do you think or do you -- did you plan to open more routes from your network towards Santa Lucia and maybe probably in future to Lume (ph) airport. And the second, can you give us a bit of color about the business travel specifically on the industrial related business travel. What you call boots and about what we and the business travel related to corporate travel because choose -- what are the trends what you're seeing or you plan for this year as office start coming -- people started coming back to the office, to conferences and stage show? Thanks. Ricardo DuenasEspriu: 25:30 I'll take the first one, no, at the moment, we don't have plans to, for new routes for Santa Lucia to Lume. And I didn't hear the second one, did you get it? Ruffo Perez Pliego: 25:40 If I heard correctly, you're asking for what are the trends regarding the industrial type of travel as opposed to other type of travel? Gabriel Himelfarb: 25:52 Yes. Ruffo Perez Pliego: 25:53 So yes, we continue to see, I mean that as a core market for us. When we talk about business travel, it's not only the high executive consultant banker type. But we do rely lot on the industrial type of traffic for and the factories and car and steel plants that are located nearby our airports. So, yeah, we do see that traffic continue to performing well and as you kind of mentioned in the first quarter, most of our routes that drove the increase of passengers in the quarter were business related routes. And we do expect that trend to continue in the next few quarters for our airports. Gabriel Himelfarb: 26:56 Okay. Thank you. Operator: 27:04 Our next question comes from the line of Alan Macias with Bank of America. Please proceed with your question. Alan Macias: 27:10 Hi. Thank you for the call. Just a follow-up question on the hub -- Monterrey coming in the hub. What measures are you taking to make that happen? And if you have seen any opportunities in changing your traffic mix more tourism traffic or do you see this just an opportunity to capture traffic that Mexico City airports cannot handle. Thank you. Ricardo DuenasEspriu: 27:46 Sure. Thank you, Alan. It's an ongoing process. We're having the conversation with the airlines. I think the opportunity comes from trying to move all that traffic that doesn't have to go through Mexico City having it through the Monterrey airport and that the conversation we were having at the moment, we want to explore also the geographical advantages -- the Monterrey half close to the Board of the U.S. as well. Alan Macias: 28:16 Thank you. Just one further question, any updates you can provide or any insight into Mexico's Aviation Safety rating the Mexico efforts into recover the category one any news. You have heard about that. Thank you. Ricardo DuenasEspriu: 28:38 I think we have the same as you probably all have what we heard from the authorities that they're expecting to reach level one again by the third quarter of this year. Alan Macias: 28:51 Thanks. Great. Operator: 28:55 Our next question comes from the line of with GBM. Please proceed with your question. Unidentified Participant: 29:02 Hi. Thanks for taking my question and congrats on the results. I was wondering about the VIP Lounges, you have started to operate. Could you give us some more color on the economics of the project, for instance, if you have the levels of IRR that you are expecting it would be great to know. Ricardo DuenasEspriu: 29:26 We adjusted the operations directly. We expect to have a margin on around 70% through that line of business. We have currently across our project to modernize all the Lounges in our airports and to parts to be able to provide a much better product than we used to have. As for IRR levels, I think we would have to come back to you probably for that one. Unidentified Participant: 29:57 I think that the previous contracts expired. So I mean, we're investing in renewing, but there is no per se a large investment being made towards basically profitability levels reaching into our target. Ricardo DuenasEspriu: 30:11 So before we used to have -- we used to receive only 50% of the revenue from the Lounges, the third-party operator used to have the other half. So now, we are having 100% of the revenues, but we are adding a certain operating costs and the margin would be around 70%. So overall, you would see an increase in total EBITDA . Unidentified Participant: 30:40 That's great color and congrats on the report. Ruffo Perez Pliego: 30:44 Thank you. Ricardo DuenasEspriu: 30:45 Thank you. Operator: 30:46 And our next question comes from the line of Alejandro Zamacona with Credit Suisse. Please proceed with your question. Alejandro Zamacona: 30:56 Hi, guys. Sorry for jump in, again. Just one additional question on the commercial business. The new what's the current status of the discounts on the minimum annual guarantee contracts? Ruffo Perez Pliego: 31:15 So since late 2Q of last year, we stop granting discounts. So basically, for the third quarter of ‘21 through today, we are not granting any more discounts as a relation to province that when we occur in any other type of support to tenants. Alejandro Zamacona: 31:44 Okay. Ruffo Perez Pliego: 31:45 Sorry, and with respect to how much is fixed rent versus variable in the first quarter of 2022 out of our commercial revenue, excluding parking around 65% of the revenue was derived from fixed rents, and 35% was derived from value, as a point of comparison in the first quarter of 2021, also excluding parking 72% of the commercial revenue was fixed and 28% was variable. Alejandro Zamacona: 32:30 Okay. Thank you, Ruffo. Operator: 32:35 And we have reached the end of the question-and-answer session. I'll now turn the call over to Ricardo Duenas Espriu, Chief Executive Officer for closing remarks. Ricardo Duenas Espriu: 32:44 We want to thank all of you again for participating in this call. Ruffo, Emmanuel and I are always available to answer your questions and we hope to see you soon. Thank you and have a good day. Operator: 32:57 This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.