Good day, and welcome to Grupo Aeroportuario del Centro Norte, OMA, Second Quarter 2018 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Ruffo Pérez Pliego, the Chief Financial Officer. Please go ahead, sir. Ruffo Pérez Pliego: Thank you, Kevin. Good morning. Welcome to OMA’s Second Quarter 2018 Earnings Conference Call. Joining me today is Emmanuel Camacho from Investor Relations. This morning, I will briefly review our operational and financial results, and then we will open the call for your questions. OMA delivered another solid performance in the second quarter of 2018, with strong passenger traffic growth and effective cost reduction initiatives. Adjusted EBITDA grew 26% year-over-year and adjusted EBITDA margin reached 70.5%. One of the keys to our performance has been the implementation of effective new cost control initiatives. Cost of aeronautical services and G&A decreased 8.5%, with decreases in most SG&A line items. We expect to keep a tight rein on expenses and continue to provide services of the highest quality. OMA has now delivered 34 consecutive quarters of growth in aeronautical and non-aeronautical revenues and 28 quarters of adjusted EBITDA growth. Passenger traffic reached 5.4 million passengers in the second quarter, up 10%. Nine airlines increased passenger volumes, the largest contributors to growth came from VivaAerobus, Volaris and Aeroméxico. Total available seats increased 11.3% as airlines deployed new capacity on certain routes and increased the frequencies, particularly on the highest volume routes such as Monterrey to Mexico City, Monterrey to Cancún and Monterrey to Guadalajara. For example, on the Monterrey to Mexico City route, total available seats grew 19% compared to the first quarter of 2018 and 11% versus 2Q 2017. On the Monterrey to Cancún and the Monterrey to Guadalajara routes, the sum of total…

Thank you. Thank you. [Operator Instructions] We’ll pause for just a moment to allow everyone an opportunity to signal for questions. We will now take our first question from Mauricio Martínez of GBM. Your line is open. Please go ahead. Mauricio Martínez: Hello, good morning, everyone. Thank you for taking my question. My question is regarding commercial revenues as per passenger basis it only grew 2% year-over-year. So I’m wondering if you can share with us, if you do expect the performance there to pick up during the year. And if you can share with us, which initiatives are put in place for this year in order to improve such revenues? Ruffo Pérez Pliego: Hi, Mauricio. The number that you mentioned already reflects the effect of the lower advertising revenues. We do expect that once the new advertising contract is in place and advertising revenues normalize, the growth in commercial revenues per passenger will be significantly higher. In addition to that, we have also additional initiatives coming online. So for example, in the Terminal B of the regional boarding gates in the Monterrey Airport, we expect commercial revenues to start kicking in, in September in the last quarter. And also in other terminals where we are making expansions towards the latter part of the year, we will have additional commercial revenues coming in place. So I think that commercial revenue per passenger will pick up significantly in the next few quarters. Mauricio Martínez: Great. Thank you and congratulations on the report. Ruffo Pérez Pliego: Thank you.

We will now take our next question from Rogerio Araujo of UBS. Your line is open. Please go ahead.

Yeah, hi, good morning. Thanks for the opportunity and congratulations on the results. My question is on costs. So if you could give us a little bit more detail on which measures the company has been implementing if the cost reduction can continue in the coming quarters; if there was any one-off impact in the second Q that explain why manageable costs could reduce 8%, while the traffic was up almost 10%? And a little bit on which measures has been implemented, because we saw payroll reducing. We saw contracted services reducing. Even basic services, we saw this reducing year-over-year. So how could OMA manage it to deliver that? Thanks very much. Ruffo Pérez Pliego: Sure, thank you, Rogerio. Our cost control initiatives consisted mainly on consolidation of redundant positions at the corporate level, also the cancellation of certain consultancy and advisory contracts that were not deemed to be essential for our operation. And we are also looking for opportunities to optimize costs on contracted services, such as security and cleaning. So I think there is no one-off item that’s impacted the quarter. This is the level of cost that we will be trying to maintain in the future months. And we continuously will be looking for additional opportunities to become more efficient in our cost managing system. So I think, overall, that summarizes our strategy on cost and expenses.

Perfect. Thanks very much for the explanation. My last question is regarding aeronautical tariffs. So, how far is OMA from the maximum fares right now? Ruffo Pérez Pliego: I think that for full year 2018, we expect to be in the 98% to 99% recovery of the maximum tariff.

Okay. And you are – are you already there at 98%, 99% by this first half of the year? Ruffo Pérez Pliego: We are right now, at those levels, yes.

Thanks very much.

Our next question comes from Bruno Amorim from Goldman Sachs. Your line is open. Please go ahead.

Yes, hi, good morning. Thank you for the opportunity. So I have a quick question on traffic growth, last year your traffic deteriorated significantly and one of the explanations at that time was the fact that we had some capacity constraints in the Mexico City airport and some airlines decided to cancel some routes going into OMA’s airports. But this year, the same capacity constraints apply in Mexico City, and we are seeing 10% – roughly 10% growth in the past few months on a year-on-year basis in your traffic. So just wanted to know what’s your view going forward? What justifies such a strong growth considering that the constraints, they are still there in the Mexico City Airport? And what you expect for this year and next year? Thank you very much. Ruffo Pérez Pliego: Sure. Thank you, Bruno. We – as all of you know the Mexico City airport continues to be constrained and will continue to be constrained for the next few years until either a new airport is constructed or additional plans are implemented by the government. However, what the earnings have done, has increased existing frequencies on existing routes and used larger aircraft to serve those markets. So we have seen in this year a significant increase in seat capacity in the Monterrey to Mexico City route. For example, in the second quarter of 2018 versus second quarter of 2017 that route Mexico City to Monterrey increased seat capacity in 11%. And this is, as I mentioned, because of the use of larger aircraft by the existing airlines in serving those markets. And we expect this trend to continue to be the case. Monterrey is not only the only market out of Mexico City that has benefited our airports. We also have seen significant increases in the Chihuahua and the Ciudad Juárez seat capacity for example. Obviously, the absolute numbers of those routes is less important than the Monterrey route. But in any case, it appears that a lot of routes out of Mexico City are now being served by a larger aircraft by the airlines. And we do expect that trend to continue. Several of the airlines have announced big plans to buy additional aircraft. Some airlines announced recent capacity expansions. So based on that trend, we will continue – we would expect that the capacity in terms of seats out of Mexico City will continue to increase to a number of our destinations.

Okay, very clear. Thank you very much.

Our next question comes from Mr. Stephen Trent of Citibank. Your line is open. Please go ahead.

Good morning, Ruffo. Thank you very much for taking my question. Just one on – once again maybe kind of a follow-up on Bruno’s question on Mexico City, when you think about longer-term airline capacity in the Mexico City metro area, how are you thinking about the advantages, potential advantages in terms of having increased traffic flow there? And do you see any potential downside that the Mexico City metro area becomes a stronger competing hub? Just wanted to get your thoughts. Ruffo Pérez Pliego: Sure. Well, the main airline hub in the country is Mexico City airport and is by far the largest airport in the country. We believe that the saturation of the Mexico City airport, while it is benefiting us right now in terms of larger demand from Monterrey to Mexico City that opens us additional possibilities to use Monterrey as a secondary hub for a number of our airlines. We have sufficient capacity to meet a hub operation. We have very good connectivity out of the Monterrey airports to a number of destinations. And we are constantly trying to attract and convince the airlines to use our Monterrey operation as a hub so that they can also benefit from unconstrained growth in our airport and not only see Mexico City as a way to grow their operations. So I think that it opens us possibilities to have Monterrey becoming a more important airline operation hub in the next few years.

Okay, great. Thank you. And just one quick follow-up. With respect to the fleet growth you mentioned for some of the Mexican airlines how are you thinking about or how confident are you on the sustainability of that growth given current seat mile cost pressure and potential that we don’t have a neutral environment with respect to FX moves and other price trend? Ruffo Pérez Pliego: I think that the demand fundamentals will continue to be there. As you know, the penetration of air travel in Mexico is low by international and regional standards. There is a big opportunity to convert luxury bus travel to air travel. And airlines do realize that big opportunity to sustain growth over the next few years and the capacity additions that they have announced is a reflection of that positive view in the demand fundamentals. Certainly, there are external factors that have to be monitored. As I mentioned, FX volatility is one of them and pressure on profitability for airline operations. But overall, we see continued growth in air travel in the next few years. We still do not have a forecast for 2019, we are waiting for the itineraries to be uploaded into the systems by the different airlines. And after that, we’ll have to have a – we’ll be better to – we’ll have the data to provide some guidance and expectations for 2019 traffic growth.

Okay. I’ll let someone else to ask a question. Thanks for the time. Ruffo Pérez Pliego: Thank you.

Our next question comes from Ramon Obeso of Scotiabank. Your line is open. Please go ahead.

Hi, hello, gentlemen, congratulations on the strong results. And thanks for the color on the cost reduction initiatives. My question is what levels of EBITDA margins should we expect as a result of these initiatives? I mean, should levels of 70% are the new normal for OMA? Ruffo Pérez Pliego: I think the – thank you, Ramon. I think the levels of EBITDA margins are sustainable. There might be some seasonality effects. But overall, our expectation would be to stay above the 70% threshold.

Okay. Thank you very much.

[Operator Instructions] We will now take our next question from Mr. Marco Montanez of VECTOR. Your line is open. Please go ahead. Marco Montañez: Thank you. Hi, good morning. Hi, Ruffo and Emmanuel, thank you for taking my question, and congratulations on the results. My question is regarding the industrial park figures in the second quarter. It shows an extraordinary profit level. I don’t know if you can give more color of that figures? And well, what could we expect to the next quarters in terms of profitability in this business. That would be great. Thank you. Ruffo Pérez Pliego: Sure. The second quarter numbers of the industrial park reflect a reversion of costs. During the first quarter of 2018, we recognized the fees paid to the brokers that were originated once the different warehouses are leased. And we, in accordance with accounting standards, reversed that costs that we have registered in the first quarter and we’ll amortize that commission throughout the life of the lease, which typically five years. So if you see the six month figure for the industrial park that will give you a normalized level of profitability as opposed to looking it on a quarterly basis only. With respect to future expectations, we expect that six warehouse to be – well, not expect, 6 warehouse will start to generating revenues in August and probably by the fourth quarter of this year, another warehouse also will become leased. So I think that by the end of the year, we will have seven warehouses generating revenues in the industrial park. Marco Montañez: Okay, excellent. Thank you very much.

Our next question comes from Victor Mizusaki of Bradesco BBI. Your line is open. Please go ahead.

Hi, I have two questions, here. The first one, when we take a look on your cost with a technical assistance fee retention increase of like 36% year-over-year. But that’s well above your EBITDA growth, so again can you give some details on what happened here? And my second question, just a follow-up on Stephen’s question. When we take a look on your earnings results and we can say our table for the open and close of domestic and international routes. It looks like that airlines are taking some capacity out of the market. So I’d like to know if you can assume that your – the number of passengers can continue to grow like 9%, 10% in the second half? Ruffo Pérez Pliego: Sure. On the second question, the main growth of passengers has been driven by the domestic market. We do expect that continue to be the case. International capacity, primarily from foreign airlines like United or American or Delta, has been reduced slightly over the year-to-date. And they do not seem to increase capacity over the next few months. However, the domestic market continues to be very strong. And we expect that to be the driver of passenger traffic. And we do expect that our domestic traffic increase will be sufficient to keep our guidance of full year traffic growth in the high-single-digits. And, Victor, could you please rephrase your first question?

Yeah, my first question is related to the – I mean to the cost of technical assistance fee, we could see a big increase in the second quarter. And if you will compare with your adjusted EBITDA growth, you talk about an expansion of 0.6%. So I’d like to understand a little bit more of what happened with this, including the technical assistance fee. Ruffo Pérez Pliego: Yeah, the technical assistance fee is calculated over a portion of our revenues and costs only related to the aeronautical operation, both commercial as well as the regulated type. But it is not affected by the diversification activities such as Industrial Park or the hotel operations. So it’s a percentage of the EBITDA generated by the aeronautical activities and commercial activities in the airports.

Okay. Thank you.

Our final question comes from Mauricio Arellano of HSBC. Your line is open. Please go ahead.

Thank you. Good morning, Ruffo. And thank you for the call. I was wondering if you could give us more color on the usage of Monterrey as a secondary hub. Just a little on how the destination has evolved over the last few years and how we can expect it to continue developing beyond the opening of the new Mexico City airport? Thank you. Ruffo Pérez Pliego: Sure. A number of airlines have Monterrey as an important base of operation, particularly in the case of VivaAerobus. And Aeroméxico has it as a secondary hub. It is not yet a primary hub, in the case of the Aeroméxico. And in the case of VivaAerobus, VivaAerobus right now currently only – or mostly serves point-to-point routes as opposed to a hub-and-spokes operation. However, either for these two airlines or any of the other participants in the markets, we think that our Monterrey Airport can provide the right connectivity and infrastructure to support a larger hub operation by any of these players. So it’s something that we are evaluating and in discussions. But no decisions have been made yet by the existing airlines.

Thank you. And could I ask if there are any incentives you guys are providing to the airlines? Ruffo Pérez Pliego: As part of our strategy to foster traffic in certain markets and in certain routes, we have in the past provided incentives to different airlines. We still maintain that policy. And the numbers that we report in the case of aeronautical revenues already reflect the deductions of those incentives already. So it’s something that we evaluate closely and try to get the most effect out of that, quote unquote, investment that we make via incentives. And it’s something that we will continue to do in the future quarters.

Okay. Thank you very much, Ruffo. Ruffo Pérez Pliego: Thank you.

It appears there are no… Ruffo Pérez Pliego: Are there any other questions?

Apologies. It appears there are no further questions at this time. Mr. Ruffo Pérez Pliego, the Chief Financial Officer, I’d like to turn the conference back to you for any additional or closing remarks. Ruffo Pérez Pliego: Thank you. I want to thank all of you again for your participation in this call. Emmanuel Camacho and I are always available to answer your questions. We hope to see you soon at our offices in Monterrey. Thank you, everyone, and have a good day.

This concludes today’s call. Thank you for your participation. You may now disconnect.