Greetings, and welcome to the Grupo Aeroportuario del Centro Norte Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Ruffo Pérez Pliego, Chief Financial Officer. Thank you. You may begin. Ruffo Pérez Pliego: Thank you, Diego, and good morning, everyone. Welcome to OMA’s third quarter 2018 earnings conference call. Please be reminded that certain statements made during the course of our discussion 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. 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 third quarter of 2018 with a strong passenger traffic growth and effective cost reduction initiatives applied throughout the year. Adjusted EBITDA grew 24% year-over-year and adjusted EBITDA margin reached 71.4%. One of the keys to our performance, besides additional passenger traffic, has been the implementation of effective cost control initiatives throughout 2018. Cost of airport services and G&A decreased 6.8% in the quarter, with decreases in most line items. OMA has now delivered 35 consecutive quarters of growth in aeronautical and non-aeronautical revenues and 29 quarters of adjusted EBITDA growth. Passenger traffic reached 5.8 million passengers in the third quarter, up 11%, seven airlines increased passenger volumes. The largest contributions to growth came from VivaAerobus, Aeromexico and Volaris. Total available seats increased 12.5%, as airlines have deployed more capacity on certain routes and increased frequencies, particularly on the highest volume routes. On our single highest volume routes, Monterrey to Mexico City, total available seats grew…

Thank you sir. [Operator Instructions]. Our first question comes from Natalia Zamora with GBM. Please state your question.

Hi Good morning and congratulations on the result. My first question will be for non-aeronautical revenues per passenger. Could you tell us when you’d expect it to resume stronger growth? And what are your expectations for the fourth quarter and maybe for 2019? And which would be the main drivers? And my second question is regarding cost. We’ve seen it decreasing for a year now, and I was wondering if you could talk what we could expect going forward, especially on payroll, contracted service and minor maintenance? And what we – should we expect this decrease to – we have seen to continue or to begin increasing again and by how much? Thank you. Ruffo Pérez Pliego: Thanks Natalia. In terms of non-aeronautical revenues per pax, we have seen growth throughout the year. That growth has been somewhat limited by the fact of the decrease in advertising revenues. As all of you know, we have operating – operated in-house the commercialization of advertising spaces throughout the nine months of 2018 with the new operator. We expect that significant increase in commercial revenues, particularly starting early 2019. So we would expect an acceleration in commercial revenues per passenger in 2019 above the inflation rate. In terms of cost, we did make some adjustments to our corporate headcounts, particularly at the end of the first quarter and during the second quarter. So we expect the current levels to be showing improvements year-over-year until they catch up with the basis of comparison by 2Q of next year. And we expect to maintain the level of other line items. The one factor where we have little visibility is in electricity tariffs, as I mentioned during the call. We started to see an increase of about 40% in tariffs in the summer. And perhaps, we’ll continue to see those year-over-year increases until the second quarter of 2019 relative to the same quarters of 2018.

Okay, great. That’s very helpful, thank you.

Our next question comes from Ruben Lopez with Santander Bank, please state your question.

Hi good morning Ruffo and congrats on the results. I have two questions. First of all, can you give us more color on the commercial initiatives you made in the quarter? Are you done with these initiatives? Or is it an ongoing process? And maybe if you can give us a sense of the contribution of these initiatives revenues. And then the second one is a follow-up. You have been doing a great job on current initiatives. How many opportunities do you still see to keep expanding margins? I mean, you were about 71% this quarter. Where we could see these margins in the medium term? Thank you. Ruffo Pérez Pliego: Thank you Ruben. In the case of commercial initiatives, most of the initiatives have been related to the openings of restaurants and retail outlets in certain new areas that we opened recently. So for example, even though, in the case for example of the Acapulco terminal is starting to operate around May of this year, some of the retail and food and beverage outlets kicked in until the second and third quarter of this year. And also we have seen a very strong performance of the car rental activities. A lot of the clients, particularly the large chains, now has VIP counters – or if you will, offices to serve their clients as opposed to individual counters, which were traditionally in our airports. And these large spaces have been leased at a premium, and they have been very successful throughout our airports. Going forward, most of the airports have now these improved offering of car rental, so we should not see those increases anymore. But as we mentioned, there are still pending openings in the Chihuahua, in the San Luis Potosi terminal foyer that we are constructing that we have additional leasable space. So I think that’s, more or less, the main initiatives that we have focused on, on the commercial front. I think that the most important line item that will help next year results would be, as I mentioned, the advertising revenues and car rental, in – not car rental, sorry, car parking should continue to have a very strong performance given the increased traffic in our airports. And the second And the second question regarding cost cutting initiatives, we continue to explore additional initiatives. I think that the most important ones have been implemented. So any margin expansion would rather come from operational leverage with increased passenger volume as opposed to further cost cutting initiatives. And we do not expect significant margin expansion going forward above the current levels that we are seeing today.

Thank you Ruffo.

Our next question comes from Samuel Alves with BTG Pactual, please state your question.

Thank you very much, good morning to everyone. My question is regarding your take on new Mexican City airport. I know it’s pretty hard to predict what is going to happen at this point with the project. It seems that probably, if I recall at this point what if – well, my question is more on the implication that OMA see depending on each scenario. I mean, do you believe that OMA’s growth potential could be much really limited if the project is consult? Or do you believe that the network could be rearranged in a certain way that could, at the end of the day, be an opportunity for the company? Thank you very much. Ruffo Pérez Pliego: Thank you so much. As you mentioned in your question, it’s really difficult to predict the future and what will come up with the current public consultation that is being taken place, as we speak. And we rather not speculate on the results of that exercise until official results are announced. However, in the short term, medium term, irrespective of what happens with the construction of the new Mexico City airport, the existing airport is saturated. And that provides growth opportunity in the next few years to our airports, particularly in our larger airports, such as Monterrey, Chihuahua, Culiacan, Ciudad Juarez, where we have good connectivity and, already, a lot of routes in and out of these airports that could help the existing carriers use that connectivity to transport passengers from one point to another. So we are in constant talks with all of the airlines in Mexico to position our airports as alternative routing points for their networks. And we expect that will continue to give us, in the next few years, incremental volume of passengers.

Thank you very much.

Our next question comes from Ricardo Alves with Morgan Stanley. Please take your question.

Hi, gentlemen, good morning. Couple of questions on my end. Going back to electricity tariffs, on basic services, we saw this big increase of 40%. I was wondering if you could go a little bit deeper on that number and explain how much of that is explained specifically by the electricity side. And maybe a second part of that to question, if you could give us your particular view on that issue going forward. In the longer term, what’s your view on electricity tariffs? Have you positioned yourself to kind of lock contracts a little bit? Or just a little of your view on that issue. And then my second question, a little more long-term. Just a quick update on the – I know it’s early, but a little bit of your thoughts again on the Terminal A expansion in Monterrey. Just – you should have a little bit more precise timing in 2020 when you should deliver. Any additional color that you have on that future project, much appreciated. Ruffo Pérez Pliego: Sure. Thank you, Ricardo. In the case of electricity tariffs, we saw the spike of electricity tariffs starting July. From January to June, electricity tariffs were basically flat year-over-year. This increase in electricity tariffs derived from new charges that have been implemented as a result of the electricity reform in Mexico, which did not exist previously, particularly one thing that’s called the capacity charge and another one that’s called the distribution charge. However, these blended charges result in a 40% increase in overall traffic per kilowatt hour. Our consumption levels, given the initiatives that we have taken to reduce consumption in our terminals to have better equipment of air conditioning and replacement of lamps to LED technology and things like that, resulted in about, like, a 1% decrease year-over-year in terms of consumption of kilowatts. However, the increase in tariff, as I mentioned, was about 40%. We should continue to see these levels of electricity tariffs going forward. And it’s unclear, once the existing projects that are being built enter in operation, I mean, in theory, tariffs would decline. But right now, there is a – there are not a lot of options to contract electricity with – at least in the short term. We are exploring alternatives, including own generation. But at this time, we have not yet taken the final decision on this matter. Regarding Terminal..

Sorry to interrupt, but just to be clear and I got it right, but for now, not a lot of longer-term contracts on your end, right? Ruffo Pérez Pliego: Yes, that is correct. We are exploring alternatives to enter into PPAs with potential suppliers. But none of those contracts will begin – or could begin in the near future. Going to your second question regarding Terminal A expansion, Terminal A expansion in the landside of the terminal should begin by the end of this year. It’s a major project that will increase significantly in a space of the public area of Terminal A, and we should expect that coming in line by the first quarter of 2020.

That’s very helpful. Thank you so much.

Our next question comes from Stephen Trent with Citi. Please take your question.

Hi, good morning and thanks for taking my question. Just two from me. Actually, a follow-up on the question from the gentleman from BTG. It’s just on the Mexico City airport. If you could refresh our memories kind of the contractual structure you have around the NH Hotel facility in that airport. And kind of what’s your base case? And the second question actually pertains to the domestic airlines in Mexico given perceived differences and the relative financial strength of some of those carriers. Has that led OMA to make special consideration for payment terms from any particular carriers? Or do they all have the same payment terms when they’re – when you guys are collecting your fees from them? Ruffo Pérez Pliego: Sure. Stephen, in case of the NH Hotel, we have a long-term lease that ends in 2029 with the existing Mexico City Airport. The – our base case, right now, is that this hotel would be in operation until the end of 2022 as a hotel inside an airport’s terminal. And after that, it could become a hotel in the area where it is currently located what’s – without the operation of the airport next door. So we have – and we have disclosed this in our financial statements. We have made impairment tax every year to make sure that the carrying value of the investment is not impaired by these assumptions. And we, as of the latest financial statements, do not believe that it has taken an impairment on the carrying value of these investments. Regarding domestic carriers, we are constantly monitoring the payment in time – in due time by our clients. We typically have certain guarantees for the days that we provide to them. And this time, we do not have significant exposure to any carrier at all. And generally, the terms of payments are very similar among the carriers.

Okay. I appreciate the color. Thanks for that.

Our next question comes from Andres Nieto with Signum Research. Please take your question.

Hi, good morning everyone and congratulations. I just have a question about the increase in Torreon airport, and I don’t know if you can give us some color about that. And also if you could tell us if you have, anywhere, any constructions regarding the Master Development Plan from 2018 to 2023. Thank you very much. Ruffo Pérez Pliego: Can you repeat your second question, Andres?

Good morning. Again congratulations for the results. Can you give us some color on the increase in the Torreon airport if that is – if it’s just a tendency? Or do you expect to see further increase in that airport in the near future? And do you have in another constructions left in order to fulfill the Master Development Plan? Ruffo Pérez Pliego: Okay. Thank you, Andres. With respect to Torreon, Torreon is one of our smaller airports, so when you have increased capacity or additional flights or frequency from any single carrier, the percentage increase, but tends to be very high. We have, like, a 35% increase seat capacity in the Torreon to Mexico City Airport, which was routed – had already been operating. But now, there are additional frequencies and/or larger aircraft being operated into that same route. So that is mostly explaining the increase. This percentage increase should continue until the 12-month period and – of this new capacities deployed into the route. And with respect to MDP, where MDP goes from 2016 to the end of 2020, we should expect total investments in this year, 2018, of about MXN 1.2 billion to MXN 1.3 billion and then some reductions in 2019 and 2020 to complete our committed plan. And at this time, we have not yet developed our next five-year period master plan, which we will have to negotiate with the grantor of the concession until 2020 to become in effect until 2021.

Okay. Thank you very much.

Our next question comes from Alberto Valerio with UBS. Please take your question.

I have two question.. Ruffo Pérez Pliego: Alberto, we cannot hear you at all.

Hello, can you hear me now? Ruffo Pérez Pliego: Yes.

Sorry. To my questions, two on my end. The first one is about the tariffs on aeronautic revenue. I would like to know – I see that there is an increase this year, but there is a deceleration in the third quarter in relation to the first half of the year. I would like to know if this trend will keep going. Ruffo Pérez Pliego: Okay. Sure. That is explained primarily because of when increases of aeronautical tariffs kicked in 2017. In 2017, the increase in tariffs was implemented in April and May. So in the first half of the year, you have three or four months where you have low tariffs. And then the new tariffs of 2017 started in April and May. Whereas this year, we started to implement the increases during January, and all of them kicked in, in February. So you have a lower basis of comparison during the 1Q. When you compare the third quarter only gives you the normalized level of increase that we implemented this year.

Perfect. The second one will be about the Hurricane Willa. I saw that Volaris made some cancellations of flights and, very likely, is there is impact on higher cost. Ruffo Pérez Pliego: I think that there was some route – flight cancellations as a result of these storms that hit early this week in Culiacan area, like Mazatlan and Culiacan. But there was no impact to our infrastructure. And we think that the flight cancellations impact will not be material.

Perfect. Thank you very much, gentlemen.

[Operator Instructions] Our next question comes from Alan Macias with Bank of America Merrill Lynch. Please take your question.

Hi good morning and thank you for the call. Just a clarification. I understand that you did sign a 10-year renewal – renewable energy contract for electricity cost. And just if you can give us an update on this. Ruffo Pérez Pliego: Sure. We do have some agreements to buy electricity from a supplier. The contract is subject to regulatory approval by the CRE, the Comision Reguladora de Energia. And the CRE has not provided all of the permits required for the contract to begin. There is no established time light – time line by the CRE to complete this process. So at the time, we do not have visibility on when all of the revelatory process could be finished. And given the changing government, it will probably be delayed quite a few months.

Thank you.

Our next question comes from Ian Simmons with Fiera Capital. Please take your question.

Two questions. First one, can you tell us how you are thinking about dividends at the moment given a still very strong balance sheet? What kind of payouts are we looking at for this year and the coming years? Ruffo Pérez Pliego: Yes, Ian. We have reported cash generated by operations has increased given the strong performance of the company. And we are able to fund all of our CapEx with internally generated cash flows. I think that the board will make a recommendation in April of next year for the shareholders to approve the annual dividend. We do not have a established policy of dividend yield. But I mean, if cash continues to accumulate, the board will have to make a recommendation in due time with respect to the dividends in the upcoming shareholder meeting

Yes. But if we go back a few years, you had a period where you paid out above 100% of earnings. Is that a scenario that we could have again? Ruffo Pérez Pliego: I am not in a position to speculate on what the board might decide or recommend to shareholders.

Okay, okay. And second question just on your comment that margins should be stable at the current levels. Can you just give a bit more detail on what lead you to that conclusion? Is it due with mix, you have more commercial revenues, which had lower margin offset by more dilution cost per passenger improvement on the other side? Ruffo Pérez Pliego: I think that the – it’s – the current levels of margins are sustainable. There might be possibilities to increase it depending on the levels of passenger traffic and where – while we have seen decreases in certain line items of cost, such as, for example, payroll or supplies, we are seeing pressure on other fronts, such as utility services. So I think that there are possibilities to increase it marginally, but the large jump that we have seen this year of about 450 basis points in margin expansion will not be seen going forward once the 12-month period of these increases ends.

Okay. Thank you.

Ladies and gentlemen, there are no further questions at this time. I’ll turn it back to management for closing remarks. Ruffo Pérez Pliego: Thank you, Diego. 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. And we hope to see you soon at our offices in Monterrey. Thank you, and have a good day.

Thank you. This concludes today’s teleconference. All parties may disconnect. Have a great day.