Greetings, and welcome to the Grupo Aeroportuario del Centro Norte OMA Second Quarter 2022 Earnings Conference Call. . As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Emmanuel Camacho, Investor Relations Officer. Thank you, Emmanuel. You may begin.

Thank you, Paul and good morning, everyone. Welcome to OMA's Second Quarter 2022 Earnings Conference Call. Participating today are CEO, Ricardo Duenas; and CFO, Ruffo Perez Pliego. Please be reminded 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. I will now turn the call over to Ricardo for his opening remarks.

Thank you, Emmanuel. Good morning, everyone. We appreciate you joining us today. This morning, I will review our second quarter operational performance. First of all, I am pleased to inform that OMA delivered an outstanding performance during the second quarter of 2022 with all-time highs on our aeronautical revenues, non-aeronautical revenues, adjusted EBITDA and adjusted EBITDA margin, which reached 77.7%. I will now briefly explain how we achieved these results. During the quarter, total passenger traffic reached $5.9 million, an increase of 30% versus the second quarter of '21. As compared to the second quarter of 2019, total passenger traffic stood at 99%. Our passenger traffic performance remains sound and consistent with our expectations of an increased business activity and a better performance from the business travel segment. During the quarter, the route that contributed most to passenger traffic growth in volume terms versus the second quarter of 2021 were Monterrey on its Mexico City and Guadalajara routes; and Ciudad Juárez, Chihuahua and Durango one the Mexico City route. All of them considered mainly business routes. As a result of the strong passenger traffic performance as well as an increase in our aeronautical tariff earlier this year, aeronautical revenue grew 33% in the quarter versus the second quarter of '21 to MXN1.8 billion. On the commercial front, revenue increased 49% compared to the second quarter of '21. Marketing revenues increased 53% versus 2021, mainly due to higher penetration levels in Chihuahua and Monterrey as a result of higher business travel in those airports. In addition, restaurants, retail and car rentals also contributed most to growth together with VIP Lounges. Occupancy rate for commercial space in our terminal was 89% at the end of the quarter. In terms of commercial development and following up on our strategy to directly operate VIP…

Thank you, Ricardo, and good morning, everyone. I will briefly review our financial results, and then we will open the call for your questions. Turning to OMA's second quarter financial results. Aeronautical revenues increased 33% relative to the second quarter of 2021, driven by a 30% increase in passenger traffic and an increase in analogical tariffs implemented in the first quarter of the year. Non-aeronautical revenues increased 40%. Of that, commercial revenues increased 49% and the category with the highest growth were parking, restaurants, retail, car rental and VIP Lounges. Car parking revenues increased 54% due to increased penetration in the Chihuahua and Monterrey airports. Restaurants, retail and car rentals increased 61%, 75% and 40%, respectively, mainly due to higher revenue sharing and the opening of new commercial spaces. VIP Lounges increased 55% due primarily to the recognition of revenues from direct operations as well as an increase in the number of users of the OMA Lounges. Diversification activities increased 43%, reflecting strong OMA Carga and hotel division's performance. Total aeronautical and non-aeronautical revenues reached MXN2.4 billion in the quarter and grew 35% versus the second quarter of '21. Construction revenues increased 30% as the result of the increased MDP investments. The cost of airport services and G&A expense increased 12% relative to the second quarter of '21 mainly due to an increase of 16% in payroll expense, which results from the effects of the changes in labor regulations in Mexico that were implemented in the second half of 2021, and the incorporation of new business lines, mainly the operation of the OMA Premium Lounges. Minor maintenance and basic services grew due to overall higher activity in our airports, and materials and supplies grew as well as we recorded the direct cost of operations of the OMA Premium Lounges. The…

. Our first question is from Alejandro Zamacona with Crédit Suisse.

Thank you. Thanks, Ricardo and Emmanuel. My first question is on the aeronautical tariffs. So I recall that your strategy was to implement that 13% increase in real terms negotiated in the last week throughout 2 years. So I'm wondering why when we look at this quarter on the revenue to what you will do, we haven't seen any significant increase even it was lower than intention. So any color on that topic would be appreciated?

Sure. This is Ruffo. We reported the aeronautical revenue per pax increased 2.8% versus the same quarter of last year. This is primarily the effect of mix among the different run rates in our airports, as well as a lower contribution from international passengers. So for example, in the second quarter of 2022, 11% of our passengers were international as compared to 14% in 2Q '21. And as you know, international passenger charges are higher than domestic ones. And also, we experienced growth from airports that have lower than average for OMA. So for example, versus the same quarter of last year, Monterrey grew 32%, Chihuahua grew 25% and Ciudad Juárez grew 45%. And these are airports that have a tour that's lower than the average. And we also had a smaller amount of tour paying passengers in this quarter, around 47.5% of our total passengers who are tour paying passengers as compared to 48.5% in the same quarter of last year. So the combined impact of all these to the effect that I've mentioned, results in a reduction of the average fee that you see quarter-over-quarter. We did increase our issuance earlier this year around 12%. But because of the mix that I just explained, the impact that is reflected is around a 3% increase.

So part is mix and part is that inflation, the producer price index hasn't -- have been much higher than we anticipated?

Okay. Got it. And then my second question, if I may, on the hotel services. I know it's a small business for the company. But as Ricardo mentioned, we saw a strong recovery for this quarter and including higher occupancy rates. So I'm just wondering to what kind of traffic are these hotels exposed to (inaudible) were BFR or leisure? And my second question on that topic is if we could expect a positive return to the potential recovery of the business segment?

What was the last part of the question on hotel? You said we can expect a positive what, sorry?

Yes, if we could see this strong recovery in the hotel services and some positive retail to the potential recovery of the business segment.

Retail, okay. Yes. So I think, yes, it could be a readthrough. Our hotels are mostly -- so we have 2 hotels, one is in the Mexico City Airport, it's in Terminal 2, which is dedicated to Aeroméxico. There's a big part of our customers are flight personnel, business passengers and in Monterrey, it's the same thing. In the Hilton, there's a lot of Hilton Honors program which is mostly business passenger segment. So yes, that is also a positive sign that business travel is returning. And we're not only seeing that in our hotels. We're also seeing in our routes. If we look at the last couple of months, the growth in the business segment routes has been much larger than the one we have seen in BFR or touristic routes.

Our next question is from Rodolfo Ramos with Bradesco BBI.

Congrats on the result gentlemen. A follow-up on Alejandro's question. If you can tell us where do you stand in terms of your maximum tariff execution? How far you are from reaching that level? That would be my first question.

We are -- thank you, Rodolfo. So we're anticipating to close this year with around 93% maximum tariff compliance. The reason being is that the producer price index, excluding royal, which is the appropriate index to grow the real rates, it has been much larger, has been around 2 percentage points above consumer price index.

Okay. And if I may also, on this business travel routes that you discovered, can you give us a little bit more color as to what you expect in terms of the time line? It seemed to me that in the most recent months, we have seen traffic a little bit on the sluggish side if we compare it to other the leisure and BFR destinations. So just wanted to see how you're thinking about the recovery? Do you think it's more likely to be more pronounced towards year-end or next year? And do you see any seasonality there? And if you can talk about specifically about Monterrey, Mexico, Monterrey Guadalajara and (inaudible) .

So I think that we experienced a very strong recovery in both April and May. June, as you mentioned, was kind of sluggish. We have used that to the -- in parts to the fifth wave of COVID which even though it doesn't have critical effect to people, it does result in cancellation of travel and room bookings. And that's the first little bit impact context of business meetings and conferences. So as this last wave recedes, we will expect a pickup in those routes, and we're seeing additional capacity being put into work, especially, for example, in Mexico some of the business -- the critical business routes that we serve.

We monitor cases on a weekly basis. We detected that we already peaked last week or a couple of weeks ago, we already picked in this wave where the trend is also already coming down. We're starting to see airline gaining capacity in the future. And there was also the issue of oil prices going up and prices of plane tickets slightly going up. So that also had some impact.

Okay. And one last follow-up, if I may. How do you see the new or, let's say, the reconfiguration of Mexico cities airport impacting your network? I mean, do you see -- if we were to see routes that connect smaller cities, perhaps within their network being relocated to Felipe Angeles or Toluca? Do you see an impact there?

Well, we haven't seen any negative impact. Actually, from the only routes that have been taken out have been to the moving operations to Santa Lucia which are a very small fraction, less than 0.5%. But what we see with that issue is we think it's a midterm opportunity as we believe that as we see more saturation in the Mexico City airport, that's going to be opportunities for airports like Monterrey in which all the traffic that doesn't have to go into the Mexico City airport, you'll have to go through other airports. So I believe the airlines will start looking at a strategy to buy a pass in Mexico City Airport. And that's an opportunity for us.

Our next question is from Stephen Trent with Citi.

Just very quickly two from me. First, if you could give some color on what happened with accounts receivable? Looks like that the receivables turnover slowed down. And I was wondering if you guys are having any conversations with airlines and airlines paying on time. Just curious, and that's my first question.

So account receivable has been growing in line with our increase in revenues. We have a healthy receivable balance. And as of now, no airline is in breach of their returns. So we have a currant accounts receivable portfolio.

Okay. Appreciate that. I thought receivables look like they turned over a little bit more slowly, but very helpful. And I was just wondering as well, can you refresh my memory if OMA is taking any interest in any foreign airport projects? I know there's been Barbados Airport that the auction may come at some point, the RFP at least. And any interest in that? Or are you guys purely focusing on the domestic market?

Thank you, Stephen. We're constantly looking for opportunities abroad. So far, we don't have anything to increte. Yes, we are participating in the Barbados. But as you mentioned, it has been placed on hold. But yes, we're always looking for opportunities where we can have a comparative advantage.

Okay. That's helpful. I'll leave it there..

Our next question comes from Pablo Monsivais with Barclays.

I have a quick one on the commercial revenues per passenger or non-aeronautical revenue per passenger. It has increased significantly. And of course, in 2020 and 2021, it was mostly because of a lower passenger. But right now, we're reaching to a more normalized passenger level and yet you have a higher ratio of non-aero revenue per passenger. What should we incorporate there going forward? Do you think that it should be around high 90s, perhaps getting into MXN100 per passenger? I don't know if you can shed some light would be useful.

Sure. I think the ratio in this quarter has obviously been driven by the very good growth of our Carga, which continues to deliver very solid results, and the significant recovery year-on-year in the wholesale business. But if you split out like commercial revenues per passenger and leave the other diversification activities as a separate activity, we would expect commercial revenues per pax for this year to be above MXN45 per passenger. And obviously, we should expect also a continuous growth in OMA Carga for the remainder of the year at a similar level to what we are seeing now. And hotels, we expect to reach close to the occupancy ratios that we had in 2019 towards the end of this year. So that should have a more gradual recovery relative to the shopping (inaudible) over previous quarters. But I don't know if this helps your outlook?

Our next question comes from with GBM.

Just want to make sure I heard correctly about your maximum tariff execution. You're anticipating to close this year at 98% of the maximum level, is that correct?

No, 93%, around 93%.

Our next question is from Gabriel Himelfarb with Scotiabank.

Just a quick question about cost increase. Could you give us a bit of color why -- how did the labor cost affected SG&A since last year that the little reform had a direct impact on contracts?

Sure. I think it's primarily related to headcount increase. We have approximately 50 people -- additional people that are in the new OMA Lounge division. And we have around 820 people that were previously hired through third-party companies that are now part of the company. So you have roughly around 680 employees that were not in the same quarter of last year. So basically, that explains the increase in payroll.

Okay. And just can you give us a bit of color. What have been done in European terminals? There has been a lot of constrained capacity due to lack of labor. Have you seen these on your own terminal?

No. I mean, we did major adjustments over the past couple of years. We become more efficient, but we are not experiencing the same type of problems that are being -- happening in other airports around the world. But we need to have the right size of payable to a sense (inaudible) level of operations that we have.

And it's not only airports, it's also airlines. The layoffs during the crisis in Mexico were not as large as in other countries in Europe, for example. That's what you were seeing in Europe, a big problem in shortage of labor because they did big layoffs, and we hired them and it has been more difficult than we expected, than we anticipated. So there has been a mitch match with supply and labor demand. That problem didn't get that large in Mexico, definitely not in airports. We didn't have layoffs -- big layoffs and they were in a shorter amount in the international airports.

Our next question is from Guilherme Mendes with JPMorgan.

Two questions here. The first one is a follow-up from the previous question in terms of costs and think in terms of margins. Just wondering if the 77% margins we saw this quarter, do you guys see that as sustainable going forward? And the second question is related to CapEx. We are seeing a lot of pressure in terms of inflation, not only on costs but on CapEx as well. Are there -- what are the main measures initiatives to kind of mitigate this pressure on CapEx going forward?

For the first part, we think 76% for the rest of the year, around 76% will be manageable. And in terms of cost, we have been doing a lot of economies. We haven't found a lot of efficiencies in CapEx deployment that are offsetting the increase in prices that we're seeing by inflation.

Got it. Perfect. Just to make it clear, this MXN76 million is for the second half of the year or the average for the year?

The average for the year.

Yes. Bear in mind that we have our collective bargaining agreement review in 4Q. So -- and we do not expect to have any tariff adjustments for the remaining of the year. So that's why you'll see a slightly lower margin in the next few quarters that we had in the second quarter.

. Our next question comes from .

Just a follow-up on total operating costs and expenses. I'm just trying like to understand looking ahead, the increase of 32%, it's only in this quarter or because of the dynamics of inflation and macroeconomical environment, it will be in the same range in the following quarters? That is my first question. And the second one is...

Sorry, let me hold you there. We didn't hear the first part of the question. Could you be kind enough to repeat, please?

Yes. For sure. It's a follow-up on that total operating cost and expenses. This quarter, the increase was 32%, 32.5% exactly. So the question is looking ahead for the following quarters, it will we be in the same range because of the macroeconomical factors or it's only because right now in the second quarter was different from the historical data that you have for the company?

So the number you are referring of 32.5% is after you include depreciation and the construction costs and the major (inaudible) position. So all those costs are noncash costs. So we focus more on the cash cost effect which in our case was around a 15% increase, including the cost of hotel services. And we would expect some adjustments towards the final quarter of the year. As I mentioned, we have some bargaining using contract that will be negotiated in the quarter and also there is some inflationary impact on renewals of other services contracts that happened through the year. But I wouldn't expect a significant increase relative to the current levels of those cash costs that we are having as of today.

Okay. And the second question is regarding on international traffic. This quarter, we saw an increase. But I was wondering if this decrease, if it likely decreased, of course, is related to the general Mexico Category 2 airports on FFA or it's related to 1? If you can give us a little bit more color about it would be helpful.

Sure. So on the second quarter of '21, we did see a hike in international travel. We attribute in part to the vaccine tourism that primarily went to -- from Monterrey to Texas to get vaccinated. That traffic this year was not there. So our main routes to San Antonio, Houston, Monterrey, this experience declines in the same quarter of last year. So we see that most because of the -- what happened in the second quarter of 2021, and we don't see it related to the Terminal 2. And in fact, there have been new route openings -- international route openings from U.S. carriers to our airports in recent months. So we are not experiencing a negative impact from the Category 2 at this time.

Okay. Congrats on the results.

Our next question is from Alan Macias with Bank of America.

Just one question on your dividend policy and what -- if you can share what we could expect for next year?

We think around -- we paid MXN2.3 billion this year. I think we will try to keep the same amount going forward.

There are no further questions at this time. I'd like to turn the call back over to Ricardo Duenas, CEO, for any closing comments.

I want to thank all of you 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.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.