Greetings. Welcome to the Grupo Aeroportuario del Centro Norte OMA Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Emmanuel Camacho. You may begin.

Thank you, Gimeli, and hello everyone. Welcome to OMA’s second quarter 2023 earnings conference call. Participating today are CEO, Ricardo Dueñas and CFO, Ruffo Pérez 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’s 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. And with that, I will turn the call over to Ricardo Dueñas for his opening remarks. Ricardo Dueñas: Thank you, Emmanuel. Hello everyone and thank you for joining us today. This morning I will briefly comment on several events and my milestones occurred during the quarter. Then I will review our operational performance and financial results. And finally, we’ll be pleased to answer your questions. Today, I am pleased to announce that last Tuesday we released our 2022 sustainability report. This report is a testament to our commitment to transparency, accountability, and our unwavering dedication to environmental, social, and governance principles. We are proud of the progress we have made in our sustainability journey, and we’re committed to driving positive change in the years to come. The 2022 sustainability report is built upon global reporting initiative and the Sustainability Accounting Standards Board frameworks. These frameworks have guided us in creating a comprehensive and accurate portrayal of our sustainable practices and progress over the years. One of the essential aspects of this report is a reevaluation of materiality, where we conducted a thorough analysis to identify the most critical issues that affect our stakeholders and our business. We have identified and addressed 15 material topics that reflect the core sustainability challenge and opportunities we face as an organization. By focusing on these…

Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Rodolfo Ramos with Bradesco BBI.

Two questions here if I may. The first one is, can you remind us, what is your expectation for traffic growth this year? And can you frame for us the kind of discussions that you’re having with airlines and their appetite? It seems like when you look at the routes opening seems to be all the non-touristic destinations. Just wanted to get your take there and business outperforming, leisure potentially within your network. So that’d be my first question and second question, when you think of the different projects that you’re currently developing in Monterrey and as part of your MDP and also other terminal expansions at other airports. I mean, how do you see your cost structure growing in the next two years, focusing on the projects that are probably going to hit this or next year? So, how do you see cost growing in the next two years until your next MDP in 2025? Thank you. Ricardo Dueñas: Thank you, Rodolfo. On first part of the question, in terms of traffic growth, we expect something close to 26 million passengers per year is achievable. You’re right. During the quarter, we opened eight new routes, most of them from Aerus and VivaAerobus, VivaAerobus from Mexicali and Bogota; the rest in Aerus, mostly business traffic. As you know, business traffic was lagging during COVID. But now that we’re started to seeing increase near-shoring activity, we’re starting to see a strong pickup in business traffic and that’s being reflected in our numbers. Ruffo Pérez Pliego: Hi, Rodolfo. With respect to your second question on cost, certainly, we are going to see a slight pickup on some of the fixed costs that we have as a result of the openings. We opened a substantial facility in Monterrey at the end of the quarter. We are also making good progress with expansions in the Durango, the Ciudad Juárez airports. But, I mean, we should see a slight growth in cost above inflation, as a result of these expansions.

Our next question comes from the line of Guilherme Mendes with JP Morgan.

Two questions. The first one is a follow-up to the previous questions. You mentioned about the traffic for this year. Just wondering what your expectation is for traffic in the longer term. Can you call out in near short discussions any investments in Monterrey? And I know the, your MDP is too far away, but what kind of traffic increase maybe we could expect for the upcoming years? And the second question is related to cash distribution, capital allocation. So, what kind of deep dense slash buybacks should we expect on the verge of these additional investments on the commercial front? Thank you. Ricardo Dueñas: For the first part, it’s important to remember that during the first half of this year, we’re comparing to a slightly lower base from last year when we have the omicron variant. So, we expect growth to start normalizing a bit going forward. It’s hard to tell what will be the projections, but we expect some sort of normalization. And we also expect business traffic to have a better performance than the one we’ve seen in the last couple of years. Ruffo Pérez Pliego: And with respect to cash distributions, as you know, this year we had an extraordinary dividend paid in March. And the ordinary dividend that was declared in the April shareholders meeting, Progress.500 million of which are still pending to be paid. We have yet to define what the cash distributions are going to be for next year, and that’s something that we need to propose to shareholders.

Okay. Super clear. Thank you very much.

Our next question comes from the line of Alberto Valerio with UBS. Please proceed with your question.

Hi. Thank you for taking my questions. I have two on my side, as well, about major maintenance for the quarter. I would like to know if there is -- there was any special items for this quarter to be a decrease year-over-year? And what should we expect for the remaining of the year? And the second one about tariffs, what’s the percentage of maximum tariffs that you guys are running? Should we expect any increase for the remainder of the year? Thank you very much. Ruffo Pérez Pliego: With respect to major maintenance, I think if you take the semiannual amount, the cumulative amount for the six months and annualize it, that will be our forecast for the year. The reason versus the decline of last year is that, a lot of the projects included in that major maintenance provision, which as you know, it’s non-cash item, are close to being fully provisioned. And the going forward rate is going to be lower than what we were experiencing in previous years. And with respect to your second question, I think that we are targeting for 2023 to end up above the 95% levels of tariff compliance. Ricardo Dueñas: We also don’t expect an increase in tariff for the remaining of the year.

Fantastic. Thank you very much. Very clear.

Our next question comes from the line of Jay Singh with Citi. Please proceed with your question.

Thank you for taking my question. Can you provide any high-level color regarding what’s driving such strong traffic growth from Acapulco at over 21% year-over-year? Thank you. Ruffo Pérez Pliego: So Acapulco in terms of percentage points was the highest growth in our network. I think, there are no new routes that were opened this quarter. So, it’s mostly improved load factors in the existing routes that we have to Acapulco.

Got it. Ricardo Dueñas: It’s important just to keep in mind that with the saturation of the Mexico City airport, what we have seen with most of the airlines as they are starting to add higher capacity aircraft, and that’s also impacting a lot of that type of traffic. Ruffo Pérez Pliego: Yes. One clarification is even though some of these routes were opened before, last year, they were not in operation. And we got about 19,000 passengers from the Felipe Angeles Airport to -- that are new and were not last year to Acapulco. So, that plays half of the growth of -- during the quarter.

That’s super helpful. I also would like to know what caused the 4. 9% drop in cargo unit volumes versus a year ago? Would you say that was due to more competition from third-party storage facilities, or what would you say you about that? Ruffo Pérez Pliego: You said in the cargo?

Yes. Ruffo Pérez Pliego: Yes. So in cargo, it’s -- so yes, cargo use is decreased of 4.9% versus 2Q 2022. This was mostly attributable to cargo at the Monterrey Airport. And we are seeing a deceleration on cargo activity in these months.

Thank you so much. Ricardo Dueñas: Also, just to keep in mind that the currency, the strong peso also has some effect in the level of exports.

Our next question comes from the line of [indiscernible].

Thank you for taking my questions. I have two of them. The first one is related to the cost of hotel services. This quarter, they increased 24%. So, could you give us a little bit more color about the rationale of the increasing? And the second one is regarding the sustainable report. You mentioned about the ACA that you got the Level 1 that’s for 2023, and you are pursuing Level 2. But could you give us a little bit more details about what will be meaning getting Level 2 from the ACA? Thank you. Ruffo Pérez Pliego: So, with respect to hotel cost, there has been a strong pickup in the hotel activity and that has resulted in some actual [ph] cost primarily, I would say, in the line items of payroll and food and beverage consumables. And as we expect growth to continue recovering in the two hotels, we should see, at least for the rest of the year, similar increases in the cost of hotels. And with respect to sustainability efforts, as you mentioned, we already have a Level 1 certification for the 13 airports of OMA that were granted in February. We are already working towards the Level 2 certification, which we would expect to get by the beginning of next year as well in all of our airports.

Just a follow-up on this, but what are the differences? I mean, regarding the… Ruffo Pérez Pliego: So the difference with Level 1 is basically you have to have like a carbon map and a diagnosis of your footprint. And in Level 2, you have to have specific KPIs for a long-term downward trend in those KPIs.

Our next question comes from the line of Gabriel Himelfarb with Scotiabank. Gabriel, are you there?

Sorry. Yes. Can you hear me now?

Yes. You may proceed.

Can you give us a bit of color on the new route openings on, for example, the Tamaulipas, Matamoros, Piedras Negras? Is that a thing about near-shoring and manufacturing facilities being built there, or is it more like a higher demand for regional cities? And also the airline that operates such routes, is it a large airline, just small, low-cost carrier, or how is the dynamics of those roads? Thank you. Ricardo Dueñas: Thank you, Gabriel. That’s mostly related to the -- it’s a new airline called Aerus. It’s -- and they have smaller planes, Cessna planes, and it’s going to be focused on more regional routes. So, out of the eightroutes that we opened during the quarter, six of them are related to this new airline. And yes, it’s regional activity mostly related to near-shoring activity.

Okay. So, it’s like planes for about 20 passengers or something like that or bigger -- a bit bigger or lower? Ricardo Dueñas: No, no. You’re right. It’s around 20 passenger aircrafts.

Our next question comes from the line of Fernanda Recchia with BTG Pactual.

I have two, actually. The first one, if you could further explore the capacity expansion at your Monterrey Airport? When do you expect to reach the full capacity of this 1.4 million passengers? How can we think of the incremental passengers? And when do you expect to reach 100% of capacity? And the second, I was curious to hear your opinion because as you comment, Mexican airlines have been adding domestic capacity because of the restriction regarding the Category 1 status. I was wondering once the Mexico recovers the Category 1, we can have some shift of traffic from domestic to international flow? And given that you are the most exposed to domestic routes, I wanted to hear your thoughts of maybe you could have some impact because of this capacity shift? Ricardo Dueñas: Sure. Thank you, Fernanda. In terms of our capacity, our goal for this phase of expansion is to increase the current capacity of the airport by around 50%. Remember, this terminal was -- the current terminal was for up to 12 million passengers, we’re looking to expand to 16 million passengers. We’re going to keep evolving as traffic continues to grow. Fortunately, we don’t see in the near term future any bottleneck either on the air side, meaning the runway aprons or taxiway, or on the terminal side. So, we’ll keep growing as demand expands, but the current phase that we’re working on is to increase by 50%. So once -- once we finish -- we just finished this Wing 1 that is connected to Terminal C. We are already expanding that wing to connect it to the current Terminal A. Once that wing is connected to Terminal A, we’re going to use Terminal C for cargo expansion project. Then we’ll evolve to a second tier, which will be the second wing and then also another airside space. That’s pretty much it. And -- sorry, in terms of Category 2, once we get back to Category 1, we expect that to happen somewhere by the end of this year. It’s -- we expect it to don’t have so much impact in our traffic. What we have seen in the last year, the last few months, it’s all that capacity that hasn’t been able to be -- that hasn’t been absorbed by local carriers, has been absorbed by foreign carriers. We believe that the growth that we’re seeing in business routes is going to remain constant, even when we shift to Category 1. So, we don’t expect any major shift in our traffic projections as a result of the shift to Category 1.

And our next question next question comes from the line of Juan Macedo [ph] with GBM.

Thanks for taking the question. Congrats on the results. My question is a quick follow-up on the previous question on tariffs. I understand that you were at a 95% level of the maximum tariff allowed during the last quarter. Are you currently in that level? If I understood well, you expect to maintain a 95% by year-end. Right? Ruffo Pérez Pliego: Yes. That’s correct. Due to seasonality factors and mix between airports during the year, it might shift. But overall, for the full year, yes, we are targeting slightly above 95%.

Great. And currently, you’re around that level. Right? Ruffo Pérez Pliego: Yes. We’re around those levels. Yes.

And we have reached the end of the question-and-answer session. I’ll now turn the call back over to Ricardo Dueñas for closing remarks. Ricardo Dueñas: Thank you all for participating today. 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.

This concludes today’s conference, and you may disconnect your line at this time. Thank you for your participation.