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

Thank you, Doug, and hello, everyone. Welcome to OMA's fourth quarter 2023 earnings conference call. We're delighted to have you join us today, as we discuss our company's performance and financial results for the past quarter. 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. With that, I'll turn the call over to Ricardo Duenas for his opening remarks.

Thank you, Emmanuel. Good morning, everyone. We appreciate your presence on this call today. This morning, Ruffo and I will review our annual operational and financial results, and then we will be pleased to answer your questions. I will start by discussing our full year 2023 highlights and then I will move on to our main fourth quarter results. OMA achieved another exceptional financial and operational performance, setting new records for the full year 2023. We achieved record-breaking results in passenger traffic, revenues, adjusted EBITDA with an impressive adjusted EBITDA margin of 78.4%, and then consolidated net income. Our full year performance was propelled by a robust increase in both aeronautical and non-aeronautical revenues, underpinned by our successful cost control strategy. During 2023, the airport that contributed most to the growth of passenger traffic was Monterrey, which grew by almost 22% during the year. The performance of passenger traffic from Monterrey to the metropolitan area of Mexico City, including Mexico City, AIFA and Toluca airports, is notable. During the year, traffic in the market represented 15% of our total passenger traffic and grew collectively by almost 600,000 passengers, an increase of 18% as compared to 2022. It is also important to highlight the positive performance on routes from Monterrey to Queretaro, Cancun, Guadalajara, Houston and Tijuana, which collectively add almost 700,000 passengers in the year and grew by 19%. As a result of our performance, 12 month passenger traffic stood at a new record level of 26.8 million passengers, which represents a 15% growth as compared to 2022. Regarding our financial performance, aeronautical and non-aeronautical revenues reached again record levels in 2023, growing 27% and 18%, respectively, versus 2022. As a result, our adjusted EBITDA for the year was MXN9.1 billion, an increase of 28%, and we set a new…

Thank you, Ricardo, and good morning, everyone. I will briefly review our financial results for the quarter and then we will open the call for your questions. Turning to OMA's fourth quarter financial results. Aeronautical revenues increased 13.4% relative to 4Q '22, driven primarily by the 5.2% increase in passenger traffic and higher revenue per passage. OMA revenues increased 13.9%, with commercial revenues increasing 14.3% and the categories with the highest growth were restaurants, car parking, VIP lounges, and retail. Restaurants rose 38%, mainly due to the opening of spaces that Ricardo mentioned earlier in the Monterrey and Tampico airports, as well as higher revenue sharing. Parking increased 10.4% as a result of an increase in passengers and higher penetration in Monterrey, Culiacan, San Luis Potosi and Torreon airports. VIP lounges increased 25.6% as a result of the increase in passenger traffic and the opening of the Durango lounge during the quarter, as well as the Tampico lounge opened in May of 2023 and the Reynosa one opened in August of 2023. Diversification activities increased 14.9%, mainly due to higher revenues from OMA Carga and hotel services. Total aeronautical and non-aeronautical revenues grew 13.5% to MXN2.9 billion in the quarter. Construction revenues amounted to MXN805 million in the fourth quarter, a decrease of 27% relative to the same quarter of last year, as a result of lower MDP investments in the quarter. The cost of airport services and G&A expense remained flat relative to the fourth quarter of '22. We had a decline in payroll, which decreased 10%, which was offset by an increase in other costs and expenses, as a result primarily of higher information technology expenses in the quarter. Also contracted services grew 13.7% due to the beginning of operations of Wing 1 in the Monterrey airport and higher unit costs charged by third-party service suppliers for cleaning and other services. Major maintenance provision was MXN95 million, as compared to MXN41 million last year. OMA's fourth quarter adjusted EBITDA was MXN2.3 billion and the adjusted EBITDA margin reached 77.7%. Our financing expense was MXN224 million, mainly due to a higher interest expense as a result of additional debt issuance during 2023 and the higher average cost of debt. Consolidated net income was MXN1.3 billion in the quarter, an increase of 11% versus 4Q '22. Turning to our cash position. Cash generated from operating activities in the fourth quarter amounted to MXN1.7 billion, and cash at the end of the quarter stood at MXN2.6 billion. At the end of the quarter, total debt amounted to MXN10.7 billion, and we ended the quarter with a healthy net debt to adjusted EBITDA ratio of 0.9 times. This concludes our prepared remarks. Doug, please open the call for your questions.

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Rodolfo Ramos with Bradesco BBI. Please proceed with your question.

Thank you. Good morning, Ricardo and Ruffo. Thanks for taking my questions. Two questions on my side. The first one is more of a conceptual one. I'm just trying to understand what to expect from your MDP negotiation with this new tariff regulation. And now having seen how [indiscernible] MDP concluded, I mean, do you expect that given your circumstances and your situation, that a similar CapEx increase would have to happen for you to see a tariff adjustment of that magnitude, and whether you see the CapEx needs at your -- in your airports -- in the current airport infrastructure that you currently have? So that's my first question. I have a second one. I don't know if I should post both or...

Yeah, please. Go ahead.

Okay. The second one is on this private Monterrey [indiscernible] and the military intentions to operate commercial operations there. So, we had a conversation with the operations staff there, and they believe they can receive large narrow bodies aircraft, and that the approach routes don't necessarily conflict with your airport. I mean, it will certainly need investments on the terminal building side and a lot of infrastructure investments. But what is your view on this and how could it impact your Monterrey airport? And if given the timeline, I don't know if this is something that perhaps will happen this year, but do you see -- you incorporating this on your -- the potential impact of this on your MDP? Thank you.

Thank you, Rodolfo. Starting with the second part of the question, there's nothing official. There hasn't been an announcement. Most of the headlines, actually with one headline at the end of the year was in the context of Mexicana. But there's no official announcement of a new airport being constructed. As you know, the airport Del Norte, they have been there for decades. It has been for private operations. It was taken now by [indiscernible]. They would have to extend the runway. They would have to build a new terminal. They would have to buy -- acquire additional land. We don't -- there's no budget allocation for an airport at this point in time. So, we will be monitoring the situation, but there's nothing official on that front. Now, the regulatory model allows you to obviously adjust your tariffs accordingly to the traffic that you would eventually lost, so that financial returns remain the same. But it's too early to assess. And regarding the MDP, we're still working. As you know, we're presenting our MDP at the end of next year. So, we have still two years' work ahead. We're looking for an optimized CapEx. We're looking for efficiencies. The fact that VINCI is working very closely with us is going to help us have a very optimized MDP, but it's -- we're still working on it and it's too early to give some indication of where we believe it's going to end.

Thank you. Appreciate it.

Our next question comes from the line of Guilherme Mendes with JPMorgan. Please proceed with your question.

Good morning, Ricardo, Ruffo, Emmanuel. Thanks for taking my question. My first question is on the traffic front. So take into account the Pratt & Whitney impact on the low-cost carriers in Mexico, what is your current base case for traffic performance domestically and internationally during 2024? And the second question is kind of related to the previous one in terms of tariffs. So, we saw the discounts implemented during the fourth quarter. And the understand is that there shouldn't be any price increase in real terms until the next MDP. Just wanted to make clear that it is the case, or if you have room to get closer to the 100% level of your current MDP before 2025? Thank you.

Hi, Guilherme. This is Ruffo. With respect to tariffs in 10 of our airports, in the passenger charge, we implemented discounts starting November, the first for November and December. In January, we applied inflationary increases to all of our tariffs, including those that were discounted. And we'll also apply inflationary increases in January of 2025. And then, we'll have to see what the impact is of the MDP negotiation and we'll have to adjust our tariffs accordingly based on that outcome. With respect to traffic performance for 2024, yes, two of our main airlines are subject to the recalls of Pratt & Whitney. I think based on what we know at this time and we have a little visibility of what the recall calendar is going to be for the rest of the year. At this time, we would be expecting flattish traffic as compared to last year.

Perfect. Ruffo, many thanks.

Our next question comes from the line of Filipe Nielsen with Citi. Please proceed with your question.

Hi, guys. Thanks for taking my question. And the first one was already answered. I'll keep only on the second one. To what extent do you see government -- the government's new airline or new foreign airlines starting to service your airport installations? And how do you see that impacting your traffic going forward? Thank you.

Hi, Felipe. At this time, the impact has been marginal. There are destinations served by Mexican planes to Acapulco, Zihuatanejo, Monterrey and one other destination. And the traffic impact last -- it started operating in the 26th of December. So last quarter, there were, I mean, probably less than 500 passengers in total. And the month of January and February, the numbers are still not significant, but based on their plans for growth and acquisition of new planes, it could become a relevant player down the road. But at this time, it's little contribution to our operations.

Great. Thank you.

Our next question comes from the line of Andressa Varotto with UBS. Please proceed with your question.

Hi, good morning, everyone. Thank you for taking my question. So, my first question is just a follow-up on the tariff. So, you mentioned that you've implemented fully already the [TUA] (ph) discounts in the fourth quarter. So, just trying to understand if this -- the tariffs that we saw in the first quarter already considers this discount for the whole quarter and we can -- if we can assume just inflation from there? And my second question is regarding margins. I think that the company continues to show positive efficiency gains and cost controls. What will be your margin expectations for 2024? Thank you.

Regarding the tariff, the discounts were implemented in November and December. And in January, on the level of the discounted tariffs, we applied the inflationary increases.

The discounts were in 10 or 13 airports, so it was a 10% discount. We take away the three airports around an 8.9% for the whole OMA, and we added inflation starting January 1st.

And regarding margin, I think based on our current expectation of traffic and the inflationary increases that Ricardo just mentioned that applied starting January and the cost inflation pressures as well, we don't see an expansion opportunity for next year. And obviously, there will also be an impact related to the increased concession tax.

Thanks.

Our next question comes from the line of Pablo Ricalde with Santander. Please proceed with your question.

Hey. Hello, everybody. Congrats on the results. I have two questions. The first one is on dividends. I don't know if you can provide some color on what are you expecting for dividends this year? And the second one, it's on labor costs. We saw a sharp decrease in labor costs. I know there was a provision last year. But just to understand, how should we see labor costs going forward?

Hi, Pablo. So, with respect to dividends, we are still assessing the right amount, considering the capacity and traffic outlook for the year. We still don't have a proposal, but that should be presented fairly soon, at the end of March, when we call for the Shareholders Meeting for April. And with respect to labor costs, the levels that you see in the fourth quarter are reflective of the current levels that we are incurring. And on top of that, you'll have to add wage adjustments for 2024.

Okay. Perfect. Thanks, and congrats.

Thank you.

Our next question comes from the line of Isabela Salazar with GBM. Please proceed with your question.

Hello. Thank you for taking my question. I actually have two. The first one is, I was wondering if you could shed some light on which airport you applied the 10% TUA discount. And from this discount, what is the current percentage of the maximum tariff that you are charging derived from that? And the second question is, if you have any new initiatives regarding your commercial segment, as in new projects in the horizon or anything new?

Can you repeat, Isabela, please your first question? We were not able to hear completely.

Hello?

I think, she...

It looks like we lost her. So, the next question comes from the line of Gabriel Himelfarb with Scotiabank. Please proceed with your question.

Hi, good morning. Thanks for the call. Quick question, I think a follow-up question about the [indiscernible]...

Gabriel, we cannot hear you clearly. I don't know if it's possible, if you can get closer to a microphone.

Okay. Can you hear me well?

No.

No.

We lost Gabriel. Our next question comes from the line of Fernanda Recchia with BTG Pactual. Please proceed with your question.

Hello, Ricardo, Ruffo, and Emmanuel. Thank you for taking my question. My question is more regarding the ASM airport. We know that there have been some change in terms of these loss of the airlines. Also, there were some change regarding the passenger fee. So just wondering, how do you see all these change that have been going on at the airport impacting your airport? That's it from my side. Thank you.

Which airport are you talking about, Fernanda?

The Mexico City International Airport.

Yeah. So, as you know, starting in January of this year, hourly operations were reduced from 53 to 42 per hour. And that has caused airlines to seek alternative routes. The Mexico City airport announced that they had shown a decline of 11% in the January numbers. Actually, in the routes for OMA, it's about a 9% decline in the month of January. And if you include the effects, the growth of Toluca and AIFA, the total metropolitan market for January was about a 2% reduction in January just. So, most of the reduction in the capacity of Mexico City is being captured either by Toluca and AIFA. And we also should expect, although it's difficult to measure it, some traffic that will be diverted to our Monterrey hub as well.

We're also starting to see an increase in load factors in the Mexico City Airport.

Thank you. It's clear. And if I may, just to follow up on the traffic projections, you mentioned that you're expecting a flattish figure for this year. But just wondering, how do you see the normalization of Acapulco figures? When should we expect the airport to become positive in terms of growth trends?

We're currently at Acapulco, we're operating around 50% of the levels of pre-pandemic. The recovery really is going to depend on the recovery of the city, which is slightly out of our control. The airport is already fully operational. There's still some works in the next couple of months, but we're already expecting some international flights coming in May and in June. But recovery, we'll have to see how the recovery of the city behaves.

Our next question comes from the line of Federico Galassi with TRG. Please proceed with your question.

Hi, guys. Congrats for the results, again. Two questions, quick question, more related with Monterrey. The first one is you continue to have, at least with the numbers of November, December and January, well above the media of the other airport in Mexico. [Technical Difficulty]

We lost you also, Federico. We can't hear you. Hello?

Federico, could you repeat your question?

Can you hear me now?

Yes, now we can hear you.

Okay. Perfect. Thank you. No, your view in Monterrey airport after the number that you issued in December and January for the rest of the year, in particular with the situation of Viva, when we see the international traffic continue to grow at double digit?

So, I think Monterrey for 2024 will continue to be the driver of our results. Certainly, we see a lot of the effects of the nearshoring investments as underlying demand supporting long-term growth. Certainly in the short run, capacity will have to take into consideration impacts that may be the result of the P&W recall. But we do believe that Monterrey will continue to be above average in the rest of our airports for this year.

Okay. And the second question, again, in Monterrey, after all the new space that you are increasing, the commercial space that you're increasing for this year, and the change in Carga, in particular, what do you expect for this year in the commercial side, again, in Monterrey in particular?

So, in the commercial side, we'll see the benefit of the new spaces that are associated to the Wing 1, which was opened in June. So this year will have full year effect of -- on those new outlets. And also as part of our commercial strategy and not only generally for OMA, not just for Monterrey, we are doing tenders of outlets that come to expiration and renegotiate them in better commercial terms or with better proportion of participation of sales. So, we are confident that the commercial revenue per packs will continue to grow this year. And particularly in the case of Monterrey, we'll see the benefit of the new areas that we are still under construction, probably starting to reflect until mid-2025 or beginning of '26.

And in Carga, you finish all the change, the remodulation that you did, and it's working in place [indiscernible] that is the reason of the result?

We are expanding the -- and we finished the expansion of one of the abundant warehouses in Monterrey. We have developed for this year a plan to target aggressively new clients and new cargo airlines to get to Monterrey. So, yes, we are confident that Monterrey will also have growth in OMA Carga, not to the levels of the previous years, but still in the positive side.

Okay, great. Again, thank you, and congrats for the results.

Thank you.

Our next question comes from the line of Isabela Salazar with GBM. Please proceed with your question.

Hello, can you hear me? I'm so sorry, my call fell through.

Yes, we can hear you.

Perfect. Okay, so my question is, if you could please shed some light on which airports you applied the 10% TUA discount introduced in November? And from that discount, what is the current percentage of the maximum tariff that you are charging derived from that?

Sure. So all of the airports had a decline except for three airports. And those three airports were Mexicali, Zihuatanejo and Zacatecas. And for the full year of 2023, we ended at 97.5% of maximum tariff compliance for the whole of OMA.

Perfect. Thank you.

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

We would like to thank everyone for participating today in today's call. We appreciate your insightful questions, engagement, and continued support. Ruffo, Emmanuel and I are always available, should you have any further inquiries or require additional information. Thank you once again. Have a great day.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.