Q3 2023 Grupo Aeroportuario del Centro Norte SAB de CV Earnings Call

Greetings and welcome to the all my third quarter Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce Emmanuel Camacho Investor Relations. Thank you you may begin.

Thank you, Doug Hello, everyone and welcome to IMAX third quarter 2023 earnings Conference call.

It's trading today, our CEO to California, and CFO drew up a bit.

Jim.

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 could differ materially including factors that maybe beyond our control.

I will turn the call over to Ricardo for his opening remarks.

Thank you Manuel and good morning, everyone. We appreciate your presence on this call today I will begin by discussing the impact that hurricane at least having our Acapulco airports and then will comment on recent developments in the regulatory landscape of our airport concessions afterwards, we will move on to our quarterly results.

On the night of up towards 25, hurricane or deep strong Acapulco, Acapulco city with category five intensity.

The hurricane caused some damage to the terminal building of the Acapulco airports. However, the airport remains operational and is currently focused on humanitarian operations. We are working closely with local and federal authorities to fully restored the regular operations of the airport, which we expect to be relatively soon.

In 2022 are called co contributed with 3.6% of our total passenger traffic and 3.4% almost total aeronautical and non aeronautical revenues.

Regarding recent regulatory changes on October 4th 2023, the Civil Aviation Agency, an autonomous body under Ministry of communication and transportation notified us about immediate modification establish in annex seven of the tariff regulation basis, all of our airport concessions over there.

Two weeks that followed we conducted a thorough review of these new guidelines and engaged in close and constructive communications with the Ministry and the APAC to clarify certain pumps.

During these interactions the Mexican government was open to dialogue, leading two agreements finally reflected in the modified basis that we received on October 19th and subsequently made public to the market. We don't expect significant impact from this.

Another matter that I would like dimension concerns the concession tax on October 25, the Senate approved a new 2025 federal duties law. This law includes provisions to increase the concession tax from 5% to 9% based on airport revenues effective January 24.

It is worth mentioning that on their new tariff regulation the increase in the concession tax affecting that 'twenty four and 'twenty five period will be recognized in the next tariff negotiation of 26% to 30 periodically with a reference value.

It is also essential to understand that the concession tax is part of the calculation variables for determining maximum tariffs. These new basis did not changes relative to the original basis.

After all of these events, we anticipate that OMA will uphold its commitment to adaptability resilience and the sustained and successful track record of its financial and operational results.

Turning to our main third quarter of this year results.

Well my continued to delivered solid financial and operating results during the third quarter adjusted.

Adjusted EBITDA grew 33% in the quarter to $2 5 billion pesos and adjusted EBITDA margin reached 79, 4% largely as a result of the increase in both aeronautical and non aeronautical revenues and our successful cost control strategy.

In the third quarter almost passenger traffic reached a record number of seven 4 million, an increase of 19% versus the third quarter of last year.

Outstanding resolved, we're guided by the performance in Monterrey, which accounted for 62% of all my total passenger growth as compared to the third quarter of last year.

The main destinations at road traffic growth worth two to look I get it that Cancun, Santa Lucia and Mexico City, most of them considered business routes.

On aggregate. These five routes added 255000 additional passengers in the quarter, an increase of 17% versus the third quarter of last year.

Primarily as a result of the storm passenger traffic performance are our aeronautical revenue grew by 31% in the quarter to $2 5 billion pesos.

On the commercial front revenues increased 24% compared to third quarter of last year, driven by restaurants parking car rentals and VIP lounges Aki.

Occupancy rate for commercial space due to a 94, 7% at the end of the quarter.

Diversification revenues increased 8% our hotel services contributed most of this growth.

In the second quarter of this year occupancy rate or terminal to NH was 86, 3%, while the Hilton Garden Inn Hotel had an occupancy rate of 73, 3%.

On the capital expenditures.

Total investment in the quarter, including M. D. T. M. M D P investments major maintenance and strategic investments were at 964 million pesos.

During the quarter some of the most relevant projects. We're working on are the expansion and remodeling of the Monterrey Airport terminal a building as well, let's see that's why they story on <unk> and Durango terminal buildings racking.

<unk> configuration of the Master planned terminal building.

Major we have ability and reconfiguration of platforms and Taxiways and several airports and construction of for industrial warehouses.

I would now like I would now like to turn the call over to Ruth <unk>, who will discuss our financial highlights of the quarter.

Thank you Ricardo and good morning to everyone I will briefly review our financial Corp's fourth quarter and then we will open the call for your questions.

Turning to almost third quarter financial results.

I don't know, what's called readiness increased 1% relative to the third quarter was 22, driven primarily by the 18, 6% increase in passenger traffic and how your revenue per passenger.

Naval revenues increased 17, 6%.

Commercial revenues increased 23, 6% the categories with the largest growth more restaurants parking car rentals and VIP lounges.

Restaurants, and car rentals rose, 40% and 28%, respectively, mainly due to higher revenue sharing and the impact of the opening of new spaces and in Brooklyn control conditions on renewals.

Okay increased 16, 4% as a result of an increase in passengers and higher penetration rates.

What is Chihuahua.

Well, Terry I mean those airports.

VIP lounges increased 31, 5% as a result of the increase in passenger traffic and the opening of the Reynosa launched in August 2023, as well as at the peak of Lounge in May 2023, and to ask why do you see November two Hudson's Bay.

Diversification activities increased eight 3% a stroke hotel revenue growth was led by.

A decline in what Mcdonalds, which was affected by a decline in revenues related to our ground input cargo.

Yeah.

I don't know.

And no matter, what I think our revenues grew 27, 9% to $3 2 billion peso seem to quite true.

Construction revenues amounted to 719 million vessels in the quarter, an increase of 10% as a result of higher MTP investment execution.

The cost of airport services and G&A expense increased two 8%.

In the third quarter of last year, mainly due to an increase in minor maintenance contract service and basic services.

As a result of higher activity in our airports and inflationary effects.

Major maintenance provision was $95 million vessels compared to 51 million pencils into Q2.

Almost simple third quarter adjusted EBITDA was $2 5 million persons on the adjusted EBITDA margin was 79, 4%.

Our financing expense was $7 272 million pesos, mainly due to higher interest expense as a result of additional debt issuance and the higher cost of debt.

Consolidated net income was $1 3 billion in the quarter, an increase of 28% versus <unk> two.

Turning to our cash position.

Cash generated from operating activities in the quarter amounted to $1 3 billion pesos in cash at the end of the quarter stood at 2 billion versus.

On September 20th we made the payment for the second installment of ordinary dividends amounting to 500 million purchase.

In accordance with the resolutions of all shareholder meetings in April.

At the end of the quarter total debt amounted to $10 7 billion pesos and we ended the quarter with healthy net debt to adjusted EBITDA ratio of 1.0 times.

This concludes our prepared remarks, please open the call for your questions.

Thank you, ladies and gentlemen at this time well be conducting.

A question and answer session, if you'd like to ask a question you May press star one on your telephone keypad.

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Our first question comes from the line of Pablo monitor device with Barclays. Please proceed with your question.

Hi, good morning, they've got a little fundamental thanks for taking my question I have two questions. The first one if you could.

If you have done a quick calculation of what would be your discount rate under these new rules and how does it compares to the previous a discount rate on the previous Ah Ruth on.

And the second question is about what the media has been published in the 10% decrease of the tour can you. Please confirm whether this is Chris and the tour is in any way related to the new tariffs methodology. Thank you.

Uh huh.

Hi, Pablo this is roop will answer your first.

A question.

The components.

For the calculation of the discount rates used in the maximum tariff are now clearly stated and less subject to interpretation.

As you know before did you calculate based on the yields of Mexican government bonds, plus a premium that was to be defined by the new Street and now with the new basis established clear did the variables to be used to determine the discount rate.

Based on our calculations, we did not assess the significant impact on the discount rate as a result of the changes that were made in the near term basis.

And regarding your second barred Pablo.

This that the discounts are are totally unrelated from the new basis.

They're as unrelated to the aforementioned net new regulatory guidance. There are other agreements we have made with regulatory bodies. These agreements entail a general 10% extraordinary discount in real terms.

Four on passenger charges on tour, starting November and December of 'twenty three.

Applicable to 10 of our airports.

After application of discount this discount in 'twenty three we expect to apply annual inflation adjustments on dwell while they're aeronautical tariffs. In addition to a two hour are not subject to the discounts.

It is also important to mention that as a result of the discount package previously mentioned.

And unrelated to the to the changes in the annex we will have an MVP capex deferral for 24 months. This M. D. M. D. P. Capex deferral amounts to $1 2 billion in the aggregate and as a percentage of the original Capex commitment represents about 25% in 'twenty four and 13%.

<unk> and 'twenty five departments do not compromise the operations quality and safety standards of our airports.

Yeah.

Thank you very much very clear.

Welcome.

Our next question comes from the line of Jeremy Mendez with J P. Morgan. Please proceed with your question.

Good morning, he called it the old roof, where Manuel Thanks for taking my question I have two as well. The first one is on margins, it's and congrats on the very strong margins reported during the third quarter.

Question is how should we think about margins going forward, especially thinking in terms of the increase in the concession fees and if that will be fully compensated.

On the iron those co part of the business.

And the second question is regarding to the impacts are brought by the Hurricane. If you can provide a little bit more color in terms of what should be the actual impacting killing fourth quarter numbers and potentially early 2020 for numbers as well maybe in terms of traffic or in terms of revenues impact. Thank you.

Sure. Thank you.

For the current game, it's it's too early to assess the amount of the impact what we can say is that the the runway the platform I E that the taxi ways are imperfect.

Perfect State.

The terminal has suffered some damages however, it is operational.

It's important to remind you that Acapulco represents only three 4% of the total revenues of the company was.

We're still we still have interim maintain communication with a couple go on and we will know the impact of the damages in the next coming days and.

Regarding margins, we expect the next year some.

Around 4% impact as a result of the concession tax increase however, this concession tax increase that the amount or.

Or 'twenty, four and 'twenty five will record will be recognized as reference value for the next MTP negotiation in 'twenty six.

Thanks, just one quick follow up on on the margins. In addition to the concession fees are do you expect any potential inflationary pressures.

They should alone dropped your margins growing the current 70 576 levels.

So in addition to the question is is there any other impact that should bring margins down.

Oh.

Well I mean, we're still finalizing.

Finalizing our budgets for next year, we will have to.

Honestly, we're incorporating the increase.

In the position that we will.

We will train goes to 4% disposal of margin.

And with respect to two other inflationary pressures I think that they could be compensated with the inflationary increases to nowhere types.

Okay.

Okay. Thank you.

Our next question comes from the line of Rodolfo Ramos with Bradesco B B I. Please proceed with your question.

Thank you to kind of a room for my for taking my question I just thought just a clarification on the previous one before I go into a couple of questions I have so they see the hit you're expecting on on the concession fee you're expecting it to be reflected now in the upcoming MTP, but will it be a kind of a backward looking adjustment or is it just going forward.

You'll be able to compensate that through the tariff. So so just a quick follow up.

No just for the next two years.

For the next two years that amount will be recognized in the reference value for the next negotiation and going forward that will be reflected as a as a as a nobec's expands as it has been on the best.

Okay. So it is backward looking okay. Thank you and just another.

Another follow up on the.

The regulatory side I mean, perhaps it's difficult to say precisely, but just wanted to get a sense of of how do you see these.

These regulatory changes and particularly on the on the cap of excess surplus.

3% cap I'm not sure if you're able to quantify or just give us an idea of how much revenues or income.

It has generated over the last maybe 20 years.

The concession so yeah that'd be my first one any color there would be would be helpful.

Yeah.

I think now the new bases, whether tanks tourist trap establish is to have a more precise traffic vector when we negotiate tariffs with them.

So starting starting in the negotiation of the 1031, what will happen is there will be a look back for the five the previous five year period. So in our case it would be the 26 to 2030 period and according to that so that traffic.

Actually to the revenues from that five year plan everything that was collected in excess of 3% will be recognized will be carried forward for the reference value for the next negotiation.

In the past just to give you some.

In the past for MVP negotiations two of them, we have been above the negotiated traffic two times, we have been below the negotiated traffic. So there's not necessarily starting to be able we will always be above the negotiated traffic and I think that there's an ex strike that gives more clarity and more transparency as to the tropic vector that we will.

Negotiate R&R R&R tariff revisions.

Perfect very clear and just that more on the on the on the business that answers. Your second question I don't know if you can share your your traffic growth expectation for next year, I mean, how you know and and and and how much are you factoring in for an impact from the pattern Whitney you know Amgen recall a couple of golf.

It's still early but just just wanted to get a sense of how you're seeing things going into 2024.

But I think for the for the rest of the year Pablo that the I think it's already incorporated the Pratt and Whitney issue, we've been working closely with our with Airlines also with.

Manufacturers are they're still they're still not much clarity as to what will be the impact on the maintenance schedule of next year. So we're waiting to hear and.

What will be the impact there.

Okay.

Thank you.

Yeah.

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

Hi, Corrado, who FUA Manuel.

Everybody, who works at all mines and a couple quick ones.

Yes.

My question relates to the big.

Big lots of our framework yeah.

You charge was one cent.

That Oh, we have a very few change snowmobile regulatory framework and put this together with the government speech also decreased in Paris by Central true, 15%, if you will.

Similar topics not just concentrate and that it's decreasing by 10 to 15.

Suzanne can we assume that will.

It will be harder from now on shoot to get maximum tariffs you would be running close to 90% or something else. Thank you.

Well.

So yes. This is as you mentioned there.

Little modification scope to the targets I think the main changes that you that clarity.

It takes away some subjectivity.

For breakfast.

Relative to the previous.

And then with respect pool.

Reaching maximum targets.

I mean, I think it's going to be in.

In the case of our existing.

MDT cycles, which says you know and since 2005, we probably aren't going to be around 97% for easier.

Perhaps to some of the centers.

The following years and for the next tariff review.

Based on the traffic back door.

Obviously, our goal would be to reach the 100% level.

And therefore the wings.

Good.

I see.

Thank you very much.

Our next question comes from the line of Bruno Marino with Goldman Sachs. Please proceed with your question.

Thank you for taking my questions actually I have two the first one is a clarification on the reduction of toy understood that you mentioned that you were going to lower to a in 10 airports.

And that would be offset by Capex postponement Ah you know is it fair to say that from an NPV perspective, you're looking to recover 100% of the all of the reduction into through this postponement and capex. So that the value of the company would not be.

And paired and also in that same topic, if you lowered it to which I guess you know accounts for the majority of your revenues and if you expect no changes to your parent.

I've seen the MVP as a result of the ongoing discussions does it mean that you were going out going forward run below the maximum tariff.

For the first question and the second question is actually you know I'd like to have your help to better understand the big picture around the new set of rules for the M D.

We are talking about higher concession fee, which has you have argued you know argues for.

You know Hyatt Paris, all else equal, but at the same time it seems that the agenda of the government to lower tariffs and also increased salary. So we're talking about higher concession fee lower tariffs.

The expiry date of the contract have not changed and it would be good to have some confirmation from your side is we're now discussing to extend the concession on the topics as well the feedback from your peers is that the Capex plan for the MVP will likely not change as a result of the new regulation. So you should have the same expiry date St Capex more concern.

Fee and you have you know lower tariff than X M. D. P. You know how come the return on the regulated part of the business, we will not be.

Unknown Executive: Greetings, and welcome to the Alma Third Quarter Conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.

Lower you know why why what are we missing here. Thank you very much.

Unknown Executive: If anyone should require operative assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Just to clarify there is no extension of the concession has has been discussed.

During the during this.

Emmanuel Camacho: It is now my pleasure to introduce Emmanuel Camacho Investor Relations. Thank you. You may begin. Thank you, Doug.

In this conversation it's too early to say what will happen in the next negotiation. We're still two years away of user conversion times, where it gets factor into the to the to the reference value that will be mainly variables that will be moving from now to the 'twenty takes a negotiation and this concession back will be just one of them.

Emmanuel Camacho: Hello everyone, and welcome to Alma Third Quarter. [inaudible] very much. Thank you very much. After all these events, we anticipate that OMA will uphold its commitment to adaptability, resilience, and the sustained and successful track record of its financial and operational results. Turning to our main third quarter of this year results, OMA continued to deliver solid financial and operating results during the third quarter. Adjusted EBITDA, grew 30 percent in the quarter to 2.5 billion pesos, and adjusted EBITDA margin reached 79.4 percent, largely as a result of the increase in both aeronautical and non-ironautical revenues on our successful cost control strategy.

As many variables are moving forward.

For the next year maximum tariff.

Compliance.

We're looking to it's it's difficult to assess what will be the percentage compliance, giving that this to discounts.

Could have some impact on traffic as well.

Want to add something.

Hum.

In preparation for the next MVP cycle, obviously, we'll have to look into how to be more efficient and how to make our investments.

And to extract the most value out of the infrastructure currently in place to maximize utilization before.

Increasing the size of the terminals or other.

Investing in additional infrastructure. So that's something that we'll be working closely in the next couple of years as well.

Thank you and if I may just one follow up question on the potential impact from the grounding of aircraft. The results as a result of the issue with the engines from Pratt and Whitney you know, even though you mentioned you are not ready to provide a forecast for traffic next year are we talking about magnitude of traffic variation or Ken traffic.

She will grow next year, you know Directionally you know why do you think you know can happen given the extent of the exposure all of that you mean low cost carriers in the country.

Any guideline you could provide at this point in time.

It's actually as you said, it's difficult to assess right now what would be the impact with the Pratt and Whitney engine issue, but what I can tell you is we are expecting some some small growth in the aero side of the business for next year.

Thank you.

Our next question comes from the line of Juan Mercado with GBM. Please proceed with your question.

Hi, Thanks for taking my question congrats on the results.

My question is you guys did they change it.

He is rate of return calculation for my focus on equity returns towards what kind of calculation.

Do you expect to take your temperature on the structure change.

Or do you have a lady fees or are you comfortable with your current structure.

Yeah.

We're still.

Evaluating are we believe are in the case of all my <unk> the impact of changing from return on equity to the whack at it will be relatively small given that our amount of leverage at the moment is currently so it's currently low so I believe we would expect that to remain most in line with what you have seen.

In the last couple of years.

Alright. Thank.

Thank you.

Our next question comes from the line of James Jang with Citi. Please proceed with your question.

Hey, Thanks for asking my answering my question. My first one is we don't ever consider investing in airports outside of Mexico.

Yeah.

Where we're always open to understanding ought to lead to looking at opportunities.

But we don't have at the moment any concrete tranche.

Transaction and the pipeline work, but we're always opening to.

For opportunities outside.

Okay, and as a follow up besides the concession fee hike until the end of 2025 do you guys see any of the regulatory changes coming in.

Okay.

Emmanuel Camacho: In the third quarter, OMA's passenger traffic reached a record number of 7.4 million, and increased from 19 percent versus the third quarter of last year. Outstanding results were guided by the performance in Monterey, which accounted for 62 percent of OMA's total passenger growth as compared to the third quarter of last year. The main destination, the road traffic growth, World Tutoluca, Queretaro, Cancun, Santa Lucia, and Mexico City. Most of them considered business routes.

We don't expect with hard to say, but we don't expect any more changes are from our conversations with the government both from the treasury and the communication and transportation. They have mentioned that this has been that the end of this.

Modifications in the regulatory process.

Alright, thanks, so much.

Our next question comes from the line of Macau.

Victoria will assume a capital. Please proceed with your question.

Emmanuel Camacho: On aggregate, these five routes added 255,000 additional passengers in the quarter and increased of 17 percent versus the third quarter of last year. Primarily, as a result of the start and passenger traffic performance, our aeronautical revenue grew by 31 percent in the quarter to 2.5 billion pesos. On the commercial front, revenues increased 24 percent, compared to third quarter of last year, driven by restaurants, parking, car rentals, and VIP lounges. Occupants you rate for commercial space stood at 94.7 percent at the end of the quarter.

Hi, Good afternoon. Thank you for taking my question I have only one related to cost of services.

It's quarter and creates a 22% so could you give us a little bit more color there what happened specifically thank.

Thank you.

So most of the increase is related to maintenance and so on utilities expense.

As we have increased the areas in it spend at the.

Terminal and seen in the last year or so long was increase of.

Volume of passengers we have.

Emmanuel Camacho: Deversification revenues increased 8 percent, our hotel services contributed most to this route. In the second quarter of this year, occupancy rate, our terminal 2 NH, was 86.3 percent, while the Hilton Garden Inn Hotel had an occupancy rate of 73.3 percent. On the capital expenditures front, total investment in the quarter, including MDP investments, major maintenance, and strategic investments, were 964 million pesos. During the quarter, some of the most relevant projects we are working on are the expansion and remodeling of the Monterey Airport Terminal, A building, as well as Cidad Juarez, Torreón, Ullacán, and Durango Terminal Buildings. Reconfiguration of the Mass-Atlan Terminal Building, major rehabilitation and reconfiguration of platforms and taxiways in several airports, and construction of four industrial warehouses.

Seen a greater.

Our growth in maintenance.

Sometimes there's some timing.

Issues, but.

I mean the.

The accumulated.

Expense for the nine months is reflective of the full.

If you annualize it would be reflective of the full year cost of make us.

Okay.

Thank you so much.

Our next question comes from the line of Gabriel I'm, a lot farther with Scotiabank. Please proceed with your question.

Every all your line is live.

Sorry can you hear me now.

Yes.

Hi, Thanks for the call just a quick follow up question.

Considering that the 10% decrease and two the increase on the concession fee and the change in on the methodology for the discount rate will be somehow offset or don't series for the next MVP and also the concession fees my understanding it also can see there's D.

Unknown Executive: I would now like to turn the call over to Rufo Pesplio, who will discuss our financial highlights of the quarter. Thank you, Ricardo.

Ruffo Castillo: Good morning, everyone. I will briefly review our financial talks for the quarter, and then we will open the call to your questions. Turning to almost third quarter financial results. I would like to call revenues increased 31 percent relative to the third quarter of 22, driven primarily by the 18.6 percent increase in passenger traffic and higher revenue per passenger. None I will read the news increased 17.6 percent. Commercial revenues increased 23.6%. The categories with the largest world were restaurants, parking, car rentals, and VIP lodges.

Nonregulated portion of the business how will be a.

Portion of this impact will be offset at least know Dubai terrorists. Thank you and also if you could.

Ill clarify again the cut the capex.

Yes.

The capex movements for the next two years that will be resulting from these amendments when these regulatory changes things.

Sure.

So in this rate review certainly than the English in the concession tax and the rate of 9% will be.

Ruffo Castillo: Restaurants and car rentals rose 40% and 28% respectively, mainly due to higher revenue sharing and the impact of the opening of new spaces and improved contractual conditions on renewals. Parking increased 16.4% as a result of an increase in passengers and higher penetrator rates in Ciudad Juarez, Chihuahua, Culecan, Monterey, and Buenos Aires. VIP lodges increased 31.5% as a result of the increase in passenger traffic and the opening of the Renaultzá Lounge in OOS 2023, as well as a Tampico Lounge in May 2023 and Ciudad Juarez in November 2022.

Incorporated into the calculation narrow the discount of the 10% to Ah is something that only affects this period. So it will not be a part of the evaluable.

The variables to be used in the negotiation of the over the next month.

Terry.

In 2026.

Now with respect to the Capex referrals in the aggregate is one 2 billion pesos. So so great. Thanks.

Yes.

September 2023.

Ruffo Castillo: Libertification activities increased 8.3%. A strong hotel revenue growth was partially set by a decline in Oma Cargo, which was affected by a decline in revenues related to our around import cargo. Total agonautical and non-agonautical revenues grew 27.9% to 3.2 billion pesos in the quarter. Construction revenues amounted to 7.9 billion pesos in the quarter. The cost of airport services and DNA expense increased 2.8% relative to the third quarter of last year. Many due to an increase in minor maintenance, contract service, and basic services cost as a result of higher activity in our airports and inflationary effects.

Purchasing power.

And.

That's around 800 million.

$90 million for 2024.

Okay.

And the remainder are around 400 million poor.

So that's in place.

<unk> represents roughly 25% of the original Capex commitment.

In 2024 and 13% in 2025.

Okay. Thank you and in the case of the concession fee it at Delta affected commercial or the nonregulated portion of the business and how can we would you be able to offset it only through increasing tariffs for the Knicks MVP or is there any other neat way you can you can negotiate there.

So.

Ruffo Castillo: Radio maintenance provision was 95 million pesos compared to 51 million pesos in 2Q22. Oma's fiscal term quarter adjusted to be done was 2.5 billion pesos and the adjusted to be the margin was 79.4%. Our financing expense was 272 million pesos mainly due to a higher interest expense as a result of additional debt issuance and the higher cost of debt. Concerned if the net income was 1.3 billion pesos in the quarter, an increase of 28% versus 3Q22.

This hasn't changed from the previous basis.

The formula for operational cost to terminate the Mexico tariff.

Our adjusted corporate expenses related to the regulated side of the business. So yes.

Commercial revenues would be subject to the inquiry as seen in the dark.

And we will have to see how to adjust our rates to recover some of these increased as it has always been the case.

Okay. Thank you very much.

Ruffo Castillo: Turning to our cash position, cash generated from operating activities in their quarter are amounted to 1.3 billion pesos and cash at the end of the quarter stood at 2 billion pesos. On September 20th, we made the payment for the second installment of the ordinary dividends amounting to 500 million pesos. In accordance with the resolutions of our showholder meetings in labor. At the end of the quarter, certain debt amounted to 10.7 billion pesos and we ended the quarter with a healthy net debt to adjust the data ratio of 1.0 times.

Our next question comes from the lineup Fernanda Recchia with BTG Pactual. Please proceed with your question.

Hello. Thank you for taking my question just a follow up I'm trying to understand a little bit deployed 92 Oddbins call. This 10% extra Oregon, Harry based calling it was given just 12 why do you choose surpassed the maximum amount of the rate it was to make the.

Our fares more competitive just because you mentioned that you expect to reach 97% of Max rabies yet so.

Unknown Executive: This concludes our prepared remarks. Please open the call for your questions. Thank you. Ladies and gentlemen, at this time we'll be talking a question and answer session. If you'd like to ask a question you may press star one on your telephone keypad. The confirmation tunnel indicate in line is in the question Q. You may press star two if you would like to remove your question from the Q. Participant using speaker equipment. It may be necessary to pick up your handset before pressing the star key.

Yeah and here are just a lowly sorry could you could you repeat the first part could you could you repeat the first part Vernon that we there was bad communication could repeat it please.

Yeah, No Shari just wanted to understand the rationale of the government chop filed this 10% of Shanghai reduced comp was it just because it's you don't apply you will probably would probably surpass the maximum wage or it is a measure to incentivize.

Pablo Monsivais: Our first question comes from the line of Pablo Monsivais with Barclays. Please proceed with your question.

Two lower at Air Air carriage.

Uh huh.

Pablo Monsivais: Hi, good morning, Ricardo Rufon de Manuel. Thanks for taking my question. I have two questions. The first one, if you have done a quick calculation of what would be your discount rate under these new rules, and how does it compares to the previous discount rate on the previous rules? And the second question is about what the media has been published on the 10% decrease of the Tua. Can you please confirm whether this increase in the Tua is in any way related to the new tires methodology? Thank you.

This is the first one.

Ruffo Castillo: Hi, Pablo.

And then I make my second one.

Yeah.

I think what I I think it was hard to speak on their behalf, but I think the rationale is trying to incentivize.

Okay.

Alright, now because you mentioned that you expect to reach 97% of maximum rate. So in that in terms of 3%. This call, Ontario regulator grabbing is right is it correct to make these assessments.

Yes, it will be slightly above 97% of the reason is this for this year. It will only be two months and that 97% that accounts for the for the whole year.

Ruffo Castillo: This is Rufon. I will answer your first question. The components for the calculation of the discount rate used in the maximum tariff are now clearly stated and less subjective to interpretation. As you know, before the discount rate was based on the yield of Mexican government bonds, plus a premium that was to be defined by the Ministry. And now the new basis established clearly the variables to be used to determine the discount rate based on our calculations.

Right.

And second still on this topic, we know that this is a nearly do you could you give us a sense of how much debt did you apply last year just for a reference for us to see if it's 10% is in line with historical average.

Yeah.

Yeah.

We from time to time entering to agreements.

Ruffo Castillo: We do not assess the significant impact on the discount rate as a result of the changes that were made in the new tariff basis. And regarding your second part, Pablo, the discounts are totally unrelated from the new basis. They are unrelated to the aforementioned new regulatory guidelines. There are other agreements we have made with regulatory bodies. These agreements entail a general 10% extraordinary discount in real terms for our passenger charges on Tua, starting November and December of 23 applicable to 10 of our airports.

Agreements for new route openings on another strategies with airlines.

But we haven't had a general discounts such as this for many years.

Okay. Thank you.

Our next question comes from the line of Alan Mircea <unk> with Bank of America. Please proceed with your question.

Hi, Hi, good morning, and thank you for the call.

I just had a I guess two questions. One clarification. The two Ah represents what percentage of a real not to grow revenue.

And the second question would be on the expected higher capex for the a couple of core airport.

Ruffo Castillo: After application of discount, this discount in 23, we expect to apply annual inflation adjustments from Tua. Other aeronautical tariffs in addition to a Tua are not subject to the discounts. It is also important to mention that as a result of the discount package previously mentioned and unrelated to the changes in the annex, we will have an MVP capital for 24 months. This MVP capital is amount to 1.2 billion in the aggregate, and as a percentage of the original capital commitment represents about 25% in 24 and 13% in 25. These deferments do not compromise the operations, quality and safety standards of our airports. Thank you very much, Raykler.

And.

With that.

<unk> be incorporated into the new.

Master development program or.

Or before thank you.

On the on the second part we've been in very close coordination with the government for Acapulco, We still don't know the size of the damage. We know that the core alright for operating the airport. It's okay. Obviously terminal has suffered some some damages.

On our last conversation with the government needs. They are very open to work closely to how can we offset the impact from from the hurricane in our Capex.

And for the for the two it represents 89% of our aeronautical revenues.

Okay.

Unknown Executive: Welcome.

And just one more question on the engine recall impact.

Guillermo Mendes: Our next question comes on the line of Guillermo Mendes with JP Morgan. Please receive with your question.

Hum any any impact you have seen as of October during October. Thank you.

Guillermo Mendes: Good morning, Ricardo Rufo and Manuel. Thanks for taking my question. I have two as well. The first one is on margins. It's an accurate on the various strong margins reported during third quarter.

Ruffo Castillo: The question is how should they think about margins going forward, especially thinking in terms of the increase in the concessions fees, and if that will be fully compensated on the aeronautical part of the bill, and the second question is regarding to the impacts brought by the hurricane. If you can provide a little bit more color in terms of what should be the actual impact in the fourth quarter numbers, and potentially your 2024 numbers as well, maybe in terms of traffic or in terms of revenues impact. Thank you.

Yeah, we have seen that.

Scheduled seats in databases, such as OLED has been.

Trending down over the last month or so.

So yes, we do believe that was it.

Reflected right now in the system is already incorporating.

Ruffo Castillo: Sure. Thank you. For the hurricane, it's it's too early to assess the amount of the impact. What we can say is that the the runway, the platform, the run, the taxiways are in perfect, in perfect state. The terminal has suffered some damages. However, it is operational. It's important to remind you that acapulco represents only 3.4% of the tax total revenues of the company. We still have intermittent communication with acapulco and we will know the impact of the damages in the next coming days.

What's known of the recall of Brian.

Brian <unk> engines at least for the winter season. We also we know that the airlines are taking a lot of measures to try to offset this impact. We know they are trying to extend leases trying to extend the lives of some of their other aircraft. So let it it's it it's in the last.

Couple of in the next two months, we will have more clarity will be the real impact next year.

Thank you.

Our next question is a follow up question from the line of Bruno Marino with Goldman Sachs. Please proceed with your question.

Yes, I just wanted to clarify one specific point.

You know what leverage or what that specifically will be considered for the calculation of the cost of Catholics, who did that at the moment of the NDP discussions either.

Average and also you know to the extent that you might have cooperate death or.

Ruffo Castillo: And regarding to margins, we expect the next year, some are around 4% impact as a result of the concession tax increase. However, this concession tax increase that the amount of the or 24 and 25 will be recognized as reference value for the next MVP negotiation in 26.

You know in the event that even fast abroad, and you have that attached to it will they look just at the debt at the asset level in Mexico or will they look at all of them are as a whole. Thank you very much.

I I think that in the.

We publish.

There are.

Some that's too.

Ruffo Castillo: Thanks. Just a quick follow up on the margins in addition to the concession fees. Do you expect any potential inflationary pressures that should alone drop your margins from the current 7576 levels. So in addition to the concession fees, is there any other impact that should bring margins down. I mean, we're still finalizing our budget for next year. We'll have to obviously we're incorporating the increase in the concession tax, which will trim close to 4% points of margin. Again, and with respect to other inflationary pressures, I think that they could be compensated with the inflationary increases in our times.

Capital ratios that are averages.

Unknown Executive: Okay. Thank you.

Includes oh other.

Airports groups as well.

And it's.

All the debt related to assets in Mexico.

Fluids.

That's that is nuts.

Funding our operations in Mexico.

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

Thank you all for participating today, a roofer Manuel and I are always available to answer your questions and we hope to see you soon thank you and have a good 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.

Rodolfo Ramos: Our next question comes on the line of Rodolfo Ramos with Bradesco BBI. Please proceed with your question. Thank you, Ricardo Rufo. I'm honored for taking my question. Just a clarification on the previous one before I go into a couple questions that I have. So the hit you're expecting on the concession sheet, you're expecting it to be reflected now in an upcoming MVP, but will it be a kind of a backward looking adjustment or is it just going forward.

Rodolfo Ramos: You'll be able to compensate that to the test. So just for that full follow up first. So just for the next two years, for the next two years, that amount will be recognized in the reference value for the next negotiation and going forward, that will be reflected as a, as a, as a nopex expense, as it has been on the past. Okay. So it is backward looking. Okay. Thank you. And just another follow up on the regulatory side.

Rodolfo Ramos: I mean, perhaps it's difficult to, to say precisely, but just wanted to get a sense of, of how do you see, you know, these regulatory changes in particularly on the, on the cap of access surplus, you know, this 3% cap. I'm not sure if you're able to quantify or just give us an idea of how much revenues or income this has generated over the last maybe 20 years, you know, you've had the concession.

Rodolfo Ramos: So yeah, that, that would be my first one any color there would be, would be health. I think the new basis, whether thanks to his draft establishes to have a more precise traffic vector when we negotiate tariffs with them. So starting starting in the negotiation of 2031, what will happen is there will be a look back for the five the previous five year period. So in our case, it would be the 26th to 2030 period.

Rodolfo Ramos: And according to the that, the traffic to actually to the revenues from that five year plan, everything that was collected in excess of 3% will be recognized, will be carried forward for the reference value for the next negotiation in the past just to give you some in the in the past four MVP negotiations, two of them we have been above the negotiated traffic, two times we have been below the negotiated traffic. So there's not necessarily certain that we will always be above the negotiated traffic. And I think that this annex tries to give more clarity and more transparency as to the traffic vector that we will negotiate on our on our tariff revisions perfectly clear.

Ruffo Castillo: And just that one on the on the business and just hear a second question, you know, I don't know if you can share your traffic growth expectation for next year, I mean, how, you know, and and how much are you factoring in for an example. The impact from the patent with me, you know, engine recall, a couple of course is still early, but just just wanted to get a sense of how you seeing it, thanks going into 2024.

Ruffo Castillo: But I think I think for the for the rest of the year Pablo that the I think it's already incorporated the patent with the issue within working closely with with airlines also with the manufacturers, there's still there's still not much clarity as to what will be the impact. Back on the maintenance schedule of next year, so we're waiting to hear and and what will be the impact there. Thank you, thank you.

Unknown Executive: Our next question comes from the line of our barco, Valario with UBS, please proceed with your question. Hi, Ricardo, who will run well hope everybody who works at all my in a couple of reports, it's time please. My question is related to the regulatory framework. It's hard to us to understand that we have a very few changes on the regulatory framework and put this together. There's the government speech of decreasing tariffs by 10 to 15%.

Unknown Executive: If you have a similar copy, similar dispensary rate and tariffs decreasing by 10 to 15%. Can we assume that will be harder from now on to get maximum tariffs? It will be running close to 9% or something else. Thank you. So, yes, as you mentioned, there are little modifications to the tariffs. I think the main change is that you have clarity and takes away some subjectivity before the previous basis. And with respect to reaching maximum tariffs, I think it's going to be in the case of our existing MVP cycle, which is in 2025.

Unknown Executive: We probably are going to be around 97% for this year and perhaps the similar percentage of the following years. And for the next tariff review, I mean based on the traffic sector, obviously our goal would be to reach the 100% level in the following or in our tariff review. Thank you. Thank you very much.

Bruno Marino: Our next question comes from the line of Bruno Marino with Goldman Sachs. Please revenues and if you expect no changes to your tariffs in the MDP as a result of the ongoing discussions, this means that you are going to go forward, run below the maximum tariffs. So that's for the first question. And the second question is actually, you know, I like to have your help to better understand the big picture around the new set of rules for the MDP, you know, we are talking about higher concession fee, which as you have argued, you know, argues for, you know, higher tariffs, all else equal, but at the same time, it seems that the agenda of the government is to lower tariffs, not to increase tariff.

Bruno Marino: So we're talking about higher concession fee, lower tariffs, you know, the expiry date of the contracts have not changed and it would be good. You have some confirmation from your side is you are not discussing to extend the concession on the CapEx as well, the feedback from your peers is that the CapEx plan for the MDP will likely not change as a result of the new regulation. So if you have the same expiry date, same CapEx.

Ruffo Castillo: If more concession fee, and you have, you know, lower tariffs in the next MDP, you know, how come the returns on the regulated part of the business will not be lower, you know, what are we missing here? Thank you very much.

Ruffo Castillo: Just to clarify, there's no no extension of the of the concession has has been discussed during during this during this conversation. It's certainly to say what will happen on the next negotiation. We're still two years away. Obviously, the concession tax will get factor into the to the reference value, there will be many variables that will be moving from now to the 26 negotiation. And this concession factor will be just one of them as many variables are moving for the next year maximum tariff compliance.

Ruffo Castillo: We're looking to it's it's difficult to assess what will be the percentage compliance giving that this to this counts could have some impact on traffic as well before you want to add something. Well, and then as in preparation for for the next MDP cycle, obviously, we'll have to look into how to be more efficient and how to make our investments and to extract the most value out of the infrastructure that currently in place to maximize the utilization before increasing the size of the terminals for investing in additional infrastructure. So that's something that will be working closely in the next couple of years as well.

Ruffo Castillo: Thank you, and if I may just one follow-up question on the potential impacts from the growling of aircraft results as a result of the issue with the engines from Pratt and Leedney. Even though you mentioned you are not ready to provide a forecast for traffic next year, are we talking about negative traffic variation or can traffic issue grow next year, you know, directionally, you know, what do you think, you know, can happen, given the extent of the exposure of the two main locals carries in the country, you know, any guideline you could provide at this point in time?

Ruffo Castillo: As you said, it's difficult to assess right now what will be the impact with the Pratt and Leedney engine issue, but what I can tell you is we are expecting some small growth in the aerosidol of the business for next year. Thank you.

Juan Mercado: Our next question comes from the line of Juan Mercado with GBM. Please receive your question. Thanks for taking my question and I can work on the results.

Ruffo Castillo: My question is regarding the change in the end of this rate of return calculation from my focus on equity returns towards what kind of calculation. Do you expect to change your temperature of the structure given this change? Are you evaluating this or are you comfortable with the current structure? We're still evaluating. We believe in the case of all the impact of changing from return and equity to the work, it will be relatively small, giving that our amount of leverage as the moment is currently slow. It's currently low, so I believe we would expect to remain most in line with what you have seen in the last couple of years. Right.

Unknown Executive: Thank you.

Jay Singh: Our next question comes from the line of Jay Singh with city. Please receive your question. Thanks for asking my answering my question.

Unknown Executive: My first one is would Omer ever consider investing in airports outside of Mexico? We're always open to understanding to looking at opportunities. We don't have at the moment any concrete transaction in the five then we're always opening to for opportunities outside. Okay.

Unknown Executive: And as a follow up, decide the confession to be hike until the end of 2025. Do you guys see any other regulatory changes coming in? We don't expect with hard to say, but we don't expect any more changes from our conversations with the government, both from the Treasury and the communication and transportation. They have mentioned that this has been the end of this modifications in the regulatory process. All right.

Unknown Executive: Thanks so much.

Edson McGuria: Our next question comes from the line of Edson, McGuria with sumacapital. Please receive your question. Hi. Good afternoon. Thank you for taking my question. I have the only one related to cost of services. They squatter in price at 22%.

Ruffo Castillo: So could you do a little bit more follow that would happen specifically? Thank you. So, most of the increase is raised to maintenance and utility suspense. And we have increased areas in an expanded year, the terminals in the last year or so and with increase of volume of passengers. We have seen a greater growth in maintenance. Sometimes there is some timing issues. But, I mean, the accumulated expense for the nine months is reflective of the full, I mean, if you analyze it would be reflective of the full year cost of migrants. Okay. Thank you so much.

Gabriel Mustri: Our next question comes from the line of Gabriel. I'm not far with Scotia Bank. Please proceed with your question. Gabriel, your line is live. Sorry, can you hear me now? Yes. Hi, thank you for the call. Just a quick follow up question. Considering that the 10% decrease on two, the increase on the concession fee and the change on the methodology for the discount rate will be somehow offset or compared for the next MVP.

Gabriel Mustri: And also the concession fee is my understanding. It also considers the non-regulated portion of the business. How will this portion or this impact will be offset? This is not the buy tariff. Thank you. And also if you can clarify again, the capex. The capex movements for the next two years that will be resulting from this amendment on this regulatory changes. Thanks. So in the next review, certainly the increase in the concession tax and the rate of 9% will be incorporated into the calculation.

Gabriel Mustri: Now, the discount of the 10% two is something that only affects this period. So it will not be part of the variables to be used in the negotiation of the next tariff, maximum tariff in 2026. Now, with respect to the capex referral in the aggregate, this is 1.2 billion pesos. So, so. That's cute. Yeah, as September 2023 purchasing power. And that's around 890 million for 2024. And the remainder around 400 million for 2025, which represents roughly 25% of the regional capex commitment in 2034 and 13% in 2025.

Gabriel Mustri: So, that's one of the business and how can will you be able to offset it only through increasing tariffs for the next and the peers there any other leeway you can, you can negotiate there. So, this hasn't changed from the previous basis. The formula for operational cost to determine the maximum power is just incorporates expenses related to the regulated side of the business. So, yes, commercial revenues would be subject to the increasing in the do act in the connection tax. And we will have to see how to adjust our rates to recover. For some of these increase, I think it has always been the case.

Gabriel Mustri: Okay, thank you very much.

Fernanda Recchia: Our next question comes in line with Fernanda Recchia with BTG Pactual. Please receive with your questions. Hello, thank you for taking my question. Just a follow-up to understand a little bit further to what this count. This 10% extraordinary discount. It was given just to avoid you to surpass the maximum amount of the rate, or it was to make the affairs more competitive. Just because you mentioned that you expect to reach 97% of maximum rate this year. So, at the end, you are just lowly.

Fernanda Recchia: Could you repeat the first part? Could you repeat the first part Fernanda? There was bad communication. Could we repeat it please? Yeah, no, sure. It just wanted to understand the rationale of the government to apply this 10% of extraordinary discount. Was it just because if you don't apply, you would probably surpass the maximum rate, or it is a measure to incentivize to lower air tariffs. This is the first one. And then I make my second one.

Fernanda Recchia: I think it was hard to speak on the rehab, but I think the rationale is trying to incentivize. All right. Now, because you mentioned that you expect to reach 97% of maximum rate. So, in the end, it's just a 3% discount on your regulated revenues, right? Is it correct to make this assessment? Yes, it will be slightly above 97%. The reason is this, for this year, it will only be two months, and that 97% accounts for the whole year.

Fernanda Recchia: All right. And second, still on this topic, we know that this is a nearly discount. Could you give us a sense of how much discount did you apply last year just for a reference for us to see if this 10% is available? Yes, I would like to ask you to give us a brief outline with historical average. We, we, we, from time to time entering to agreements for new route openings and other strategies with airlines, but we haven't had journal discounts such as these for many years. Okay.

Unknown Executive: Thank you.

Unknown Executive: Our next question comes from the line of Alan Macias with Thank You America. Please proceed with your question. Hi, good morning and thank you for the call. I just have, I guess, two questions on one clarification. The tool represents what percentage of a reanalytical revenue. And the second question would be on the expected higher caps for the Acapulco Airport. And would that be incorporated into the new master development program? Or before?

Unknown Executive: Thank you. On the second part, we've been in very close coordination with the government for Acapulco. We still don't know the size of the damage. We know that the core part for operating the airport, it's okay. Obviously, terminal has suffered some damages. On our last conversation with the government, it's they are very open to work closely to how can we authorize that the impact from from the hurricane in our graphics.

Unknown Executive: And for the for the two, it represents 89% of our aeronautical revenues. And just one more question on the engine recall impact. Any impact you have seen as of October during October? Thank you. Yeah, we have seen that the scale seats in databases such as OIG have been training down over the last month or so. So yeah, we do believe that what it's reflected right now in the system is already incorporating what's known of the report of Brown Whitney engines, at least for the winter season.

Unknown Executive: We also we know that the airlines are taking a lot of measures to try to offset this impact. We know they're trying to extend these is trying to extend the life of some of their other aircraft. So let it's it's in the next couple in the next two months, we will have more clarity will be the real impact next year. Thank you.

Bruno Marino: Our next question is a follow up question from the line of Bruno Marina with Goldman Sachs, please proceed with your question. Yes, I just wanted to clarify one specific point. You know, what leverage or what that specifically will be considered for the calculation of the cost of capital that at the moment of the end of the discussion, is it a size of your average. And also, you know, to the extent that you might have corporate debt or, you know, in the event that you invest abroad and you have that attached to it, you know, will they look just at the debt at the asset level in Mexico or will they look at Alma as a whole.

Ruffo Castillo: Thank you very much. I think in the basis that we publish there are some some debts to capital ratio that are averages that includes other airports groups as well. And it's only that results to assets in Mexico and it excludes that is not funding operations in Mexico.

Unknown Executive: There are no further questions in the queue.

Unknown Executive: I'd like to hand the call back to management for closing remarks. Thank you all for participating today. Ruffo Manuela and I are always available to answer your questions and we hope to see you soon. Thank you and have a good day.

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