Grupo Aeroportuario del Pacífico Q1 2024 Earnings Call Transcript

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April 24, 2024

There are 13 speakers on the call.

Operator

Good morning, and welcome to Gap's Conference Call. All lines have been placed on mute to prevent any background noise. After the presentation, we will open the floor for questions. It is now my pleasure to turn the conference over to Gap's Investor Relations team. Please go ahead.

Speaker 1

Thank you, and welcome to the Q1 2024 conference call for Grupo Aroportoario del Pacifico. Presenting from the company today, we welcome Mr. Raul de Hueltancas, Chief Executive Officer and Mr. Saul De Jerez, Chief Financial Officer. Please be advised that forward looking statements may be made during this conference call.

Speaker 1

These do not account for future economic circumstances, industry conditions, the company's future performance or financial results. As such, statements made are based on several assumptions and factors that could cause actual results to materially differ from the current expectations. For a complete note on forward looking statements, please refer to the quarterly report issued earlier this week. At this point, I'd like to turn the call over to Mr. Raulca for his opening remarks.

Speaker 1

Please begin, sir.

Speaker 2

Thank you, and good morning. As always, it is a pleasure to be reviewing another quarter with you. We appreciate your taking the time to join us today. I'm going to briefly review operational and financial figures before taking your questions. During this quarter, the total number of passengers reached nearly 16,000,000, which was almost flat compared to the 1st Q 2023.

Speaker 2

As many of you are aware, we have experienced a slight deceleration in passenger traffic since the Q4 of 2020 due to the preventive inspections of the Pratt and Whitney engines. These inspections will continue throughout 2024. As of today, Volaris, the airline that handles most of our parts in the strategy, has the highest number of grounded aircraft. As 2024 progresses, we will continue to monitor the availability of seats and passenger traffic trends in order to keep the market updated of any changes. Despite the slowdown of the domestic market, the international market has been growing in double digit.

Speaker 2

As we look ahead to the rest of the year, we will expand our markets beyond the U. S. And Canada with the new routes to Europe and Asia. As of today, we expect to initiate at least 11 new international routes during 2024, 9 of them to North America and 2 of them to Europe, which include Sanford to Los Cabos and Prague to Puerto Vallarta. Moving on to financial performance.

Speaker 2

On the top line, total revenue remained almost flat compared to the 1st Q 'twenty 3. Aeronautical revenues decreased by 1.3%, mainly due to this cost of passenger charges that are in place at 9 of the 12 vessels in Mexico. As a result, we reached 97% of the maximum tariffs approved, while in the Q1 of 'twenty three, it was 99% of the maximum tariffs. Despite this, Nylon Arctic 15.2% increase to reach MXN 1,700,000,000. For the first time in the history of the company, we have reached MXN 109 per passenger.

Speaker 2

As we have previously discussed, we renovated several of the tenant contracts, which resulted in more than positive financial conditions for the company. The main revenue generated for commercial revenues was the additional capacity at the airport with expansion in terms of square meters. This includes the new terrace with a huge food and beverage area in Guadalajara, which is surrounded by a top restaurant and offers stunning view of the runway. Those of you who attended the Gap Day have the opportunity to walk through this new area. There are several other strategy of the commercial side that are being worked in addition to large sale areas.

Speaker 2

This includes new business lines such as the mixed use building, which can also be found in the Guadalajara airport with the opening of a new hotel in March of 2044. On the expenses side, this increases by 10.3% compared to the 1st Q 'twenty three. While we remain focused on the maintenance fleet cost control, the current changes in labor load affected all major cost lines. The salary costs have been greatly impacted as well as other major personnel contracts such as cleaning, security and maintenance. Down the line, we do expect higher costs that correlate with the air side and terminal expansion in addition to an inflationary effect.

Speaker 2

Regarding the concession fee in Mexico, which is the amount that concession holders such as GAP must pay for the use of federal airports, you may remember that in January, these fees increased from 5% to 9%. In accordance with the new rules for tariff regulation, the payment made over those included in the last tariff review will be added to the reference value during the next review of the maximum tariff. However, this only applies for the regulated revenues. In line with D, the 4% difference paid over the Aeronautical revenue in the Q1 'twenty four was recognized as an intangible asset under the IAS 38 and will begin its amortization in January 2025 and will continue all to the end of the concession period. The amount recognized as intangible assets in the airport concession during the Q1 of 'twenty four was ARS 175 500,000.

Speaker 2

On the other hand, the 4% additional payment over the nonrecurring revenue was recognized as an expense. As a result, EBITDA reached ARS 4,600,000,000 with an EBITDA margin of 69.8%. This deferred from our guidance release in January, mainly due to the recognition of the intangible assets I just mentioned. On the debt front, total debt reached ARS 4,500,000,000 during the Q1 of 'twenty four. In March, we issued another 2 tranche of labeled debt bonds of the Mexican market for a total ARS 3,000,000,000.

Speaker 2

The proceeds were used to pay down the GAAP-nineteen bond maturity match for the same issue a month. These were on the 5th and 6th label funds that are sustainability linked and direct towards reducing carbon emission, thus further demonstration our commitment to enhancing sustainability and at the company. We look forward to continue to update the market of these initiatives, and we will continue integrating this philosophy into our operations and projects. Following with these figures, we continue to maintain healthy leverage levels, reaching a net debt to EBITDA ratio of 1.7x for a trailing 12 months, thus complying with all our debt covenants. Moving on to the CapEx.

Speaker 2

During the quarter, CapEx excludes capital expenditure reaching approximately MXN 1,400,000,000. This position us well to comply with the challenging master development program that is in place. Before I conclude, I want to mention that our extraordinary and extraordinary shareholders meeting will take place tomorrow, and we will be proposing a capital reduction of ARS 13.86 per outstanding share. I would like to express my gratitude to all who attended our GAP Day at Guadalajara airport on April 10. It was a great event where we are able to tour the newly expanded commercial passengers area, the airport fire station and even stay at the new Hilton Garden Inn Hotel that is just steps away from the main entrance of the airport.

Speaker 2

I hope that all who were able to join us left with a sense of all the hard work and commitment we have for our markets and for the growth of our company. With that, I would like to open the floor for all questions.

Operator

We'll take our first question from Rodolfo Ramos with Bradesco BBI. Please go ahead.

Speaker 3

Good morning, everybody. Thank you for taking my questions and congratulations on the results. One question on my side and it's a 2 part question. And just wanted to get a sense of how your MDP negotiations are going through, are coming along with the authorities. If you can comment on the tariff side and also on the CapEx side.

Speaker 3

And on the CapEx side, just want to understand, I mean, you

Speaker 4

have airports that are well above

Speaker 3

the 10,000,000 passenger threshold per year. You also have cabo that is close to 10,000,000. So just wanted to see it seems like the new name of the game is the CapEx side. We saw that in Azuris MDP. So just wanted to get a sense of what your CapEx needs could be going forward, if you see any major projects at these main three airports that could help you out in this negotiation?

Speaker 3

So that will be my question. Thank you.

Speaker 2

Thank you, Rodolfo, Francisco. As we have talked, I mean, we are still working with authorities. We have, I mean, present the first draft of our master plan, and we are just in the process of the visits with the authority or the physical visits of all the airports and review of all the different investments that we are proposing to the authority. As we have said in the last conference calls, we are expecting an increase of the maximum tariff around 5% to 0% to 5%. But what is important we have in mind is, I mean, we could not assure completely which going to be the result.

Speaker 2

We need to see how the mainly the discount rate will change in the coming months. And after that, we could have the number. As you remember, in terms of the airport low, the AL30 has until last day of the year, December 31, to have an authorization. We are working with them trying to make us as fast as possible this authorization, and we are working just on that. In terms of the CapEx that we are expecting, we are maintaining the same level of investment per passenger that we have in the last or in this period of master plan, that is around MXN 110 per passenger.

Speaker 2

We are expecting to have the same level of investment per passenger. To have in mind, some of the airports that should need some additional spaces or additional terminals or big investments or in some way for us and the increase of passengers will be Tijuana. For sure, in Guadalajara, we are proposing to the authority a completely new brand terminal, the Terminal 2 for the airport. For the case of Cabos, we also know that we need to expand our terminal building on the 2nd terminal building, the international terminal building and the terminal 1, that is the domestic terminal building in Cabo. And for the case of Vallarta, as you know, on this master plan, we are developing the 2nd terminal of Puerto Vallarta.

Speaker 2

We will continue the expansion of that on part of the coming year, but will not be included as an additional investment for the new master plan. So in general terms of concluding, the biggest investment that we will see on our bigger airports will be expansion on Terminal Tijuana, a new terminal in Guadalajara and expansions on Terminal 211 on Oskars. For sure, for other airports, we'll have some expansions, but the main expansions, talking about terminal buildings, will be on those airports.

Speaker 3

Perfect. Thank you, Robert. And just a follow-up on that. And you mentioned that they have authorities have until the last day of this year. So I'm assuming that you will be concluding your negotiations with the next administration.

Speaker 3

Is that correct?

Speaker 2

We at the moment, Rodolfo, we could not assure it's going to be with this administration or the COVID administration. We are working on all the, I mean, technical approach of the master plan. Just think for a second that a master plan is document that for the case of GAAP will be around, I don't know, 2,000 pages that with a lot of blueprints and a lot of technical work. So for sure, we are working today with the technicians of the fact. And at the end of the day, we will try to close this negotiation as soon as possible.

Speaker 2

But today, I could not assure it's going to be with this administration or the coming administration. What for sure is in the table that we are working or have all the technical approach and studies for the capacity and the new investments on the master plan, and we will have it in the table of territory. And we will expect the correct timing for the authorization.

Operator

And we will move next with Stephen Trent with Citi. Please go ahead.

Speaker 4

Good morning, everybody, and thanks for taking my questions. The first, if you could excuse me, I'm sorry, if you could give us some indication on the Jamaican airports and the timing of the regulatory reviews? And what chance do you see that maybe authorities could possibly extend those concessions when the review is done?

Speaker 5

Steve, this is Saul. Thank you for your questions. We are being worked very well with the authorities. Indeed, in the gap day, we had the Minister of the Transportation in Jamaica. And the communication, the relationship is very good.

Speaker 5

We have been working and we have a final proposal. However, we haven't achieved the final document signed to be applied. So we have a good news, but we cannot disclose yet because it's not possible because we don't have the official document from the authorities of Jamaica. But we feel very comfortable with both results in the negotiations for both airports. So we are fine for now, but we cannot disclose yet the result of the negotiation.

Speaker 4

Okay. I appreciate the color, Saul. Thank you. And just a follow-up with something you mentioned in the prepared remarks. I believe you mentioned 9 new routes to North America and 2 new routes to Europe, if I'm not mistaken.

Speaker 4

And just wondered if I got that right and 2, what potential you might see for new Asian routes?

Speaker 2

Yes. Hi, Steve. This is Raul. I mean, the tail of Asia, what we are expecting for the end of the year is the operation of we are not sure today if it's going to be 2 or going to be 1 destinations to China from Tijuana. We're really close to have some announcement, but what we are expecting for the end of the year is at least one direct flight from China to Tijuana.

Speaker 4

Okay, perfect. Thanks, Raul. Appreciate that.

Operator

Thank you. And we will move next with Guillermo Mendez with JPMorgan. Please go ahead.

Speaker 6

Thank you and good morning, Raul, Saul and Alejandra. Thanks for taking my question. My first question is on the guidance. You mentioned at the beginning about the effect of the of how the concession fee was accounted. So clear there was some upside on the EBITDA margin reported on the Q1.

Speaker 6

But just wondering if you see some kind of upside for your full year guidance, if you should expect any kind of changes from here? And the second question is regarding the bidding process for the Turks and Caicos airport. You mentioned the Q4 earnings that you were to participate on the process. Just wonder if there's any kind of updates on this. Thank you very much.

Speaker 5

Hi, Guilherme. This is Saul. For your first question, we have, as you said, we have to revise our guidance, But we have we want to wait for a new idea of the project we need in teams review and be monitoring the traffic trend in the following months. We expect if we have more visibility of the until the end of the year, we will release a new guidance, but we want to wait until the Q2 in order to update it. Regarding Tuticas, we haven't we don't have any advance yet.

Speaker 5

We don't have any update from the authorities. We are very attending any kind of meetings with the government that we have any other advantages, but we released that we were selected as a bidder.

Operator

We will move next with Alejandro Fuchs with Itau Group. Please go ahead.

Speaker 7

Yes. Hello, Ruiz, Saul, Alejandro and team. Thank you for the space for question and congratulations on the results. Very quickly, two ones from my side. The first one is on Aeronautical revenue.

Speaker 7

They were flat year over year as Raul was mentioning. Even though you mentioned that the Tua was still down for 9 airports. So wanted to get a sense on how the Aeraltico revenue is flat year over year with flat passengers also performance with the lower 2. Is it that you're charging maybe a higher percentage of the maximum tariffs? Maybe you wanted to understand that correctly?

Speaker 7

And then I have a follow-up. Thank you.

Speaker 5

Hi, Alex. Well, regarding the TUWA, we already applied the discounts. As we mentioned, we are applying for 9 airports the 6% discount over the TUWA. We have different factors as inflation and exchange rate in order to fulfill the maximum tariff. What we are expecting until the end of the year to be close to 97%, 98% of the maximum tariff.

Speaker 5

We are expecting acceleration or appreciation of the exchange rate. And if that happens, it will be benefit for the fulfillment of their maximum tariff. We have another issue regarding the international passenger traffic, which is in U. S. Dollar is higher tariffs that provides a higher amount and more possibility to reach the 100% of the maximum tariff.

Speaker 5

But for now, our best approach is 97% at the end of the year.

Speaker 7

Thank you. That was very clear, Saul. And maybe just a quick follow-up. I wanted to see if I got this very clear, but on the concession tax, the MXN750 1,000,000 that you paid this quarter. I wanted to make sure that this includes the 4% increase even though this is going as an intangible asset as well.

Speaker 7

So we did see this through the P and L and it's included in the EBITDA. I got caught up a little bit on what Raul was explaining. So maybe you could reexplain for me that would be very helpful. Thank you.

Speaker 5

Yes, Alex. The concession tax is mandatory to be paid to the government. It pays every 2 months. So we repaid the 1st 2 months of the year, but we have to make a provision of the for March. So what is in the financial statement in the income statement is only the concession tax at 9% for the non aeronautical revenues and 5% for the aeronautical revenues.

Speaker 5

The difference is recognized as a concession asset, as an intangible asset, as I will explain. And as we disclosed in the press release, it was recognized according to the international standards. So we will be the amortization of these assets during the period of the concession. So just to be clear, it is cash flow for the 9% full, but the recognition in the income statement is 9% for the non aeronautical and 5% for the aeronautical just for 2024. In 2025, everything will be at 9%.

Speaker 7

Thank you very much for your time. Thank you.

Operator

Thank you. And we will move next with Pablo Montivas with Barclays. Please go ahead.

Speaker 8

Hi, thanks for taking my question. Just a quick one on the cost side. You have mentioned that the labor law is impacting your costs and that has been the case for this year. Do you see any extra pressures or headcount increase that could put pressure on your cost side further on the year? Thank you.

Speaker 2

[SPEAKER MARTIN PEREZ DE SOLAY:] Hi, Pablo.

Speaker 5

Just for the operation of the hotel, as you know in the Gap Day, we have another business unit and we need the headcount for the full operation. Obviously, the pressure on the labor of the labor lot is clear, not only in Mexican airports. For Jamaican airports, we have an increase significant increase for the minimum wages around 40%. It's not relevant because the participation of the Jamaican Airport in the total EBITDA, but it's at the end is relevant for the cost expense increase. But we want to be clear that the idea and that we will follow as a company, as management is to maintain the cost control.

Speaker 5

We are not going to hire additional headcount just for hotel. And in case we open additional business lines or more units, we will add additional headcount. If not, we are not going to hire additional headcount.

Speaker 8

Perfect. Great. Thank you very much.

Operator

Thank you. We will move next with Gabriel Schemalpour with Scotiabank. Please go ahead. Gabriel Himmelfarb with Scotiabank. Your line is open.

Speaker 9

Hi, good morning. Thanks for the call. Just a bit of an update about the issue of the problem with to the engine failures, the engine maintenance. We saw about the Volaris that yesterday said that most of the peak of the capacity will be on the 3rd and the 4th quarter. So do you see that this could affect the passenger traffic for the last two quarters of this year?

Speaker 2

Thank you, Gabriel. This is Raul. I mean, when we present our original guidance, we consider the around 300 days for the period of maintenance of each one of the grounded planes. As you mentioned, Volaris just said on the conference yesterday that they are expecting the worst part of this peak on decrease on capacity for the 3rd and 4th quarter, we're in the same page. Our guidance expects that the worst part of this supply crisis will happen on summer.

Speaker 2

And after that, I will say that gradually, mainly in November December, we will begin to see some of the comeback of the first plane that were granted on September of the last year. So I will say that in general terms, we stay in the same number that we originally presented in our guidance. And in that moment, we consider that, that part that the worst part of the decrease of ground displays will be on the 3rd and part of the 4th

Speaker 9

quarter. Okay. And do you think that this supply shock could be somehow can be used for the next MDP for the passengers like compensated if the passenger decrease for the next

Speaker 2

15? The point here Gabriel is that in general terms, as we have mentioned, this is a supply side crisis. So as soon as the fleet recover and fly again, we will have a recovery like in hockey stick because of demand still there. So this is not something that will not change the trends on the long term. I mean, in that point, we are not considering to change our need for CapEx of our expected our forecasting for the long term in terms of passengers in our airports.

Speaker 2

So what we are saying is we have picked we expect a recovery during 2025 of the traffic. And for the long term and the midterm, the increase on traffic will be really we are optimistic that gold will be strong. And in that way, our master plan reflects the needs of that demand on the new capacity that we are expected to deploy in our airports.

Speaker 9

Okay. Thank you very

Operator

much. Thank you. Our next question comes from Antoine Mardencogorg with GBM.

Speaker 10

I'm looking to understand if the increase in non idle per packs was driven by the improvements in the commercial areas of your airports or maybe if you had some relationships to real estate investments. So I was wondering if this quarter's non revenues had some contribution from the facilities and the hotel, thinking maybe some advanced payments from the mall or something similar?

Speaker 5

Hi, Anton. This is Saul. Well, the increase of revenues per passenger, I think you're referring for aeronautical and non aeronautical, which indeed is around 2%. It is basically because the increase in the non aero. You are right, it's part of the new revenues, the new contracts, the terrace in the Guadalajara, the new commercial retail and food and beverage area that was often The hotel was open in the around March 26, so it's not relevant in the figures.

Speaker 5

That is it is the new areas in retail, the renovation of the contract, the renewal of contracts, also the opening on some commercial retail in Montego Bay. So at the end, the commercial revenue showed an extraordinary increase in this quarter, around 15%. But the passenger, it was around 2% in total for non aeronautical and aeronautical revenues. We are talking about aeronautical revenues. We had a decrease of around 1.5%.

Speaker 5

So it is because, as we mentioned, the discounts into the 2 of us for passing charges in 9 of our Mexican airports.

Operator

Thank you. Our next question comes from Andressa Ferrota with UBS. Please go ahead.

Speaker 11

Hi, good morning, Haofol. Thank you for taking my question. I just have a follow-up here on the non aeronautical side. You mentioned both all the new projects that the company has been working for in the last few years and also the renegotiation of contracts with tenants. So I just wanted to know if you could break down how much each of these factors are contributing today for the aeronautical side and what is your expectation going forward about the contribution of these two factors?

Speaker 11

Thank you very much.

Speaker 2

Thank you, Ernesto. This is Raul. I mean, in general terms, the non aeronautical revenues was growing on the quarter mainly for the expansion of some areas in our terminals was related with our food and beverage in Guadalajara and some special areas or additional areas of retailers in Guadalajara. But in general terms, I will say that in this quarter, what we have seen is an increase in some business lines as could be the food and beverage because in the last year, we were negotiating contracts, for instance, in Los Cabos, in Guadalajara, in Cabo and in Tijuana. So what we are seeing right now is the reflect of some new conditions, mainly in food and beverage, in retail.

Speaker 2

But also, we have seen the effect, an interesting effect of the revenues that comes from the business directly operated by Gap as could be the parking lots that increase even without flat environment of passengers. That is important to say because one of the revenues that are more or have a direct correlation with the number of passengers are the parking lots. So through a new tariff strategy, we obtained positive numbers on the parking lots even with a flat number of passengers in terms of top up passengers in their part. So what is coming? For sure, with new conditions on some of our biggest contracts.

Speaker 2

What we are expecting as soon as the traffic recovers on the coming years will be a robust increase in terms of revenues because as soon as the consumption of the passengers arrives, we already have the correct layouts, the correct contracts and the correct brands to bring the best possible results to the company. So for sure, on the 25, for instance, as soon as we have the traffic coming back to the airports, we will have or we will continue with that robust growth. But for the 24th, as we mentioned on our guidance, we are expecting to increase the new ARO revenues from 12% to 14%. And we are we think that we are aligned with that original guidance.

Speaker 11

Perfect. Thank you very much. And if you just could provide an update on the operation of the hotel and the commercial space that you're doing Guadalajara? Sorry. So I just wanted to have to know if the hotel and the commercial space are already operating and at which stage?

Speaker 11

Thank you.

Speaker 2

Yes. We just began the operations on the last, we call, of March. So we are just working on some of the new areas of Guadalajara, mainly all the hotels. We will begin to recognize the revenues coming from the hotel in just in the Q2 of the year On what is, we call, the mixed use building, we expect that for the Q3 of the year, we will begin to recognition of revenue related with new tenants of the office building. And also on the 3rd quarter, we will have full recognition of revenue related to the new food and beverage Methanine area on the building on the mixed use building.

Speaker 11

Perfect. Thank you very much. Have a good day.

Operator

Thank you. We will now take the webcast questions. I will turn the call over to management.

Speaker 12

Thank you. We have one question from Bernardo Malpica from Santander. The increase in international passenger compensated for the fall in domestic passengers. Did you see any top line benefit coming from this change in mix?

Speaker 2

Yes, Bernardo. I mean, in general terms, the change of the mix when we talk about aero revenues brings us additional, I would say, tariffs, for instance, the 2 items related to dollars. But in general terms, I would say that depends on all exchange rate. But in general, terms, I will be that it's positive, the change on the mix because also the no idle business, you could get some consumptions on the beauty free, for instance, that in case of the domestic traffic, you could not have it. So I will say that in general terms, it's positive, and it could have some additional benefit for the top line.

Speaker 12

Thank you, Raul. And the last one is from Arelli Villeda from INVEX. I would like to understand the amendment over the legislation related to the concession rights. If the government recognized a double charge, how this would affect you?

Speaker 5

Hi, Aurelie. This is Saul. At the beginning, when the amendment and the or the change to the 5% to 9%, there was a confusion. But again, it was clarified in the legislation. So we do not expect any double charge.

Speaker 5

There is any possibility to have a double charge.

Speaker 12

Thank you. So and those are the only questions that we have. We have other ones that are already answered with the Q and A. So thank you.

Speaker 5

Thank you.

Operator

Thank you. And we show no further questions over the phone at this time. I will turn the call back to Mr. Revolta for closing remarks.

Speaker 2

Thank you once again for joining us today for our Q1 results conference. Our team is available to address any questions you may have. Have a great day. Thank you.

Operator

And this does conclude today's program. Thank you for your participation. You may disconnect at any time.

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Grupo Aeroportuario del Pacífico Q1 2024
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