PAC

Pacific Airport Group (GAP) - Q2 2020 Financial Summary

Business Context and Reporting Period

This Form 6-K filing covers the consolidated unaudited results for the second quarter ended June 30, 2020 (2Q20), and the first six months of 2020 (6M20). The Company operates 14 airports across Mexico and Jamaica. The reporting period was significantly impacted by the COVID-19 pandemic, resulting in severe restrictions on passenger traffic, particularly in international travel and tourist destinations.

Key Financial Metrics

Operational Metrics (2Q20 vs 2Q19):

• Total Terminal Passengers: Decreased 86.4% (12.2M to 1.7M).
• Domestic Passengers: Decreased 82.7%.
• International Passengers: Decreased 91.5%.
• Cargo Volume (WLUs): Decreased 14.4%.

Material Changes vs. Prior Period

The Company reported a significant contraction in core operating revenues due to the pandemic. Aeronautical services revenue fell 78.6% and non-aeronautical revenue fell 65.4%. However, "Revenues from improvements to concession assets" (IFRIC 12) increased 391.6% to Ps. 601.5 million. This accounting recognition, driven by the start of the 2020-2024 Master Development Program, does not have a cash impact but inflated total revenue figures and margins when included.

Excluding IFRIC 12 effects, the EBITDA margin collapsed from 68.8% in 2Q19 to 15.6% in 2Q20. Operating costs decreased 8.8% in absolute terms due to cost-cutting measures (closing operating areas, freezing hiring), but total operating costs rose 12.0% when including the non-cash IFRIC 12 costs.

Despite negative operating cash flow in 2Q20 (Ps. 947.0 million used), the Company strengthened its liquidity position. Cash and cash equivalents increased by Ps. 5.5 billion year-over-year, reaching Ps. 15.7 billion. This was achieved through the issuance of Ps. 4.2 billion in long-term bond certificates and drawing down Ps. 2.0 billion in credit lines.

Outlook, Risks, and Management Commentary

Management Actions: The Company implemented strict security protocols, granted discounts and payment deferrals to airlines and commercial clients, and reduced operating expenses by closing underutilized areas. Management states that despite the decline, the Company generated positive EBITDA and maintained a solid financial position.

Outlook and Risks: Management explicitly states it cannot estimate the duration or containment of the pandemic's impact on short, medium, or long-term results. Recovery depends on government actions in Mexico, Jamaica, and the U.S. Risks include the potential for further deterioration in assets, inability to secure financing, and worsening credit conditions. The Company does not foresee business interruption or airport closures at this time.

Recent Events: On June 25, 2020, the Company successfully issued Ps. 4.2 billion in long-term bond certificates. Additionally, Aeromexico, representing 10% of passenger traffic, initiated a voluntary Chapter 11 restructuring process; however, Aeromexico currently has no past-due debts.

Investor Verification Checklist

• IFRIC 12 Impact: Verify the distinction between cash-generating revenues and non-cash "improvements to concession assets" revenue, which significantly alters margin calculations.
• Liquidity vs. Cash Flow: Confirm the sustainability of the cash position given the negative operating cash flow in 2Q20 and reliance on debt issuance (bonds and credit lines) to fund operations and capex.
• Aeromexico Exposure: Monitor the impact of Aeromexico's Chapter 11 restructuring on future passenger volumes and receivables, given its 10% traffic share.
• Debt Covenants: Review the specific terms of the new Ps. 4.2 billion bond issuance and existing credit lines to ensure compliance with covenants under continued low-traffic scenarios.
• Cost Structure: Assess the flexibility of the cost base; while variable costs were reduced, fixed costs like depreciation and amortization increased 18.6% in 2Q20.