Business Context and Reporting Period
Company: Central North Airport Group (Grupo Aeroportuario del Centro Norte, S.A.B. de C.V.)
Filing Type: Form 20-F Annual Report
Reporting Period: Fiscal year ended December 31, 2012
Accounting Standard: International Financial Reporting Standards (IFRS)
Reporting Currency: Mexican Pesos (Ps.)
The Company operates, maintains, and develops 13 airports in Mexico under 50-year concessions granted by the Mexican government. The portfolio includes one metropolitan airport (Monterrey), three tourist destinations (Acapulco, Mazatlán, Zihuatanejo), seven regional centers, and two border airports. The Company also operates a hotel in Terminal 2 of Mexico City International Airport.
Key Financial Metrics (Year Ended Dec 31, 2012)
| Metric | 2012 (Ps. Thousands) | 2012 (USD Thousands)* |
|---|---|---|
| Total Revenues | 3,141,338 | 244,272 |
| Operating Income | 1,160,174 | 90,214 |
| Consolidated Net Income | 819,088 | 63,692 |
| Operating Margin | 36.9% | N/A |
| Net Margin | 26.1% | N/A |
| Cash and Cash Equivalents | 1,152,433 | 89,614 |
| Total Assets | 10,010,410 | 778,414 |
| Total Liabilities | 3,594,459 | 279,507 |
| Shareholders' Equity | 6,415,956 | 498,907 |
| Net Cash Flow from Operating Activities | 1,260,413 | 98,009 |
| Capital Expenditures | 392,130 | 30,492 |
*USD amounts translated at Ps. 12.86 per U.S.$ 1.00 (Dec 31, 2012 rate).
Material Changes vs. Prior Period (2011)
- Revenue Growth: Total revenues increased 12.6% to Ps. 3.14 billion. Aeronautical revenues rose 13.9% driven by a 7.0% increase in terminal passengers (12.6 million in 2012 vs. 11.8 million in 2011). Non-aeronautical revenues grew 17.0%, aided by new baggage-screening services and hotel operations.
- Profitability: Operating income increased 26.2% to Ps. 1.16 billion. Net income rose 33.0% to Ps. 819 million, reversing a 6.6% decline in 2011. This improvement was driven by revenue growth outpacing operating cost increases (5.9%).
- Passenger Traffic: Domestic traffic increased 7.8%, while international traffic decreased 2.3%. Monterrey airport accounted for 48.5% of total terminal passengers.
- Cost Structure: Cost of services increased 9.2%, primarily due to higher maintenance, security, and insurance costs. Depreciation and amortization rose 13.2% due to asset improvements.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Recent Developments
- Debt Management: In early 2013, the Company prepaid significant short-term debt (approx. Ps. 745 million) and issued Ps. 1.5 billion in 10-year notes to fund investments and prepay existing debt.
- Regulatory Rates: Maximum rates for 2013 were increased to account for baggage-screening maintenance costs. The next major rate renegotiation with the Ministry of Communications and Transportation is scheduled for 2015 (covering 2016-2020).
- Expansion: Strategic initiatives include a solar park at Zacatecas airport (operational Oct 2012) and a strategic alliance to develop an industrial park at Monterrey airport.
Key Risks
- Regulatory Risk: Approximately 67.8% of total revenues are subject to price regulation. The Company cannot unilaterally change maximum rates, and future rate-setting in 2015 is uncertain.
- Concession Termination: Concessions can be revoked for violations (e.g., exceeding maximum rates, failure to invest). Revocation of one concession could lead to the termination of all others.
- Customer Concentration: Top three airline customers (Grupo Aeroméxico, VivaAerobus, Interjet) represented 64.8% of aeronautical revenues in 2012. Insolvency of a major carrier poses a risk.
- Security and Crime: High crime rates and security concerns in Mexico, particularly in states where the Company operates, may deter tourism and affect passenger traffic.
- Exchange Rate Volatility: While a weaker peso benefits peso-denominated results from dollar-denominated tariffs, it increases the peso value of foreign currency liabilities.
Unusual Items
- Baggage Screening: New revenues of Ps. 25.8 million were recognized in 2012 from the operation of checked-baggage screening systems, a service mandated by new regulations.
- Allowance for Doubtful Accounts: The Company recorded a provision of Ps. 145.9 million in 2010 related to Grupo Mexicana's bankruptcy. As of Dec 31, 2012, this amount remained outstanding with no recovery expected.
Investor Verification Checklist
- Regulatory Rate Renegotiation: Verify the timeline and potential impact of the 2015 maximum rate renegotiation for the 2016-2020 period.
- Airline Customer Health: Monitor the financial stability of Grupo Aeroméxico, VivaAerobus, and Interjet, which collectively generate nearly two-thirds of aeronautical revenue.
- Security Situation: Assess the impact of ongoing security warnings and crime rates in Nuevo León, Chihuahua, and other operational states on passenger traffic trends.
- Debt Covenants: Confirm compliance with debt-to-EBITDA covenants (currently required to be below 3.50:1 by controlling shareholder agreements) following recent debt issuances and prepayments.
- Construction Revenue Recognition: Review the methodology for recognizing construction service revenues under IFRIC 12, as these revenues are not dependent on passenger traffic but on capital expenditure levels.