OMAB

Business Context and Reporting Period

Company: Central North Airport Group (Grupo Aeroportuario del Centro Norte, S.A.B. de C.V., or OMA)
Filing Type: Form 6-K (Second Quarter 2010 Earnings Report)
Reporting Period: Second Quarter ended June 30, 2010 (2Q10)
Business Overview: OMA operates 13 international airports in central and northern Mexico, including Monterrey, and manages the NH Terminal 2 Hotel at Mexico City International Airport. The company is listed on the NASDAQ (OMAB) and the Mexican Stock Exchange (OMA).

Key Financial Metrics (2Q10)

Material Changes vs. Prior Period

• Traffic Recovery: Passenger traffic increased 6.5% to 2.9 million, reversing a seven-quarter decline trend. This recovery followed the H1N1 flu outbreak impact in 2Q09. International traffic grew 15.3%, while domestic traffic grew 5.1%.
• Cargo Surge: Air freight volumes jumped 42.0%, driven significantly by the operation of DHL's cargo hub in Monterrey. OMA Carga revenues increased 120.9%.
• Revenue Mix: Aeronautical revenues rose 16.4%, while non-aeronautical revenues surged 37.6%. The latter was led by the NH T2 Hotel, parking (+18.6%), and restaurants (+17.0%).
• Cost Structure: Total operating costs and GA expenses increased 11.2% to Ps. 219 million. Excluding the new NH T2 hotel costs, core operating costs rose only 2.3% due to higher electricity and cleaning expenses.
• Profitability: Operating income grew faster than revenues (44.0% vs. 20.5%), expanding the operating margin to 29.5%.

Outlook, Commentary, and Risks

• Management Commentary: Management highlighted the successful recovery of traffic volumes and the diversification of revenue streams through non-aeronautical services, particularly the NH T2 Hotel which reached a 59.3% occupancy rate in 2Q10.
• Capital Allocation: Capital expenditures of Ps. 111 million were funded partly by bank financing. Key investments included jetway installations in Monterrey, terminal expansions in Reynosa, and baggage claim construction in Zacatecas.
• Liquidity: Operating cash flow for the first six months of 2010 was Ps. 152.9 million. The company increased its long-term credit line to Ps. 700 million and secured an additional Ps. 200 million line in April 2010.
• Dividends: The company paid Ps. 199.3 million in dividends during the first half of 2010 (2008 results) and initiated the first installment of the 2009 dividend (Ps. 0.25 per share) on July 15, 2010.
• Risks and Contingencies: The filing includes standard forward-looking statement disclaimers regarding risks such as economic conditions, regulatory changes, and competition. Specific operational risks noted include traffic reductions in certain airports (Acapulco, Zihuatanejo, Torreón) due to airline suspensions or route reductions.

Investor Verification Checklist

• Traffic Sustainability: Verify if the 6.5% passenger growth and 42% cargo growth are sustainable trends or one-time recoveries from the H1N1 dip.
• Hotel Performance: Monitor the NH T2 Hotel's occupancy rates and contribution to non-aeronautical revenue, as it significantly impacts margins and cost structures.
• Debt Servicing: Review the impact of the increased debt load (Ps. 944.4 million) on future interest expenses and cash flow, given the rise in comprehensive financing expense.
• Regulatory Environment: Confirm compliance with the "Maximum Rate System" for aeronautical revenues and the impact of the 30% corporate income tax rate on future net income.
• Airline Partnerships: Assess the stability of traffic at key airports (Monterrey, Chihuahua, Zacatecas) which rely heavily on specific carriers like Grupo Mexicana, VivaAerobus, and Volaris.