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 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2006
Business Overview: OMA operates 13 airports in Mexico's central and northern regions under 50-year concessions. The portfolio includes major metropolitan hubs (Monterrey), tourist destinations (Acapulco, Mazatlán, Zihuatanejo), regional centers, and border cities. Approximately 81.3% of revenues are derived from regulated aeronautical services, while the remainder comes from non-regulated commercial activities.
Key Financial Metrics (Year Ended Dec 31, 2006)
| Metric | 2006 (Mexican FRS) | 2006 (U.S. GAAP) | 2005 (Mexican FRS) |
|---|---|---|---|
| Total Revenues | Ps. 1,626,182,000 | Ps. 1,626,182,000 | Ps. 1,426,264,000 |
| Income from Operations | Ps. 603,416,000 | Ps. 672,596,000 | Ps. 487,350,000 |
| Consolidated Net Income | Ps. 452,237,000 | Ps. 528,916,000 | Ps. 367,299,000 |
| EBITDA | Ps. 895,343,000 | N/A | Ps. 712,084,000 |
| Operating Margin | 37.1% | 41.4% | 34.2% |
| Cash and Cash Equivalents | Ps. 1,612,384,000 | Ps. 1,612,384,000 | Ps. 1,644,776,000 |
| Total Assets | Ps. 8,552,460,000 | Ps. 5,296,007,000 | Ps. 8,280,314,000 |
| Total Liabilities | Ps. 859,683,000 | Ps. 255,064,000 | Ps. 717,549,000 |
| Terminal Passengers | 11.78 million | N/A | 10.60 million |
Note: Financial data is presented in thousands of constant Mexican pesos as of December 31, 2006, unless otherwise noted. U.S. Dollar translations are provided at Ps. 10.80 = US$1.00.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 14.0% to Ps. 1.63 billion, driven by a 15.0% increase in aeronautical revenue and a 10.0% increase in non-aeronautical revenue.
- Traffic Volume: Terminal passengers increased 11.2% to 11.78 million, and total workload units (passengers + cargo) increased 10.4%.
- Profitability: Net income rose 23.1% to Ps. 452 million. Operating margin improved from 34.2% in 2005 to 37.1% in 2006.
- Cost Structure: Depreciation and amortization increased significantly by 28.2% to Ps. 281.5 million, primarily due to additional depreciation expense and improvements to concession assets. Technical assistance fees increased 23.8% to Ps. 47.7 million due to higher operating income.
- Financing Result: Net comprehensive financing income improved to Ps. 67.8 million (from Ps. 28.5 million in 2005), largely due to a shift from a foreign exchange loss to a gain and increased interest income.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Strategy
- Capital Expenditures: The company plans to fund operations and capital expenditures through cash flow from operations and debt. Committed investments for 2006-2010 total Ps. 2.07 billion, with a focus on terminals, runways, and baggage screening systems.
- Commercial Growth: Management aims to increase non-aeronautical revenue per passenger through expanded retail space, improved tenant mix, and the "OMA Plaza" brand.
- Share Repurchase: A share repurchase reserve of Ps. 400 million was approved in April 2007, with up to Ps. 100 million to be used in the 2007 fiscal year.
Risks and Contingencies
- Regulatory Risk: Approximately 81% of revenues are subject to price regulation (maximum rates) set by the Ministry of Communications and Transportation. Failure to comply with maximum rates or investment obligations could result in fines or concession termination.
- Customer Concentration: Major airlines (Aeroméxico, Mexicana, Aviacsa) accounted for significant portions of revenue. The suspension of carriers like Aerocalifornia and Azteca due to safety concerns poses operational risks.
- Concession Termination: Concessions can be revoked for various reasons, including failure to pay concession taxes or exceeding maximum rates. The government may also reacquire concessions for public interest.
- Legal Proceedings: Pending litigation regarding land ownership at Ciudad Juárez International Airport could potentially invalidate the concession for that specific airport, though the company expects indemnification from the government.
- Parent Company Debt: The parent company, Aeroinvest, refinanced credit facilities in June 2007. Covenants restrict OMA's ability to incur debt, sell assets, or change its dividend policy without waivers.
Key Facts for Investor Verification
- Accounting Standards: Verify the reconciliation between Mexican FRS and U.S. GAAP, particularly regarding the capitalization of concession assets (valued under Mexican FRS but not U.S. GAAP) and the treatment of inflation.
- Regulatory Compliance: Confirm that the company has not exceeded the maximum revenue rates per workload unit for any airport, which could trigger penalties or rate reductions.
- Parent Company Covenants: Review the specific covenants in Aeroinvest's refinancing agreements that restrict OMA's operational flexibility and dividend distribution.
- Customer Concentration: Monitor the financial health and operational status of major airline customers (Aeroméxico, Mexicana, Aviacsa) and the impact of any regulatory suspensions on traffic volumes.
- Capital Expenditure Commitments: Assess the company's ability to meet the Ps. 2.07 billion in committed investments for the 2006-2010 master development program without incurring significant debt.