Business Context and Reporting Period
Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (Central North Airport Group, OMA) filed its Form 20-F for the fiscal year ended December 31, 2019. The filing is an annual report, not a standalone 2019 fourth-quarter filing. Financial statements are prepared under IFRS and presented in thousands of Mexican pesos unless otherwise stated.
OMA operates, maintains and develops 13 Mexican airports, principally in the central and northern regions, and also operates two hotels, cargo-logistics activities and an industrial park. Its concessions generally run for 50 years from November 1, 1998. ADSs and Series B shares trade under OMAB on Nasdaq.
Financial and Operating Highlights
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenues | Ps. 8,527,101 | Ps. 7,907,054 | 7.8% |
| Aeronautical revenues | Ps. 5,752,662 | Ps. 5,140,052 | 11.9% |
| Non-aeronautical revenues | Ps. 1,819,605 | Ps. 1,625,497 | 11.9% |
| Construction-service revenues | Ps. 954,834 | Ps. 1,141,505 | (16.4)% |
| Operating income | Ps. 4,855,306 | Ps. 4,132,536 | 17.5% |
| Operating margin | 56.9% | 52.3% | Up 4.6 points |
| Consolidated net income | Ps. 3,227,434 | Ps. 2,864,179 | 12.7% |
| Net margin | 37.8% | 36.2% | Up 1.6 points |
| Operating cash flow | Ps. 3,716,524 | Ps. 3,709,346 | 0.2% |
| Capital expenditures | Approximately Ps. 1,048,926 | Ps. 1,314,363 | Approximately (20.2)% |
| Cash and cash equivalents | Ps. 3,429,873 | Ps. 2,958,902 | 15.9% |
| Total indebtedness | Ps. 4,543,609 | Ps. 4,584,594 | (0.9)% |
OMA handled 23.2 million terminal passengers in 2019, up 7.4% from 2018. Domestic passenger traffic increased 7.4% and international traffic increased 7.9%. Total workload units increased 6.9%, while cargo volume declined to approximately 97,620 metric tons from 100,914 metric tons.
Aeronautical and non-aeronautical revenues, excluding construction revenues, totaled Ps. 7,572,267 thousand. Aeronautical services represented 67.5% of total IFRS revenues and 76.0% of aeronautical plus non-aeronautical revenues. Passenger charges represented 58.5% of total revenues and 65.9% of aeronautical plus non-aeronautical revenues.
Cash flow from investing activities was negative Ps. 952,227 thousand, primarily reflecting concession investments. Cash flow used in financing activities was Ps. 2,246,461 thousand, including Ps. 1,598,681 thousand of dividends, Ps. 327,309 thousand of interest and Ps. 244,201 thousand of share repurchases.
At year-end, current assets were Ps. 4,810,904 thousand versus current liabilities of Ps. 1,235,293 thousand. Total liabilities were Ps. 7,389,466 thousand and shareholders’ equity was Ps. 9,887,495 thousand. The filing states that working capital was sufficient for present requirements.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven by passenger growth, higher passenger charges, increased regulated revenue per workload unit and continued expansion of commercial and diversification activities.
- Operating costs declined 2.7%, despite a 17.6% increase in the major maintenance provision and an 18.1% increase in depreciation and amortization. Cost of services declined 2.4% and administrative expenses declined 3.6%.
- Net interest expense increased 55.8% to Ps. 204,772 thousand, principally because of the unwinding of the major maintenance provision. Net foreign-exchange loss increased to Ps. 50,878 thousand from Ps. 15,488 thousand.
- Operating income declined at several major airports, primarily because of higher solidarity fees following an update to the calculation methodology. Monterrey operating income fell 41.9%, Culiacán fell 34.0%, Chihuahua fell 35.2% and Ciudad Juárez fell 31.5%.
- Non-aeronautical revenue per terminal passenger increased from Ps. 75.4 to Ps. 78.5. Commercial activities increased 15.3%, diversification activities increased 8.1%, and OMA Carga revenue increased 9.9%.
- 2019 capital expenditures were lower than in 2018 as construction activity under the master development programs moderated. OMA nevertheless continued terminal expansions and other infrastructure projects.
- OMA adopted IFRS 16 on January 1, 2019, recognizing right-of-use assets and lease liabilities. The filing reports a 2019 right-of-use asset balance of Ps. 210,788 thousand and lease liabilities of Ps. 220,860 thousand.
Guidance, Outlook, Risks and Unusual Items
Management did not provide a quantified 2020 revenue or earnings forecast. It expects passenger traffic to recover as travel restrictions and stay-at-home measures are lifted, but stated that the financial impact of COVID-19 could not be quantified as of the report date.
- COVID-19: Passenger traffic declined 4.9% in the first quarter of 2020 and 92.1% from April 1 through April 22, 2020, compared with the corresponding 2019 period. Airports remained operational because they were considered essential. Management expected higher doubtful-account reserves and was discussing discounts or payment extensions with airlines, clients and tenants.
- Hotels: First-quarter 2020 occupancy rates at the NH Collection Hotel and Hilton Garden Inn were 11.6 and 15.4 percentage points below the prior-year period, respectively. Hilton Garden Inn services were temporarily suspended beginning April 6, 2020 due to low occupancy.
- Liquidity and debt: Management stated that there were no significant debt maturities until June 2021, that it expected to meet debt-service and covenant requirements, and that cash remained similar to the December 31, 2019 position as of the financial-statement issuance date. Available short-term credit lines totaled Ps. 150,000 thousand. The largest debt maturities are the Ps. 3,000,000 thousand notes due June 2021 and Ps. 1,500,000 thousand notes due March 2023.
- Capital commitments: Expected 2020 investments under the master development programs were Ps. 1,157,413 thousand. Management did not expect COVID-19 to affect committed 2020 investments.
- Monterrey expansion: OMA began a major project expected to require approximately Ps. 4.2 billion from 2019 through 2025. The project is intended to increase annual terminal capacity from approximately 11.6 million to 16.5 million passengers.
- Regulation: Aeronautical prices are subject to maximum-rate regulation, with a 0.70% annual efficiency reduction embedded in the 2016–2020 rates. The 2021–2025 master development programs and maximum-rate framework were to be negotiated in 2020.
- Concentration: Monterrey generated 44.5% of aeronautical plus non-aeronautical revenues. VivaAerobus, Grupo Aeroméxico, Volaris and Interjet together represented approximately 77.9% of aeronautical revenues from airline customers.
- Contingencies: Pending property-tax claims included approximately Ps. 27,012 thousand in Acapulco, Ps. 5,764 thousand in Culiacán, Ps. 113,529 thousand in Chihuahua, Ps. 18,840 thousand in Tampico and Ps. 16,097 thousand in Ciudad Juárez. The company recorded no provision because management considered adverse outcomes unlikely or expected the Mexican government to bear the economic impact.
- Litigation: Land-ownership disputes involving the Ciudad Juárez and Monterrey airports remained pending. The filing states that no provision was recorded for these matters.
- Related parties: OMA paid Ps. 150,108 thousand in technical-assistance fees to SETA and Ps. 556,464 thousand to ICATEN affiliates for construction and expansion services during 2019. The filing states that these contracts were reviewed for arm’s-length terms.
- Audit and controls: The independent auditor issued unqualified opinions on the consolidated financial statements and internal control over financial reporting, with an emphasis of matter concerning COVID-19 as a post-reporting-period event. Management concluded that disclosure controls and internal control over financial reporting were effective.
Important Facts for Investors to Verify
- Confirm that the requested period is understood as the full fiscal year ended December 31, 2019 rather than a separate fourth-quarter filing.
- Review subsequent 2020 passenger trends, airline capacity reductions, tenant collections, doubtful-account provisions and hotel occupancy.
- Verify refinancing or repayment plans for the June 2021 Ps. 3.0 billion notes and the funding of the Ps. 1.157 billion 2020 investment program.
- Assess the effect of solidarity-fee methodology changes on airport-level profitability, particularly at Monterrey and other major airports.
- Monitor the 2021–2025 master development programs, maximum-rate decisions and the potential impact of regulatory efficiency adjustments.
- Track the Ciudad Juárez and Monterrey land disputes and the outstanding municipal property-tax proceedings.
- Evaluate concentration among key airlines, Monterrey airport, regulated passenger charges and U.S.-dollar-linked revenues and liabilities.
- Reconcile consolidated IFRS revenue with management’s non-IFRS aeronautical and non-aeronautical revenue measures, which exclude construction revenues.