Central North Airport Group (GACN) — 2018 Form 20-F Summary
Business context and reporting period
GACN is a Mexican holding company operating 13 airports in central and northern Mexico under 50-year concessions beginning November 1, 1998. Its businesses include regulated aeronautical services, commercial and diversification activities, two hotels, cargo logistics and an industrial park. The filing is an annual report for the fiscal year ended December 31, 2018, rather than a standalone 2018 fourth-quarter filing. Financial statements are prepared under IFRS in thousands of Mexican pesos; U.S. dollar translations use Ps.19.6566 per U.S.$1.00 solely for convenience.
Key financial and operating metrics
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Total revenue | Ps.7,907,054 | Ps.7,129,827 | 10.9% |
| Aeronautical revenue | Ps.5,140,052 | Ps.4,347,031 | 18.2% |
| Non-aeronautical revenue | Ps.1,625,497 | Ps.1,456,338 | 11.6% |
| Construction revenue | Ps.1,141,505 | Ps.1,326,458 | (13.9)% |
| Operating income | Ps.4,132,536 | Ps.3,239,119 | 27.6% |
| Consolidated net income | Ps.2,864,179 | Ps.2,137,442 | 34.0% |
| Operating margin | 52.3% | 45.4% | +690 bps |
| Net margin | 36.2% | 30.0% | +620 bps |
| Operating cash flow | Ps.3,709,346 | Ps.2,921,333 | 27.0% |
| Capital expenditures | Ps.1,314,363 | Ps.1,581,959 | (16.9)% |
| Cash and cash equivalents | Ps.2,958,902 | Ps.2,333,007 | 26.8% |
| Total debt | Ps.4,584,594 | Ps.4,633,272 | (1.0)% |
Passenger traffic increased 9.7% to 21.6 million terminal passengers. Domestic traffic rose 10.4% and international traffic rose 4.4%. Total workload units increased 9.3%, while aeronautical revenue per workload unit increased approximately 8.2%. Air traffic movements increased to 345,350 from 332,352.
Operating cash flow exceeded capital expenditures by approximately Ps.2.4 billion. Financing cash outflows were Ps.1,940,463, including Ps.1,605,736 of dividends and Ps.323,070 of interest. Current assets were Ps.3,959,567 versus current liabilities of Ps.1,224,716. Total shareholders’ equity increased to Ps.8,511,927 from Ps.7,229,315.
Debt consisted primarily of Ps.3.0 billion of fixed-rate notes maturing in 2021 and Ps.1.5 billion of fixed-rate notes maturing in 2023. Approximately 98% of outstanding debt carried fixed rates and 2% variable rates. The company reported compliance with debt covenants and no defaults. It had unused short-term credit lines of Ps.350,000 thousand and no derivative instruments outstanding.
Material changes versus the prior comparable period
- Growth was led by higher passenger volumes, increased regulated passenger charges and improved revenue per workload unit.
- Monterrey remained the largest airport, contributing Ps.3,330,084 thousand of total revenue and approximately 45.8% of aeronautical plus non-aeronautical revenue.
- Culiacán revenue increased 24.6% and Ciudad Juárez revenue increased 15.1% on a consolidated-revenue basis; Monterrey revenue increased 12.5%.
- Non-aeronautical revenue growth reflected higher car parking, car rental, food and beverage, VIP lounge, OMA Carga and industrial park revenue. Commercial activities increased 14.0% and diversification activities increased 8.4%.
- The Terminal 2 NH Collection Hotel weakened: revenue declined 1.9%, occupancy fell from 86.3% to 83.5%, and operating income declined from Ps.75,797 thousand to Ps.67,250 thousand.
- Operating costs declined 3.0%, despite increases in concession taxes of 17.6%, technical assistance fees of 27.8% and depreciation and amortization of 17.6%. Cost of services declined 0.3% and administrative expenses declined 4.2%.
- Net interest expense declined 41.7% and net foreign-exchange loss declined from Ps.63,072 thousand to Ps.15,488 thousand.
- Capital expenditures declined from the elevated 2017 level, but the company continued substantial terminal, capacity, security and infrastructure investment.
Guidance, outlook, commentary, risks and unusual items
No specific quantitative earnings or revenue guidance is provided. Management states that it has reasonable expectations that passenger traffic will continue to increase and intends to fund operating needs and planned investment primarily through operating cash flow, supplemented by debt when necessary.
Committed investments under the 2016–2020 master development programs totaled Ps.6,002,629 thousand in December 2018. Expected 2019–2020 investments totaled Ps.2,616,865 thousand, including Ps.2,102,516 thousand scheduled for 2019. The company expects 2019 spending to include projects carried forward from earlier periods.
- Regulation: Aeronautical services are subject to maximum-rate regulation, including a 0.70% annual efficiency adjustment through 2020. Future 2021–2025 rates and investment requirements remain subject to government determination.
- Traffic concentration: Passenger and revenue performance depends heavily on Monterrey and on Mexico City International Airport, which handled approximately 42.9% of the company’s domestic passenger connections in 2018.
- Airline concentration: Aeroméxico, VivaAerobus, Volaris and Interjet represented 24.5%, 21.2%, 17.5% and 14.2%, respectively, of aeronautical revenues.
- Political and infrastructure uncertainty: The Mexican government cancelled the planned new Mexico City airport and proposed alternatives involving Santa Lucía and Toluca; the impact on traffic and congestion remains uncertain. USMCA implementation and broader Mexico-U.S. political and economic conditions could also affect demand.
- Concessions: Failure to comply with investment, safety, insurance, tax or maximum-rate requirements could result in penalties or concession revocation. A breach of one concession could potentially affect the others.
- Litigation and contingencies: A Culiacán property-tax claim seeks Ps.2,425 million plus Ps.3,339 million in additional fees and remains pending. The Ciudad Juárez land-ownership case remains under review by Mexico’s Supreme Court. A Monterrey land dispute remains under appeal. No provision was recorded for these matters based on management’s assessment.
- Related parties: Technical assistance fees to SETA were Ps.172,610 thousand. Related-party construction and other services were material; the filing identifies Ps.389,688 thousand paid to ICATEN affiliates for 2018 services.
- Dividend: Shareholders approved a Ps.1,600 million dividend, or Ps.4.0633 per share, paid in May 2018. A further Ps.1,600 million dividend was approved on April 29, 2019, together with a Ps.1,500 million share-repurchase authorization.
- Accounting: IFRS 9 and IFRS 15 were adopted in 2018 without a material reported impact. The company estimated that IFRS 16 adoption in 2019 would recognize a right-of-use asset and lease liability of approximately Ps.213,342 thousand.
Most important facts for investors to verify
- Reconcile the annual 20-F figures with the company’s quarterly disclosures, since the source filing covers the full year rather than Q4 alone.
- Verify sustainability of passenger growth, regulated tariff realization and aeronautical revenue per workload unit after the 2020 rate period.
- Review the funding plan for the Ps.2,616,865 thousand of 2019–2020 committed investments and the timing of debt maturities.
- Monitor the Culiacán property-tax claim and the Ciudad Juárez and Monterrey land proceedings for changes in exposure or required provisions.
- Assess concentration in Monterrey, Mexico City connections and the four largest airline customers.
- Evaluate the NH Collection Hotel’s occupancy and profitability, including the lease expiration in 2029 and potential impairment risk.
- Confirm the terms and continuation of SETA’s technical assistance agreement, special Series BB governance rights and related-party transactions.
- Check the effect of IFRS 16 adoption, foreign-exchange exposure, and the company’s ability to maintain dividends while meeting concession investment obligations.