Business Context and Reporting Period
Company: Pacific Airport Group (Grupo Aeroportuario del Pacífico, S.A.B. de C.V.)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2016
Accounting Basis: International Financial Reporting Standards (IFRS)
Operations: The company operates 12 international airports in Mexico (Pacific and Central regions) and holds a 74.5% stake in MBJ Airports Limited (MBJA), which operates Montego Bay International Airport in Jamaica. The company is a large accelerated filer.
Key Financial Metrics (2016)
| Metric | 2016 (Mexican Pesos) | 2016 (U.S. Dollars) |
|---|---|---|
| Total Revenues | Ps. 11,107,561,000 | U.S.$ 538,758,000 |
| Income from Operations | Ps. 5,234,892,000 | U.S.$ 253,912,000 |
| Profit for the Year (Net Income) | Ps. 3,353,559,000 | U.S.$ 162,660,000 |
| Net Cash Flows from Operating Activities | Ps. 5,641,203,000 | U.S.$ 273,619,000 |
| Cash and Cash Equivalents (Year End) | Ps. 5,188,138,000 | U.S.$ 251,644,000 |
| Total Assets | Ps. 36,051,462,000 | U.S.$ 1,748,628,000 |
| Total Liabilities | Ps. 13,646,893,000 | U.S.$ 661,924,000 |
| Basic Earnings Per Share | Ps. 6.2443 | U.S.$ 0.3029 |
| Dividends Per Share | Ps. 4.0700 | U.S.$ 0.1744 |
Note: U.S. dollar amounts are translated at the rate of Ps. 20.6170 to U.S.$1.00 (December 30, 2016). The filing states that revenues from "improvements to concession assets" (Ps. 1.68 billion in 2016) do not have a cash impact and are equal to costs incurred.
Material Changes vs. Prior Period (2015)
- Revenue Growth: Total revenues increased 37.0% to Ps. 11.1 billion. Aeronautical services revenue grew 29.9% to Ps. 7.0 billion, while non-aeronautical revenue grew 29.4% to Ps. 2.4 billion. Revenues from improvements to concession assets nearly doubled (99.9% increase) to Ps. 1.7 billion due to higher investment commitments.
- Profitability: Net income increased 21.0% to Ps. 3.35 billion. Operating income rose 28.0% to Ps. 5.23 billion.
- Passenger Traffic: Total terminal passengers increased 20.5% to 36.5 million. Mexican airports saw a 20.5% increase in terminal passengers (32.6 million), while Montego Bay (Jamaica) saw a 44.7% increase (3.9 million).
- Cost Structure: Total operating costs increased 46.1% to Ps. 5.87 billion. Concession taxes rose 58.2% to Ps. 764 million. Depreciation and amortization increased 16.6% to Ps. 1.35 billion.
- Liquidity: Cash and cash equivalents increased 73.1% to Ps. 5.19 billion. Net cash provided by operating activities increased 15.0% to Ps. 5.64 billion.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Capital Expenditures: The company is executing Master Development Programs (2015-2019) in Mexico and a Capital Development Program in Jamaica. Committed investments for 2016 were met at 100.7% of the target. Future funding is expected to come from debt markets and operating cash flows.
- Commercial Strategy: Management aims to increase non-aeronautical revenue per passenger by expanding commercial spaces, renegotiating tenant contracts to royalty-based models, and directly operating businesses (parking, advertising, VIP lounges, convenience stores).
- Debt Issuances: The company issued long-term debt securities in 2016 and early 2017 (GAP 16 and GAP 17) totaling Ps. 3.0 billion to finance capital investments.
Key Risks and Contingencies
- Regulatory Risk (Mexico): Aeronautical revenues are subject to maximum rates set by the Mexican government. Exceeding these rates can result in fines and rate reductions. The company must manage peso fluctuations carefully to avoid exceeding maximum rates when invoicing international tariffs in pesos.
- Regulatory Risk (Jamaica): Montego Bay charges are regulated by the Jamaica Civil Aviation Authority (JCAA). The company relies on Airport Improvement Fees (AIF) for certain capital projects, which require government approval.
- Concession Termination: Concessions in both Mexico and Jamaica can be revoked for non-compliance with investment programs, safety regulations, or maximum rates. In Mexico, revocation of one concession could trigger the revocation of all others.
- Land Disputes: Legal claims by former ejido participants regarding land at Guadalajara, Tijuana, and Puerto Vallarta airports pose operational risks. Squatters have previously blocked access to commercial areas at Guadalajara, causing revenue losses.
- Strategic Shareholder: AMP (Aeropuertos Mexicanos del Pacífico) holds 15% of capital stock (Series BB) with special rights, including the appointment of executive officers and veto power over certain shareholder actions.
- External Factors: The business is sensitive to U.S. economic conditions (89.3% of international traffic to Mexican airports originates from the U.S.), fuel prices, security concerns, and natural disasters (hurricanes in Jamaica/Mexico).
Investor Verification Checklist
- Regulatory Compliance: Verify the company's status regarding the 2016 maximum rate review by the Mexican SCT (expected Q2 2017) to ensure no sanctions were applied for exceeding rates.
- Debt Covenants: Review the terms of the new debt issuances (GAP 15, GAP 16, GAP 17) and bank loans to understand leverage ratios and restrictions on future financing.
- Land Dispute Resolution: Monitor the status of legal proceedings regarding ejido claims at Guadalajara, Tijuana, and Puerto Vallarta airports and any associated compensation claims against the Mexican government.
- Exchange Rate Exposure: Assess the impact of the Mexican peso's volatility on the U.S. dollar value of dividends and the risk of exceeding maximum tariffs due to peso depreciation.
- Non-Aeronautical Growth: Validate the sustainability of the growth in non-aeronautical revenue per passenger (increased 7.4% in 2016) and the success of direct operation strategies (parking, advertising).
- Jamaican AIF Funding: Confirm the status of the Memorandum of Understanding (MOU) with the Airports Authority of Jamaica regarding the use of Airport Improvement Fees for "Phase 3" investments at Montego Bay.