Business Context and Reporting Period
Company: Central North Airport Group (Grupo Aeroportuario del Centro Norte, S.A.B. de C.V.)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2016
Accounting Standards: International Financial Reporting Standards (IFRS)
Reporting Currency: Mexican Pesos (Ps.)
The Company operates 13 airports in Mexico's central and northern regions, including major hubs in Monterrey, Culiacán, and Chihuahua, as well as tourist destinations like Acapulco and Mazatlán. Operations are conducted under 50-year concessions granted by the Mexican government. The Company also engages in diversification activities, including hotel operations (Terminal 2 NH Collection Hotel and Hilton Garden Inn) and an industrial park.
Key Financial Metrics (2016)
| Metric | 2016 Value (Ps. Thousands) | 2016 Value (USD Thousands) |
|---|---|---|
| Total Revenues | 5,550,269 | 268,596 |
| Operating Income | 2,783,554 | 134,705 |
| Net Income | 1,876,501 | 90,810 |
| Operating Cash Flow | 2,386,146 | 115,474 |
| Capital Expenditures | 529,393 | 25,619 |
| Total Assets | 13,545,323 | 655,503 |
| Total Liabilities | 6,858,343 | 331,898 |
| Shareholders' Equity | 6,686,980 | 323,605 |
Note: USD translations are based on the exchange rate of Ps.20.6640 per U.S.$1.00 as of December 31, 2016.
- Revenue Mix: Aeronautical services accounted for 69.8% of total revenues (Ps. 3,872,735 thousand). Non-aeronautical services accounted for 24.0% (Ps. 1,332,762 thousand). Construction services accounted for 6.2% (Ps. 344,772 thousand).
- Operating Margin: 50.2% for 2016, up from 45.3% in 2015.
- Net Margin: 33.8% for 2016, up from 27.5% in 2015.
- Passenger Traffic: 18.8 million terminal passengers (10.9% increase vs. 2015).
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 23.5% year-over-year (YoY). Aeronautical revenues grew 27.7% driven by a 10.9% increase in passenger traffic and higher aeronautical revenues per workload unit (up 15.8%). Non-aeronautical revenues grew 19.9% due to expansion in commercial and diversification activities.
- Profitability: Net income surged 51.7% YoY to Ps. 1.88 billion. This was driven by revenue growth and a significant decrease in net interest expense (down 48.4% YoY) due to higher interest income.
- Costs: Total operating costs increased 12.6% YoY. Notable increases included the major maintenance provision (up 50.8%) and administrative expenses (up 15.1%).
- Currency Impact: The Mexican peso depreciated approximately 19.9% against the U.S. dollar in 2016. While this caused foreign exchange losses on USD-denominated liabilities, it positively impacted results from operations as international passenger charges (denominated in USD) were collected in pesos.
Guidance, Outlook, and Risks
Outlook and Management Commentary: Management expects passenger traffic to continue increasing in upcoming years. The Company is focused on maximizing aeronautical revenues through route development and optimizing rates, while increasing non-aeronautical revenues via commercial improvements and diversification (hotels, cargo, industrial park). Capital expenditures for 2016 were primarily dedicated to the 2016-2020 Master Development Program.
Key Risks and Contingencies:
- Regulatory Risk: Aeronautical revenues are subject to price regulation (maximum rates) set by the Ministry of Communications and Transportation. Exceeding these rates can result in fines and rate reductions. The regulatory framework is subject to change, including potential new independent regulatory agencies.
- Economic Dependence: The business is highly dependent on the U.S. and Mexican economies. Approximately 81.1% of international passengers in 2016 traveled to/from the U.S. Political uncertainty regarding NAFTA renegotiation and U.S. policies poses a risk.
- Concession Termination: Concessions can be revoked for violations (e.g., exceeding maximum rates, failure to invest). Revocation of one concession could lead to the revocation of all others.
- Competition: Potential competition from new government-granted concessions (e.g., Bocoyna airport) or amendments to existing concessions (e.g., Aeropuerto del Norte near Monterrey).
- Security and Crime: High crime rates and security concerns in certain regions of Mexico could deter tourism and business travel.
Investor Verification Checklist
- Regulatory Compliance: Verify the Company's compliance with the 2016-2020 maximum rate regulations and any pending disputes with the Ministry of Communications and Transportation.
- Passenger Traffic Trends: Monitor domestic vs. international passenger growth, specifically the impact of U.S. economic conditions and potential trade policy changes (NAFTA) on cross-border travel.
- Capital Expenditure Execution: Review progress on the 2016-2020 Master Development Program investments (Ps. 5.04 billion committed) and the impact of major maintenance provisions on cash flow.
- Debt and Currency Exposure: Assess the impact of peso volatility on USD-denominated debt obligations and the Company's hedging strategies.
- Concession Security: Evaluate the stability of the 13 airport concessions and the risk of government reversion or revocation based on performance metrics.