OMAB

Business Context and Reporting Period

Company: Central North Airport Group (Grupo Aeroportuario del Centro Norte, S.A.B. de C.V.), trading as OMA (NASDAQ: OMAB).

Reporting Period: Third Quarter 2012 (ended September 30, 2012).

Business Overview: OMA operates 13 international airports in central and northern Mexico, including major hubs in Monterrey, Culiacán, and Chihuahua, as well as tourist destinations. The company also operates the NH Terminal 2 hotel at Mexico City International Airport and manages commercial diversification projects.

Key Financial Metrics (3Q12)

Debt Profile: Short-term bank debt was Ps. 400 million. Long-term debt totaled Ps. 1,557 million, including Ps. 1,300 million in 5-year notes and specific financing for baggage screening and firefighting equipment.

Material Changes vs. Prior Period

• Traffic Growth: Total passenger traffic increased 9.1% to 3.4 million. Domestic traffic rose 9.3%, while international traffic grew 7.8%. Flight operations decreased slightly by 2.4%.
• Revenue Drivers: Aeronautical revenue growth was driven by passenger volume, tariff increases, and favorable exchange rates. Non-aeronautical revenue growth was fueled by commercial initiatives (60 new retail/service locales) and the NH T2 hotel.
• Profitability Expansion: Adjusted EBITDA margin expanded significantly to 56.0%, reflecting revenue growth outpacing operating cost increases. Net income surged 56.9% due to higher operating income and a 77.3% reduction in financing expenses (driven by exchange gains on dollar-denominated debt).
• Cost Structure: Total costs and expenses increased 7.3%, primarily due to personnel for baggage screening, security contract renegotiations, and higher depreciation from capital projects.

Guidance, Outlook, and Risks

Revised 2012 Full-Year Outlook: Based on strong first nine-month results, OMA revised its guidance upward:

• Passenger Traffic Growth: 6.0% to 7.5%.
• Revenue Growth (Aeronautical + Non-Aeronautical): 11% to 14%.
• Adjusted EBITDA Margin: 52.0% to 54.0%.
• Capital Expenditures: Ps. 600 to 700 million under the Master Development Plan.
• Debt Coverage Ratio (Net Debt/Adjusted EBITDA): Expected to range between 0.7 and 1.0.

Risks and Contingencies:

• Forward-looking statements are subject to risks including changes in airline expansion plans, ticket pricing, and economic conditions.
• The company notes that the Monterrey airport has amortized all tax loss carryforwards, resulting in the generation of taxable income and cash income taxes starting in 2012.
• Increased costs related to checked baggage screening are expected to be recovered through airline payments.

Investor Verification Checklist

• Debt Servicing Capacity: Verify the sustainability of the revised debt coverage ratio (0.7x to 1.0x) given the planned increase in bank debt (Ps. 150-300 million) in Q4 2012.
• Tax Liability Impact: Confirm the cash flow impact of the Monterrey airport transitioning from tax loss carryforwards to active tax payments.
• Non-Aeronautical Mix: Monitor the continued growth of non-aeronautical revenues (currently 23.1% of total) as a hedge against regulated aeronautical rate caps.
• Exchange Rate Sensitivity: Assess the impact of the Mexican Peso exchange rate on international passenger charges and dollar-denominated debt valuation, which significantly influenced Q12 financing expenses.
• Capex Execution: Track the execution of the Master Development Plan investments, particularly the security checkpoint relocations and terminal expansions.