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, 2011
Accounting Standard: International Financial Reporting Standards (IFRS) – First year of adoption.
Operations: The Company holds concessions to operate, maintain, and develop 13 airports in Mexico's central and northern regions, including the major metropolitan hub of Monterrey and tourist destinations such as Acapulco, Mazatlán, and Zihuatanejo. It also operates a hotel and commercial space at Mexico City International Airport.
Key Financial Metrics (2011 vs. 2010)
| Metric (Millions of Pesos) | 2011 | 2010 | Change |
|---|---|---|---|
| Total Revenues | 2,789.7 | 2,574.5 | +8.4% |
| Aeronautical Services | 1,870.2 | 1,652.6 | +13.2% |
| Non-Aeronautical Services | 588.7 | 491.8 | +19.7% |
| Construction Services | 330.9 | 430.0 | -23.1% |
| Income from Operations | 919.3 | 720.5 | +27.6% |
| Consolidated Net Income | 616.1 | 659.6 | -6.6% |
| Operating Margin | 33.0% | 28.0% | +5.0 pts |
| Net Margin | 22.1% | 25.6% | -3.5 pts |
| Cash & Equivalents (Year End) | 523.6 | 312.8 | +67.4% |
| Operating Cash Flow | 607.4 | 482.5 | +25.9% |
| Capital Expenditures | 385.0 | 556.8 | -30.8% |
Note: U.S. Dollar translations in the filing use a rate of Ps. 13.95 to U.S.$ 1.00. Total Revenues in USD were approximately $200.0 million; Net Income was approximately $44.2 million.
Material Changes and Operational Highlights
- Revenue Growth: Total revenues increased 8.4% driven by a 13.2% rise in aeronautical revenues and a 19.7% rise in non-aeronautical revenues. Aeronautical revenue growth was fueled by increased passenger traffic and higher passenger charges. Non-aeronautical growth was led by advertising (+61.8%) and hotel services (+42.4%).
- Passenger Traffic: Total terminal passengers increased 1.6% to 11.77 million. Domestic traffic grew 3.4%, while international traffic declined 7.4% due to the suspension of Grupo Mexicana operations in 2010 and route cancellations by U.S. carriers.
- Net Income Decline: Despite a 27.6% increase in operating income, net income decreased 6.6%. This was primarily due to a significant increase in income tax expense (from a benefit of Ps. 8.8 million in 2010 to an expense of Ps. 182.1 million in 2011) and a foreign exchange loss of Ps. 38.8 million (compared to a gain of Ps. 1.6 million in 2010).
- Segment Performance: Monterrey airport remained the largest revenue contributor (47.2% of total revenues). However, operating income at Monterrey decreased 25.0% due to higher service costs. The Hotel segment saw operating income increase 163.7% due to improved occupancy rates (82.8% vs 63.6% in 2010).
- Construction Services: Revenues from construction services decreased 23.1% due to lower investment in improvements to concession assets.
Guidance, Outlook, and Risks
- Regulatory Environment: The Company is subject to strict price regulation by the Ministry of Communications and Transportation. Maximum rates for aeronautical services are set for five-year periods (current period: 2011-2015). A bill introduced in December 2011 to amend the Mexican Airport Law is pending; if passed, it could alter regulatory authority and concession terms.
- Customer Concentration: The Company relies heavily on a few major airlines. In 2011, Grupo Aeroméxico (31.8%), VivaAerobus (15.3%), and Interjet (15.1%) accounted for over 60% of aeronautical revenues. The bankruptcy of AMR Corporation (parent of American Airlines) in late 2011 is monitored, though operations continued normally.
- Exchange Rate Risk: The Company faces significant exposure to the Mexican peso/U.S. dollar exchange rate. Depreciation of the peso increases the peso value of international passenger charges (positive) but creates losses on U.S. dollar-denominated liabilities (negative). The peso depreciated 13.1% in 2011.
- Capital Expenditures: The Company has committed investments under its Master Development Program totaling Ps. 3.14 billion for the 2011-2015 period. In 2011, it issued Ps. 1.3 billion in 5-year notes to fund debt prepayments and strategic investments.
- Security and Crime: High incidences of crime and drug trafficking in certain Mexican states pose a risk to passenger traffic, particularly for tourist destinations. The U.S. State Department has issued travel warnings for several states where the Company operates.
Key Facts for Investor Verification
- IFRS Transition: Verify the impact of the transition from Mexican Financial Reporting Standards (MFRS) to IFRS on comparative financial data, particularly regarding the treatment of major maintenance provisions and deferred taxes.
- Taxation: Confirm the sustainability of the effective tax rate (22.8% in 2011 vs. negative in 2010) and the status of tax loss carryforwards and valuation allowances.
- Regulatory Rate Setting: Monitor the outcome of the 2015 renegotiation of maximum rates and the potential impact of proposed amendments to the Mexican Airport Law.
- Airline Solvency: Assess the financial health of key airline customers (Aeroméxico, VivaAerobus, Interjet) and the potential for non-payment or route cancellations.
- Debt Covenants: Review compliance with covenants related to the Ps. 1.3 billion note issuance and the U.S.$ 45.0 million credit agreement held by the controlling shareholder, Aeroinvest.