Business Context and Reporting Period
Company: Central North Airport Group (Grupo Aeroportuario del Centro Norte, S.A.B. de C.V., or OMA)
Filing Type: Form 6-K (Unaudited Preliminary Results)
Reporting Period: Second Quarter and First Six Months ended June 30, 2009
Business Overview: OMA operates 13 international airports in central and northern Mexico, including the principal hub in Monterrey. The company is listed on the NASDAQ (OMAB) and the Mexican Stock Exchange (OMA).
Key Financial Metrics
| Metric | Q2 2009 | Q2 2008 | Change | YTD 2009 | YTD 2008 | Change |
|---|---|---|---|---|---|---|
| Passenger Traffic (Millions) | 2.7 | 3.7 | -26.1% | 5.8 | 7.5 | -22.3% |
| Total Revenues (Ps. Million) | 440.2 | 504.6 | -12.7% | 925.9 | 1,007.6 | -8.0% |
| Operating Income (Ps. Million) | 108.6 | 169.7 | -36.0% | 288.2 | 374.3 | -22.9% |
| Operating Margin | 24.7% | 33.6% | -8.9 pts | 31.1% | 37.1% | -6.0 pts |
| Adjusted EBITDA (Ps. Million) | 208.7 | 268.0 | -21.9% | 486.6 | 557.1 | -12.5% |
| Adjusted EBITDA Margin | 47.4% | 53.1% | -5.7 pts | 52.6% | 55.3% | -2.7 pts |
| Net Income (Ps. Million) | 50.3 | 94.6 | -46.8% | 199.0 | 364.7 | -45.5% |
| Earnings per ADS (US$) | 0.08 | 0.15 | -46.7% | 0.31 | 0.56 | -44.6% |
| Capital Expenditures (Ps. Million) | 163.9 | N/A | N/A | 342.2 | N/A | N/A |
| Cash & Equivalents (Ps. Million) | 310.6 (as of June 30, 2009) | |||||
| Total Debt (Ps. Million) | 632.8 (as of June 30, 2009) |
Note: All figures in Mexican Pesos (Ps.) unless otherwise noted. Exchange rate used: Ps. 13.1812 per US$.
Material Changes vs. Prior Period
- Traffic Decline: Passenger traffic dropped significantly due to the global economic crisis and the A(H1N1) flu outbreak in April 2009. International traffic fell 33.1% in Q2, while domestic traffic fell 24.9%.
- Revenue Resilience: Total revenues declined at a slower rate than traffic (12.7% vs 26.1% in Q2) due to cost control and revenue protection initiatives. Aeronautical revenue per passenger increased 17.7% in Q2, driven by the termination of a passenger incentive program at Monterrey airport and peso depreciation.
- Cost Management: Total operating costs decreased 0.9% in Q2 despite rising prices, achieved through reduced consumption of energy and materials. However, depreciation and amortization increased 2.6% due to higher investment levels.
- Profitability Impact: Net income fell 46.8% in Q2. The YTD net income decline of 45.5% was partially influenced by a one-time non-operating income of Ps. 104.2 million in Q1 2008 (cancellation of deferred profit sharing provisions) which did not recur in 2009.
Outlook, Risks, and Management Commentary
- Management Strategy: OMA implemented measures to protect aeronautical revenues, expand non-aeronautical sources (opening 8 new commercial spaces in Q2), and adjust costs to market conditions. These actions mitigated the impact on Adjusted EBITDA margins.
- Capital Projects: Significant investments include the final work on Monterrey's new Terminal B (expected Q1 2010) and a hotel at Mexico City International Airport (expected Q3 2009). Strategic investments were financed via operating cash flow and bank loans.
- Risks and Contingencies:
- Aviacsa Suspension: On July 6, 2009, the Mexican government suspended Aviacsa's operations due to debts. Aviacsa accounted for 7.0% of OMA's YTD traffic, but all its routes are served by other carriers.
- Health Crisis: The A(H1N1) outbreak caused flight cancellations and traffic reductions, though the impact appeared to abate faster than the 2002-2003 SARS outbreak.
- Regulatory Environment: Aeronautical revenues are subject to a "Maximum Rate System" regulated by the Ministry of Communications and Transportation.
- Liquidity: The company generated Ps. 136.9 million from operating activities in the first six months. Total debt stands at Ps. 632.8 million, primarily short- and long-term bank loans.
Investor Verification Checklist
- Traffic Recovery: Verify the trajectory of passenger traffic post-A(H1N1) alert, specifically the rebound observed in June 2009 (+25.2% vs May 2009).
- Aviacsa Impact: Assess the long-term impact of Aviacsa's suspension on domestic traffic volumes at Monterrey, Acapulco, Ciudad Juárez, and Tampico.
- Capital Expenditure Schedule: Confirm the timeline for the opening of Monterrey Terminal B and the Mexico City hotel, as delays could affect future revenue streams.
- Debt Servicing: Review the terms of the Ps. 632.8 million in bank debt and the company's ability to service this debt given the 46.8% drop in Q2 net income.
- Non-Aeronautical Growth: Monitor the success of new commercial spaces and the ability to maintain non-aeronautical revenue per passenger growth (up 20.1% in Q2) amidst lower traffic.