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: Third Quarter and First Nine Months ended September 30, 2008
Business Overview: OMA operates 13 international airports in central and northern Mexico, including major hubs in Monterrey and tourist destinations like Acapulco and Mazatlán. The company adopted new Mexican Financial Reporting Standards (NIFs) effective January 1, 2008, ending inflation adjustments to financial statements and replacing the statement of changes in financial position with a statement of cash flows.
Key Financial Metrics
| Metric | Q3 2008 | Q3 2007 | 9M 2008 | 9M 2007 |
|---|---|---|---|---|
| Passenger Traffic (Millions) | 3.5 | 3.75 | 10.9 | 10.6 |
| Total Net Revenues (Ps. Million) | 496.0 | 489.6 | 1,502.0 | 1,411.6 |
| Operating Income (Ps. Million) | 170.2 | 202.6 | 543.8 | 569.4 |
| Operating Margin | 34.3% | 41.4% | 36.2% | 40.3% |
| Adjusted EBITDA (Ps. Million) | 256.6 | 280.0 | 812.4 | 794.9 |
| Adjusted EBITDA Margin | 51.7% | 57.2% | 54.1% | 56.3% |
| Net Income (Ps. Million) | 130.1 | 137.6 | 494.9 | 421.5 |
| Earnings Per ADS (US$) | 0.24 | 0.25 | 0.91 | 0.77 |
| Capital Expenditures (Cash Basis, Ps. Million) | 174.0 | N/A | 1,597.6 | N/A |
| Cash and Equivalents (Ps. Million) | 289.0 (as of Sept 30) | N/A | 289.0 (as of Sept 30) | N/A |
Note: All figures in Mexican Pesos (Ps.) unless otherwise noted. Exchange rate used for ADS conversion: Ps. 10.9397/US$.
Material Changes vs. Prior Period
- Traffic Trends: Q3 2008 saw a 6.6% decline in passenger traffic due to the global financial crisis, high fuel costs, and airline suspensions (Aerocalifornia, Nova Air). However, the first nine months of 2008 showed a 2.9% increase, driven by domestic growth (+4.0%) which offset international declines (-2.2%).
- Revenue Mix: Total net revenues grew 1.3% in Q3 and 6.4% for the nine months. Aeronautical revenues remained relatively flat in Q3 but grew 6.1% for the nine months. Non-aeronautical revenues increased 5.9% in Q3 and 7.6% for the nine months, aided by new commercial initiatives (car rentals, retail, VIP lounges).
- Cost Pressures: Costs of services and administrative expenses rose 20.9% in Q3 and 13.6% for the nine months. A significant portion of this increase (Ps. 25.4 million in Q3) was due to non-recurring costs from a corporate reorganization transferring personnel to service subsidiaries. Inflationary pressures on electricity and security also contributed.
- Profitability: Operating income decreased 16.0% in Q3 but only 4.5% for the nine months. Net income fell 5.4% in Q3 but rose 17.4% for the nine months, reflecting the impact of the reorganization costs concentrated in the third quarter.
- Liquidity: Cash and equivalents stood at Ps. 289 million as of September 30, 2008, representing a reduction of Ps. 1,467.8 million from year-end 2007 levels, primarily due to high capital expenditures and dividend payments.
Outlook, Risks, and Management Commentary
- Management Commentary: Management notes that the global financial crisis and liquidity issues have deteriorated the environment for the aeronautical industry. Despite falling fuel prices, the risk of economic recession remains high. The company is actively pursuing non-aeronautical revenue growth to offset traffic volatility.
- Capital Strategy: Significant capital expenditures (Ps. 1,880 million for nine months) are focused on the Master Development Plan, including terminal expansions (Monterrey Terminal B), runway improvements, and strategic land acquisitions to secure future growth and mitigate urban development risks.
- Risks and Contingencies:
- Airline Instability: Several airlines have suspended operations or ceased flights (e.g., Aerocalifornia, Nova Air, Avolar). On October 21, 2008, charter airline Aladia announced it was ceasing operations and expected to file for bankruptcy protection.
- Regulatory Environment: Aeronautical revenues are subject to a maximum rate system regulated by the Ministry of Communications and Transportation (SCT).
- Accounting Changes: The adoption of NIF B-10 means financial statements are no longer adjusted for inflation, and prior period comparisons are presented in constant pesos of December 31, 2007 purchasing power.
- Dividends: The second quarterly dividend installment of Ps. 0.2714 per share was paid on October 15, 2008.
Investor Verification Checklist
- Recurring vs. Non-Recurring Costs: Verify the sustainability of the Ps. 25.4 million reorganization cost and its impact on future operating margins.
- Airline Partner Health: Monitor the financial stability of key airline partners, particularly given the recent suspensions and the bankruptcy filing of Aladia.
- Liquidity Position: Assess the adequacy of the Ps. 289 million cash balance against the high capital expenditure requirements (Ps. 1.88 billion for nine months) and dividend obligations.
- Non-Aeronautical Growth: Evaluate the success of new commercial initiatives (parking, car rentals, retail) in maintaining revenue per passenger as traffic volumes fluctuate.
- Accounting Comparability: Ensure comparisons with pre-2008 data account for the removal of inflation adjustments and the change in cash flow statement presentation.