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 (Second Quarter 2007 Earnings Report)
Reporting Period: Second Quarter ended June 30, 2007, and the six months ended June 30, 2007.
Business Overview: OMA operates 13 international airports in nine states of central and northern Mexico, including the principal hub at Monterrey International Airport. The company is listed on the Mexican Stock Exchange and NASDAQ.
Key Financial Metrics
| Metric | Q2 2007 | Q2 2006 | YTD 6 Months 2007 | YTD 6 Months 2006 |
|---|---|---|---|---|
| Passenger Traffic | 3.5 million | 2.86 million | 6.8 million | 5.74 million |
| Total Net Revenues | Ps. 460 million | Ps. 407.4 million | Ps. 895 million | Ps. 802.9 million |
| Operating Income | Ps. 184.4 million | Ps. 148.1 million | Ps. 355.6 million | Ps. 322.7 million |
| Adjusted EBITDA | Ps. 256.2 million | Ps. 208.8 million | Ps. 499.4 million | Ps. 437.0 million |
| Adjusted EBITDA Margin | 55.7% | 51.2% | 55.8% | 54.4% |
| Net Income | Ps. 151.9 million | Ps. 150.0 million | Ps. 275.2 million | Ps. 266.7 million |
| Earnings Per Share (Ps.) | 0.38 | 0.38 | 0.69 | 0.67 |
| Earnings Per ADS (US$) | 0.28 | 0.28 | 0.51 | 0.49 |
| Capital Expenditures | Ps. 138.1 million | Ps. 61.0 million | Ps. 318.9 million | Ps. 131.1 million |
| Cash and Equivalents | Ps. 1,868.3 million (as of June 30, 2007) |
Note: All peso amounts are in constant pesos of June 30, 2007 purchasing power. Exchange rate used: Ps. 10.7946/US$.
Material Changes vs. Prior Period
- Traffic Growth: Q2 passenger traffic increased 22.6% (Q2) and 18.5% (YTD). Domestic traffic surged 29.7% (Q2) and 26.5% (YTD), driven by new low-cost carriers (e.g., Volaris, VivaAerobus) and lower fares. This offset a 5.3% (Q2) and 5.7% (YTD) decline in international traffic due to route cancellations and reduced frequencies.
- Revenue Mix: Total revenues grew 12.9% (Q2) and 11.5% (YTD). Aeronautical revenues grew slower than traffic volume, resulting in a 7.0% (Q2) and 5.0% (YTD) decrease in aeronautical revenue per passenger. Non-aeronautical revenues grew 8.3% (Q2) and 7.2% (YTD), though revenue per passenger declined due to timing differences in advertising and duty-free sales.
- Cost Structure: Total costs and operating expenses increased 6.3% (Q2) and 12.3% (YTD). Significant drivers included an 18.5% (Q2) increase in depreciation/amortization due to new assets and runway life estimate changes, and a 42.2% (Q2) increase in technical assistance fees (accrued at 5% of Adjusted EBITDA starting Q1 2007, up from a fixed minimum in 2006).
- Profitability: Operating income grew 24.5% (Q2) and 10.2% (YTD). Adjusted EBITDA margins expanded to 55.7% (Q2) and 55.8% (YTD). Net income growth was modest at 1.2% (Q2) and 3.2% (YTD) due to higher income tax expenses (up 60.2% Q2) and financing income declines.
Guidance, Outlook, and Risks
- Capital Investment Outlook: OMA expects 2007 capital expenditures to exceed Ps. 500 million, up from Ps. 426.9 million in 2006. Major projects include the construction of Terminal B at Monterrey Airport (estimated US$40 million investment, capacity for 1.5 million passengers/year) and expansions at Reynosa and San Luis Potosi.
- Liquidity: Operating cash flow for the first six months was Ps. 564.7 million. Cash and cash equivalents decreased 9.4% year-over-year to Ps. 1,868.3 million as of June 30, 2007, largely due to capital expenditures.
- Dividends: The first quarterly dividend installment of Ps. 0.2685 per share was paid on July 16, 2007.
- Risks and Contingencies:
- Regulatory: Aeronautical revenues are subject to maximum rate caps set by the Ministry of Communications and Transportation (SCT).
- Parent Company Covenants: Parent company Aeroinvest refinanced credit facilities in June 2007, imposing operational covenants and restrictions on OMA.
- Market Volatility: International traffic remains sensitive to security measures (e.g., US flight restrictions) and airline route decisions.
Investor Verification Checklist
- Revenue Per Passenger: Verify the sustainability of the decline in aeronautical and non-aeronautical revenue per passenger despite traffic growth.
- Technical Assistance Fee: Confirm the impact of the shift from a fixed minimum fee to a 5% of Adjusted EBITDA calculation on future margins.
- International Traffic Recovery: Monitor trends in international passenger volumes, which declined in both Q2 and YTD periods.
- Capital Expenditure Execution: Track progress on the Monterrey Terminal B project and total 2007 capex against the Ps. 500 million target.
- Parent Company Covenants: Review the specific operational restrictions imposed by Aeroinvest's refinancing agreements as detailed in the Form 20-F Risk Factors.