Annual Report - Manila Water Company, Inc.

Transcription

COVER SHEET
A 1 9 9 6 1 1 5 9 3
S.E.C. Registration Number
M A N I
L A
S U B S I
D I
W A T E R
A R I
C O M P A N Y
I
N C .
A N D
E S
(Company’s Full Name)
2 F
A D M .
B L D G .
4 8 9
K A T I
P U N A N
R D .
(Business Address: No. Street City / Town / Province)
Atty. JHOEL P. RAQUEDAN
981-8129
Contact Person
1 2
3 1
Month
Day
Fiscal year
Company Telephone Number
SEC FORM 17- Q
S T O C K
0 4
FORM TYPE
Month
Day
Annual Meeting
Secondary License Type, If Applicable
A1996-11593
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
Total No. of Stockholders
Domestic
Foreign
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
To be accomplished by SEC Personnel concerned
File Number
____________________________________
LCU
Document I.D.
____________________________________
Cashier
STAMPS
-1-
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-Q
QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES
REGULATION CODE AND SRC RULE 17(2)(b) THEREUNDER
1. For the quarterly period ended September 30, 2013
2. Commission Identification No. A1996-11593
3. BIR Tax Identification No. 005-038-428
4. Exact name of issuer as specified in its charter MANILA WATER COMPANY, INC.
5. Province, country or other jurisdiction of incorporation or organization Quezon City, Philippines
6. Industry Classification Code:
(SEC (SEC Use Only)
7. Address of issuer's principal office: 2F MWSS Admin. Bldg., 489 Katipunan Road, Balara, Quezon
City Postal Code: 1105
8. Issuer's telephone number, including area code (632) 917-5900 local 1418 / (632) 981- 8129
9. Former name, former address and former fiscal year, if changed since last report: Not Applicable
10. Securities registered pursuant to Sections 8 and 12 of the Securities Regulation Code (SRC):
Title of each class
Authorized Capital Stock
Common Shares (P1.00 par value)
Number of Shares Outstanding
Common Shares (P1.00 par value)
Number of shares outstanding
3,100,000,000
2,041,701,8901
Amount of debt outstanding as of September 30, 2013: None
The Company has no other registered securities either in the form of shares, debt or otherwise.
11. Are any of Registrant’s securities listed on a Stock Exchange? Yes [ X ]
No [ ]
12. Indicate by check mark whether the registrant:
(a) has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17 thereunder
or Sections 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of the
Corporation Code of the Philippines, during the preceding twelve (12) months (or for such
shorter period the registrant was required to file such reports)
(b) Yes [X] No [ ]
(b) Has been subject to such filing requirements for the past ninety (90) days.Yes [X]
1
2,013,200,998 Outstanding Common Shares
28,500,892 Shares Under the Stock Ownership Plans, the listing of which has been approved in principle by the PSE
2,041,701,890
-2-
No [ ]
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
September 30, 2013
Unaudited
December 31,2012
Audited
(As restated*)
(in thousands)
ASSETS
Current Assets
Cash and cash equivalents
Receivables - net
Materials and supplies - at cost
Other current assets
Total Current Assets
P
= 10,353,170
1,379,851
37,453
682,055
12,452,529
P
= 5,540,151
1,451,971
111,302
1,114,072
8,217,496
Noncurrent Assets
Property and equipment - net
Service concession assets - net
Available-for-sale financial assets
Deferred tax assets - net
Investments in associate
Goodwill
Other noncurrent assets
Total Noncurrent Assets
TOTAL ASSETS
2,048,901
53,217,403
292,588
873,821
3,941,168
130,319
823,051
61,327,251
P
= 73,779,780
2,317,748
50,753,856
494,322
829,707
3,644,853
130,319
738,272
58,909,077
P
= 67,126,573
P
= 4,783,242
P
= 4,299,089
3,096,153
1,268,487
435,909
40,453
9,624,244
4,264,859
840,563
467,023
27,560
9,899,094
24,585,791
7,230,381
314,125
302
831,072
1,502,638
34,464,309
P
= 44,088,553
19,806,147
7,508,331
384,219
158
745,711
2,031,295
30,475,861
P
= 40,374,955
LIABILITIES AND EQUITY
Current Liabilities
Accounts and other payables
Current portion of:
Long-term debt
Service concession obligation
Income tax payable
Payable to stockholders
Total Current Liabilities
Noncurrent Liabilities
Long-term debt - net of current portion
Service concession obligation - net of current portion
Net pension liability
Deferred tax liability - net
Provisions and contingencies
Other noncurrent liabilities
Total Noncurrent Liabilities
Total Liabilities
(Forward)
-3-
September 30, 2013*
Unaudited
December 31,2012
Audited
(As restated*)
(in thousands)
Equity
Capital stock
Common stock
Preferred stock
Additional paid-in capital
Subscriptions receivable
Total paid-up capital
Common stock options outstanding
Retained earnings
Appropriated for capital expenditures
Unappropriated
Unrealized gain on available-for-sale financial
assets
Cumulative translation adjustment
Other equity reserves
Non-controlling interests
Total Equity
TOTAL LIABILITIES AND EQUITY
P
= 2,041,453
400,000
2,441,453
3,750,426
(187,296)
6,004,583
47,110
P
= 2,041,453
400,000
2,441,453
3,750,426
(221,425)
5,970,454
13,578
7,000,000
15,964,120
22,964,120
7,000,000
13,481,451
20,481,451
10,179
77,890
7,500
29,111,382
579,845
29,691,227
P
= 73,779,780
21,869
(8,870)
7,500
26,485,982
265,636
26,751,618
P
= 67,126,573
*Entries related to the adoption of revised Philippine Accounting Standards (PAS) 19 as of January 1, 2013
have not been audited as of and for the period ended September 30, 2013. The revised PAS 19 affects both
the current and previous periods.
-4-
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
QUARTER
2013
2012
July-September
(in thousands)
REVENUE
Water
Environmental charges
Sewer
Revenue from management contracts
Other income
COSTS OF SERVICES
Depreciation and amortization
Salaries, wages and employee benefits
Power, light and water
Management, technical and professional fees
Repairs and maintenance
Collection fees
Water treatment chemicals
Wastewater costs
Regulatory costs
Insurance
Transportation and travel
Occupancy costs
Taxes and licenses
Postage, telephone and supplies
Other expenses
GROSS PROFIT
OPERATING EXPENSES
INCOME BEFORE OTHER INCOME
OTHER INCOME (EXPENSES)
Revenue from rehabilitation works
Cost of rehabilitation works
Interest expense
Interest income
Mark-to-market gain (loss) on BWC
receivables
Foreign currency differentials
Foreign exchange gains (losses)
Equity share in net income (losses) of
associate and joint venture
Other income
INCOME BEFORE INCOME TAX
PROVISION INCOME TAX
NET INCOME
P
= 3,013,480
563,650
98,334
63,048
169,233
3,907,745
P
= 2,843,562
584,923
91,675
46,578
139,643
3,706,381
YEAR-TO-DATE
2013
2012
January-September
(in thousands)
P
= 9,047,791
1,707,903
297,900
132,829
353,131
11,539,554
P
= 8,559,644
1,677,198
287,954
131,630
243,060
10,899,486
558,608
228,358
197,186
64,755
77,402
(31,777)
23,387
16,649
15,686
15,393
8,354
23,110
5,146
4,302
175,420
1,381,979
2,525,766
390,306
2,135,460
558,882
433,562
239,590
191,800
65,813
28,511
39,624
18,571
12,605
11,638
(2,726)
(22,357)
5,234
(6,312)
129,039
1,703,474
2,002,907
54,791
1,948,116
1,665,432
665,756
590,535
88,781
194,891
23,412
50,175
51,292
47,058
36,622
26,156
61,920
14,231
13,092
472,302
4,001,655
7,537,899
1,103,406
6,434,493
1,551,168
909,216
646,209
200,709
149,964
92,096
64,447
51,194
37,695
31,500
14,393
9,711
9,023
7,627
281,683
4,056,635
6,842,851
899,555
5,943,296
1,032,376
(1,037,101)
(419,541)
30,646
1,218,677
(1,217,245)
(405,789)
63,591
3,255,967
(3,255,967)
(1,256,001)
125,094
4,059,639
(4,056,536)
(1,209,164)
181,764
656,214
(645,550)
116,144
(119,383)
48,629
610,417
(593,294)
(292,383)
310,292
87,650
(34,941)
(330,247)
1,805,213
409,205
P
= 1,396,008
19,763
8
(324,234)
1,623,882
312,782
P
= 1,311,100
206,725
(28,747)
(887,177)
5,547,316
1,227,058
P
= 4,320,258
70,183
8
(936,197)
5,007,099
1,060,294
P
= 3,946,805
(Forward)
-5-
QUARTER
2013
2012
July-September
(in thousands)
OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income to be reclassified
to profit and loss in subsequent periods:
Unrealized fair value gain (loss) on
available-for-sale financial assets
Cumulative translation adjustment
Other comprehensive income not to be
reclassified to profit and loss in subsequent
periods:
Actuarial gains
TOTAL COMPREHENSIVE INCOME
(P
= 1,058)
12,422
1,407,372
P
= 47,735
333
1,359,168
YEAR-TO-DATE
2013
2012
January-September
(in thousands)
(P
= 11,690)
87,760
4,396,328
P
= 38,019
333
3,985,157
P
= 1,407,372
P
= 1,359,168
55,123
P
= 4,451,451
P
= 3,985,157
P
= 1,393,325
14,047
P
= 1,407,372
P
= 1,353,611
5,557
P
= 1,359,168
P
= 4,293,006
27,252
P
= 4,320,258
P
= 3,935,309
11,496
P
= 3,946,805
P
= 1,306,566
14,048
P
= 1,320,614
P
= 1,093,636
7,060
P
= 1,100,696
P
= 4,424,199
27,252
P
= 4,451,451
P
= 3,973,661
11,496
P
= 3,985,157
Net Income Attributable to:
Equity holders of Manila Water Company,
Inc
Total Comprehensive Income Attributable to:
Equity holders of Manila Water Company, Inc.
Earnings Per Share
Basic
Diluted
P
= 0.68
P
= 0.68
P
= 0.69
P
= 0.68
P
= 1.64
P
= 1.64
P
= 1.57
P
= 1.56
-6-
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Periods Ended September 30
2013
2012
As restated*
(in thousands)
CAPITALSTOCK
Common stock – P
= 1 par value
Authorized – 3,100,000,000 shares
Issued and outstanding – 2,005,443,965 shares
Subscribed common stock – 36,009,267 shares in 2013,
31,696,853 shares in 2012
Balance at beginning and end of period
Preferred stock – P
= 0.10 par value, 10% cumulative, voting
participating, nonredeemable and nonconvertible
Authorized, issued and outstanding – 4,000,000,000 shares
Preferred stock – P
= 1 par value, 8% cumulative, nonvoting, nonparticipating, nonconvertible, redeemable at the Company’s
option
Authorized and issued – 500,000,000 shares
ADDITIONAL PAID-IN CAPITAL
Balance at beginning and end of the period
SUBSCRIPTIONS RECEIVABLE
Balance at beginning of period
Collections during the period
Balance at end of period
COMMON STOCK OPTIONS OUTSTANDING
Grants of stock options
RETAINED EARNINGS
Appropriated for capital expenditures:
Balance at beginning and end of period
(Forward)
-7-
P
= 2,005,444
P
= 2,005,444
36,009
31,697
400,000
400,000
–
400,000
2,441,453
500,000
900,000
2,937,141
3,750,426
3,601,805
(221,425)
34,130
(187,295)
(139,045)
25,157
(113,888)
13,578
33,530
47,108
20,831
15,016
35,847
7,000,000
7,000,000
2013
2012
As restated*
(in thousands)
Unappropriated:
Balance at beginning of period, as previously reported
Cumulative effects of change in accounting policy for
pension cost
Balance at beginning of the period, as restated
Net income
Actuarial gains
Dividends declared
UNREALIZED GAIN ON AVAILABLE-FOR-SALE FINANCIAL
ASSETS
Unrealized fair value gain (loss) on available-for-sale financial
assets
CUMULATIVE TRANSLATION ADJUSTMENT
Other comprehensive income
TREASURY SHARES - at cost
OTHER RESERVES
NON-CONTROLLING INTERESTS
Additions from business combinations
Net income
P
= 13,627,747
P
= 9,680,655
(146,296)
13,481,451
4,293,006
55,123
(1,865,460)
15,964,120
9,680,655
3,946,805
(1,462,601)
12,164,859
21,869
46,340
(11,690)
10,179
38,019
84,359
(8,870)
86,760
77,890
7,500
29,111,381
(10,735)
50,063
39,328
(500,000)
7,500
25,256,951
265,636
286,958
27,252
579,846
P
= 29,691,227
174,598
9,188
18,663
202,449
P
= 25,459,400
-8-
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
2013
2012
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Interest expense
Provision for probable losses
Equity share in net loss (income) of an associate
Share-based payments
Interest income
Loss on disposal of property and equipment
Operating income before changes in operating assets and
liabilities
Changes in operating assets and liabilities
Decrease (increase) in:
Receivables
Materials and supplies
Other current assets
Service concession assets
Increase (decrease) in:
Payable to stockholders
Net cash generated from operations
Income tax paid
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received
Acquisitions of property and equipment
Proceeds from sale of property and equipment
Decrease (increase) in:
Short-term cash investments
Other noncurrent assets
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt:
Availments
Payments
Increase (decrease) in other noncurrent liabilities
Payment of service concession obligation
Payment of dividends
Collection of subscriptions receivable
Increase in non-controlling interests of consolidated
subsidiaries
Interest paid
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD
CASH AND CASH EQUIVALENTS AT END
OF PERIOD
-9-
P
= 5,547,316
P
= 5,007,099
1,854,152
1,256,001
124,456
(206,725)
33,531
(125,094)
48
1,631,237
1,209,164
36,695
(70,183)
15,017
(181,764)
-
8,483,685
7,647,265
123,460
32,338
391,856
(3,695,964)
(643,873)
74,626
149,944
(4,889,481)
(517,792)
12,894
4,830,477
(1,282,670)
3,547,807
225,128
(60,285)
2,503,324
(938,286)
1,565,038
96,858
(226,517)
1,914
181,764
(453,919)
-
190,000
(84,737)
(22,482)
658,000
240,018
(713,698)
(87,835)
5,445,000
(2,269,142)
(64,399)
(266,599)
(939,186)
34,130
1,511,306
(644,586)
27,907
(710,228)
(721,306)
25,157
286,958
(939,068)
1,287,694
4,813,019
16,688
(408,991)
(904,053)
573,150
5,540,151
5,235,142
P
= 10,353,170
P
= 5,808,292
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Financial Statement Preparation
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with Philippine Accounting Standard (PAS) 34, Interim Financial Reporting. Accordingly,
the unaudited condensed consolidated financial statements do not include all of the information and
disclosures required in the December 31, 2012 annual audited consolidated financial statements, and
should be read in conjunction with the Group’s annual consolidated financial statements as of and for
the year ended December 31, 2012.
The preparation of the financial statements in compliance with Philippine Financial Reporting Standards
(PFRS) requires management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. The estimates and assumptions used in the
accompanying unaudited condensed consolidated financial statements are based upon management’s
evaluation of relevant facts and circumstances as of the date of the unaudited condensed consolidated
financial statements. Actual results could differ from such estimates.
The unaudited condensed consolidated financial statements include the accounts of Manila Water
Company, Inc. (herein referred to as “the Parent Company”) and its subsidiaries collectively referred to
as “the Group.”
The unaudited condensed consolidated financial statements are presented in Philippine peso (P
= ), and
all values are rounded to the nearest thousands except when otherwise indicated.
On November 7, 2013, the Audit and Governance Committee approved and authorized the release of
the accompanying unaudited condensed financial statements of Manila Water Company, Inc. and
Subsidiaries.
Significant Accounting Policies
The accounting policies adopted are consistent with those of the previous financial year except for the
following new and amended PFRS and the Philippine Interpretations which became effective beginning
January 1, 2013.

Amendments to PFRS 7, Financial instruments: Disclosures - Offsetting Financial Assets and
Financial Liabilities
These amendments require an entity to disclose information about rights of set-off and related
arrangements (such as collateral agreements). The new disclosures are required for all recognized
financial instruments that are set off in accordance with PAS 32, Financial Instruments:
Presentation. These disclosures also apply to recognized financial instruments that are subject to
an enforceable master netting arrangement or ‘similar agreement’, irrespective of whether they are
set-off in accordance with PAS 32. The amendments require entities to disclose, in a tabular
format unless another format is more appropriate, the following minimum quantitative information.
This is presented separately for financial assets and financial liabilities recognized at the end of the
reporting period:
a) The gross amounts of those recognized financial assets and recognized financial liabilities;
b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the net
amounts presented in the statement of financial position;
c) The net amounts presented in the statement of financial position;
d) The amounts subject to an enforceable master netting arrangement or similar agreement that
are not otherwise included in (b) above, including:
i. Amounts related to recognized financial instruments that do not meet some or all of the
offsetting criteria in PAS 32; and
ii. Amounts related to financial collateral (including cash collateral); and
e) The net amount after deducting the amounts in (d) from the amounts in (c) above.
-1-
The amendments affect disclosures only and have no impact on the Group’s financial position of
performance since the Group does not have financial instruments that are set off in accordance
with criteria in PAS 32.

PFRS 10, Consolidated Financial Statements
PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements, that
addresses the accounting for consolidated financial statements. It also includes the issues raised in
SIC 12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single control model that
applies to all entities including special purpose entities. The changes introduced by PFRS 10
require management to exercise significant judgment to determine which entities are controlled,
and therefore, are required to be consolidated by a parent, compared with the requirements that
were in PAS 27.
The Group has concluded in its assessment of its investments as of September 30, 2013, that even
with the adoption of PFRS 10: (a) all existing subsidiaries shall remain to be fully consolidated with
the Group’s consolidated financial statements as management control over these entities remain
the same; and (b) the existing associates will not have to be consolidated since the management
has no significant influence over these investee companies and does not have the ability to use
power to affect the amount of its returns from its involvement with the investee companies.

PFRS 11, Joint Arrangements
PFRS 11 replaces PAS 31, Interests in Joint Ventures, and SIC 13, Jointly Controlled Entities Non-Monetary Contributions by Venturers. PFRS 11 removes the option to account for jointly
controlled entities (JCE) using proportionate consolidation. Instead, JCEs that meet the definition
of a joint venture must be accounted for using the equity method. The adoption of this standard
does not have an impact in the Group’s financial position and performance since the Group does
not have jointly controlled entities.

PFRS 12, Disclosure of Interests in Other Entities
PFRS 12 includes all of the disclosures related to consolidated financial statements that were
previously in PAS 27 as well as all the disclosures that were previously included in PAS 31, Interest
in Joint Ventures, and PAS 28, Investments in Associates and Joint Ventures. These disclosures
relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities.
A number of new disclosures are also required. The adoption of this standard does not have a
significant impact on the Group’s financial position and performance since the Group assessed that
there will be no significant changes in the disclosures required by PAS 27, 28 and 31.

PFRS 13, Fair Value Measurement
PFRS 13 establishes a single source of guidance under PFRS for all fair value measurements.
PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance
on how to measure fair value under PFRS when fair value is required or permitted. This Standard
is applied prospectively. Its disclosure requirements need not be applied in comparative
information.
The Group does not consider that the definition of fair value that is applied in PFRS 13 differs in a
material way from its current approach and consequently assesses that this standard has no impact
on its financial position.

Amendments to PAS 1, Presentation of Financial Statements - Presentation of Items of Other
Comprehensive Income (OCI)
The amendments to PAS 1 change the grouping of items presented in OCI. Items that can be
reclassified (or “recycled”) to profit or loss at a future point in time (for example, upon derecognition
or settlement) will be presented separately from items that will never be recycled. The amendment
becomes effective for annual periods beginning on or after July 1, 2012. The amendments affect
presentation only and have no impact on the Group’s financial position or performance. The
amendments are applied retrospectively and resulted to modification of the presentation of items in
OCI including unrealized gains on AFS financial assets, cumulative translation adjustments and
actuarial gains.
-2-

PAS 19, Employee Benefits (Revised)
Amendments to PAS 19 range from fundamental changes such as removing the corridor
mechanism and the concept of expected returns on plan assets to simple clarifications and
rewording. The revised standard also requires new disclosures such as, among others, a
sensitivity analysis for each significant actuarial assumption, information on asset-liability matching
strategies, duration of the defined benefit obligation, and disaggregation of plan assets by nature
and risk. The Group has applied the amendments retroactively to the earliest period presented.
The Group reviewed its existing employee benefits and determined that the amended standard will
have a significant impact on its accounting for retirement benefits. The Group obtained the
services of an external actuary to compute the impact to the consolidated financial statements upon
adoption of the standard. The effect of the adoption as of December 31, 2012 and 2011 and for the
six months ended September 30, 2012 follow:
Consolidated statement of financial position
Increase (Decrease)
(In thousand pesos)
December 31, 2012 December 31, 2011
P
= 146,296
P
= 109,619
146,296
109,619
Pension liabilities
Retained earnings
Consolidated statement of comprehensive income
Increase (Decrease)
(In thousand pesos)
September 30, 2012
Retirement expense
Other comprehensive income
Attributable to the owners of the Parent Company
Attributable to noncontrolling interests
P
= 4,960
18,170
23,130
23,130
–

PAS 27, Separate Financial Statements (as revised in 2011)
As a consequence of the issuance of the new PFRS 10 and PFRS 12, what remains of PAS 27 is
limited to accounting for subsidiaries, jointly controlled entities, and associates in the separate
financial statements. The adoption of the amended PAS 27 does not have a significant impact on
the separate financial statements of the entities in the Group since the Group’s accounting policy is
already consistent with the revised PAS 27.

PAS 28, Investments in Associates and Joint Ventures (as revised in 2011)
As a consequence of the issuance of the new PFRS 11 and PFRS 12, PAS 28 has been renamed
and describes the application of the equity method to investments in joint ventures in addition to
associates. The adoption of the amended PAS 28 does not have an impact on the Group’s
consolidated financial statements since the Group is already accounting for its investments in
associates using the equity method and the Group does not have existing investments in joint
ventures.

Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine
This interpretation applies to waste removal costs (“stripping costs”) that are incurred in surface
mining activity during the production phase of the mine (“production stripping costs”). If the benefit
from the stripping activity will be realized in the current period, an entity is required to account for
the stripping activity costs as part of the cost of inventory. When the benefit is the improved access
to ore, the entity should recognize these costs as a noncurrent asset, only if certain criteria are met
(“stripping activity asset”). The stripping activity asset is accounted for as an addition to, or as an
enhancement of, an existing asset. After initial recognition, the stripping activity asset is carried at
its cost or revalued amount less depreciation or amortization and less impairment losses, in the
same way as the existing asset of which it is a part. The interpretation is not relevant to the Group
as the Group is not involved in mining activities.
-3-
The Annual Improvements to PFRS (2009-2011 cycle) contain non-urgent but necessary
amendments to PFRS. The amendments are effective for annual periods beginning on or after
January 1, 2013 and are applied retrospectively.

PFRS 1, First-time Adoption of PFRS - Borrowing Costs
The amendment clarifies that, upon adoption of PFRS, an entity that capitalized borrowing costs in
accordance with its previous generally accepted accounting principles, may carry forward, without
any adjustment, the amount previously capitalized in its opening statement of financial position at
the date of transition. Subsequent to the adoption of PFRS, borrowing costs are recognized in
accordance with PAS 23, Borrowing Costs. The amendment does not apply to the Group as it is
not a first-time adopter of PFRS.

PAS 1, Presentation of Financial Statements - Clarification of the Requirements for Comparative
Information
The amendments clarify the requirements for comparative information that are disclosed voluntarily
and those that are mandatory due to retrospective application of an accounting policy, or
retrospective restatement or reclassification of items in the financial statements. An entity must
include comparative information in the related notes to the financial statements when it voluntarily
provides comparative information beyond the minimum required comparative period. The
additional comparative period does not need to contain a complete set of financial statements. On
the other hand, supporting notes for the third balance sheet (mandatory when there is a
retrospective application of an accounting policy, or retrospective restatement or reclassification of
items in the financial statements) are not required.
The amendment will not have significant impact on the Group’s consolidated financial statements
since the comparative information disclosures are in accordance with the requirements of PAS 1.

PAS 16, Property, Plant and Equipment - Classification of Servicing Equipment
The amendment clarifies that spare parts, stand-by equipment and servicing equipment should be
recognized as property, plant and equipment when they meet the definition of property, plant and
equipment and should be recognized as inventory if otherwise.
The amendment will not have any impact on the Group’s financial position and performance since
the spare parts and servicing equipment meet the definition of property and equipment in
accordance with PAS 16.

PAS 32, Financial Instruments: Presentation - Tax Effect of Distribution to Holders of Equity
Instruments
The amendment clarifies that income taxes relating to distributions to equity holders and to
transaction costs of an equity transaction are accounted for in accordance with PAS 12, Income
Taxes. This amendment does not have any impact on the Group’s financial position or
performance.

PAS 34, Interim Financial Reporting - Interim financial reporting and segment information for total
assets and liabilities
The amendment clarifies that the total assets and liabilities for a particular reportable segment need
to be disclosed only when the amounts are regularly provided to the chief operating decision maker
and there has been a material change from the amount disclosed in the entity’s previous annual
financial statements for that reportable segment. The amendment affects disclosures only and has
no impact on the Group’s financial position or performance.
Future Changes in accounting policies
The Group will adopt the following new and amended standards and interpretations enumerated below
when these become effective. Except as otherwise indicated, the Group does not expect the adoption
of these new and amended PFRS and Philippine Interpretations to have significant impact on the
consolidated financial statements.
Effective 2014

PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities
The amendments clarify the meaning of “currently has a legally enforceable right to set-off” and
also clarify the application of the PAS 32, offsetting criteria to settlement systems (such as central
clearing house systems) which apply gross settlement mechanisms that are not simultaneous.
-4-
This amendment is not expected to impact the financial position or performance of the Group
because offsetting is presented only when the requirements of PAS 32 are met.
Effective 2015

PFRS 9, Financial Instruments: Classification and Measurement
PFRS 9, as issued, reflects the first phase on the replacement of PAS 39, Financial Instruments:
Recognition and Measurement, and applies to the classification and measurement of financial
assets and liabilities as defined in PAS 39. Work on impairment of financial instruments and hedge
accounting is still ongoing, with a view to replacing PAS 39 in its entirety. PFRS 9 requires all
financial assets to be measured at fair value at initial recognition. A debt financial asset may, if the
fair value option (FVO) is not invoked, be subsequently measured at amortized cost if it is held
within a business model that has the objective to hold the assets to collect the contractual cash
flows and its contractual terms give rise, on specified dates, to cash flows that are solely payments
of principal and interest on the principal outstanding. All other debt instruments are subsequently
measured at fair value through profit or loss. All equity financial assets are measured at fair value
either through OCI or profit or loss. Equity financial assets held for trading must be measured at
fair value through profit or loss. For FVO liabilities, the amount of change in the fair value of a
liability that is attributable to changes in credit risk must be presented in OCI. The remainder of the
change in fair value is presented in profit or loss, unless presentation of the fair value change in
respect of the liability’s credit risk in OCI would create or enlarge an accounting mismatch in profit
or loss. All other PAS 39 classification and measurement requirements for financial liabilities have
been carried forward into PFRS 9, including the embedded derivative separation rules and the
criteria for using the FVO. The adoption of the first phase of PFRS 9 will have an effect on the
classification and measurement of the Group’s financial assets, but will potentially have no impact
on the classification and measurement of financial liabilities.
The Group conducted an impact evaluation of the early adoption of PFRS 9 based on September
30, 2013 balances, and based on the results of this study, the Group will not early adopt PFRS 9
for the current period. The Group does not expect this to have a significant impact on its
consolidated financial statements based on the evaluation of existing classification and
measurement of financial assets and liabilities.

Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate
This interpretation covers accounting for revenue and associated expenses by entities that
undertake the construction of real estate directly or through subcontractors. The SEC and the
Financial Reporting Standards Council (FRSC) have deferred the effectivity of this interpretation
until the final revenue standard is issued by the International Accounting Standards Board (IASB)
and an evaluation of the requirements of the final Revenue standard against the practices of the
Philippine real estate industry is completed. This interpretation is not relevant to the Group since
the Group does not engage in the construction of real estate directly or indirectly through
subcontractor.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments
that are readily convertible to known amounts of cash with original maturities of three months or less
from dates of acquisition and that are subject to an insignificant risk of change in value.
Short-term Cash Investments
Short term cash investments are short-term placements with maturities of more than three months but
less than one year from the date of acquisition. These earn interest at the respective short-term
investment rates.
Financial Assets and Financial Liabilities
Date of recognition
The Group recognizes a financial asset or a financial liability on the Group’s statement of financial
position when it becomes a party to the contractual provisions of the instrument. Purchases or sales of
financial assets that require delivery of assets within the time frame established by regulation or
convention in the marketplace are recognized on the settlement date. Derivative instruments are
recognized on trade date basis.
-5-
Initial recognition of financial instruments
All financial assets are initially recognized at fair value. Except for financial assets at fair value through
profit or loss (FVPL), the initial measurement of financial assets includes transaction costs. The Group
classifies its financial assets in the following categories: financial assets at FVPL, held-to-maturity
(HTM) investments, AFS financial assets, and loans and receivables. The Group classifies its financial
liabilities as financial liabilities at FVPL and other financial liabilities. The classification depends on the
purpose for which the investments were acquired and whether these are quoted in an active market.
Management determines the classification of its investments at initial recognition and, where allowed
and appropriate, re-evaluates such designation at every reporting date.
Financial instruments are classified as liability or equity in accordance with the substance of the
contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or a
component that is a financial liability, are reported as expense or income. Distributions to holders of
financial instruments classified as equity are charged directly to equity net of any related income tax
benefits.
Determination of fair value
The fair value for financial instruments traded in active markets at the financial reporting date is based
on its quoted market price or dealer price quotations (bid price for long positions and ask price for short
positions), without any deduction for transaction costs. When current bid and ask prices are not
available, the price of the most recent transaction provides evidence of the current fair value as long as
there has not been a significant change in economic circumstances since the time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by using
appropriate valuation methodologies. Valuation methodologies include net present value techniques,
comparison with similar instruments for which market observable prices exist, option pricing models,
and other relevant valuation models.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial
instruments by valuation technique:
 Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
 Level 2: other techniques for which all inputs which have a significant effect on the recorded fair
value are observable, either directly or indirectly
 Level 3: techniques which use inputs which have a significant effect on the recorded fair value that
are not based on observable market data.
Day 1 profit
For transactions other than those related to customers’ guaranty and other deposits, where the
transaction price in a non-active market is different from the fair value from other observable current
market transactions in the same instruments or based on a valuation technique whose variables include
only data from observable market, the Group recognizes the difference between the transaction price
and fair value (a ‘Day 1’ profit) in the Group’s statement of comprehensive income under “Other
income” unless it qualifies for recognition as some other type of asset. In cases where observable data
is used, the difference between the transaction price and model value is only recognized in the Group’s
statement of comprehensive income when the inputs become observable or when the instrument is
derecognized. For each transaction, the Group determines the appropriate method of recognizing the
‘Day 1’ profit amount.
Financial assets and financial liabilities at FVPL
Financial assets and financial liabilities at FVPL include financial assets and financial liabilities held for
trading and financial assets and financial liabilities designated upon initial recognition as at FVPL.
Financial assets and financial liabilities are classified as held for trading if they are acquired for the
purpose of selling in the near term. Derivatives, including separated embedded derivatives, are also
classified as held for trading unless they are designated as effective hedging instruments or a financial
guarantee contract. Fair value gains or losses on investments held for trading are recognized in profit
or loss.
Where a contract contains one or more embedded derivatives, the hybrid contract may be designated
as financial asset or financial liability at FVPL, except where the embedded derivative does not
significantly modify the cash flows or it is clear that separation of the embedded derivative is prohibited.
-6-
Financial assets and financial liabilities may be designated at initial recognition as at FVPL if the
following criteria are met:

The designation eliminates or significantly reduces the inconsistent treatment that would otherwise
arise from measuring the assets or recognizing gains or losses on a different basis; or

The assets are part of a group of financial assets which are managed and its performance
evaluated on a fair value basis, in accordance with a documented risk management or investment
strategy; or

The financial instrument contains an embedded derivative, unless the embedded derivative does
not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be
separately recorded.
Embedded derivatives
An embedded derivative is separated from the host contract and accounted for as a derivative if all of
the following conditions are met: a) the economic characteristics and risks of the embedded derivative
are not closely related to the economic characteristics and risks of the host contract; b) a separate
instrument with the same terms as the embedded derivative would meet the definition of a derivative;
and c) the hybrid or combined instrument is not recognized at FVPL. Embedded derivatives are
measured at fair value with fair value changes being reported through profit or loss, and are carried as
assets when the fair value is positive and as liabilities when the fair value is negative.
Subsequent reassessment is prohibited unless there is a change in the terms of the contract that
significantly modifies the cash flows that otherwise would be required under the contract, in which case
reassessment is required. The Group determines whether a modification in the cash flows is significant
by considering the extent to which the expected future cash flows associated with the embedded
derivative, the host contract, or both have changed and whether the change is significant relative to the
previously expected cash flows from the contract.
The Group has certain derivatives that are embedded in the host financial (such as long-term debt) and
nonfinancial (such as purchase orders) contracts.
HTM investments
HTM investments are quoted nonderivative financial assets with fixed or determinable payments and
fixed maturities for which the Group’s management has the positive intention and ability to hold to
maturity. Where the Group sells other than an insignificant amount of HTM investments, the entire
category would be tainted and reclassified as AFS financial assets. After initial measurement, these
investments are measured at amortized cost using the effective interest rate method, less impairment in
value. Amortized cost is calculated by taking into account any discount or premium on acquisition and
fees that are an integral part of the effective interest rate. The amortization is included in “Interest
income” account in the Group’s statement of comprehensive income.
Gains and losses are recognized in income when the HTM investments are derecognized or impaired,
as well as through the amortization process.
As of September 30, 2013 and December 31 2012, no financial assets have been classified as HTM
investments.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments and fixed maturities
that are not quoted in an active market. These are not entered into with the intention of immediate or
short-term resale and are not designated as AFS financial assets or financial assets at FVPL. These
are included in current assets if maturity is within twelve months from the reporting date; otherwise,
these are classified as noncurrent assets.
After initial measurement, loans and receivables are subsequently measured at amortized cost using
the effective interest rate method, less allowance for impairment. Amortized cost is calculated by taking
into account any discount or premium on acquisition and fees that are an integral part of the effective
interest rate. The amortization is included in “Interest income” in the statement of comprehensive
income. The losses arising from impairment of such loans and receivables are recognized in “Provision
for probable losses” in the Group statement of comprehensive income.
-7-
AFS financial assets
AFS financial assets are those which are designated as such or do not qualify to be classified as
financial assets at FVPL, HTM investments or loans and receivables. These are purchased and held
indefinitely, and may be sold in response to liquidity requirements or changes in market conditions.
These include equity investments, money market papers and other debt instruments. After initial
measurement, AFS financial assets are subsequently measured at fair value. The effective yield
component of AFS debt securities, as well as the impact of restatement on foreign currencydenominated AFS debt securities, is reported in earnings. The unrealized gains and losses arising
from the fair valuation of AFS financial assets are excluded net of tax from net income and are reported
as “Unrealized gain on AFS financial assets” under other comprehensive income.
When the investment is disposed of, the cumulative gain or loss previously recognized under other
comprehensive income is recognized as “Other income” in profit and loss. Where the Group holds
more than one investment in the same security, these are deemed to be disposed of on a first-in firstout basis. Interest earned on holding AFS financial assets are reported as interest income using the
effective interest rate. Dividends earned on holding AFS financial assets are recognized under the
“Other income” account when the right of the payment has been established. The losses arising from
impairment of such investments are recognized as provisions for impairment losses in profit and loss.
Fair value of AFS financial assets which cannot be measured reliably because of lack of reliable
estimates of future cash flows and discount rates necessary to calculate the fair value of unquoted
equity instruments, are carried at cost.
The Group’s AFS financial assets are presented as noncurrent in the consolidated statements of
financial position.
Other financial liabilities
Issued financial instruments or their components, which are not designated as at FVPL are classified as
other financial liabilities where the substance of the contractual arrangement results in the Group
having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the
obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed
number of its own equity shares. The components of issued financial instruments that contain both
liability and equity elements are accounted for separately, with the equity component being assigned
the residual amount, after deducting from the instrument as a whole the amount separately determined
as the fair value of the liability component on the date of issue.
After initial measurement, other financial liabilities are subsequently measured at amortized cost using
the effective interest rate method. Amortized cost is calculated by taking into account any discount or
premium on the issue and fees that are an integral part of the effective interest rate. Any effects of
restatement of foreign currency-denominated liabilities are recognized in the statement of income.
This accounting policy applies primarily to the Group’s short-term and long-term debt, accounts payable
and accrued expenses, customers’ guaranty and other deposits and other obligations that meet the
above definition (other than liabilities covered by other accounting standards, such as income tax
payable).
Derecognition of Financial Assets and Liabilities
Financial Assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of financial assets)
is derecognized where:
a) the rights to receive cash flows from the asset have expired;
b) the Group retains the right to receive cash flows from the asset, but has assumed an obligation to
pay them in full without material delay to a third party under a “pass-through” arrangement; or
c) the Group has transferred its rights to receive cash flows from the asset and either (a) has
transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor
retained the risk and rewards of the asset but has transferred the control of the asset.
-8-
Where the Group has transferred its rights to receive cash flows from an asset or has entered into a
“pass-through” arrangement, and has neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the
Group’s continuing involvement in the asset. Continuing involvement that takes the form of a
guarantee over the transferred asset is measured at the lower of the original carrying amount of the
asset and the maximum amount of consideration that the Group could be required to repay.
Financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or
has expired. Where an existing financial liability is replaced by another financial liability from the same
lender on substantially different terms, or the terms of an existing liability are substantially modified,
such an exchange or modification is treated as a derecognition of the original liability and the
recognition of a new liability, and the difference in the respective carrying amounts is recognized in
profit or loss.
Impairment of Financial Assets
The Group assesses at each financial reporting date whether there is objective evidence that a financial
asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed
to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events
that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event
(or events) has an impact on the estimated future cash flows of the financial asset or the group of
financial assets that can be reliably estimated. Objective evidence of impairment may include
indications that the borrower or a group of borrowers is experiencing significant financial difficulty,
default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or
other financial or other financial reorganization and where observable data indicate that there is a
measurable decrease in the estimated future cash flows, such as changes in arrears or economic
condition that correlate with default.
For the Group’s receivables from customers, evidence of impairment may also include non-collection of
the Group’s receivables, which remain unpaid after sixty days from bill generation. The Group shall
provide the customer with not less than seven days’ prior written notice before any disconnection.
Loans and receivables
For loans and receivables carried at amortized cost, the Group first assesses whether objective
evidence of impairment exists individually for financial assets that are individually significant, or
collectively for financial assets that are not individually significant. If the Group determines that no
objective evidence of impairment exists for an individually assessed financial asset, whether significant
or not, it includes the asset in a group of financial assets with similar credit risk characteristics and
collectively assesses for impairment. Those characteristics are relevant to the estimation of future cash
flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due
according to the contractual terms of the assets being evaluated. Assets that are individually assessed
for impairment and for which an impairment loss is, or continues to be recognized, are not included in a
collective assessment for impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is
measured as the difference between the asset’s carrying amount and the present value of the
estimated future cash flows (excluding future credit losses that have not been incurred). The carrying
amount of the asset is reduced through use of an allowance account and the amount of loss is charged
to profit or loss. Interest income continues to be recognized based on the original effective interest rate
of the asset. Receivables, together with the associated allowance accounts, are written off when there
is no realistic prospect of future recovery.
If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event
occurring after the impairment was recognized, the previously recognized impairment loss is reversed.
Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the
carrying value of the asset does not exceed its amortized cost at the reversal date.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of
such credit risk characteristics as industry, customer type, customer location, past-due status and term.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are
estimated on the basis of historical loss experience for assets with credit risk characteristics similar to
those in the group. Historical loss experience is adjusted on the basis of current observable data to
reflect the effects of current conditions that did not affect the period on which the historical loss
experience is based and to remove the effects of conditions in the historical period that do not exist
-9-
currently. The methodology and assumptions used for estimating future cash flows are reviewed
regularly by the Group to reduce any differences between loss estimates and actual loss experience.
For AFS financial assets, the Group assesses at each financial reporting date whether there is
objective evidence that a financial asset or group of financial assets is impaired.
In the case of equity investments classified as AFS financial assets, this would include a significant or
prolonged decline in the fair value of the investments below their costs. Where there is evidence of
impairment, the cumulative loss - measured as the difference between the acquisition cost and the
current fair value, less any impairment loss on that financial asset previously recognized in the
consolidated statement of comprehensive income - is removed from other comprehensive income and
recognized in profit and loss. Impairment losses on equity investments are not reversed through profit
and loss. Increases in fair value after impairment are recognized directly in other comprehensive
income.
In the case of debt instruments classified as AFS financial assets, impairment is assessed based on the
same criteria as financial assets carried at amortized cost. Future interest income is based on the
reduced carrying amount and is accrued based on the rate of interest used to discount future cash
flows for the purpose of measuring impairment loss. Such accrual is recorded as part of “Interest
income” in the consolidated statement of comprehensive income. If, in subsequent year, the fair value
of a debt instrument increased and the increase can be objectively related to an event occurring after
the impairment loss was recognized in profit and loss, the impairment loss is reversed through profit
and loss.
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount reported in the consolidated
statement of financial position if, and only if, there is a currently enforceable legal right to offset the
recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle
the liability simultaneously.
Materials and Supplies
Materials and supplies are valued at the lower of cost or net realizable value (fair value less costs to
sell). Cost is determined using the moving average method.
Prepaid expenses
Prepaid expenses are carried at cost less the amortized portion. These typically include prepayments
for taxes, insurance and other employee health care expenses.
Value-Added Tax (VAT)
Revenue, expenses and assets are recognized net of the amount of sales tax except:
 Where the tax incurred on a purchase of assets or services is not recoverable from the tax
authority, in which case the tax is recognized as part of the cost of acquisition of the asset or as
part of the expense item as applicable; and,
 Receivables and payables that are stated with the amount of tax included.
The net amount of tax recoverable from, or payable to, the tax authority is included as part of
receivables or payables in the consolidated statement of financial position.
Property and Equipment
Property and equipment, except land, are stated at cost less accumulated depreciation and
amortization and any impairment in value. Land is stated at cost less any impairment in value.
The initial cost of property and equipment comprises its purchase price, including import duties, taxes
and any directly attributable costs of bringing the property and equipment to its working condition and
location for its intended use, including capitalized borrowing costs incurred during the construction
period. Expenditures incurred after the property and equipment have been put into operation, such as
repairs and maintenance, are normally charged to operations in the period in which the costs are
incurred.In situations where it can be clearly demonstrated that the expenditures have resulted in an
increase in the future economic benefits expected to be obtained from the use of an item of property
and equipment beyond its originally assessed standard of performance, the expenditures are
capitalized as additional cost of the related property and equipment.
- 10 -
Depreciation and amortization of property and equipment commences once the property and
equipment are available for use and are calculated on a straight-line basis over the estimated useful
lives (EUL) of the property and equipment as follows:
Office furniture and equipment
Transportation equipment
3 to 5 years
5 years
Leasehold improvements are amortized over 5 years or the term of the lease, whichever is shorter.
Technical equipment is amortized over the EUL or the term of the related management contract,
whichever is shorter.
The EUL and depreciation and amortization method are reviewed periodically to ensure that the period
and method of depreciation and amortization are consistent with the expected pattern of economic
benefits from items of property and equipment.
When property and equipment is retired or otherwise disposed of, the cost and the related accumulated
depreciation and amortization and accumulated impairment, if any, are removed from the accounts and
any resulting gain or loss is credited to or charged against current operations.
Service Concession Assets and Obligations
The Group accounts for its concession arrangements with MWSS, POL, TIEZA and CDC under IFRIC
12 (Intangible Asset model) as it receives the right (license) to charge users of public service. Under
the Group’s concession agreements, the Group is granted the sole and exclusive right and discretion
during the concession period to manage, occupy, operate, repair, maintain, decommission and
refurbish the identified facilities required to provide water services. The legal title to these assets shall
remain with MWSS, POL, TIEZA and CDC at the end of the concession period.
The “Service concession assets” (SCA) pertain to the fair value of the service concession obligations at
drawdown date and construction costs related to the rehabilitation works performed by the Group. The
SCA are amortized using the straight-line method over the life of the concession.
In addition, the Parent Company, BIWC, CWC and LAWC recognize and measure revenue from
rehabilitation works in accordance with PAS 11, Construction Contracts, and PAS 18, Revenue, for the
services it performs. Recognition of revenue is by reference to the ‘stage of completion method’, also
known as the ‘percentage of completion method’ as provided under PAS 11. Contract revenue and
costs from rehabilitation works are recognized as “Revenue from rehabilitation works” and “Cost of
rehabilitation works” in profit or loss in the period in which the work is performed.
Investments in an Associate and Joint Venture
Investments in an associate and joint venture are accounted for under the equity method. An associate
is an entity in which the Group has significant influence but is neither a subsidiary nor a joint venture. A
joint venture is a contractual arrangement whereby two or more parties undertake an economic activity
that is subject to joint control, and a jointly controlled entity is a joint venture that involves the
establishment of a separate entity in which each venturer has an interest.
An investment in an associate or joint venture is accounted for using the equity method from the day it
becomes an associate or joint venture. On acquisition of investment, the excess of the cost of
investment over the investor’s share in the net fair value of the investee’s identifiable assets less
liabilities and contingent liabilities is accounted for as goodwill and included in the carrying amount of
the investment and not amortized but individually tested for impairment. Any excess of the net fair
value of the associate’s identifiable assets, liabilities and contingent liabilities over the cost of the
investment is excluded from the carrying amount of the investment, and is instead included as income
in the determination of the share in the earnings of the investees.
Under the equity method, investments in associates and jointly controlled entities are carried in the
consolidated statement of financial position at cost plus post-acquisition changes in the Group’s share
in the net assets of the investees, less any impairment in value. The Group’s share in the investee’s
post-acquisition profits or losses is recognized in profit and loss, and its share of post-acquisition
movements in the investee’s equity reserves is recognized directly in equity.
Profits and losses resulting from transactions between the Group and the investee companies are
eliminated to the extent of the interest in the investee companies and to the extent that for unrealized
- 11 -
losses, there is no evidence of impairment of the asset transferred. Dividends received are treated as a
reduction of the carrying value of the investment.
The Group discontinues applying the equity method when its investment in an investee company is
reduced to zero. Accordingly, additional losses are not recognized unless the Group has guaranteed
certain obligations of the investee company. When the investee company subsequently reports profits,
the Group resumes recognizing its share of the profits only after its share of the profits equals the share
of net losses not recognized during the period the equity method was suspended.
The investee companies’ accounting policies conform to those used by the Group for like transactions
and events in similar circumstances.
The Group’s share in net income from its investments in associates (Thu Duc and Kenh Dong) resulted
from concession arrangements with People’s Committee of Ho Chi Minh City (the Grantor). These
concession arrangements are accounted under the Financial Asset model of IFRIC 12 as its associates
have an unconditional contractual right to receive fixed and determinable amount of payment for its
construction services at the direction of the Grantor.
Business Combinations and Goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration transferred, measured at acquisition date fair value
and the amount of any NCI in the acquiree. For each business combination, the acquirer measures the
non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s
identifiable net assets. Acquisition costs are expensed as incurred.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date. This includes the separation of
embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s
previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through
profit or loss included under “Remeasurement gain/loss arising from business combination.”
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the
acquisition date. Subsequent changes to the fair value of the contingent consideration which is
deemed to be an asset or liability will be recognized in accordance with PAS 39 either in profit or loss or
as a change to other comprehensive income. If the contingent consideration is classified as equity, it
should not be remeasured until it is finally settled within equity.
If the initial accounting for a business combination can be determined only provisionally by the end of
the period in which the combination is effected because either the fair values to be assigned to the
acquiree’s identifiable assets, liabilities or contingent liabilities or the cost of the combination can be
determined only provisionally, the acquirer shall account for the combination using those provisional
values. The acquirer shall recognize any adjustments to those provisional values as a result of
completing the initial accounting within twelve months of the acquisition date as follows: (i) the carrying
amount of the identifiable asset, liability or contingent liability that is recognized or adjusted as a result
of completing the initial accounting shall be calculated as if its fair value at the acquisition date had
been recognized from that date; (ii) goodwill or any gain recognized shall be adjusted by an amount
equal to the adjustment to the fair value at the acquisition date of the identifiable asset, liability or
contingent liability being recognized or adjusted; and (iii) comparative information presented for the
periods before the initial accounting for the combination is complete shall be presented as if the initial
accounting has been completed from the acquisition date.
Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred
and the amount recognized for NCI over the net identifiable assets acquired and liabilities assumed. If
this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference
is recognized in profit or loss.
Following initial recognition, goodwill is measured at cost less any accumulated impairment loss.
Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances
indicate that the carrying value may be impaired.
- 12 -
For purposes of impairment testing, goodwill acquired in a business combination is, from the acquisition
date, allocated to each of the Group’s cash-generating units (CGUs), or groups of CGUs, that are
expected to benefit from the synergies of the combination, irrespective of whether other assets or
liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to
which the goodwill is allocated should:
• represent the lowest level within the Group at which the goodwill is monitored for internal
management purposes; and
•
not be larger than an operating segment determined in accordance with PFRS 8.
Impairment is determined by assessing the recoverable amount of the CGU (or group of CGUs), to
which the goodwill relates. Where the recoverable amount of the CGU (or group of CGUs) is less than
the carrying amount, an impairment loss is recognized. Where goodwill forms part of a CGU (or group
of CGUs) and part of the operation within that unit is disposed of, the goodwill associated with the
operation disposed of is included in the carrying amount of the operation when determining the gain or
loss on disposal of the operation. Goodwill disposed of in these circumstances is measured based on
the relative values of the operation disposed of and the portion of the CGU retained. If the acquirer’s
interest in the net fair value of the identifiable assets, liabilities and contingent liabilities exceeds the
cost of the business combination, the acquirer shall recognize immediately in the consolidated
statement of comprehensive income any excess remaining after reassessment.
Impairment of Nonfinancial Assets
The Group assesses at each reporting date whether there is an indication that an asset may be
impaired. If any such indication exists, or when annual impairment testing for an asset is required, the
Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is
calculated as the higher of the asset’s or CGU’s fair value less costs to sell and its value in use and is
determined for an individual asset, unless the asset does not generate cash inflows that are largely
independent of those from other assets or groups of assets. Where the carrying amount of an asset
exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable
amount. In assessing value in use, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market assessment of the time value of money
and the risks specific to the asset. In determining fair value less cost to sell, an appropriate valuation
model is used.
These calculations are corroborated by valuation multiples or other fair value indicators. Impairment
losses of continuing operations are recognized in the consolidated statement of income in those
expense categories consistent with the function of the impaired asset.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is
any indication that previously recognized impairment losses may no longer exist or may have
decreased. If such indication exists, the recoverable amount is estimated. A previously recognized
impairment loss is reversed only if there has been a change in the estimates used to determine the
asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the
carrying amount of the asset is increased to its recoverable amount. That increased amount cannot
exceed the carrying amount that would have been determined, net of depreciation and amortization,
had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the
consolidated statement of income unless the asset is carried at revalued amount, in which case the
reversal is treated as revaluation increase. After such a reversal, the depreciation and amortization
charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual
value, on a systematic basis over its remaining useful life.
Investments in associates and jointly controlled entities
After application of the equity method, the Group determines whether it is necessary to recognize any
additional impairment loss with respect to the Group’s net investment in the investee company. The
Group determines at each reporting date whether there is any objective evidence that the investment in
the investee company is impaired. If this is the case, the Group calculates the amount of impairment as
being the difference between the recoverable amount of the investee company and the carrying cost
and recognizes the amount in profit or loss.
- 13 -
Impairment of goodwill
For assessing impairment of goodwill, a test for impairment is performed annually and when
circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill
by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates.
Where the recoverable amount of the CGU is less than its carrying amount, an impairment loss is
recognized. Impairment losses relating to goodwill cannot be reversed in future periods.
Leases
The determination of whether an arrangement is, or contains a lease, is based on the substance of the
arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of
a specific asset or assets or the arrangement conveys a right to use the asset. A reassessment is
made after the inception of the lease only if one of the following applies:
(a) There is a change in contractual terms, other than a renewal of or extension of the arrangement;
(b) A renewal option is exercised or extension granted, unless the term of the renewal or extension
was initially included in the lease term;
(c) There is a change in the determination of whether fulfillment is dependent on a specified asset; or
(d) There is a substantial change to the asset.
Where reassessment is made, lease accounting shall commence or cease from the date when the
change in circumstances gave rise to the reassessment scenarios (a), (c) or (d) and at the date of
renewal or extension period for scenario (b).
A lease where the lessor retains substantially all the risks and benefits of ownership of the asset is
classified as an operating lease.
Related Parties
Parties are considered to be related to the Group if it has the ability, directly or indirectly, to control the
Group or exercise significant influence over the Group in making financial and operating decisions, or
vice versa, or where the Group and the party are subject to common control or common significant
influence. Related parties may be individuals (being members of key management personnel and/or
their close family members) or other entities and include entities which are under the significant
influence of related parties of the Group where those parties are individuals, and post-employment
benefit plans which are for the benefit of employees of the Group or of any entity that is a related party
of the Group.
In the normal course of business, the Group has transactions with related parties. The sales and
investments made to related parties are made at normal market prices. Service agreements are based
on rates agreed upon by the parties. Outstanding balances at year-end are unsecured and interestfree. There have been no guarantees provided or received for any related party receivables or
payables. As of September 30, 2013 and December 31, 2012 , the Group has not made any provision
for probable losses relating to amounts owed by related parties. This assessment is undertaken each
financial year by examining the financial position of the related party and the market in which the
related party operates.
Revenue Recognition
Water and sewer revenues are recognized when the related water and sewerage services are
rendered. Water and sewer services are billed every month according to the bill cycles of the
customers. As a result of bill cycle cut-off, monthly service revenue earned but not yet billed at end of
the month are estimated and accrued. These estimates are based on historical consumption of the
customers. Twenty percent (20%) of the water revenue is recognized by the Parent Company as
environmental charges with the rationalization of the sewerage and environmental charges as approved
in the 2008 rate rebasing.
Interest income is recognized as it accrues, taking into account the effective yield of the assets.
Revenue from rehabilitation works is recognized and measured by the Group in accordance with PAS
11 and PAS 18 for the service. This includes revenue from rehabilitation works which is equivalent to
the related costs for the rehabilitation works covered by the service concession arrangements which is
recognized as part of SCA.
- 14 -
When the Group provides construction or upgrade services, the consideration received or receivable is
recognized at fair value. The Group accounts for revenue and costs relating to operation services in
accordance with PAS 18.
Revenue from pipework and management contracts are recognized using the percentage of completion
method of accounting, measured principally on the basis of the physical proportion of the contract work
to the estimated completion of a project.
Consultancy fees are recognized when the related services are rendered. Other customer related fees
such as reconnection and disconnection fees are recognized when these services have been rendered.
The Group assesses its revenue arrangements against specific criteria in order to determine if it is
acting as principal or agent. The Group has concluded that it is acting as a principal in all of its revenue
arrangements.
Cost of Services and Operating Expenses
Cost of services and operating expenses are recognized as they are incurred.
Foreign Currency-Denominated Transactions
Foreign exchange differentials actually incurred arising from foreign currency transactions are credited
or charged to operations. As approved by the MWSS Board of Trustees (BOT) under Amendment
No. 1 of the Concession Agreement, the following will be recovered through billings to customers:
a. FCDA refers to the rate adjustment mechanism for the recovery on a current basis, subject to
quarterly review by the MWSS Regulatory Office and approval by the MWSS Board Of Trustees, of
accrued Foreign losses/gains, arising from MWSS loans and any foreign currency-denominated
concessionaire loans used to finance capital expenditures and/or concession fee payments for
servicing MWSS loans.
The Foreign Exchange Losses/Gains refers to the difference in Philippine currency of debt
servicing arising from the changes in the exchange rates of foreign currency-denominated loans at
the time it was drawn ( for Concessionaire Loans) or during the latest Rate Rebasing (for MWSS
Loans) vis-a-vis the time it was paid or the time it is expected to be paid.
The FCDA, however, is only a pass-through mechanism and is revenue-neutral; that is, it has no
impact on the projected net income of the company.
b. Excess of actual payments of other financing charges relating to foreign currency-denominated
loans translated at exchange spot rates on settlement dates over the amount of other financing
charges translated at drawdown rates.
The functional and presentation currency of the Parent Company and its Philippine subsidiaries is the
Philippine Peso (P
= ). Each subsidiary of the Group determines its own functional currency and items
included in the separate financial statements of each entity are measured using that functional
currency. Transactions in foreign currencies are initially recorded in the functional currency rate ruling
at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are
retranslated at the functional currency rate of exchange ruling at the reporting date. All differences are
taken to profit or loss with the exception of differences on foreign currency borrowings that provide a
hedge against a net investment in a foreign entity. These are recognized in other comprehensive
income until the disposal of the net investment, at which time they are recognized in profit or loss. Tax
charges and credits attributable to exchange differences on those borrowings are also dealt with in
equity. Nonmonetary items that are measured in terms of historical cost in a foreign currency are
translated using the exchange rate as at the date of initial transaction. Nonmonetary items measured
at fair value in a foreign currency are translated using the exchange rate at the date when the fair value
was determined.
- 15 -
In view of the automatic reimbursement mechanism, the Group recognizes deferred FCDA (included as
part of “Other noncurrent assets” or “Other noncurrent liabilities” in the consolidated statement of
financial position) for both the realized and unrealized foreign exchange gains and losses. Other water
revenue-FCDA is credited (debited) upon recovery (refund) of realized foreign exchange losses
(gains). The write-off or reversal of the deferred FCDA pertaining to concession fees will be made upon
determination of the rebased foreign exchange rate, which is assumed in the business plan approved
by MWSS-RO during the latest Rate Rebasing exercise, unless indication of impairment of the deferred
FCDA would be evident at an earlier date.
Borrowing Costs
Borrowing costs that are directly attributable to the acquisition, development, improvement and
construction of fixed assets (including costs incurred in connection with rehabilitation works) that are
recorded as SCA are capitalized as part of the cost of fixed assets. All other borrowing costs are
expensed in the period they occur. The Group uses the general borrowings approach when capitalizing
borrowing costs wherein the amount of borrowing costs eligible for capitalization is determined by
applying a capitalization rate to the expenditures on that asset. The capitalization of those borrowing
costs commences when the activities to prepare the asset are in progress and expenditures and
borrowing costs are being incurred. Capitalization of borrowing costs ceases when substantially all
activities necessary in preparing the related assets for their intended use are complete.
Borrowing costs include interest charges and other related financing charges incurred in connection
with the borrowing of funds. Premiums and/or discounts on long-term debt are included in the “Longterm debt” account in the Group’s consolidated statement of financial position and are amortized using
the effective interest rate method.
Retirement Cost
On 1 January 2013, the Group adopted the Revised PAS 19, Employee Benefit.
For defined benefit plans, the Revised PAS 19 requires all actuarial gains and losses to be recognized
in other comprehensive income and unvested past service costs previously recognized over the
average vesting period to be recognized immediately in profit or loss when incurred.
Prior to adoption of the Revised PAS 19, the Group recognized actuarial gains and losses as income or
expense when the net cumulative unrecognized gains and losses for each individual plan at the end of
the previous period exceeded 10% of the higher of the defined benefit obligation and the fair value of
the plan assets and recognized unvested past service costs as an expense on a straight-line basis over
the average vesting period until the benefits become vested. Upon adoption of the revised PAS 19, the
Group changed its accounting policy to recognize all actuarial gains and losses in other comprehensive
income and all past service costs in profit or loss in the period they occur.
The Revised PAS 19 replaced the interest cost and expected return on plan assets with the concept of
net interest on defined benefit liability or asset which is calculated by multiplying the net balance sheet
defined benefit liability or asset by the discount rate used to measure the employee benefit obligation,
each as at the beginning of the annual period.
The Revised PAS 19 also amended the definition of short-term employee benefits and requires
employee benefits to be classified as short-term based on expected timing of settlement rather than the
employee’s entitlement to the benefits. In addition, the Revised PAS 19 modifies the timing of
recognition for termination benefits. The modification requires the termination benefits to be recognized
at the earlier of when the offer cannot be withdrawn or when the related restructuring costs are
recognized.
Changes to definition of short-term employee benefits and timing of recognition for termination benefits
do not have any impact to the Group’s financial position and financial performance. Retirement cost is
actuarially determined using the projected unit credit method. The projected unit credit method reflects
the services rendered by the employees to the date of valuation and incorporates assumptions
concerning employees’ projected salaries. Actuarial valuations are conducted with sufficient regularity,
with option to accelerate when significant changes to underlying assumptions occur. Retirement cost
includes current service cost, interest cost, actuarial gains and losses and the effect of any curtailment
or settlement.
- 16 -
The liability recognized by the Group in respect of the defined benefit pension plan is the present value
of the defined benefit obligation at the balance sheet date together with adjustments for unrecognized
actuarial gains or losses and past service costs that shall be recognized in later periods. The defined
benefit obligation is calculated by independent actuaries using the projected unit credit method. The
present value of the defined benefit obligation is determined by discounting the estimated future cash
outflows using risk-free interest rates of government bonds that have terms to maturity approximating to
the terms of the related pension liabilities or applying a single weighted average discount rate that
reflects the estimated timing and amount of benefit payments.
Actuarial gains and losses are recognized as income or expense when the net cumulative
unrecognized actuarial gains and losses of the plan at the end of the previous reporting year exceeded
10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These
actuarial gains and losses are recognized over the expected average remaining working lives of the
employees participating in the plan.
Share-based Payment Transactions
Certain employees and officers of the Group receive remuneration in the form of share-based payment
transactions, whereby they render services in exchange for shares or rights over shares (‘equity-settled
transactions’).
The cost of equity-settled transactions with employees is measured by reference to the fair value at the
date of grant. The fair value is determined by using the Black-Scholes model.
The cost of equity-settled transactions is recognized in the consolidated statement of income, together
with a corresponding increase in equity, over the period in which the performance conditions are
fulfilled, ending on the date on which the relevant employees become fully entitled to the award
(‘vesting date’). The cumulative expense recognized for equity-settled transactions at each reporting
date until the vesting date reflects the extent to which the vesting period has expired and the number of
awards that, in the opinion of the directors of the Group at that date, will ultimately vest.
No expense is recognized for awards that do not ultimately vest, except for awards where vesting is
conditional upon a market condition, which are treated as vesting irrespective of whether or not the
market condition is satisfied, provided that all other performance conditions are satisfied.
Where the terms of an equity-settled award are modified, as a minimum, an expense is recognized as if
the terms had not been modified. An additional expense is recognized for any increase in the value of
the equity-settled award (measured at the date of modification). The total increase in value of the
equity-settled award is amortized over the remaining vesting period.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation,
and any expense not yet recognized for the award is recognized immediately. However, if a new award
is substituted for the cancelled award, and designated as a replacement award on the date that it is
granted, the cancelled and new awards are treated as if they were a modification of the original award,
as described in the previous paragraph.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of
earnings per share.
Equity
When the shares are sold at premium, the difference between the proceeds at the par value is credited
to “Additional paid-in capital” account. Direct costs incurred related to equity issuance are chargeable to
“Additional paid-in capital” account. If additional paid-in capital is not sufficient, the excess is charged
against retained earnings. When the Group issues more than one class of stock, a separate account is
maintained for each class of stock and the number of shares issued.
Subscriptions receivable pertains to the uncollected portion of the subscribed shares.
Retained earnings represent accumulated earnings of the Group less dividends declared.
Own equity instruments which are reacquired (treasury shares) are recognized at cost and deducted
from equity. No gain or loss is recognized in the consolidated statement of income on the purchase,
- 17 -
sale, issue or cancellation of the Group’s own equity instruments. Any difference between the carrying
amount and the consideration, if reissued, is recognized in additional paid-in capital. Voting rights
related to treasury shares are nullified for the Group and no dividends are allocated to them
respectively. When the shares are retired, the capital stock account is reduced by its par value and the
excess of cost over par value upon retirement is debited to additional paid-in capital to the extent of the
specific or average additional paid-in capital when the shares were issued and to retained earnings for
the remaining balance.
Income Tax
Current tax
Current tax assets and liabilities for the current and prior periods are measured at the amount expected
to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute
the amount are those that are enacted or substantially enacted by the balance sheet date.
Deferred tax
Deferred income tax is provided, using the balance sheet liability method, for all temporary differences,
with certain exceptions, at the balance sheet date between the tax bases of assets and liabilities and its
carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences with certain
exceptions. Deferred income tax assets are recognized for all deductible temporary differences to the
extent that it is probable that taxable income will be available against which the deferred income tax
asset can be used or when there are sufficient taxable temporary differences which are expected to
reverse in the same period as the expected reversal of the deductible temporary differences.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and
reduced to the extent that it is no longer probable that sufficient taxable income will be available to
allow all or part of the deferred income tax assets to be utilized. Unrecognized deferred income tax
assets are reassessed at each balance sheet date and are recognized to the extent that it has become
probable that future taxable income will allow all or part of the deferred income tax assets to be
recovered.
Deferred income tax assets and liabilities are measured at the tax rate that is expected to apply in the
year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been
enacted or substantially enacted as of the balance sheet date.
Deferred tax assets and liabilities are offset, if a legally enforceable right exists to set off current tax
assets against current income tax liabilities and the deferred income taxes relate to the same taxable
entity and the same taxation authority.
Earnings per Share (EPS)
Basic EPS is computed by dividing net income applicable to common and participating preferred stock
by the weighted average number of common and equivalent preferred shares outstanding during the
year and adjusted to give retroactive effect to any stock dividends declared and changes to preferred
share participation rate during the period. The participating preferred shares participate in the earnings
at a rate of 1/10 of the dividends paid to a common share.
Diluted EPS is computed by dividing earnings attributable to common and participating preferred
shares by the weighted average number of common shares outstanding during the period, after giving
retroactive effect of any stock dividends during the period and adjusted for the effect of dilutive options.
Outstanding stock options will have a dilutive effect under the treasury stock method only when the
average market price of the underlying common share during the period exceeds the exercise price of
the option. Where the effects of the assumed exercise of all outstanding options have anti-dilutive
effect, basic and diluted EPS are stated at the same amount.
Assets Held in Trust
Assets which are owned by MWSS, POL and TIEZA but are operated by the Group under the Group’s
concession agreement are not reflected in the consolidated statement of financial position but are
considered as Assets Held in Trust.
- 18 -
Provisions
A provision is recognized when the Group has: (a) a present obligation (legal or constructive) as a
result of a past event; (b) it is probable (i.e. more likely than not) that an outflow of resources
embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be
made of the amount of the obligation. If the effect of the time value of money is material, provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current market
assessment of the time value of money and, where appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to the passage of time is recognized as an
interest expense.
Where the Group expects a provision to be reimbursed, the reimbursement is not recognized as a
separate asset but only when the reimbursement is virtually certain. Provisions are reviewed at each
financial reporting date and adjusted to reflect the current best estimate.
Events After the Reporting Period
Any post year-end event up to the date of the auditor’s report that provide additional information about
the Group’s position at the balance sheet date (adjusting events) is reflected in the consolidated
financial statements. Any post year-end event that is not an adjusting event is disclosed in the notes to
the consolidated financial statements when material.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. These are disclosed
unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent
assets are not recognized in the consolidated financial statements but disclosed when an inflow of
economic benefits is probable.
Basis of Financial Statement Preparation
The unaudited condensed consolidated financial statements included the financial statements of the
Company and the following wholly and majority owned domestic and foreign subsidiaries:
Manila Water International Solutions, Inc (MWIS)
Manila Water Total Solutions Corp. (MWTS)
Manila Water Asia Pacific Pte. Ltd. (MWAP)
Manila Water South Asia Holdings Pte. Ltd.
(MWSAH)
Thu Duc Water Holdings Pte. Ltd. (TDWH)
Kenh Dong Water Holdings Pte. Ltd. (KDWH)
AAA Water Corporation (AWC)
Laguna AAA Water Corporation (LAWC)
Clark Water Corporation (CWC)
Manila Water Consortium Inc. (MW Consortium)
[formerly Northern Waterworks and Rivers of Cebu,
Inc. (NWRC)]
Cebu Manila Water Development, Inc. (CMWD)
Boracay Island Water Company, Inc. (BIWC)
- 19 -
Effective Percentages
of Ownership
September 2013
December 2012
100%
100%
100
100
100
100
100
100
100
100
70
100
100
100
100
100
70
100
51
51
80
84
51
80
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
A. The interim consolidated financial statements as of September 30, 2013 include all adjustments,
normal and recurring, which are necessary to present fairly the results for the period shown. The
results for the interim periods are not necessarily indicative of results for the full year.
B. The accompanying consolidated financial statements have been prepared under the historical cost
method and in accordance with accounting principles generally accepted in the Philippines and
internationally. Accounting principles and policies applied for the nine months ended September
30, 2013 are the same as those applied in the preceding calendar year, except as stated in the
succeeding sections.
C. The Manila Water Company, Inc. (the “Parent Company”) and its subsidiaries (collectively known
as “the Group”) do not have any significant seasonality or cyclicality in the interim operation, except
for the usually higher demand during the months of April and May.
D. Aside from the normal water and wastewater capital expenditure disbursements, the Group did not
acquire assets or incur liabilities that are material in amount for the period ended September 30,
2013.
E. Future events may occur which may cause the assumptions used in arriving at the estimates to
change. The effect of any change in estimates will be recorded in the consolidated financial
statements as they become reasonably determinable.
F. Business segment information is reported on the basis that is used internally for evaluating
segment performance and deciding how to allocate resources among operating segments. The
segment information is reported based on the nature of service the Parent Company and its
subsidiaries is providing and its geographical location.
G. There were no known material events subsequent to the end of the interim period that have not
been reflected in the consolidated financial statements for the interim period, or disclosed in the
Notes to the Consolidated Financial Statements.
H. The Group has not been subjected and is not subject to any bankruptcy, receivership or similar
proceedings. It has not been subject of any material reclassification, purchase or sale of any
significant amount of assets not in the ordinary course of business.
I.
The Group is contingently liable for lawsuits or claims filed by third parties (substantially laborrelated) which are pending decision by the courts or are under negotiation, the outcomes of which
are not presently determinable. The Group has been advised by its legal counsel that it is possible,
but not probable, that the action will succeed and accordingly, no provisions for probable losses on
these cases were recognized.
DISCUSSION AND ANALYSIS OF MATERIAL EVENT/S AND UNCERTAINTIES
A. There were no known trends, demands, commitments, events or uncertainties that have material
impact on the Group’s liquidity.
B. As of September 30, 2013 and December 31, 2012, the Group recorded contingent consideration
amounting to P
= 89.02 million, related to its investment in Kenh Dong Water Supply Joint-Stock
Company. There were no other known events that would trigger the Group to record contingent
financial obligation that would cause a material effect on the consolidated financial statements.
C. There were no off-balance sheet transactions, arrangements, obligations created during the
reporting period.
D. The Parent Company targets to spend around P
= 5 billion capital expenditures in 2013 for the
rehabilitation and construction of facilities to improve water and sewer services in the East Zone
Service Area, subject to rate rebasing review and government approvals. Capital Expenditures will
be funded from the current cash reserves, internal funds generation and proceeds of available loan
facilities.
- 20 -
E. In relation to the 2013 Rate Rebasing exercise, the Company has formally filed its Dispute Notice
on September 24, 2013, which officially commences the arbitration process pursuant to the
Concession Agreement with MWSS. Aside from the filing of the Dispute Notice, there were no
known trends, events or uncertainties that have had or that are reasonably expected to have a
material favorable or unfavorable impact on the Group’s net sales/revenues/income from
operations.
F. There were no significant changes in income or loss arising from the non-operating activities of the
Group.
- 21 -
BASIS OF PREPARATION
The consolidated financial statements of the Company and its subsidiaries (collectively the “Group”)
have been prepared using the historical cost basis and IFRIC 12, except for available-for-sale (AFS)
financial assets and derivative financial instruments that have been measured at fair value. The Group’s
presentation and functional currency is the Philippine Peso (P
= ).
Our consolidated financial statements include the financial statements of the Company and the
following subsidiaries.
Percentage of
Ownership
Name of Subsidiary
Location
Principal Activity
2013
Manila Water
International Solutions
Inc. (MWIS)
Philippines
Management of waterworks, waste
waterworks and treatment facilities
Manila Water Total
Solutions Corporation
(MWTS)
Philippines
AAAWater Corporation
(AWC)
2012
100%
100%
Management and consultancy on
water, wastewater and environmental
projects
100
100
Philippines
Concession to provide water services
100
100
Laguna AAAWater
Corporation (LAWC)
Philippines
Concession to provide waterservices
70
70
Manila Water
Consortium, Inc.(formerly
Northern Waterworks and
Rivers of Cebu, Inc.
(NWRC))
Cebu Manila Water
Development Co.
Philippines
Construction and management of
waterworks, wastewater works and
treatment facilities
51
84
Philippines
Construction and management of
waterworks, wastewater works and
treatment facilities
51
-
Boracay Island Water
Company, Inc. (BIWC)
Philippines
Concession to provide water and
wastewater services
80
80
Manila Water Asia Pacific
Pte.Ltd (MWAP)
Singapore
Investment holdings
100
100
Manila Water South
Asia Holdings
Pte.Ltd
(MWSAH)
Thu Duc Water
Holdings Pte. Ltd.
(TDWH)
Kenh Dong Water
Holdings Pte Ltd
(KDWH)
Singapore
Investment holdings
100
100
Singapore
Investment holdings
100
100
Singapore
Investment holdings
100
-
Philippines
Concession to provide water and
wastewater services
100
100
Clark Water
Corporation(CWC)
- 22 -
Non-controlling interests represent the portion of the profit or loss and net assets in subsidiaries which
are not wholly owned and are represented separately in the consolidated statement of income and
changes in equity and within the equity section in the consolidated balance sheet, separately from the
Group’s equity. Transactions with non-controlling interests are handled in the same way as transactions
with the external parties.
MWIS was registered with the Securities and Exchange Commission (SEC) on October 13, 2006. It
changed its registered name from West Zone Water Services Inc. on May 29, 2008.
The Group purchased 100% ownership of AAAWater Corporation (AWC) from Asia Water Limited and
All Asia Development Corporation on July 20 and 24, 2009, respectively.
AWC owned 70% of Laguna AAAWater Corporation (LAWC), a company formed via a joint venture
entered into by AWC and the local government of the Province of Laguna (POL), with shareholdings of
70% and 30%, respectively.
Boracay Island Water Company, Inc. (BIWC) was incorporated and registered with SEC on December
2
7, 2009. BIWC is 80% owned by the Company and 20% by Philippine Tourism Authority (PTA) . BIWC
entered into a Concession Agreement with PTA on December 17, 2009 as concessionaire for a 25-year
concession to manage, operate and refurbish all fixed assets required to provide water and wastewater
services to the island.
Manila Water Asia Pacific Pte.Ltd. (MWAP) and Manila Water South Asia Holding Pte. Ltd. (MWSAH)
were incorporated on April 29, 2010 and July 5, 2010 respectively, as investment holding companies.
MWAP is 100% owned by the Company. MWAP incorporated TDWH in October 2011 as a holding
company for Thu Duc B.O.O. Corporation.
In November 2011, the Group acquired CWC, whose principal activity is to operate and maintain the
water and sewerage system inside the Clark Freeport Zone (CFZ).
On March 21, 2012, NWRC acquired 51% equity shares of Cebu Manila Water Development Co. via a
joint venture with the Provincial Government of Cebu. On May 21, 2012, Northern Waterworks and
Rivers of Cebu, Inc. (NWRC) changed its business name to Manila Water Consortium, Inc.
On June 19, 2012, MWAP incorporated KDWH as a holding company for Kenh Dong Water Supply
Joint Stock Company.
PFRS 10, Consolidated Financial Statements, replaces the portion of PAS 27, Consolidated and
Separate Financial Statements, that addresses the accounting for consolidated financial statements
and includes the issues raised in SIC-12, Consolidation – Special Purpose Entities. PFRS 10
establishes a single control model that applies to all entities including special purpose entities. The
changes introduced by PFRS 10 requires management to exercise significant judgment to determine
which entities are controlled, and therefore, are required to be consolidated with the Parent Company,
compared with the requirements of PAS 27. Control is the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities and is presumed to exist when, directly or
indirectly, it holds more than half of the issued share capital, or controls more than half of the voting
power, or exercises control over the operation and management of the entity. The Company adopted
the standard on January 1, 2013. An assessment as of September 30, 2013 indicates that subsidiaries:
Manila Water International Solutions Inc. (MWIS), Manila Water Total Solutions Corporation (MWTS),
Laguna AAAWater Company (LAWC), Manila Water Consortium, Inc. (formerly Northern Waterworks
and Rivers of Cebu, Inc. (NWRC)), Boracay Island Water Company (BIWC), Manila Water Asia Pacific
Pte.Ltd (MWAP) and Clark Water Corporation shall remain to be fully consolidated with the Group’s
financial statements as management control over these entities is expected to remain the same. The
Group’s investments in associate and/or joint venture shall likewise remain the same as there is no
foreseeable increase in the level of management control over them (Thu Duc Water B.O.O. Corporation
and Kenh Dong Water Joint Stock Company, both in Vietnam).
2
Now known as Tourism Infrastructure and Enterprise Zone Authority (TIEZA)
- 23 -
MANAGEMENT’S JUDGEMENTS AND USE OF ESTIMATES
The preparation of the accompanying consolidated financial statements in conformity with PFRS
requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. The estimates and assumptions used in
the accompanying consolidated financial statements are based upon management’s evaluation of
relevant facts and circumstances as of the date of the consolidated financial statements. Actual results
could differ from such estimates.
Management believes the following represent a summary of these significant estimates and judgments:
Service Concession Arrangement
In applying Philippine Interpretation IFRIC 12, the Group has made a judgment that the Concession
Agreement qualifies under the Intangible Asset model. The Group accounts for its concession
arrangement with MWSS, POL, TIEZA and CDC under the Intangible Asset model as it receives the
right (license) to charge users of public service. Under the Group’s concession agreements, the Group
is granted the sole and exclusive right and discretion during the concession period to manage, occupy,
operate, repair, maintain, decommission and refurbish the identified facilities required to provide water
services. The legal title to these assets shall remain with MWSS, POL, TIEZA and CDC at the end of
the concession period.
The “Service concession assets” (SCA) pertain to the fair value of the service concession obligations at
drawdown date, construction costs related to the rehabilitation works performed by the Group and other
local component costs and cost overruns paid by the Group. These are amortized using the straightline method over the life of the related concession.
In addition, the Parent Company, BIWC, CWC and LAWC recognize and measure revenue from
rehabilitation works in accordance with PAS 11, Construction Contracts, and PAS 18, Revenue, for the
services it performs. Recognition of revenue is by reference to the ‘stage of completion method’, also
known as the ‘percentage of completion method’ as provided under PAS 11. Contract revenue and
costs from rehabilitation works are recognized as “Revenue from rehabilitation works” and “Cost of
rehabilitation works” in profit or loss in the period in which the work is performed.
Impairment of AFS financial assets
The Group treats AFS financial assets as impaired when there has been a significant or prolonged
decline in the fair value below its cost or where other objective evidence of impairment exists. The
determination of what is ‘significant’ or ‘prolonged’ requires judgment. The Group treats ‘significant’
generally as 20% or more and ‘prolonged’ as greater than six (6) months for quoted securities. In
addition, the Group evaluates other factors, including the future cash flows and the discount factors of
these securities.
Redeemable preferred shares
These shares are treated as equity and are therefore presented under the “equity” section of the Group
statement of financial position as management concluded that these are not mandatorily redeemable
since the redemption of the redeemable preferred shares is at the Group’s option.
Investments in Subsidiaries
PFRS 10, Consolidated Financial Statements, replaces the portion of PAS 27, Consolidated and
Separate Financial Statements that addresses the accounting for consolidated financial statements and
includes the issues raised in SIC-12, Consolidation - Special Purpose Entities. PFRS 10 establishes a
single control model that applies to all entities including special purpose entities. The changes
introduced by PFRS 10 will require management to exercise significant judgment to determine which
entities are controlled, and therefore, are required to be consolidated with the Parent Company,
compared with the requirements of PAS 27. Control is the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities and is presumed to exist when, directly or
indirectly, it holds more than half of the issued share capital, or controls more than half of the voting
power, or exercises control over the operation and management of the entity. The Group will apply the
standard effective January 1, 2013.
- 24 -
As of September 30, 2013, the Group considers Manila Water International Solutions Inc. (MWIS),
Manila Water Total Solutions Corporation (MWTS), Laguna AAAWater Company (LAWC), Manila
Water Consortium, Inc. (formerly Northern Waterworks and Rivers of Cebu, Inc. (NWRC)), Boracay
Island Water Company (BIWC), Manila Water Asia Pacific Pte.Ltd (MWAP) and Clark Water
Corporation as subsidiaries because it exercises control over the said entities.
Operating lease commitments -Group as lessee
The Group has entered into commercial property leases on its administrative office. The Group has
determined that it does not acquire all the significant risks and rewards of ownership of this property
which are leased on operating lease.
Contingencies
The Group is currently involved in various legal proceedings. The estimate of the probable costs for the
resolution of these claims has been developed in consultation with internal and outside counsels
handling the defense in these matters and is based upon an analysis of potential results.
The Group currently does not believe these proceedings will have a material adverse effect on the
Group’s financial position. It is possible, however, that future results of operations could be materially
affected by changes in the estimates or in the effectiveness of the strategies relating to these
proceedings.
Use of Estimates
Key assumptions concerning the future and other sources of estimation and uncertainty at the balance
sheet date that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are discussed below.
Revenue and Cost Recognition
The Group’s revenue recognition policies require management to make use of estimates and
assumptions that may affect the reported amounts of revenue and costs. The Group’s revenue from
pipeworks and management contracts recognized based on the percentage of completion are
measured principally on the basis of the estimated completion of a physical proportion of the contract
work, and by reference to the actual costs incurred to date over the estimated total costs of the project.
Estimating allowance for doubtful accounts
The Group maintains allowance for doubtful accounts based on the results of the individual and
collective assessments under PAS 39. Under the individual assessment, the Group is required to
obtain the present value of estimated cash flows using the receivable’s original effective interest rate.
Impairment loss is determined as the difference between the receivable’s carrying amount and the
computed present value. Factors considered in individual assessment are payment history, past due
status and term. The collective assessment would require the Group to group its receivables based on
the credit risk characteristics (industry, customer type, customer location, past-due status and term) of
the customers. Impairment loss is then determined based on historical loss experience of the
receivables grouped per credit risk profile. Historical loss experience is adjusted on the basis of current
observable data to reflect the effects of current conditions that did not affect the period on which the
historical loss experience is based and to remove the effects of conditions in the historical period that
do not exist currently. The methodology and assumptions used for the individual and collective
assessments are based on management's judgment and estimate. Therefore, the amount and timing
of recorded expense for any period would differ depending on the judgments and estimates made for
the year.
Estimating useful lives of property and equipment
The Group estimates the useful lives of its property and equipment based on the period over which the
assets are expected to be available for use. The Group reviews annually the estimated useful lives of
property and equipment based on factors that include asset utilization, internal technical evaluation,
technological changes, environmental and anticipated use of the assets tempered by related industry
benchmark information. It is possible that future results of operations could be materially affected by
changes in the Group’s estimates brought about by changes in the factors mentioned. A reduction in
the estimated useful lives of property and equipment would increase depreciation and amortization and
decrease noncurrent assets.
- 25 -
Asset impairment
The Group assesses the impairment of assets whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The factors that the Group considers
important which could trigger an impairment review include the following:



significant underperformance relative to expected historical or projected future operating results;
significant changes in the manner of usage of the acquired assets or the strategy for the Group’s
overall business; and
significant negative industry or economic trends.
As described in the accounting policy, the Group estimates the recoverable amount as the higher of the
net selling price and value in use.
In determining the present value of estimated future cash flows expected to be generated from the
continued use of the assets, the Group is required to make estimates and assumptions regarding the
expected future cash generation of the assets (property and equipment, concession assets, and other
noncurrent assets), discount rates to be applied and the expected period of benefits.
Deferred tax assets
The Group reviews the carrying amounts of deferred income taxes at each balance sheet date and
reduces deferred tax assets to the extent that it is no longer probable that sufficient taxable income will
be available to allow all or part of the deferred tax assets to be utilized. However, there is no assurance
that the Group will generate sufficient taxable income to allow all or part of the deferred tax assets to be
utilized.
Furthermore, the Group does not recognize certain deferred taxes on deductible temporary differences
where doubt exists as to the tax benefits they will bring in the future.
Deferred FCDA and Deferred Credits
Under Amendment No. 1 of the Agreement, the Group is entitled to recover (refund) foreign exchange
losses (gains) arising from MWSS loans and any concessionaire loans. For the unrealized foreign
exchange losses, the Group recognized deferred FCDA as an asset since this is a resource controlled
by the Group as a result of past events and from which future economic benefits are expected to flow to
the Group. Unrealized foreign exchange gains, however, which will be refunded to the customers, are
presented as liability.
Share-based payments
The expected life of the options is based on the expected exercise behavior of the stock option holders
and is not necessarily indicative of the exercise patterns that may occur. The expected volatility is
based on the average historical price volatility of several water utility companies within the Asian region
which may be different from the expected volatility of the shares of stock of the Group.
Pension and other retirement benefits
The determination of the obligation and cost of pension and other retirement benefits is dependent on
the selection of certain assumptions used by actuaries in calculating such amounts which include,
among others, discount rate, expected return on plan assets and salary increase rate. While the Group
believes that the assumptions are reasonable and appropriate, significant differences in actual
experience or significant changes in assumptions materially affect retirement obligations.
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded in the consolidated balance
sheets or disclosed in the rates cannot be derived from active markets, they are determined using
internal valuation techniques using generally accepted market valuation models. The inputs to these
models are taken from observable markets where possible, but where this is not feasible, estimates are
used in establishing fair values. These estimates may include considerations of liquidity, volatility, and
correlation.
Derivative asset on bond call option was valued using the Black’s option model. Valuation inputs such
as discount rate were based on credit adjusted spot rate as of value date while interest rate volatility
was computed based on historical rates or data.
- 26 -
COMMITMENTS
Parent Company’s Concession Agreement with Metropolitan Waterworks and Sewerage System
(MWSS)
The significant commitments of the Parent Company under the Concession Agreement and Extension
are as follows:
a. To pay MWSS concession fees;
b. To post a performance bond, bank guarantee or other security acceptable to MWSS amounting to
USD70.00 million in favor of MWSS as a bond for the full and prompt performance of the Parent
Company’s obligations under the Agreement. The aggregate amounts drawable in one or more
installments under such performance bond during the Rate Rebasing Period to which it relates are
set out below.
Rate Rebasing Period
First (August 1, 1997 - December 31, 2002)
Second (January 1, 2003 - December 31, 2007)
Third (January 1, 2008 - December 31, 2012)
Fourth (January 1, 2013 - December 31, 2017)
Fifth (January 1, 2018 - December 31, 2022)
Sixth (January 1, 2013 - December 31, 2027)
Seventh (January 1, 2028 - December 31, 2032)
Eighth (January 1, 2033 - May 6, 2037)
Aggregate amount drawable
under performance bond
(in USD millions)
USD70
70
60
60
50
50
50
50
Within 30 days from the commencement of each renewal date, the Parent Company shall cause
the performance bond to be reinstated in the full amount set forth above as applicable for that year.
Upon not less than 10-day written notice to the Parent Company, MWSS may make one or more
drawings under the performance bond relating to a Rate Rebasing Period to cover amounts due to
MWSS during that period. However, no such drawing shall be made with respect to any claim that
has been submitted to the Appeals Panel for adjudication until the latter has handed down its
decision on the matter.
In the event that any amount payable to MWSS by the Parent Company is not paid when due, such
amount shall accrue interest at a rate equal to that of a 364-day Treasury Bill for each day it
remains unpaid.
c.
To increase its annual share in MWSS operating budget by 100% from P
= 198.0 million to P
= 395.0
million, subject to annual CPI as a result of the Extension;
d. To meet certain specific commitments in respect of the provision of water and sewerage services in
the East Zone, unless deferred by MWSS Regulatory Office (MWSS-RO) due to unforeseen
circumstances or modified as a result of rate rebasing exercise;
e. To operate, maintain, renew and, as appropriate, decommission facilities in a manner consistent
with the National Building Code and best industrial practices so that, at all times, the water and
sewerage systems in the East Zone are capable of meeting the service obligations (as such
obligations may be revised from time to time by the MWSS-RO following consultation with the
Group);
f.
To repair and correct, on a priority basis, any defect in the facilities that could adversely affect
public health or welfare, or cause damage to persons or third party property;
g. To ensure that at all times, the Parent Company has sufficient financial, material and personnel
resources available to meet its obligations under the Agreement; and
h. To ensure that no debt or liability that would mature after the life of the Agreement will be incurred
unless with the approval of MWSS.
- 27 -
Failure of the Parent Company to perform any of its obligations that is deemed material by MWSS-RO
may cause the Concession Agreement to be terminated.
LAWC’s Concession Agreement
The significant commitments of LAWC under its concession agreement with POL are as follows:
a. To pay POL concession fees;
b. To manage, occupy, operate, repair, maintain, decommission, and refurbish the transferred
facilities;
c.
To design, construct and commission the new facilities during the cooperation period;
d. To provide and manage the services;
e. To bill and collect payment from the customer for all services;
f.
To extract raw water exclusively from all sources of raw water; and
g. To negotiate in good faith with POL any amendment or supplement to the concession agreement to
establish, operate and maintain wastewater facilities if doing such is financially and economically
feasible.
BIWC’s Concession Agreement
The significant commitments of BIWC under its concession agreement with PTA are as follows:
a. To meet certain specific commitments in respect of the provision of water and sewerage services in
the service area, unless deferred by the PTA Regulatory Office (PTA-RO) due to unforeseen
circumstances or modified as a result of rate rebasing exercise;
b. To pay concession fees, subject to the following provisions:
1. Assumption of all liabilities of the Boracay Water Supply and Sewerage System (BWSS) as
of Commencement Date and service such liabilities as they fall due. BWSS has
jurisdiction, supervision and control over all waterworks and sewerage systems with the
island of Boracay prior to commencement date. The servicing of such liabilities shall be
applied to the concession fees;
2. Payment of an amount equivalent to 5% of the monthly gross revenue of BIWC, inclusive of
all applicable taxes. Such payments shall be subject to adjustment based on the gross
revenue of BIWC as reflected in its separate financial statements;
3. Provision of the amount of the PTA Board of Director’s (BOD) approved budget in 2010,
payable in 4 installments at the first month of each quarter and not exceeding:
Month
January
April
July
October
Maximum Amount
P
= 5,000,000
4,000,000
3,000,000
3,000,000
4. Provision of the annual operating budget of the PTA-RO, payable in 2 equal tranches in
January and July and not exceeding:
Year
2011
2012
2013 and beyond
c.
Maximum Amount
P
= 15,000,000
20,000,000
20,000,000, subject to annual
CPI adjustments
To establish, at Boracay Island, a PTA-RO building with staff house, the cost of which should be
reasonable and prudent;
d. To pay an incentive fee pegged at P
= 1.00 per tourist, local and foreign, entering the service area;
- 28 -
e. To raise financing for the improvement and expansion of the BWSS water and wastewater facilities;
f.
To operate, maintain, repair, improve, renew and, as appropriate, decommission facilities, as well
as to operate and maintain the drainage system upon its completion, in a manner consistent with
the National Building Code and best industrial practices so that, at all times, the water and
sewerage system in the service area is capable of meeting the service obligations (as such
obligations may be revised from time to time by the PTA-RO following consultation with BIWC);
g. To repair and correct, on a priority basis, any defect in the facilities that could adversely affect
public health or welfare, or cause damage to persons or third party property; and
h. To ensure that at all times, BIWC has sufficient financial, material and personnel resources
available to meet its obligations under the Agreement.
In addition, the Parent Company, as the main proponent of BIWC shall post a bank security in the
amount of USD2.5 million to secure the Parent Company’s and BIWC’s performance of their respective
obligations under the agreement. The amount of the performance security shall be reduced by Parent
Company following the schedule below:
Amount of
Performance Security
(in USD Millions)
USD2.5
2.5
1.1
1.1
1.1
Rate Rebasing Period
First
Second
Third
Fourth
Fifth
On or before the start of each year, BIWC shall cause the performance security to be reinstated in the
full amount set forth as applicable for that year.
Upon not less than 10 days written notice to BIWC, PTA may take one or more drawings under the
performance security relating to a Rate Rebasing Period to cover amounts due to PTA during that
period; provided, however, that no such drawing shall be made in respect of any claim that has been
submitted to the Arbitration Panel for adjudication until the Arbitration Panel has handed its decision on
the matter.
In the event that any amount payable to PTA by BIWC is not paid when due, such amount shall accrue
interest at a rate equal to that of a 364-day Treasury Bill for each day it remains unpaid.
Failure of BIWC to perform any of its obligations that is deemed material by PTA-RO may cause the
concession agreement to be terminated.
Technical services agreement
Simultaneous with the execution of BIWC’s concession agreement, BIWC and the Group executed a
Technical Services Agreement by which, the Group is being paid by BIWC a technical services fee
equivalent to 4% of the annual gross revenue of BIWC, for rendering the following services to BIWC:
a. Financial management, including billing and collection services, accounting methods and financial
control devices; and
b. Operations and project management, including facility operations and maintenance, and
infrastructure project management.
- 29 -
MOA with Ayala Land, Inc. (ALI)
In April 2010, the Group and ALI entered into a Memorandum of Agreement (MOA) to establish a water
utility services company which will manage and operate all water systems in Nuvali, as well as adjacent
ALI projects in Laguna. Under the Agreement, the Group shall infuse P
= 82 million cash and will be
responsible for all external water systems and the operation and management of the JV Company to be
established. Likewise, ALI shall infuse P
= 18 million cash and P
= 59 million “rights/lease” to internal and
external water systems and will be responsible for all internal water systems.
The joint venture company has not been established as of September 30, 2013.
CWC’s Concession Agreement with Clark Development Corporation
On March 16, 2000, Vivendi Water Philippines, Inc. (former name of Veolia Water Philippines, Inc.
(VWPI), entered into a Concession Agreement with Clark Development Water Corporation (CDC), a
government corporation organized and existing under Executive Order No. 80, series of 1993, in order
to set out the terms and conditions under which VWPI will finance, design, construct , operate and
maintain the water and sewerage system inside CFZ commencing on October 1, 2000 (the
Commencement Date) and ending on the date falling 25 years after thereafter or as may be extended
by the terms of the Concession Agreement. As the implementing arm of the Bases Conversion
Development Authority and the regulatory and development body for the CFZ, CDC has the power and
authority to regulate and monitor the performance and compliance of VWPI, or its assignee, with its
obligations under the Concession Agreement.
On September 1, 2000, in accordance with the terms of the Concession Agreement, VWPI assigned its
rights and obligations under the Concession Agreement to CWC by virtue of an Assignment and
Assumption Agreement between VWPI and CWC.
As consideration for the grant of the concession and franchise to develop, operate and maintain the
water and sewerage system within CFZ, CWC pays CDC an annual franchise fee of P
= 1.5 million.
On September 29, 2000, CDC leased in favor of CWC the existing facilities in compliance with the
condition precedent to the effectivity of and the respective obligations of CWC and CDC under the
Concession Agreement. Under the lease agreement, CWC was required to make a rental deposit
amounting to P
= 2.8 million equivalents to six months lease rental and a performance security amounting
to P
= 6.7 million to ensure the faithful compliance of CWC with the terms and conditions of the lease
agreement. CWC pays semi-annual rental fees of P
= 2.8 million amounting to a total of P
= 138.3 million for
the entire concession period. The lease term shall be co-terminus with the Concession Period unless
sooner terminated for any of the reasons specified in the Concession Agreement.
CWC’s Concession Agreement
The significant commitments of CWC under its concession agreement with CDC are follows:
a. To pay franchise and rental fees of CDC;
b. Finance, design, and construct new facilities - defined as any improvement and extension
works to (i) all existing facilities - defined as all fixed and movable assets specifically listed in
the concession agreement; (ii) construction work - defined as the scope of construction work
set out in the concession agreement; and (iii) other new works that do not constitute
refurbishment or repair of existing facilities undertaken after commencement date;
c. Manage, exclusively possess, occupy, operate, repair, maintain, decommission and refurbish
the existing facilities, except for the private deep wells set out in the concession agreement,
the negotiations for the acquisition and control of which shall be the sole responsibility and for
the account of the CWC; and manage, own, operate, repair, maintain, decommission and
refurbish the new facilities;
d. Treat raw water and wastewater in CFZ;
e. Provide and manage all water and wastewater related services (the Services) like assisting
locator of relocating of pipes and assess internal leaks;
- 30 -
f. Bill and collect payment from all persons residing in CFZ (with the exception of SM City
Clark) for the Services. SM City Clark has been carved out by virtue of Republic Act 9400
effective 2007 even if it is located within the franchise area; and
g. Extract raw water exclusively from all sources of raw water including all catchment areas,
watersheds, springs, wells and reservoirs in CFZ free of charge by CDC.
Manila Water Consortium Joint Investment Agreement
On March 21, 2012, Manila Water Consortium, Inc. (MWIC) has signed a Joint Investment Agreement
(“Agreement”) with the Provincial Government of Cebu represented by Governor Gwendolyn F. Garcia,
for the formation of a joint investment company with 51% and 49% equity participation for MWIC and
The Province of Cebu, respectively.
The Agreement established the commitment of the parties to jointly develop and operate a bulk water
supply system that will supply 35 million liters of water per day to target areas in the province of Cebu.
The said joint investment company shall serve as a bulk water provider. The joint investment company
was incorporated on May 28, 2012 under the name Cebu Manila Water Development, Inc.
The term of Agreement is 30 years, renewable for another 25 years.
Guarantee Agreement with MWSAH
On November 22, 2012, the Parent Company signed as a guarantor of a credit facility entered into
with MWSAH (the Guarantee Agreement). The significant commitments of the Parent Company
under the Guarantee Agreement are as follows:
a. Guarantees to each creditor punctual performance of MWSAH of all MWSAH’s obligations
under the Guarantee Agreement;
b. To pay, on demand, the amount as if it was the principal obligor in case the Borrower defaults;
and
c.
Agrees that if any obligation guaranteed becomes unenforceable, invalid or illegal, the Parent
Company shall, as an independent and primary obligation, indemnify the creditors on demand
against any cost, loss or liability it incurs as a result of the Borrower not paying any amount
which would, but for such unenforceability, invalidity or illegality, have been payable by it
under the Guarantee Agreement on the date when it would have been due.
On August 12, 2013, the Parent Company cancelled or reduced the credit facility to zero.
- 31 -
MANAGEMENT’S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The following management’s discussion and analysis (“MD&A”) of Manila Water Company Inc.’s (“MWCI”)
financial condition and results of operations should be read in conjunction with the Group’s unaudited
financial statements, including related notes. This report may contain forward-looking statements that
involve risks and uncertainties. The actual results may differ materially from those discussed in the forwardlooking statements as a result of various factors, including but not limited to, economic, regulatory, sociopolitical, financial, and other risk factors.
Any references in this MD&A to “our”, “us”, “we”, “MWCI” or the “Group” shall refer to Manila Water
Company, Inc., including its subsidiaries. Any reference to “Manila Water Company”, “Manila Water”,
“MWC” or the “Company” shall refer to the parent company only.
Additional information about the Group, including recent disclosures of material events and annual/
quarterly reports, are available at our corporate website at www.manilawater.com.
OVERVIEW OF THE BUSINESS
Manila Water Company holds the exclusive right to provide water and waste water service to the eastern
side (“East Zone”) of Metro Manila under a Concession Agreement (“CA”) entered into between the
Company and Metropolitan Waterworks and Sewerage System (“MWSS”) in August 1997. The original term
of the concession was for a period of 25 years to expire in 2022. The Company’s concession was extended
by another 15 years by MWSS and the Philippine Government in 2009, thereby extending the term from
May 2022 to May 2037.
The Company provides water treatment, water distribution, sewerage and sanitation services to more than
six million people in the East Zone, comprising a broad range of residential, commercial and industrial
customers. The East Zone encompasses Makati, Mandaluyong, Pasig, Pateros, San Juan, Taguig and
most parts of Manila, Marikina, Quezon City as well as the following towns of Rizal: Angono, Antipolo,
Baras, Binangonan, Cardona, Jala-Jala, Morong, Pililia, Rodriguez, San Mateo, Tanay, Taytay and Teresa.
Under the terms of the CA, the Company has the right to the use of land and operational fixed assets, and
the exclusive right, as agent of MWSS, to extract and treat raw water, distribute and sell water, and collect,
transport, treat and dispose wastewater, including reusable industrial effluent discharged by the sewerage
system in the East Zone. The Company is entitled to recover over the concession period its operating,
capital maintenance and investment expenditures, business taxes, and concession fee payments, and to
earn a rate of return on these expenditures for the remaining term of the concession.
Aside from the East Zone, the Group currently has three operating subsidiaries in the Philippines, namely
Laguna AAA Water Corporation (“LWC”), Boracay Island Water Company (“BIWC”) and Clark Water
Corporation (“CWC”). It also has presence in Vietnam through a leakage reduction project in Ho Chi Minh
City and two bulk water companies, namely Thu Duc Water B.O.O Corporation (“TDW”) and Kenh Dong
Water Supply Joint Stock Company (“KDW”).
The Group continues to explore new business opportunities. In the first quarter of 2012, the Company
through Northern Waterworks and Rivers of Cebu, signed a Joint Investment Agreement with the Provincial
Government of Cebu for the development and operation of a bulk water supply system in the province.
Construction of the transmission line is ongoing and is expected to start operations in the second quarter of
2014.
On October 8, 2013, Manila Water South Asia Holdings Pte. Ltd. (“MWSAH”), a wholly-owned subsidiary of
Manila Water in Singapore, completed its subscription to 18,370,000 primary shares of Saigon Water
Infrastructure Corporation (“Saigon Water”), equivalent to 31.47% of the outstanding capital stock of Saigon
Water. Saigon Water is a Vietnamese company listed in the Ho Chi Minh City Stock Exchange. It aims to
become the first fully integrated company in the Vietnam water and wastewater infrastructure sector.
- 32 -
CONSOLIDATED FINANCIAL PERFORMANCE
The Group’s key financial performance indicators are discussed below:
For the nine months ended September 30
(in thousand Pesos)
Increase/
2013
2012
(Decrease)
Total revenues
11,539,554
10,899,487
640,067
Total cost and expenses, excluding
3,250,909
3,324,953
(74,045)
depreciation and amortization
Other income/(expense) - net
243,730
91,203
152,528
EBITDA
8,532,375
7,665,736
866,639
1,854,152
1,631,237
222,915
Income before other income/expenses
6,678,223
6,034,499
643,725
Interest income/(expense) - net
(1,130,908)
(1,027,400)
(103,508)
5,547,316
5,007,099
540,217
Provision for income tax
1,227,058
1,060,294
166,764
Net income
4,320,258
3,946,805
373,453
(27,252)
(11,163)
(16,089)
Net income attributable to MWC
4,293,006
3,935,642
357,364
%
6%
-2%
167%
11%
14%
11%
10%
11%
16%
9%
144%
9%
Manila Water Company Inc. continued to post earnings growth in the first nine months of 2013 as
consolidated net income grew by 9% to P4,293 million from the P3,936 million posted in the same period
last year. Consolidated operating revenues for the first nine months reached P11,540 million, 6% higher
than the P10,899 million posted in the same period in 2012. The increase was driven by the 2% billed
volume growth in the East Zone as well as the 3% improvement in average effective tariff resulting from the
CPI adjustment of 3.2% implemented in January this year. The contribution from the operating subsidiaries
amounting to P683 million also helped improve the growth in revenues.
The breakdown of the revenue drivers is shown below:
Water
Environmental charges
Sewer
Revenue from management contracts
Others
Total operating revenues
(in thousand Pesos)
Increase/
2013
2012
(Decrease)
9,047,791
8,559,644
488,147
1,707,903
1,677,198
30,705
297,900
287,954
9,945
132,829
131,630
1,199
353,131
243,060
110,070
11,539,554
10,899,487
640,067
%
6%
2%
3%
1%
45%
6%
The Group derived 78% of its operating revenues from water bills, while 18% came from environmental and
sewer charges. Other revenues, which accounted for the balance of 4%, were from management contracts
in Vietnam, laboratory services and connection fees, among others.
Revenue growth outpaced expenses in the first nine months of 2013 largely because of the benefits gained
from the manpower restructuring program initiated by the Company in the second and third quarters of last
year. Consolidated operating costs and expenses (excluding depreciation and amortization) dropped by 2%
to P3,251 million in the first nine months of 2013. The decline came mostly from lower salaries, wages and
employee benefits which offset the higher direct costs brought about by contractual services, and overhead
costs particularly management and professional fees that were incurred during the period.
- 33 -
Below is a summary of the operating expenses incurred during the period:
Non-personnel costs
Direct costs, materials and supplies
Overhead
Premises Cost
Other expenses
Total operating expenses
(in thousand Pesos)
Increase/
2013
2012
(Decrease)
933,190
1,135,353
(202,163)
2,317,718
2,189,600
128,118
1,261,230
1,204,484
56,746
491,167
412,522
78,645
125,994
108,449
17,545
439,326
464,145
(24,819)
3,250,909
3,324,953
(74,045)
%
-18%
6%
5%
19%
16%
-5%
-2%
The movements in revenues and operating expenses resulted in a consolidated earnings before interest,
taxes, depreciation and amortization (EBITDA) of P8,532 million in the first nine months, growing by 11%
from the same period in 2012, with an EBITDA margin of 74%.
BUSINESS SEGMENTS’ FINANCIAL AND OPERATING PERFORMANCE
Results of operations detailed as to business segment are shown below:
For the nine months ended September 30, 2013
(in thousand Pesos)
Operating Management
East Zone
Subsidiaries
Contracts Consolidated
Revenue
10,723,689
683,036
132,829
11,539,554
Operating expenses
4,613,181
415,270
76,610
5,105,061
Operating income
6,110,508
267,766
56,220
6,434,493
Revenue from rehabilitation works
2,930,142
325,825
3,255,967
Cost of rehabilitation works
(2,930,142)
(325,825)
(3,255,967)
Interest income
118,868
6,226
125,094
Interest expense
(1,231,079)
(24,922)
(1,256,001)
Others
68,396
175,334
243,730
5,066,692
424,404
56,220
5,547,316
Provision for tax
1,179,879
47,179
1,227,058
Net income (loss)
3,886,813
377,225
56,220
4,320,258
Net income attributable to:
Equity holders of MWCI
Noncontrolling interest
4,033,659
4,033,659
259,347
27,252
286,599
Segment assets, exclusive of deferred assets
Deferred tax assets
62,520,035
835,804
63,355,839
10,119,436
38,016
10,157,452
266,489
266,489
72,905,960
873,821
73,779,781
Segment liabilities
41,758,692
2,298,320
31,542
44,088,554
2,927,262
1,713,110
995,219
141,042
-
3,922,481
1,854,152
Segment additions to equipment and SCA
- 34 -
-
4,293,006
27,252
4,320,258
The Group is comprised of the Metro Manila East Zone Concession, its operating subsidiaries and
management contracts secured outside of the service concession. The operating subsidiaries in the
Philippines include Boracay Island Water Company (“BIWC”), Clark Water Corporation (“CWC”) and
Laguna AAAWater Corporation (“LWC”). The Group also has a leakage reduction contract and stakes in
two bulk water suppliers in Ho Chi Minh City in Vietnam, namely Thu Duc Water BOO Corporation (Thu
Duc Water) and Kenh Dong Water Supply Joint Stock Company (Kenh Dong Water). Meanwhile,
contribution from the new project in the Province of Cebu will be recognized upon construction completion
of the transmission lines, expected for completion in the first quarter of 2014.
Net income for the first nine months of 2013 was derived largely from the East Zone Concession,
accounting for 91% of the total. Businesses outside the East Zone contributed the balance of 9% to
consolidated net income.
East Zone Concession (“East Zone”)
Increase/
(Decrease)
2013
2012
Operating Highlights
Billed volume (in million cubic meters)
Domestic
Semi-Commercial
Commercial
Industrial
Number of water connections
Non-revenue water
326.1
213.9
33.8
66.9
11.5
917,104
12.9%
321.1
210.1
32.0
68.8
10.3
889,448
10.7%
5.0
3.8
1.8
-1.9
1.3
27,656
2.2%
%
2%
2%
6%
-3%
12%
3%
East Zone’s billed volume, reported in millions of cubic meters (“mcm”), increased by 2% in the first nine
months of 2013. The number of water connections grew by 3% to 917,104 customers at the end of the
period, mostly from the expansion areas of Marikina, Pasig and Rizal. However, since the new connections
were mostly residential customers with relatively lower water usage, average consumption dropped by 3%
to 43.4 cubic meters from 44.5 cubic meters in the same period last year.
Aside from the continued growth in residential customers, billed volume growth was also driven by the
improvement in semi-commercial accounts by 6% with the completion of new buildings and the conversion
of deep well users in the areas of Pasig and Taguig, as well as the 12% growth of industrial customers due
to construction projects in Makati and Taguig areas. This was however tempered by the 3% decline in
commercial accounts caused by lower billed volume of existing customers.
The level of system losses, as measured by the non-revenue water (“NRW”) ratio, rose to 12.9% at the end
of the third quarter of 2013 from 10.7% in the same period last year. The NRW of East Zone increased as a
result of the Company’s continuous operational adjustment in the water flows from the primary transmission
lines going to the expansion areas of Marikina, Pasig, Rizal and some parts of Taguig to service the
demand of the existing and new customers.
Collection efficiency in the first nine months of 2013 was recorded at 101%, a significant improvement from
last year’s 95%. However, average account receivable days rose to 21 days from 19 days in the same
period last year as a result of the longer reading and billing days following the implementation in August
2012 of the new meter reading and billing system.
After the submission of Manila Water’s 2013 Rate Rebasing Plan last March 2012, MWSS released a
resolution setting a new set of tariffs for the East Zone. MWSS determined a negative adjustment of
29.47% in Manila Water’s 2012 average basic water charge.
On 24 September 2013, Manila Water raised its objection by filing a Dispute Notice with the dulyconstituted Appeals Panel, formally commencing the arbitration process which is a dispute resolution
mechanism outlined under the Concession Agreement.
- 35 -
Boracay Island Water Company (BIWC)
Increase/
2013
2012 (Decrease)
%
Non-revenue water
Financial Highlights (in thousand Pesos)
Revenues
Operating expenses
EBITDA
Net income
2.7
2.3
0.4
17%
5,547
14%
5,194
20%
353
-6%
7%
201,134
81,698
119,436
58,720
166,611
72,731
93,880
46,117
34,523
8,967
25,556
12,603
21%
12%
27%
27%
BIWC posted a 17% increase in billed volume in the first nine months of 2013 to 2.7 mcm from the same
period last year on the back of a 7% increase in water service connections and 15% growth in tourist
arrivals that reached 1.1 million as of year-to-date September. With the improvement in network operations,
the NRW level improved by six percentage points to 14% from 20% in the same period last year.
The growth in billed volume coupled with higher average tariff led to a 21% improvement in total revenues
to P201 million. BIWC implemented its approved rate rebasing tariff adjustment in February 2013 resulting
in an increase in average tariff of 4%. Operating expenses increased at a slower rate of 12% to P82 million,
corresponding to the higher water production and wastewater expansion, thereby improving its EBITDA
margin to 59% from 56% last year. Net income grew by 27% to P59 million as higher depreciation and
amortization charges were offset by lower interest expense and deferred tax provision.
Clark Water Corporation (CWC)
Increase/
(Decrease)
2013
2012
Non-revenue water
Revenues
Operating expenses
EBITDA
Net income
7.1
1,949
8%
245,377
116,354
129,023
68,569
6.7
1,907
12%
237,930
112,922
125,008
62,733
0.5
42
-4%
7,447
3,432
4,015
5,836
%
7%
2%
3%
3%
3%
9%
CWC posted a billed volume growth of 7% in the first nine months of 2013 to 7.1 mcm as it continued to
connect new customers in its concession area. Efforts to reduce non-revenue water resulted in significant
results as the NRW level as of the end of September 2013 has declined to 8% from 12% in the same period
last year. Proper management of water levels and monitoring of water pumping schedules led to the NRW
improvement.
The increase in billed volume resulted in a revenue growth of 3% from P238 million in the first nine months
of 2012 to P245 million in the same period this year. Meanwhile, operating expenses also increased by 3%
to P116 million, thereby bringing EBITDA growth to a similar 3% to P129 million. CWC posted a net income
growth of 9% to P69 million on higher interest income during the period.
- 36 -
Laguna AAAWater Corporation (LWC)
Increase/
(Decrease)
2013
2012
Non-revenue water
Revenues
Operating expenses
EBITDA
Net income
8.2
59,414
22%
228,170
89,992
138,178
75,693
5.5
36,582
26%
134,308
60,789
73,519
41,778
2.7
22,832
-4%
93,862
29,203
64,659
33,915
%
49%
62%
70%
48%
88%
81%
Billed volume of LWC grew by 49% to 8.2 mcm largely due to the additional service connections totalling
almost 23,000. LWC converted a number of residential subdivisions and key commercial accounts during
the first nine months of 2013. The NRW ratio improved by four percentage points to end the first nine
months at 22% from 26% the previous year with the completion of the pipe replacement projects in
Cabuyao and leak repair activities in the old Matang Tubig Spring transmission lines in late 2012.
Revenues grew by 70% in the first nine months of 2013 to P228 million as a result of higher billed volume,
outpacing the 48% growth of operating expenses. This resulted in an EBITDA of P138 million which
showed an improvement of 88%, and a net income of P76 million which grew by 81%.
Thu Duc Water B.O.O Corporation (TDW)
Increase/
(Decrease)
2013
2012
Financial Highlights (in million VND)
Revenues
Operating expenses
EBITDA
Net income
in PFRS (in thousand Pesos)
Net income (49% contribution)
89.6
238,716
70,774
167,942
82,311
91.1
232,229
68,383
163,846
67,279
-1.5
6,487
2,391
4,096
15,032
%
-2%
3%
3%
2%
22%
159,893
TDW sold a total of 89.6 mcm in the first nine months of 2013, dropping by 2% from the 91.1 mcm billed
volume in the same period last year, due to the lower water intake of Saigon Water Corporation
(SAWACO). The billed volume is however still higher than the guaranteed minimum consumption of 300
million liters per day (mld) under the bulk water supply take-or-pay arrangement with SAWACO.
Using Vietnamese Accounting Standards (VAS), revenues grew by 3% to VND239 billion despite the slight
decline of 2% in billed volume as SAWACO drew less water from TDW during the year. Meanwhile,
operating expenses went up by 3%, attributable to the increase in General and Administrative Expenses.
This led to a 2% growth in EBITDA and a 22% improvement in net income to VND82 billion as the company
booked lower interest expenses owing to the continued paydown of its debt. In peso terms, the PFRStranslated income reflected in the consolidated financial statements as Equity in Net Earnings of Associates
amounted to P160 million, equivalent to Manila Water’s 49% stake in TDW.
- 37 -
Kenh Dong Water Supply Joint Stock Company (KDW)
(in thousand Pesos)
Increase/
(Decrease)
2013
2012
Financial Highlights (in million VND)
Revenues
Operating expenses
EBITDA
Net income
in PFRS (in thousand Pesos)
Net income (47% contribution)
%
21.2
-
21.2
100%
24,162
11,232
12,930
(13,210)
-
24,162
11,232
12,930
(13,210)
100%
100%
100%
-100%
86,983
KDW started commercial operations in July 2013, registering a billed volume of 21.2 mcm in the threemonth period ending September. The billed volume is lower than the guaranteed minimum consumption of
150 million liters per day (mld) under the bulk water supply take-or-pay arrangement with SAWACO but is
expected to improve as it ramps up its operations.
Using Vietnamese Accounting Standards (VAS), KDW posted revenues of VND24 billion and an EBITDA of
VND13 billion. Combined depreciation and interest expenses of VND26 billion however led to a net loss of
VND13 billion. Similar to TDW, income from KDW is translated into PFRS and is reported as Equity in Net
Earnings of Associates in the consolidated financial statements. In peso terms, the PFRS-translated income
amounted to P87 million, equivalent to Manila Water’s 47% stake in KDW due to depreciation expense
recognized under VAS.
BALANCE SHEET
The consolidated balance sheet remained strong and prepared for expansion at the end of September of
2013. Strong cash inflows brought about by the higher collection efficiency during the period and additional
debt brought cash and cash equivalents to P10.4 billion. Total assets rose by 10% to P73.8 billion as the
Company continued to lay additional capital investments on network, water and wastewater expansion
projects. Liabilities, on the other hand, rose by 9% to P44.1 billion due to the availment of new loans.
The Company continued to be compliant with the loan covenants, as the debt to equity ratio stood at 1.20x,
excluding concession obligations. Meanwhile, net bank debt to equity registered at 0.57x.
CAPITAL EXPENDITURES
The Company’s East Zone spent a total of P3,109 million (inclusive of concession fee payments) for capital
expenditures in the first nine months of 2013, 35% less than the P4,810 million spent during the same
period in 2012. The bulk of capital expenditures in the first nine months was spent on network, water supply
and wastewater expansion projects, which accounted for 65% of the total. The balance of 35% was mostly
accounted for by concession fees and other overhead capex such as IT equipment and software.
Meanwhile, total capital expenditures of the subsidiaries amounted to P500 million, 70% of which was used
by Laguna Water while the balance was disbursed by Boracay Island Water and Clark Water.
The Company will continue its East Zone capital expenditure program for on-going and service reliability
projects for the rest of the year. Capital expenditures are expected to be limited in the absence of an
approved business plan as part of the 2013 Rate Rebasing exercise that has yet to be concluded via
arbitration.
- 38 -
Causes for any material changes (+/- 5% or more) in the financial statements
Income Statement items – 3Q 2013 versus 3Q 2012
Water revenues – 6% increase
Increase of 6% or P
= 488.18 million due to higher billed volume following an increase in the number of
service connections and increase in average tariff in the East Zone resulting from CPI adjustment.
Other operating income – 45% increase
Increase by P
= 110.07 million was mainly due to the direct recognition of revenues of service connection fees
as revenue.
Costs of Services and Operating Expenses
For nine months ended September 30
(in thousand Pesos)
Power, light and water
Taxes and licenses
Repairs and maintenance
Systems Cost
Cost of projects outside the East Zone
Premises costs
Management, technical and professional fees
Collection fees
Cost of management contracts
Business meetings and representation
Water treatment chemicals
Septic sludge disposal
Regulatory costs
Provision for probable losses
Postage, telephone and supplies
Fuel
Advertising
Office supplies
Premium on performance bond
Transportation and travel
Other expenses
TOTAL OPEX (excluding depreciation &
amortization)
Increase
(Decrease)
2013
2012
P
= 933,190
630,818
181,732
176,904
167,070
146,490
125,994
107,255
84,171
76,610
73,130
52,463
52,016
49,157
39,097
24,858
13,116
11,355
10,341
5,184
1,877
288,081
P
= 1,135,353
694,006
139,822
143,918
188,096
101,380
108,449
44,694
92,096
136,975
76,339
64,447
51,194
37,695
36,695
18,646
13,372
9,168
3,818
4,197
4,957
219,636
(P
= 202,163)
(63,188)
41,910
32,986
(21,026)
45,110
17,545
62,561
(7,925)
(60,365)
(3,209)
(11,984)
822
11,462
2,402
6,212
(256)
2,187
6,523
987
(3,080)
68,445
(18%)
(9%)
30%
23%
(11%)
44%
16%
140%
(9%)
(44%)
(4%)
(19%)
2%
30%
7%
33%
(2%)
24%
171%
24%
(62%)
31%
P
= 3,250,909
P
= 3,324,953
(P
= 74,044)
(2%)
%
Salaries, wages and employee benefits – 18% decrease
Decrease was due to the accrued retirement expense in 2012 related to the manpower restructuring
program of the company.
Power, light and water – 9% decrease
Decrease was mainly due availment of power service in open access market for some major pumping
stations.
Taxes and licenses– 30% increase
Increase was due to higher business taxes on increased revenues and accrual of various taxes.
Repairs and maintenance – 23% increase
Increase was due to expanded maintenance activities brought about by the widened service coverage area.
Systems cost – 11% decrease
Decrease was attributable to lower recoverable costs and termination of TSA with United Utilities in 2012.
- 39 -
Cost of projects outside East Zone – 44% increase
Increase was due to higher number of projects outside the East Zone which are in the exploratory stage.
Premises Costs – 16% increase
Increase was mainly due to higher insurance coverage and premium rates, increase in rental rates of
rented offices including upward adjustment of security and janitorial rates due to mandated increase in
minimum wage.
Management, technical and professional fees – 140% increase
Increase was due to higher number of management fees related to Rate Rebasing of East Zone and the
operating subsidiaries due to expanding business operations.
Collection fees – 9% decrease
Decrease was due to the implementation of the combined meter reading and billing system, generating
savings on cost of bills delivery.
Cost of management contracts – 44% decrease
Decrease was mainly due to lower costs incurred by the NRW Management Contract in Vietnam which is
about to be completed or on its winding stage.
Water treatment chemicals – 19% decrease
Decrease was due to lower chemical usage this period compared to the same period last year due to lower
water turbidity.
Regulatory costs – 30% increase
Increase was due to CPI adjustment of regulatory payments in 2013.
Provision for probable losses – 7% increase
Increase was primarily attributable to the increase in provision for doubtful accounts and implementation of
provisioning policy in the subsidiaries.
Postage, telephone and supplies – 33% increase
Increase was due to additional requirements for radios and communication devices for employees due to
business expansion and wider service coverage areas.
Advertising – 24% increase
Increase was attributable to higher promotional and marketing costs related to the launch of the new Manila
Water brand and waste water advocacy programs like Toka-Toka.
Office supplies – 171% increase
Increase was attributable to higher usage of office supplies due to the current rate rebasing exercise and
higher prices.
Premium on performance bond – 24% increase
Increase was due to higher premium rates for the applicable period and higher dollar-to-peso exchange
rate.
Transportation and travel – 62% decrease
Decrease was due to lesser foreign travels this year.
Other expenses – 31% increase
Increase was due to additional overhead cost and miscellaneous expenses, attributable to the expanding
operational activities of the Group.
Other Income (Expenses)
Interest income – 31% decrease
Decrease was due to lower interest rates.
Interest expense – 4% increase
Increase was due to additional loan drawdowns in the last quarter of 2012.
- 40 -
Equity share in net income of associates – 195% increase
Increase pertains to higher income of new associates, namely Thu Duc Water and Kenh Dong Water
Supply Joint Stock Company.
Gain on revaluation of receivables from Bonifacio Water Corporation – 100%
Gain on BWC receivable account pertains to increase in value of receivables as a result of higher billed
volume than projected in the agreement.
Balance Sheet items – September 30, 2013 versus December 31, 2012
Cash and cash equivalents – 89% increase
Increase of P
= 4.71 billion was mainly due to loan availment of MWC Parent amounting to
P
= 5.0 billion.
Receivables (net) – 9% decrease
Net decrease of P
= 134.32 million was due to the combined effects of improved collection and increase in
allowance for doubtful accounts.
Materials and supplies – at cost – 46% decrease
Decrease of P
= 32.34 million was due to lower stock purchases in 2013 compared to the same period in
2012.
Other current assets – 38% decrease
Decrease of P
= 411.33 million was attributable to the withdrawal of the escrow account for the project and
decrease in prepaid taxes.
Property and equipment (net) – 12% decrease
Decrease of P
= 268.85 million was mainly due to depreciation of IT and plant technical equipment.
Available-for-sale financial assets – 41% decrease
Decrease of P
= 201.73 million was due to maturities of AFS financial assets in 2013.
Investment in associate – 8% increase
Increase of P
= 296.31 million was due to higher equity pick-up of investment in Thu Duc Water B.O.O. Kenh
Dong Water Supply Joint-Stock Company in 2013.
Other noncurrent assets – 11% increase
Increase of P
= 84.78 million was mainly due to the increase in noncurrent portion of the receivable from BWC
as a result of revaluation.
Accounts and other payables – 11% increase
Increase of P
= 484.15 million mainly due to dividend accrual amounting to P
= 927.27 million.
Current portion of service concession obligation – 51% increase
Increase of P
= 427.92 million due to higher amortization due during the year.
Income tax payable – 7% decrease
Decrease of P
= 31.11 million was due to payment of 2012 and first half of 2013 corporate tax in the third
quarter of 2013.
Payable to related parties – 47% increase
Increase of P
= 12.89 million due to differences in timing of payments of technical service fees covered by
Technical Services Agreement.
Long term debt- net of current portion – 24% increase
Increase of P
= 4.78 billion was mainly attributable to loan availment of MWC Parent amounting to P
= 5.0 billion
during the period.
Pension liabilities (net) – 18% decrease
Decrease of P
= 70.09 million was due to contribution made to retirement fund in 2013.
Deferred tax liability – 91% increase
Increase of P
= 0.14 million due to lower amortization expense differential.
- 41 -
Provisions and contingencies – 11% increase
Increase of P
= 85.36 million due to accrual of various taxes.
Other noncurrent liabilities – 26% decrease
Decrease of P
= 528.66 million was mainly attributable to the decrease in deferred FCDA-liability account due
to implementation of negative FCDA of 1.97% equivalent to P
= 0.54 per cubic meter effective July 2013.
Subscriptions receivable – 15% decrease
Decrease of P
= 33.13 million was due to collection of subscriptions from ESOWN.
Common stock options outstanding – 247% increase
Increase of P
= 33.53 million due to additional stock options granted under ESOWN during the period.
Retained earnings – 12% increase
Increase of P
= 2.48 million due to net income for the period ended September 30, 2013 partially diminished
by dividend declaration.
Unrealized gain on available-for-sale financial assets – 53% decrease
Increase of P
= 11.69 million was due to investment maturities in 2013.
Cumulative translation adjustment – 978% increase
Increase of P
= 86.76 million was attributable to the exchange differences arising from the translation from
Singapore Dollar into Philip12ine Peso of the books of Manila Water Asia Pacific Pte., Ltd.
Non-controlling interest – 118% increase
Increase of P
= 314.21 million was attributable to higher income
controlling interests.
- 42 -
of subsidiaries where MWC has non-
Summary of Appendices
A.
B.
C.
D.
E.
F.
Board of Directors and Senior Management Team
Financial Risk Management
Manila Water Stock and Dividends Information
Summary of corporate disclosures during the 3nd quarter of 2013
Regulatory Key Performance Indicators and Business Efficiency Measures
Tariff table
- 43 -
APPENDIX A
BOARD OF DIRECTORS AND SENIOR MANAGEMENT TEAM
The Board has eleven (11) members elected by the Company’s stockholders entitled to vote at the annual
meeting. The directors hold office for one (1) year and until their successors are elected and qualified in
accordance with the Company’s By-Laws. The following are the members of the Board with the corporate
secretarial officers as of September 30, 2013.
Name
Fernando Zobel de Ayala
Jaime Augusto Zobel de Ayala
Gerardo C. Ablaza Jr.
Antonino T. Aquino
Delfin L. Lazaro
John Eric T. Francia
Ricardo Nicanor N. Jacinto
Masaji Santo
Sherisa P. Nuesa
Jose L. Cuisia Jr.
Oscar S. Reyes
Solomon M. Hermosura
Jhoel P. Raquedan
Position
Chairman of the Board and Executive Committee
Director
Director
Director
Director
Director
Director
Director
Independent Director
Corporate Secretary
Asst. Corporate Secretary
The following is a list of the Company’s key executive officers as of June 30, 2013.
Name
Gerardo C. Ablaza Jr.
Luis Juan B. Oreta
Virgilio C. Rivera Jr.
Ferdinand M. dela Cruz
Ruel T. Maranan
Geodino V. Carpio
Abelardo P. Basilio
Rodell A. Garcia
Position
President and CEO
Chief Finance Officer and Treasurer
Group Director, Corporate Strategy and Development
Group Director, East Zone Business Operations
Group Director, Corporate Human Resources
Group Director, Operations
Group Director, Strategic Asset Management
Chief Technology Adviser
For more information about each of the members of the Board and management team, please visit our
website at www.manilawater.com.
- 45 -
APPENDIX B
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group’s principal financial instruments comprise of cash and cash equivalents, short-term cash
investments, AFS financial assets and long-term debt. The financial debt instruments were issued
primarily to raise financing for the Group’s operations. The Group has various financial assets such
as cash and cash equivalents, short-term cash investments, trade receivables and payables which
arise directly from the conduct of its operations.
The main purpose of the Group’s financial instruments is to fund its operations and capital
expenditures. The main risks arising from the use of financial instruments are liquidity risk, foreign
currency risk, interest rate risk, equity price rate risk and credit risk.
The Parent Company’s BOD reviews and approves the policies for managing each of these risks.
The Group monitors market price risk arising from all financial instruments and regularly report
financial management activities and the results of these activities to the Parent Company’s BOD.
The Group’s risk management policies are summarized below:
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in market interest rates. The Group’s exposure to interest rate risk
relates primarily to its financial instruments with floating and/or fixed rates. Fixed rate financial
instruments are subject to fair value interest rate risk while floating rate financial instruments are
subject to cash flow interest rate risk.
For cash flow interest rate risk, the Group’s policy is to manage its interest cost using a mix of fixed
and variable rate debts. Approximately, 69% and 61% of the Group’s borrowings have fixed rates
as of September 30, 2013 and December 31, 2012, respectively.
For fair value interest rate risk, the Group’s investment policy requires it to buy and hold AFS
financial assets, unless the need to sell arises, and to reduce the duration gap between financial
assets and financial liabilities to minimize interest rate risk. Securities are also marked-to-market
monthly to reflect and account for both unrealized gains and losses.
46
The following tables show information about the nominal amount of the Group’s financial
instruments that are exposed to cash flow and fair value interest rate risks which are presented by
maturity profile.
September 30, 2013
Within 1 year
Cash in banks and cash
equivalents
Interest Rates (Range)
0.25% to 2.0%
AFS Financial Assets
Bonds
Government Securities
RTBN
6.25%
Corporate Bonds
6.8% to 8.5%
P
= 10,349,498
More than 5
Within 5 Years
years
(in thousands)
P
=-
P
=-
52,612
-
51,893
104,505
P
= 10,454,003
P
=-
Total
P
= 10,349,498
-
52,612
33,274
85,167
33,274
137,779
P
= 33,274 P
= 10,487,277
December 31, 2012
Within 1 year
Cash in banks and cash
equivalents
1.20% to 3.75%
AFS Financial Assets
Bonds
Government Securities
RTBN
7.125%
Corporate Bonds
2.3% to 6.5%
P
= 5,537,728
Within 5 Years
(in thousands)
P
=-
More than 5
years
P
=-
Total
P
= 5,537,728
49,384
50,117
-
99,501
92,799
142,183
P
= 5,679,911
51,765
101,882
P
= 101,882
91,847
91,847
P
= 91,847
236,411
335,912
P
= 5,873,640
47
September 30, 2013
Within 1 year
Fixed Rate Long Term Debt
(exposed to fair value risk)
Floating Rate Long Term Debt
(exposed to cash flow risk)
More than 5
Within 5 Years
years
(In thousands)
Total
P
= 1,889,333
P
= 6,720,653
P
= 11,285,348
P
= 19,895,334
1,273,564
P
= 3,162,897
4,807,139
P
= 11,527,792
2,715,558
P
= 14,000,906
8,796,261
P
= 28,691,595
December 31, 2012
Within 1 year
Fixed Rate Long Term Debt
(exposed to fair value risk)
Floating Rate Long Term Debt
(exposed to cash flow risk)
More than 5
Within 5 Years
years
(In Thousands)
Total
P
= 2,976,648
P
= 6,704,443
P
= 5,045,561
P
= 14,726,652
1,253,819
P
= 4,230,467
4,845,371
P
= 11,549,814
3,161,082
P
= 8,206,643
9,260,272
P
= 23,986,924
Interest on financial instruments classified as floating rate is repriced on a semi-annual basis. Interest on financial
instruments classified as fixed rate is fixed until the maturity of the instrument.
Foreign Exchange Risk
The Group’s foreign exchange risk results primarily from movements of the Philippine Peso (PHP)
against the United States Dollar (USD) and Japanese Yen (JPY). Majority of revenues are
generated in PHP, and substantially all capital expenditures are also in PHP. Approximately 40%
and 47% of debt as of September 30, 2013 and December 31, 2012, respectively, are denominated
in foreign currency. Under Amendment 1 of the Agreement, however, the Parent Company has a
natural hedge on its foreign exchange risks on its loans and concession fee payments through a
recovery mechanism in the tariff.
Information on the Group’s foreign currency-denominated monetary assets and liabilities and their
Philippine Peso equivalents are as follows:
September 30, 2013
Original
Peso
Currency
Equivalent
(Amounts in Thousands)
Assets
USD
Vietnamese Dong (VND)
Singaporean Dollar(SGD)
Australian Dollar (AUD)
Liabilities
Long-term debt
YEN loan
USD loan
Service concession obligations
YEN loan
USD loan
French Franc (FRF) loan
December 31, 2012
Original
Peso
Currency
Equivalent
(Amounts in Thousands)
$33,582
VND297,235
SGD162
AUD6
P
= 1,462,160
612
5,586
242
P
= 1,468,600
$11,979
VND1,291,607
-
P
= 491,718
2,583
P
= 494,301
¥7,560,347
$167,625
P
= 3,332,601
7,298,393
¥7,973,051
$180,875
P
= 3,816,670
7,424,919
¥1,390,146
$65,430
FRF 2,326
612,776
2,848,822
20,898
¥607,652
$88,374
FRF2,439
290,883
3,627,777
20,206
Net foreign currencydenominated liabilities
P
= 14,113,490
P
= 15,180,455
P
= 12,644,890
P
= 14,686,154
The spot exchange rates used were P43.54 to USD1, P0.4408 to JPY1, P8.98 to FRF1, P0.00206 to VND1,
P34.4817 to SGD1 and P40.3625 to AUD1 in 2013 and P41.05 to USD1, P0.4787 to JPY1, P8.28 to FRF1, and
P0.0021 to VND1 in 2012.
48
Equity price risk
The Group’s equity price risk exposure at year-end relates to financial assets whose values will
fluctuate as a result of changes in market prices, principally, equity securities classified as AFS
financial assets.
Such investment securities are subject to price risk due to changes in market values of instruments
arising either from factors specific to individual instruments or their issuers or factors affecting all
instruments traded in the market.
The Group’s investment policy requires it to manage such risks by setting and monitoring objectives
and constraints on investments, diversification plan, limits on investment in each sector and market.
As of September 30, 2013 and December 31, 2012, the fair values of equity investments classified
as AFS financial assets amounted to P
= 152.4 million and P
= 156.0 million respectively.
Credit Risk
The Group trades only with recognized, creditworthy third parties. It is the Group’s policy that
except for connection fees and other highly meritorious cases, the Group does not offer credit terms
to its customers.
With respect to credit risk arising from the other financial assets of the Group, which comprise cash
and cash equivalents, short-term cash investments and AFS financial assets, the Group’s exposure
to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying
amount of these instruments. The Group transacts only with institutions or banks which have
demonstrated financial soundness for the past 5 years.
With respect to receivables from customers, credit risk is managed primarily through credit reviews
and an analysis of receivables on a continuous basis. Customer payments are facilitated through
various collection modes like auto-debit arrangements.
The Group has no significant concentrations of credit risk.
The maximum exposure to credit risk for the components of the consolidated statements of financial
position is equal to its carrying value.
49
As of September 30, 2013 and December 31, 2012, the credit qualities per class of the Group’s
financial assets are as follows:
September 30, 2013
Cash and cash equivalents*
Receivables
Customers
Residential
Commercial
Semi-business
Industrial
Employees
Interest from banks
Receivable from SAWACO
Receivable from BWC
Others
Quoted
Unquoted
Total
*Excludes cash on hand
Neither Past Due nor Impaired
Past Due and
High Grade
Standard
Impaired
(in thousands)
P
= 10,349,498
P
=P
=-
P
= 10,349,498
341,355
135,232
36,800
30,079
254
33,819
1,630
256,905
35,683
P
= 11,221,255
1,316,946
257,297
69,962
37,106
42,260
12,814
179,463
588,651
97,557
256,905
35,683
P
= 13,244,142
530,967
22,878
8,103
890
42,006
12,814
115,508
554,832
67,517
P
= 1,355,515
444,624
99,187
25,059
6,137
63,955
28,410
P
= 667,372
Total
December 31, 2012
Cash and cash equivalents*
Receivables
Customers
Residential
Commercial
Semi-business
Industrial
Employees
Interest from banks
Receivable from BWC
Others
Quoted
Unquoted
Total
Neither Past Due nor Impaired
Past Due and
High Grade
Standard
Impaired
(in thousands)
P
= 5,537,728
P
=P
=878,027
213,534
61,094
46,504
121
261,913
232,409
P
= 7,231,330
Total
P
= 5,537,728
7,997
6,768
1,524
34,170
17,171
78,457
572,878
7,460
374,326
87,970
27,744
3,605
63,955
70,177
1,260,350
308,272
90,362
50,109
34,291
17,171
142,412
572,878
77,637
P
= 726,425
P
= 627,777
261,913
232,409
P
= 8,585,532
*Excludes cash on hand
As of September 30, 2013 and December 31, 2012, the Group does not have financial assets that
are past due but not impaired.
The credit quality of the financial assets was determined as follows:
Cash and cash equivalents are placed in various banks. Material amounts are held by banks which
belong to the top 5 banks in the country. The rest are held by local banks that have good reputation
and low probability of insolvency. Management assesses the quality of these assets as high grade.
Receivables - high grade pertains to receivables that are collectible within 7 to 30 days from bill
invoice date; standard pertains to receivables that are collectible from 61 to 90 days from bill invoice
date.
50
AFS financial assets, which are assessed by management as high grade, are investments in debt
and equity instruments in companies with good financial capacity and investments in debt securities
issued by the government.
Liquidity Risk
The Group’s objective is to maintain a balance between continuity of funding and flexibility through
the use of bank overdrafts, bank loans, debentures, preference shares, leases and hire purchase
contracts. The Group’s policy is to maintain a level of cash that is sufficient to fund its monthly cash
requirements, at least for the next two to three months. The Company also currently benefits from
the availability of short-term credit facilities to support the Group’s working capital requirements.
Capital expenditures are funded through long-term debt, while operating expenses and working
capital requirements are sufficiently funded through cash collections.
The Group’s financial assets used for liquidity management based on their maturities are as follows:
Within 1 Year
Assets:
Receivables:
Customers
Employees
Receivable from BWC
Interest from banks
Others
P
= 10,353,170
1,325,679
254
115,508
33,819
12,814
69,147
259,314
P
= 12,169,705
Within 1 Year
Assets:
Receivables:
Customers
Employees
Receivable from BWC
Interest from banks
Others
P
= 5,540,151
1,215,446
34,291
78,457
57,911
17,171
7,460
142,183
P
= 7,093,070
51
September 30, 2013
More than
1-5 years
5 years
P
=355,632
42,006
63,955
554,832
28,410
P
= 1,044,835
P
=33,274
P
= 33,274
December 31, 2012
More than
1-5 years
5 years
(In Thousands)
P
=493,647
63,955
514,967
70,177
101,882
P
= 1,244,628
P
=250,257
P
= 250,257
Total
P
= 10,353,170
1,681,311
42,260
179,463
588,651
12,814
97,557
292,588
P
= 13,247,814
Total
P
= 5,540,151
1,709,093
34,291
142,412
572,878
17,171
77,637
494,322
P
= 8,587,955
The Group’s financial liabilities based on contractual undiscounted payments:
Within 1 Year
Liabilities:
Payables to related parties
Long-term debt*
Customers’ guaranty and other
deposits
September 30, 2013
More than
1-5 years
5 years
(In Thousands)
Total
P
= 4,860,318
40,453
3,162,897
311,157
P
=11,527,792
4,271,227
P
=14,000,906
17,408,777
P
= 4,860,318
40,453
28,691,595
21,991,161
P
= 8,374,825
P
= 15,799,019
1,196,890
P
= 32,606,573
1,196,890
P
= 56,780,417
*Includes contractual interest cash flows
Within 1 Year
Liabilities:
Payables to related parties
Long-term debt*
Customers’ guaranty and other
deposits
December 31, 2012
More than
1-5 years
5 years
(In Thousands)
Total
P
= 4,288,711
27,560
5,596,827
957,905
P
=15,251,913
3,393,141
P
=10,163,226
10,700,864
P
= 4,288,711
27,560
31,011,966
15,051,910
P
= 10,871,003
P
= 18,645,054
1,396,636
P
= 22,260,726
1,396,636
P
= 51,776,783
*Includes contractual interest cash flows
Capital Management
The primary objective of the Group’s capital management strategy is to ensure that it maintains a
healthy capital structure, in order to maintain a strong credit standing while it maximizes
shareholder value.
The Group closely manages its capital structure vis-à-vis a certain target gearing ratio, which is total
debt (less concession obligations) divided by the sum of the total stockholders’ equity and total debt
(less concession obligations). The Group’s target gearing ratio is 60%. This target is to be
achieved over the next 5 years, by managing the Group’s level of borrowings and dividend
payments to shareholders.
September 30, 2013 December 31, 2012
P
= 44,011,478
P
= 40,228,659
8,498,868
8,348,894
35,512,610
31,879,765
29,691,227
26,897,914
P
= 65,203,837
P
= 58,777,679
54%
54%
Total liabilities
Less: Total service concession obligation
Total Stockholders' Equity
Total
Gearing ratio
52
For purposes of computing its net debt, the Group includes the outstanding balance of its long-term
debt (including current portion), accounts and other payables, less cash and cash equivalents,
short-term cash investments and AFS financial assets. To compute its total capital, the Group uses
the total stockholders’ equity.
Total liabilities
Less:
Total service concession obligation
Net Debt
Total Stockholders' Equity
Total Net Debt and Stockholders’ Equity
Net Debt to Equity Ratio
53
September 30, 2013
P
= 44,011,478
December 31, 2012
P
= 40,228,659
8,498,868
10,353,170
292,588
19,144,626
24,866,852
29,691,227
P
= 54,558,079
8,348,894
5,540,151
494,322
14,383,367
25,845,292
26,897,914
P
= 52,743,206
46%
49%
APPENDIX C
MANILA WATER STOCK AND DIVIDENDS INFORMATION
Stock chart (September 2012 – September 2013)
45
40
35
30
25
20
15
10
5
0
*Source: Bloomberg
The Company was listed in the Philippine Stock Exchange on March 18, 2005 and its listed shares have since
been actively traded therein. The high and low sale prices for each quarter that the Company’s shares have
been listed are as follows:
st
1 Quarter
2nd Quarter
rd
3 Quarter
4th Quarter
High
40.00
41.00
33.80
-
High / Low Sales
2013
Low
32.00
29.35
26.30
-
2012
High
23.70
25.55
27.10
33.00
Low
19.64
23.00
24.65
27.45
For the third quarter of 2013, the highest sale price was P 33.80 and lowest sale price was P 26.30.
The price information as of the close of September 30, 2013 was P28.25.
54
Dividends Information
0.9
0.764
0.8
0.7
0.56
0.6
0.596
0.46
0.5
0.4
0.4
0.35
0.3
0.3
0.21
0.2
0.1
0.06
0.1
0.14
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
In September 2013, the Board declared the second semester 2013 cash dividends: (i) P0.382 per share on the
outstanding common shares, and (ii) P 0.0382 per share on the outstanding participating preferred shares. The
dividends are payable to stockholders of record as of October 10, 2013, to be paid on October 25, 2013.
55
APPENDIX D
SUMMARY OF CORPORATE DISCLOSURES DURING THE 3RD QUARTER OF 2013
As part of its commitment to promote the corporate values of transparency and accessibility to its
investors, the Company fully complies with the reporting and disclosure requirements of the law as
well as the relevant rules and regulations issued by the Securities and Exchange Commission (SEC)
and the Philippine Stock Exchange (PSE). The Company adopts a policy of prompt and accurate
disclosure of all information that may be material to the investing public. The investor relations group
conducts quarterly investors and analysts’ briefings and regular meetings with shareholders and fund
managers to keep them up to date on the business.
Below is a summary of the corporate disclosures during the 3 rd quarter of 2013.
DATE
July 9, 2013
July 15, 2013
July 15, 2013
July 25, 2013
July 31, 2013
August 2, 2013
August 8, 2013
August 14, 2013
August 16, 2013
August 19, 2013
September 2, 2013
September 12, 2013
September 24, 2013
September 25, 2013
September 26, 2013
September 26, 2013
TOPIC
Report from Aberdeen International Fund
Managers Ltd.
Public Ownership Report
Top 100 Stockholders Report
Statement of changes in Beneficial Ownership
of Securities
Manila Water Signs a $100 Million 18-Year
Fixed-Rate Term Loan
Amended Notice of Analysts Briefing
1st half 2013 unaudited financial and
operational results
Petition for Certiorari and Prohibition With
Prayer for Issuance of Temporary Restraining
Order And/or Writ of Preliminary Injunction in
the Supreme Court
Metrobank Loan
Manila Water’s Singapore Subsidiary Signs
Agreement to Invest in Saigon Water
Infrastructure Corporation in Vietnam
Statement of Changes in Beneficial Ownership
of Securities
MWSS Rate Rebasing Determination
Filing of Dispute Notice
Report from First State Investment
Management (UK) Limited
Results of Board Meeting
2nd Semester 2013 dividends
For more details on these disclosures, please visit our website at
www.manilawater.com.
56
APPENDIX E
PERFORMANCE INDICATORS AND BUSINESS EFFICIENCY MEASURES
As of September 30, 2013
Key Performance Indicators
Domestic Water Service Connections (cum)
Continuity of Water Supply (24-hour supply)
Pressure of Water Supply (minimum of 7 psi)
Target*
888,990
98%
98%
Water Quality at Plant Outlet (% compliance with PNSDW) (cum.
for the year 2013)
Water Quality in Distribution (% compliance with PNSDW) (cum.
for the year 2013)
Sampling (% compliance with PNSDW) (cum. for the year 2013)
Sewerage Connections (cum)
Sanitation (Septic Tanks Emptied) (cum. for the year 2013)
Wastewater Effluent Quality (%Compliance with DENR
Standards) (cum. for the year 2013)
Response to Customer Service Complaints (% of complaints
responded within 10 days) (cum. for the year 2013)
Response to Billing Complaints (% of complaints responded
within 10 days) (cum. for the year 2013)
Response to Request for New Connections (% of requests
responded within 5 days) (cum. for the year 2013)
Installation of New Water Service Connections (no. of regular
connections installed within 7 days) (cum. for the year 2013) –
regular connections excluding connections related to new
pipeline projects
Response to disruptive mains failure (% of disruptive main
failures repaired within 24 hours) (cum. for the year 2013)
Business Efficiency Measures
Billed Volume (mcm) (cum. for the year 2013)
Revenue Collection Rate (cum. for the year 2013)
Labor Cost ( cum. for the year 2013 - in million pesos)
Power Consumption ( cum. for the year 2013 - in million KwH)
Total Controllable OPEX ( cum. for the year 2013 - in million
pesos)
CAPEX (cumulative from 2013 to 2017 - in million pesos)
Non-Revenue Water % (YTD Average)
1/
Actual
865,188
99.92% of the
Central
Distribution
System (CDS)
99.83% of
currentlyserved areas
99.96% of
CDS @ 20.52
psi (average)
100%
99.56% of
currentlyserved areas
@ 20.37 psi
(average)
100%
95%
100%
100%
106,346
1/
58,344
95%
105.07%
111,782
50,181
99.74%
95%
99.45%
90%
99.21%
100%
100%
36,0731/
17,306
96%
100%
Target*
430 1/
95%
1/
max. of 1,338
1/
max. of 116
max. of 1,505 1/
63,465
max. of 12%
Actual
326
101%
875
68.08
1,099
3,109.07
12.46%
2013 year-end target
* Targets are based on the original Rate Rebasing 2013 (RR13) business plan, submitted during March 31, 2012;
and, may change due to the ongoing RR13 exercises.
57
APPENDIX F
AVERAGE TARIFF
Prev. Basic
CPI
Rate Rebasing
Total Basic Water
FCDA
EC
TOTAL
VAT
TOTAL w/ VAT
Sep 30, 2012
25.11
1.11
1.22
27.44
0.84
5.66
33.94
4.07
38.02
Dec 31, 2012
25.11
1.11
1.22
27.44
0.92
5.67
34.04
4.08
38.12
Sep 30, 2013
27.44
0.85
28.29
(0.54)
5.55
33.30
4.00
37.30
* The weighted average tariff which is approved by MWSS represents for the indicative rate
applied to the whole east concession area. The percentage increase on the basic charge is
applied universally across Manila Water Standard Tariff Table.”
58

Annual Report - Manila Water Company, Inc.

Transcription

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