COVER SHEET

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
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, 2011
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 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
2,032,826,47611
Amount of debt outstanding as of September 30, 2011 (Fixed Rate Bonds): Php 4 billion
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)
Yes [X] No [ ]
(b) Has been subject to such filing requirements for the past ninety (90) days.
1
2,010,018,466 Outstanding Common Shares
22,808,010 Shares Under the Stock Ownership Plans, the listing of which has been approved in principle by the
2,032,826,476 PSE
-1-
Yes [X]
No [ ]
PART I - FIN
NANCIAL INFO
ORMATION
Item I: FINA
ANCIAL STATE
EMENTS
MANIL
LA WATER CO
OMPANY, INC. AND SUBSID
DIARIES
CONS
SOLIDATED BALANCE SHE
EETS
As of September 30
0, 2011 and D
December 31, 2
2010
(In Th
housands)
Septem
mber 30, 2011
Un
naudited
ASSETS
Current Assets
Cash and cassh equivalents
Short-term caash investments
Receivables--net
Materials andd supplies-net
Other currentt assets
Total Current Assets
Non-Currentt Assets
Property, plant and equipmennt-net
Service conccession assets-neet
Deferred tax assets
Available-for--sale financial asssets
Investment inn subsidiaries
Investment inn joint venture
Other non-cuurrent assets-net
Total Non-Current Asssets
TOTAL ASSETS
OLDERS' EQUIT
TY
LIABILITIES AND STOCKHO
bilities
Current Liab
Accounts andd other payables
Income tax payables
p
Payables to sstockholders
Service conccession obligationn
Current portioon of long-term ddebt
Total C
Current Liabilitiees
Non-currentt liabilities
Long-term deebt-net of currentt portion
Service conccession obligationn-net of current portion
Pension liabilities
Other non-cuurrent liabilities
Total N
Non-current Liabilities
P
P
P
Stockholderrs' Equity
Attributable to equity holders of Manila Water Co., Inc
Capital stoock
Comm
mon stock
Preferrred stock
Additionall paid-in capital
Subscriptiion receivable
Total paidd-in capital
Common stock options outstanding
Retained earnings
Approrriated
Unapppropriated
Cumulativve translation adjustment
Unrealizedd gain on availabble for sale
Treasury stock
s
Noncontrollinng Interest
Total S
Stockholders' E
Equity
TOTAL LIAB
BILITIES & STOC
CKHOLDERS' EQ
QUITY
P
-2-
Dec. 31, 2010
Audited
12,295,740 P
3,612,772
841,793
38,357
993,476
17,782,138
2,412,9122
1,546,3399
482,1688
55,8244
1,402,3200
5,899,563
2,030,880
41,851,242
510,006
1,675,992
224
1,120,080
47,188,424
64,970,562 P
1,973,2988
37,459,9588
411,121
1,848,9066
0
5,5955
1,022,2477
42,721,125
48,620,688
4,235,775 P
251,263
110,100
1,249,693
1,318,780
7,165,611
3,147,8966
213,6966
91,1677
794,4744
1,174,6499
5,421,882
26,469,475
7,148,219
283,164
2,113,861
36,014,719
43,180,330
12,959,221
7,162,1166
231,3699
2,868,1233
23,220,829
28,642,711
2,932,578
2,032,578
900,000
3,513,036
(91,154)
6,354,460
68,275
15,568,720
7,000,000
8,568,720
1,498
126,779
(500,000)
21,619,732
170,500
21,790,232
64,970,562 P
2,932,5988
2,032,5988
900,0000
3,513,0577
(127,074))
6,318,581
32,2755
13,816,792
7,000,000
6,816,7922
2,6500
144,931
(500,000))
19,815,229
162,7488
19,977,977
48,620,688
MANILA WATER COMPANY, INC. AND S
SUBSIDIARIE
ES
UNAU
UDITED CON
NSOLIDATED STATEME
ENTS OF INC
COME
For the Nine Month
hs Ended Sep
ptember 30, 20
011 and 2010
0
(In Tho
ousands)
REVENUE
Water
Environmental charges
Sewer
Revenue from management contraacts
Others
Q
QUARTER
2011
2010
July - September
2,8661,007
3,100,8858
2,3229,054
2,486,0057
3662,955
442,0007
884,569
75,6680
120,5526
3,787
880,642
(23,4412)
YEAR-TO-DATE
20011
2010
JJanuary - Septemb
ber
8,337,323
8,903,886
7,203,238
6,842,659
258,330
1,243,847
1,055,275
231,705
120,526
59,928
121,131
104,570
EXPENSES
COSTS AND E
Depreciation annd amortization
Salaries, wagess & employee beneefits
Power, light and water
Management, ttechnical and professsional fees
Repair and maintenance
Costs associateed from managemeent contracts
Collection fees
Business meetings and representaation
Costs associateed from projects ouutside East Zone
Occupancy
Water treatmennt chemicals
Wastewater coosts
Transportation and travel
Insurance
Regulatory
Postage, telephhone and telegram
Taxes and licennses
Advertising
Premium on peerformance bonds
Provision for dooubtful accounts
Others
1,343,7751
482,9957
261,9982
188,7725
47,5509
102,4418
46,0059
28,1169
26,4489
46,7786
24,2248
38,7763
25,2272
15,7713
8,6625
7,3306
5,8815
17,8810
2,7718
1,9919
1,1143
(36,6675)
1,2665,817
4770,925
2779,435
1558,429
668,654
443,007
226,713
228,559
223,722
8,342
221,523
224,225
8,287
225,990
111,450
1,830
7,655
226,978
2,639
2,079
633
224,742
3,676,473
1,342,740
798,275
532,612
181,481
133,489
128,429
88,077
76,863
72,941
70,861
60,845
57,170
50,799
26,131
21,854
21,263
14,033
8,579
5,758
(41,448)
25,721
3,620,202
1,374,172
789,819
463,356
202,989
122,633
62,942
85,528
71,120
78,203
61,140
40,761
63,893
54,413
26,146
9,475
19,998
84,931
11,848
6,237
(31,540)
22,138
ORE OTHER INCOM
INCOME BEFO
ME(EXPENSES)
Revenue from rehabilitation workss
Cost of rehabiliitation works
Foreign currenccy differentials
Foreign exchannge gains(losses)
Amortization off deferred credits
Interest incomee
Interest expensse
Equity share in net income (lossess)
Other (chargess)income
Mark-to-markett gain on bonds
Gain (loss) on iinventory valuation
1,757,1107
1,918,2272
(1,918,7740)
434,7742
(442,0034)
154,0097
(483,0070)
(3,8805)
1,5995,190
1,9771,060
(1,9669,414)
(1992,783)
1992,831
660,919
(3334,068)
(88,0053)
-
112,221
-
5,227,413
4,810,323
(4,809,027)
280,451
(329,127)
359,723
(1,291,138)
(5,371)
2,177
(229,613)
36,902
4,717,121
4,886,935
(4,885,109)
(315,709)
296,563
107
220,025
(990,623)
(838)
(555)
8,834
-
INCOME BEFO
ORE INCOME TAX
Provision for (bbenefit) from incomee tax
INCOME AFTE
ER PROVISION FO
OR INCOME TAX
Noncontrolling interest
NET INCOME
1,329,3396
229,1148
1,100,2248
(2,8842)
1,097,4406
1,3335,119
3330,060
1,0005,059
(287)
1,0004,772
4,052,713
930,650
3,122,063
(7,752)
3,114,311
3,936,751
959,511
2,977,240
(2,658)
2,974,582
16,5561
116,405
(18,150)
28,933
1,113,9967
1,0221,177
3,096,161
3,003,515
OTHER COMP
PREHENSIVE INCO
OME
Changes in fairr value of available--for-sale investmentt in equity securitiess
TOTAL COMPR
REHENSIVE INCO
OME
8880
-3-
(837)
MANILA
A WATER COMP
PANY, INC. AND SUBSIDIARIES
UNAUD
DITED CONSOLID
DATED STATEM
MENTS OF CHAN
NGES IN EQUITY
Y
For the Nine
N
Months Ende
ed September 30, 2011 and 2010
(In Thou
usands)
P
At Januarry 1, 2011
Additions//(Deductions) Subsccription Receivable
Issuance//subscriptions of sha
ares
Employee
e share options
Decrease
e during the period
Dividends
s on common shares
s
Dividends
s on preferred shares
Total com
mprehensive income for the year
Balance as
a of September 30, 2011
Paid-up
Capital
2,805,524
(20)
35,919
2,841,423
At Januarry 1, 2010
Additions//(Deductions) Subsccription Receivable
Issuance//subscriptions of sha
ares
Employee
e share options
Increase during
d
the period
Dividends
s on common shares
s
Dividends
s on preferred shares
Total com
mprehensive income for the year
P
Balance as
a of September 30, 2010
2,794,624
27,955
2,822,579
Sharebased
Share
P
Payments
premium
3,513,057
32,275
(21)
36,000
3,513,036
68,275
3,451,157
36,000
3,487,157
3,513,036
22,110
22,110
Re
etained
arnings
Ea
13,816,792
(1,138,383)
(224,000)
3,114,311
15,568,720
10,996,463
2,974,582
(1,118,217)
12,852,828
Availa
able for
Sa
aleFina
ancial
Treasury
Ass
sets
Stock
14
44,930
(500,000))
16,652)
(1
12
28,278
(500,000))
52,548
5
2
28,932
8
81,480
(500,000))
(500,000))
Total attributable to
oncontrolling
owners of No
parent
al Equity
interest
Tota
19,812,578
162,748
19,975,326
(20)
(20)
35,898
35,898
36,000
36,000
(1,138,383)
(1,138,383)
(224,000)
(224,000)
3,097,659
7,752
3,105,411
21,619,732
170,500
21,790,232
16,816,902
27,955
3,010,582
(1,118,217)
28,932
18,766,154
153,824
2,658
156,482
16,970,726
27,955
3,010,582
(1,118,217)
31,590
18,922,636
MAN
NILA WATER
R COMPANY
Y, INC. AND S
SUBSIDIARIES
UNA
AUDITED CO
ONSOLIDATE
ED STATEMENTS OF CA
ASH FLOWS
S
For th
he Nine Montths Ended September 30, 2
2011 and 201
10
(In Th
housands)
201
11
2010
A of Septem
As
mber
CASH FLO
OWS FROM OPERATING
O
A
ACTIVITIES
Net Incom
me before inco
ome tax
Adjustmen
nts to reconcile net incom e to operating
g
income
e before chan
nges in workin
ng capital
Dep
preciation and amortizatio n
Pro
ovision for pro
obable losses
s
Inte
erest Expense
e-net of amou
unt capitalized
d
Sha
are based pa yments
Inte
erest Income
Operating income befo
ore changes in
i working ca
apital
anges in ope rating assets
s and liabilitie
es
Cha
Decrease((increase) in
Receiv
vables
Materia
als and supp
plies
Other current
c
assetts
Increase(D
Decrease) in:
Accoun
nts and otherr payables
Payables to stockho
olders
Net cash generated
g
fro
om operations
s
Income Ta
axes Paid
Net Cash provided by operating
o
activities
OW FROM INV
VESTING ACT
TIVITIES
CASH FLO
Interest re
eceived
Increase (Decrease)
(
in
n:
Pro
operty, plant a nd equipmen
nt-net
Con
ncession Ass
sets
Sho
ort-term cash investments
Available-for-sale financial as
ssets
Other noncurren
nt assets
Net cash used
u
in inves
sting activities
s
CASH FLO
OW FROM FIN
NANCING ACT
TIVITIES
Customerrs guaranty & other depos its
Other non-current liabilities
Loan Paym
ments
Loan Availments
Payments
s of Dividends
s
Service co
oncession ob
bligation
Interest Pa
aid
Proceeds from issuance of shares
Net Cash provided by financing
f
acti vities
NET INCRE
EASE IN CAS
SH AND CASH
H EQUIVALENTS
CASH & CASH
C
EQUIVA
ALENTS, BEGINNING OF YE
EAR
CASH AND
D CASH EQUIIVALENTS, EN
ND OF YEAR
P
P
4,0
052,713
3,936,751
342,740
1,3
(
(41,448)
1,2
291,138
36,000
(3
359,723)
6,3
321,420
1,374,172
(31,540)
990,623
36,000
(220,025)
6,085,981
(1 67,981)
17,467
3
366,885
(148,629)
7,032
(629,053)
242,985)
(2
33,228
6,3
328,034
(9
987,597)
5,3
340,437
66,650
(40,239)
5,341,742
(930,895)
4,410,847
2
285,710
256,937
407,776)
(4
(5,2
221,880)
(2,0
066,433)
1 53,836
(3
356,245)
(7,6
612,788)
(698,756)
(5,149,052)
2,164,471
289,947
(55,083)
(3,191,536)
41,628
(1 20,863)
(5
584,338)
14,2
293,717
(7
753,299)
50,654
(8
808,199)
35,879
12,1 55,179
9,8
882,828
412,912
2,4
12,2
295,740
46,980
271,374
(550,681)
382,749
(1,151,550)
(145,281)
(534,833)
27,955
(1,653,287)
(433,976)
4,037,841
1
3,603,865
NOTES TO THE INTERIM FINANCIAL STATEMENTS
A. The interim financial statements as of September 30, 2011 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 financial statements have been prepared under the historical cost convention
method and in accordance with accounting principles generally accepted in the Philippines.
Accounting principles and policies applied for the quarter ended September 30, 2011 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 “Company” or the “Parent Company”) does 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 Company did not
acquire assets or incur liabilities that are material in amount for the period ended September 30, 2011.
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 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 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 financial statements for the interim period, or disclosed in the Notes to the Financial
Statements.
H. The Company 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 Company 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 Company 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 Company’s liquidity.
B. There were no known events that would trigger the Company to record contingent financial obligation
that would cause a material effect.
C. There were no off-balance sheet transactions, arrangements, obligations created during the reporting
period.
D. The Company expects P
= 8.8 billion capital expenditures in 2011 for the rehabilitation and construction of
facilities to improve water and sewer services in the East Zone Service Area. These will be funded
from the current cash reserves, internal funds generation and proceeds of available loan facilities.
E. 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 Company’s net sales/revenues/income from
operations.
-6-
F. There were no significant changes in income or loss arising from the non-operating activities of the
Company.
BASIS OF PREPARATION
The consolidated financial statements of the Company and its subsidiaries (collectively the “Group”) have
been prepared using the historical cost basis, except for available-for-sale (AFS) financial assets and
derivative financial instruments that have been measured at fair value. The Company and its subsidiaries,
Northern Waterworks and Rivers of Cebu, Inc., Manila Water Total Solutions, Inc., Manila Water
International Solutions, Inc., AAAWater Corporation, Boracay Island Water Company, Inc., Manila Water
Asia Pacific Pte. Ltd and Jindal Manila Water Development Co. Ltd. (collectively, the “Subsidiaries”),use
presentation and functional currency that are denominated in 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
2011
2010
Manila Water
International Solutions
Inc. (MWIS)
Philippines
Management of waterworks, waste
waterworks and treatment facilities
100
100
Manila Water Total
Solutions Corp. (MWTS)
Philippines
Management and consultancy on
water, wastewater and environmental
projects
100
100
AAAWater Corporation
(AWC)
Philippines
Concession to provide water and
wastewater services
100
100
Philippines
Concession to provide water and
wastewater services
70
70
Northern Waterworks and
Rivers of Cebu, Inc.
(NWRC)
Philippines
Construction and management of
waterworks, wastewater works and
treatment facilities
90
90
Boracay Island Water
Company, Inc. (BIWC)
Philippines
Concession to provide water and
wastewater services
80
80
Singapore
Investment holding
100
100
Singapore
Investment holding
100
100
India
Develop new business and enter into
contractual arrangements in the fields
of water supply, wastewater and
environmental services
50
50
Laguna AAAWater
Corp. (LAWC)
Manila Water Asia Pacific
Pte.Ltd (MWAP)
Manila Water South
Asia Holding Pte.Ltd
(MWSAH)
Jindal Manila Water
Development Co. Ltd
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.
Noncontrolling interests represent the portion of the profit or loss and net assets in NWRC 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 noncontrolling interests are handled in the same way as transactions with the external
parties.
-7-
The Parent Company 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 7,
2009. BIWC is 80% owned by the Company and 20% by Philippine Tourism Authority (PTA)2. 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 company. MWAP is
100% owned by the Company and MWSAH is 100% owned by MWAP.
Jindal Manila Water Development Co. Ltd. (JMWDC) was incorporated and registered on May 3, 2010 at
Delhi, India. Subsequently, JMWDC changed its business name to JITF Manila Water Development Co. Ltd
(JITF) on March 18, 2011. JITF is equally owned by the Company and Jindal Water Infrastructure Ltd.
(JITF Water). On August 31, 2011, the Company agreed to sell its ownership in the Joint Venture Company
to JITF Water.
ACCOUNTING POLICIES AND DISCLOSURES
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. Other short-term cash
placements are classified as short-term cash investments.
Short-term Cash Investments
Short term cash investments are short-term placements with maturities of more than three months but less
than one (1) 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 in the consolidated statement of financial
position when it becomes a party to a particular 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.
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, reevaluates 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.
2
Now known as Tourism Infrastructure and Enterprise Zone Authority (TIEZA)
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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 asking 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 to similar instruments for which market observable prices exist, option pricing models, and
other relevant valuation models.
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 consolidated statement of comprehensive income under “Other income” unless it
qualifies for recognition as some other type of asset. In cases where use is made of data which is not
observable, the difference between the transaction price and model value is only recognized in the
consolidated 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.
Derivatives recorded at FVPL
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 the peso bond.
Financial assets at FVPL
Financial assets at FVPL include financial assets held for trading and financial assets designated upon
initial recognition as at FVPL.
Financial assets 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. Gains or losses on
investments held for trading are recognized in profit or loss.
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
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integral part of the effective interest rate. The amortization is included in “Interest income” account in the
consolidated 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, 2011 and December 31, 2010, no financial assets have been designated as HTM.
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 (12) months from the reporting date; otherwise, these are
classified as noncurrent assets. This accounting policy relates to the consolidated statement of financial
position captions “Cash and cash equivalents”, “Short-term cash investments”, and “Receivables”.
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 consolidated statement of comprehensive
income. The losses arising from impairment of such loans and receivables are recognized in “Provision for
probable losses” in the consolidated statement of comprehensive income.
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 currency-denominated 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 first-out 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
Other financial liabilities include short-term and long-term debts. All loans and borrowings are initially
recognized at the fair value of the consideration received less directly attributable transaction costs.
After initial recognition, short-term and long-term debts are subsequently measured at amortized cost using
the effective interest method.
Gains and losses are recognized under the “Other income” and “Other expenses” accounts in the
consolidated statement of comprehensive income when the liabilities are derecognized or impaired, as well
as through the amortization process under the “Interest expense” account.
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Customers’ Guaranty and Other Deposits
Customers’ guaranty and other deposits are initially measured at fair value. After initial recognition, these
deposits are subsequently measured at amortized cost using the effective interest rate method.
Amortization of customers’ guaranty and other deposits are included under “Interest expense” in the
consolidated statement of comprehensive income. The difference between the cash received and its fair
value is recognized as “Deferred credits”. Deferred credits are amortized over the remaining concession
period using the effective interest rate method.
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:
1. the rights to receive cash flows from the asset have expired;
2. 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
3. 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.
Where the Group has transferred its rights to receive cash flows from an asset or has entered into a passthrough 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.
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.
Evidence of impairment may include non-collection of the Group’s receivables, which remain unpaid after
30 days from bill generation. The Group shall provide the customer with not less than seven days’ prior
written notice before any disconnection.
- 11 -
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 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.
AFS financial assets
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.
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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.
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 the EUL of the improvements 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 Arrangement
The Group accounts for its concession arrangement with MWSS, Province of Laguna (POL), a local
government unit organized and existing under Philippine laws, and PTA, under the Intangible Asset model
as it receives the right (license) to charge users of public service. The Service Concession Asset (SCA) is
amortized using the straight-line method over the life of the concession.
In addition, the Parent Company recognizes and measures revenue from rehabilitation works in
accordance with PAS 11 and PAS 18 for the services it performs.
Investment in Joint Venture
The Group has an interest in a joint venture which is a jointly controlled entity, whereby the venturers have
a contractual arrangement that establishes joint control over the economic activities of the entity. The
agreement requires unanimous consent for financial and operating decisions among the venturers. The
Group recognizes its interest in the joint venture using the equity method. Under the equity method, the
investment in joint venture is initially recognized at cost and the carrying amount is increased or decreased
to recognize the venturer's share of the profit or loss of the joint venture after the date of acquisition. The
venturer's share of the profit or loss of the joint venture is recognized in the venturer's profit or loss.
Impairment of Nonfinancial Assets
An assessment is made at each balance sheet date to determine whether there is any indication of
impairment of any long-lived assets, or whether there is any indication that an impairment loss previously
recognized for an asset in prior years may no longer exist or may have decreased. If any such indication
exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the
higher of the asset’s value in use or its net selling price. 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
assessments of the time value of money and the risks specific to the asset.
An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount.
An impairment loss is charged to operations in the year in which it arises.
A previously recognized impairment loss is reversed only if there has been a change in the estimates used
to determine the recoverable amount of an asset, however, not to an amount higher than the carrying
amount that would have been determined (net of any accumulated depreciation and amortization), had no
impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is credited
to current operations.
Revenue Recognition
Water and sewer revenue are recognized when the related water and sewerage services are rendered.
Water and sewerage 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. Eighteen percent (18%)
of the water revenue are recognized as environmental charges as provided for in the Agreement.
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 services it performs. Costs related to rehabilitation works is recorded as part of SCA.
When the Group provides construction or upgrade services, the consideration received or receivable is
recognized at its fair value. The Company 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.
Foreign Currency-Denominated Transactions
Foreign exchange differentials 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. Restatement of foreign currency-denominated loans;
b. Excess of actual Concession Fee payments over the amounts of Concession Fees translated using the
base exchange rate assumed in the business plan approved every rate rebasing exercise (P
= 44.00
starting January 1, 2008 and P
= 51.86 starting January 1, 2003)
c.
Excess of actual interest payments translated at exchange spot rates on settlement dates over the
amounts of interest translated at drawdown rates; and
d. 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.
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In view of the automatic reimbursement mechanism, the Parent Company recognized a deferred FCDA
(included as part of “Other noncurrent assets” or “Accounts and other payables” account in the balance
sheet) with a corresponding credit (debit) to FCDA revenues for the unrealized foreign exchange losses
(net of foreign exchange gains) which have not been billed or which will be refunded to the customers.
The write-off of the deferred FCDA or reversal of deferred credits pertaining to concession fees will be
made upon determination of the rebased foreign exchange rate which is assumed in the business plan
approved by the 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 “Long-term debt” account in the Group’s consolidated statement of financial position and
are amortized using the effective interest rate method.
Retirement Cost
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.
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.
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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 equitysettled 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
Treasury Stock
Treasury stock is recorded at cost and is presented as a deduction from equity. When these shares are reissued, the difference between the acquisition cost and the reissued price is charged/credited to additional
paid-in capital. 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.
- 16 -
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 and POL 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.
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 Balance Sheet Date
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.
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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.
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.
Investments in Subsidiaries
The Parent Company considers Laguna AAAWater Company (LAWC) and Boracay Island Water Company
(BIWC) as it subsidiaries because it exercises control over the said entities. 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.
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.
- 18 -
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.
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.
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.
- 19 -
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.
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 is contingently liable for lawsuits or claims filed by third parties (substantially labor-related and
civil cases) which are either pending decision by the courts or are under negotiation, the outcomes of which
are not presently determinable. The Group has been advised by its internal and outside counsels that it is
possible, but not probable, the action will succeed and accordingly, no provision for probable losses on
these cases was recognized.
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.
COMMITMENTS
Parent Company’s Concession Agreement
The significant commitments of the Parent Company under the 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
US$70.00 million in favor of MWSS as a bond for the full and prompt performance of the Parent
Company’s obligations under the Agreement. The aggregate amounts drawable in one or more
installments under such performance bond during the Rate Rebasing Period to which it relates are set
out below.
Rate Rebasing Period
First (August 1, 1997 - December 31, 2002)
Second (January 1, 2003 - December 31, 2007)
Third (January 1, 2008 - December 31, 2012)
Fourth (January 1, 2013 - December 31, 2017)
Fifth (January 1, 2018 - December 31, 2022)
Sixth (January 1, 2013 - December 31, 2027)
Seventh (January 1, 2028 - December 31, 2032)
Eighth (January 1, 2033 - May 6, 2037)
Aggregate amount drawable
under performance bond
(in US$ millions)
US$70
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.
- 20 -
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 Group 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 million to P
= 395 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 Parent Company);
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
Failure of the Parent Company to perform any of its obligations that is deemed material by MWSS-RO may
cause the 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;
- 21 -
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 BOD’s 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;
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 US$ 2.5 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 US$ Millions)
US$2.5
2.5
1.1
1.1
1.1
Rate Rebasing Period
First
Second
Third
Fourth
Fifth
- 22 -
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 Parent Company
executed a Technical Services Agreement by which, the Parent Company 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.
Agreement with Ayala Land, Inc. (ALI)
In April 2010, the Parent Company 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 Parent Company 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, 2011.
- 23 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following management’s discussion and analysis (“MD&A”) of the Manila Water Company’s financial
condition and results of operations should be read in conjunction with the Company’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 forward-looking statements
as a result of various factors, including but not limited to, economic, regulatory, socio-political, financial, and
other risk factors.
Any references in this MD&A to “our”, “us”, “we”, or the “Group” shall refer to Manila Water Company, Inc.,
including its subsidiaries. Any reference to “Manila Water Company”, “Manila Water” 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 is a Philippine company that holds exclusive rights to service the eastern side (“East
Zone”) of Metro Manila, under a 25-year Concession Agreement (CA) entered into between the Company and
Metropolitan Waterworks and Sewerage System (MWSS) in August 1997. The Company provides water
treatment, water delivery, sewerage and sanitation services to more than six million people in the East Zone,
comprising a broad range of residential, commercial and industrial customers.
Under the terms of the CA, the Company was granted the use of land and operational fixed assets and the
exclusive right, as agent of MWSS, to produce and treat raw water, distribute and market water, and collect,
transport, treat, dispose and eventually re-utilize wastewater, including reusable industrial effluent discharged
by the sewerage system for 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. As the Company
has the exclusive rights to service the East Zone, no other entity can provide water services within this area.
The East Zone encompasses parts of Manila, San Juan, Taguig, Pateros, Antipolo, Taytay, Jala-Jala, Baras,
Angono, San Mateo, Rodriguez, Marikina, Pasig, Mandaluyong, Makati and most of Quezon City.
On October 19, 2009, the Company’s application for the 15-year renewal of the CA was approved by the
Department of Finance (DOF) pursuant to the special authority granted by the Office of the President. With the
renewal of the CA, the term of the concession was extended for another fifteen (15) years from 2022 to 2037.
Under the terms of the renewal of the CA, the Company is entitled to recover the operating and capital
expenditures, business taxes, concession fee payments and other eligible costs, and to earn a reasonable rate
of return on these expenditures for the remaining term of the concession.
Manila Water has also expanded its services outside of the East Zone. In July 2008, the Company won a
contract for leakage reduction in Ho Chi Minh City, Vietnam. In December 2009, the Company through Boracay
Island Water Company (BIWC), entered into a Concession Agreement with PTA covering the provision of water
and wastewater services in the island of Boracay. In September 2009, the Company acquired 70% of Laguna
AAAWater Corporation (LAWC) which has an existing Concession Agreement with the Province of Laguna
covering the provision of water services in certain areas of Laguna.
With the expansion program of Manila Water and the formulation of several subsidiaries, the Company has
designed and is now implementing transfer pricing policies. The policies ensure that the inter-company
transactions are done at arm’s length and there are no cross-subsidies between the Parent and its subsidiaries.
The transfer prices which are based on market prices were set for all expenditures related to provision of
services, works and supplies. These include salaries for seconded employees and those rendering support
and management services, rental of equipment, cost of staff training and development, supplies and materials.
- 24 -
Key Performance Indicators
The Group’s key financial performance indicators are discussed below:
Operating revenue growth
Consolidated operating revenues as of September 30, 2011 amounted to P8,904 million, 7% higher
than last year. This increase was driven by this year’s approved tariff adjustments.
EBITDA and EBITDA margin
Earnings before interest, tax, depreciation and amortization (EBITDA) grew by 8% from last year to
P6,570 million, resulting in an EBITDA margin of 74%. This was brought about by the effective
management of operating costs which grew by just 4% year-on-year.
Net income and net income margin
Consolidated net income as of September 2011 grew by 5% versus last year to P3,122 million as a
result of higher revenues and cost efficient operations. Net income margin registered at 35%.
Results of Operations
Results of operations detailed as to business segment is shown below. The segments where the Group
operates follow:
September 30, 2011
Revenue
Operating expenses
Operating income(loss)
Revenue from rehabilitation works
Cost from rehabilitation works
Interest income
Interest expense
Other expense
Income before income tax
Provision for tax
Net income (loss)
Net income attributable to:
Equity holders of MWCI
Non-controlling interest
Outside East
East Zone
Zone
Water and
Management
Operating
Sewer Services
Contracts
Subsidiaries
(In thousands Pesos)
P8,578,736
P120,526
P204,624
(3,407,569)
(128,429)
(140,475)
5,171,167
(7,903)
64,149
4,629,662
180,660
(4,629,662)
(179,365)
354,248
5,475
(1,267,450)
(24,849)
(241,226)
(2,194)
4,016,740
(7,903)
43,876
(927,344)
(3,306)
(P7,903)
P40,570
P3,089,396
P3,089,396
Consolidated
P8,903,886
(3,676,473)
5,227,413
4,810,323
(4,809,027)
359,723
(1,292,299)
(243,421)
4,052,713
(930,650)
P3,122,063
P3,089,396
(P7,903)
(P7,903)
P32,818
7,752
P40,570
P3,114,311
7,752
P3,122,063
Segment assets, exclusive of deferred assets
Deferred assets
P62,086,787
453,848
P62,540,635
P163,134
P163,134
P2,210,957
56,159
P2,267,116
P64,460,878
510,006
P64,970,884
Segment liabilities
P41,641,206
P185,106
P1,354,340
P43,180,652
P1,383
P169,215
41,958
P5,791,606
1,342,740
Segment additions to equipment and SCA
Depreciation and amortization
P5,622,391
1,299,399
Net Income for the nine months ended September 30, 2011 was derived largely from East Zone operations.
Projects outside the East Zone such as the water concessions in Boracay and Laguna and the leak
management project in Vietnam increased net income by 1%.
- 25 -
The Parent Company’s key operational performance indicators are discussed below:
Billed volume
Billed volume, which is reported in millions of cubic meters (mcm), indicates the quantity of water sold
by the Company for the period. Year-to-date billed volume increased by 0.3% from 307.26 mcm to
308.28 mcm. However, average consumption per customer decreased from 48.5 to 45.2 cubic meters
due to new service connections that were predominantly low-consumption customers.
Collection efficiency
Year-to-date collection efficiency was recorded at 99.1%, while average accounts receivable days
improved to 13 days from 16 days in 2010.
Service connections
As a result of the completion of various expansion projects, new service connections increased by
46,375 bringing the total service connections to 847,691 as of September 2011, serving a total of
1,193,465 households.
Non-revenue water ratio
Non-revenue water (NRW) refers to system losses, or the volume of water lost in the network through
leakage or pilferage. It is computed by deducting total water billed (billed volume) from the total water
supplied (water supply) to customers, while the NRW ratio is derived by dividing the NRW by the water
supply. A lower NRW ratio implies better network efficiency. As of September 2011, NRW ratio is
down to 11.4%, an improvement of 0.8% points from last year’s level of 12.2%. This is mainly due to
effective supply and pressure management and the completion of NRW projects.
Water quality
The Company continued to exceed the Department of Health (DOH) bacteriological compliance
standard of 95%. Water quality compliance has been maintained at 100%. For the month of
September, a total of 865 test samples were collected from customers’ taps (including schools,
hospitals, and public places), water treatment works and service reservoirs. The water samples were
bacteriologically examined to ensure safety and potability and to detect the presence of any chemical
substance that may affect the quality of water for domestic use.
The Company operates a testing laboratory that is accredited by the DOH and has been
ISO/IEC17025:2005 – certified since 2006. This means that the laboratory meets the requirements for
carrying out tests and/or calibration, including sampling.
- 26 -
Operating Highlights
The following table summarizes the operational performance of the East Zone Concession:
For the nine months ended
Increase (Decrease)
September 30
2011
2010
Amount
%
Billed volume
(in million cubic meters)
308.3
307.3
1.0
0.3
Number of water connections('000)
848
817
30.4
3.7
Average consumption
(in cu.m per month)
45.2
48.5
-3.3
-6.8
1,268.4
1,230.2
38.24
3.1
Water supplied
(in million liters per day)
Non-revenue water
(water losses ratio)
11.4%
12.2%
24-hour availability
99%
99%
-
-
Staff per 1000 connections
1.3
1.4
-0.05
-0.04
-
-
100%
Water quality compliance
-0.8% pts
100%
Billed volume reached 308.3 mcm as of September 30, 2011. This figure was 0.3% higher than last year’s level
of 307.3 mcm from new connections which increased by 5% year-on-year. Average consumption per
connection decreased by 7% to 45.2 cu.m. as the increase in new water service connections came from low
consumption groups, mostly from the Rizal towns.
NRW ratio improved by 0.8% points to 11.4% as a result of pressure management, effective supply
management and the completion of NRW projects.
The Company continued to exceed service targets by achieving 100% compliance with water quality standards,
with 24-hour availability in 99% of its current service area coverage, and a manpower efficiency of 1.3 staff per
thousand connections.
Operating highlights of Boracay Island Water and Laguna AAAWater are summarized as follows:
Boracay
For the nine months ended
September 30
2011
2010
Billed volume
(in million cub ic meters)
Increase
(Decrease)
Amount
%
1.5
1.8
Number of water connections('000)
4,590
4,077
Non-revenue water
(water losses ratio)
25.9%
37.1%
0.3
19.8
513
12.6
-11.2% pts
Laguna
For the nine months ended
Increase (Decrease)
September 30
2011
2010
Amount
%
Billed volume
(in million cubic meters)
Number of water connections('000)
Non-revenue water
(water losses ratio)
3.5
3.0
0.5
17.5
28,435
18,292
10,143
55.5
40.0%
- 27 -
50.0%
-10.0% pts
As of September 30, 2011, billed volume for Boracay grew by 20% versus last year to 1.8 mcm as a result of
the increase in new service connections and the higher tourist inflow. NRW level improved by 11.2 percentage
points to 25.9% from 37.1% last year.
Billed volume for Laguna grew by 17.5% from 10,143 new service connections attributable to subdivision
takeovers. The NRW ratio improved by 10 percentage points to 40% due to the completion of NRW related
projects along the Sta. Rosa-Biñan line.
Financial Highlights
The following table summarizes the income statement highlights of the Group:
Statement of Income
In thousand pesos
Total revenues
Total cost and expenses, excluding
depreciation/amortization
For the nine months ended
September 30
2011
2010
8,903,886 P 8,337,323
P
EBITDA
Depreciation and Amortization
Income before other income/ expenses
Interest expense
Interest income
Net foreign currency gains/ (losses)
Mark-to-market gains/(losses)
Others
Income before income tax
Provision for income tax
Net Income
Minority interest
Net Income attributable to MWC
P
Changes in fair value of available-forsale financial assets
Total Comprehensive Income
P
2,333,734
6,570,152
1,342,740
5,227,412
(1,291,138)
359,723
(48,675)
(229,613)
35,004
4,052,713
930,650
3,122,063
(7,752)
3,114,311 P
(18,150)
3,096,161 P
2,246,030
6,091,293
1,374,172
4,717,121
(990,623)
220,025
(19,146)
3,927,377
959,511
2,967,866
(2,658)
2,965,208
28,933
2,994,141
Increase/(Decrease)
Amount
%
566,563
7
87,704
478,859
(31,432)
510,291
(300,515)
139,698
(29,529)
(229,613)
35,004
125,336
(28,861)
154,197
(5,094)
149,103
4
8
-2
11
30
63
154
(47,083)
-163
102,020
3
-3
5
5
3
Operating revenues as of September 30, 2011 was at P8,904 million, 7% or P567 million higher than the
previous year. The growth was mainly tariff driven, reflecting the impact of the 1 peso rate rebasing increase
plus inflation adjustment in water tariff and the increase in environmental charge from 16% to 18% which
became effective last February 16.
Operating cost and expenses (before depreciation and amortization) increased by P88 million or 4% to P2,334
million. The increase came mostly from higher power and fuel costs, which both grew by 13% versus last year.
However, adjustments made on the prior years’ provisions on bad debts and real property taxes resulted in
lower operating expenses.
EBITDA, which essentially measures the Group’s operating cash earnings for the period, improved by 8% to
P6,570 million from P6,091 million last year. EBITDA margin improved to 74% from 73% last year.
Net income as of September 30, 2011 was at P3,122 million, up by 5% versus last year as a result of higher
revenues and lower operating costs. The Company also recorded a mark-to-market loss on the call option
attached to its P4 billion bond amounting to P230 million. Excluding this loss, net income would have been
P3,350 million, a 13% year-on-year growth. Earnings per share was P1.27.
- 28 -
Analysis of operating revenues
For the nine months ended
Revenues
September 30
2011
in thousand pesos
Water
P
Environmental charges
2010
Increase/(Decrease)
Amount
6,842,659 P
360,579
188,572
15%
(26,625)
-11%
1,243,847
1,055,275
Sewer
231,705
258,330
Revenue from management contracts
113,557
59,928
53,629
30,221
61,619
(31,398)
81,318
8,903,886 P
59,512
8,337,323 P
21,806
566,563
Revenue from projects outside East Zone
Others
Total Revenues
P
%
7,203,238 P
5%
47%
-104%
27%
The Company derived 80.9% of its operating revenues from water bills, 16.6% from environmental and sewer
charges, and 2.5% from other charges. Operating revenues increased as a result of the tariff increase which
took effect last February 16, 2011. Revenues from management contracts amounted to P114 million from
completed leak reduction projects in Ho Chi Minh City, Vietnam.
An analysis of average consumption is shown below:
Average consumption per
connection
In cubic meters per month
Residential
Semi-commercial
Commercial
Industrial
Overall
For the nine months
Increase/(Decrease)
ended September 30
2011
2010
Volume
%
33.2
35.8
-3
-7.2
98.2
103.7
-5
-5.3
209.7
219.1
-9
-4.3
339.9
295.9
44
14.9
45.2
48.5
-3
-6.8
Total average consumption decreased by 7% across customer types except for industrial accounts. Average
consumption for residential and semi-commercial accounts decreased as new service connections covered low
consumption customers from the expansion areas.
- 29 -
Analysis of operating costs
Below is a summary of the increases or decreases in operating costs:
For the nine months ended September 30
COSTS AND EXPENSES
in thousands
Depreciation and amortization
Salaries, wages & employee benefits
Power, light and water
Management, technical and professional fees
Repair and maintenance
Costs associated with management contracts
Collection fees
Business meetings and representation
Costs associated with projects outside East Zone
Occupancy
Water treatment chemicals
Wastewater costs
Transportation and travel
Insurance
Regulatory
Postage, telephone and telegram
Taxes and licenses
Advertising
Premium on performance bonds
Provision for doubtful accounts
Others
Total Operating Costs (Php)
P
P
2011
1,342,740 P
798,275
532,612
181,481
133,489
128,429
88,077
76,863
72,941
70,861
60,845
57,170
50,799
26,131
21,854
21,263
14,033
8,579
5,758
(41,448)
25,721
Increase
2010
(Decrease)
1,374,172 P
(31,432)
789,819
8,456
463,356
69,256
202,989
(21,508)
122,633
10,856
62,942
65,487
85,528
2,549
71,120
5,743
78,203
(5,262)
61,140
9,721
40,761
20,084
63,893
(6,723)
54,413
(3,614)
26,146
(15)
9,475
12,379
19,998
1,265
84,931
(70,898)
11,848
(3,269)
6,237
(479)
(31,540)
(9,908)
22,138
3,583
3,676,473 P
3,620,202 P
(%)
-2%
1%
15%
-11%
9%
104%
3%
8%
-7%
16%
49%
-11%
-7%
0%
131%
6%
-83%
-28%
-8%
31%
16%
56,271
The increase in operating costs was accounted for mainly by the increases/decreases of the following
accounts:
Power, light and water
Total consumption increased by 4.75 million kwh or 7.7% from new water and wastewater facilities, while
effective cost/kwh decreased by P0.05 as compared to the same period last year.
Management, technical and professional fees
The decrease was due to the reclassification of the systems cost to service concession asset.
Repairs and maintenance
The increase was due to the additional preventive maintenance works for technical equipment, conversion of
twenty-two (22) sludge tankers to water tankers and overhauling of highly specialized tools for the period.
Costs associated with management contracts
The increase was due to the increase in the number of metering zones completed under the leak reduction
project in Vietnam.
Business meetings and representation
This was due to the increase in various activities to support the business expansion programs of the Company.
Cost of projects outside East Zone
This represents expenses incurred for projects outside the East Zone which are still in the exploratory stage.
Occupancy
This was due to the requirements for additional security guards and janitors to man newly and soon-to-be
completed water and wastewater facilities.
- 30 -
Water treatment chemicals
Requirement for alum increased due to the poor quality of raw water drawn from the La Mesa bypass.
Wastewater costs
The decrease was due to lower volume of desludged waste from septic tanks in the current period compared to
2010.
Transportation and travel
The increase was due to higher fuel consumption as a result of tankering services in selected areas and
increased fuel prices.
Regulatory
The increase was due to the compounded CPI adjustments charged to operating expense computed on the
base regulatory fee of P396M.
Postage, telephone and regulatory
The increase was due to additional requirements for radios and communications subsidy for employees
brought about by business expansion.
Taxes and licenses
The decrease was due to the partial reversal of 2010 provision to correct over-accrual of real property tax.
Advertising
The decrease was due to fewer media advertisements on water interruptions with the continuous network
improvements.
Premium on performance bond
The decrease was due to the appreciation of the peso versus the US dollar.
Provision for doubtful accounts
Partial reversals of prior years’ provision as collection efficiency improved. The provision was adjusted based
on the historical loss rate on the past due accounts receivable.
Other costs
This was due to the increase in consumption of other direct materials such as chemicals used for water
sampling and rental of generator sets.
Analysis of other income and expenses, and income tax
Interest expenses (net of interest income) increased by P161 million due to additional drawdowns from the P10
billion notes issued last April 2011 and on the Nippon Export and Investment Insurance (NEXI) loan facility last
January 2011.
Mark-to-market loss on derivative assets increased due to lower valuation during the quarter resulting from the
decrease in risk free rates and the approach of the exercise date of the call option on P4 billion bond of the
Company.
Assets and Liquidity
Cash reserves and investments amounted to P17,585 million. This was P11,776 million higher than the cash
balance at the end of 2010 due to the additional drawdowns from the NEXI loan facility and the issuance of P10
billion notes. The Company’s cash reserves and investments are composed of cash and cash equivalents,
short term investments, and financial assets classified as available for sale, which are mostly denominated in
local currency.
Collection efficiency was at 99.1% as of September 30, 2011, while days receivable improved to 13 days.
Service concession assets stood at P41,851 million, approximately P4,391million (net of amortization) higher
than the end 2010 level. Service concession assets are composed of direct capital investments of the Company
and the present value of future concession fee payments.
- 31 -
Under the Intangible Asset Model of the Philippine Interpretation of IFRIC 12, the Company records all capital
investments pertaining to the rehabilitation and construction works on the East Zone project, as well as
concession fee payments, as intangible assets or service concession assets, in recognition of the
concessionaire’s right to the recovery of the value of these investments in accordance with the terms of the
Concession Agreement.
Total current assets exceeded total current liabilities by a ratio of 2.48 times.
Debts and Other Liabilities
Current liabilities increased by P1.744 million due to additional claims from suppliers and contractors, and an
increase in the portion of loans due this year.
Total concessionaire loans (including current portions) was at P27,789 million. Meanwhile, service concession
obligations amounted to P8,398 million, P441 million lower than the 2010 year-end level. This amount pertains
to the present value of future concession fee obligations of the Company in accordance with the revised
Philippine Interpretation of IFRIC 12. The revised interpretation requires the Company to recognize the present
value of these future obligations as part of both concession assets and liabilities.
On September 7, 2010, Laguna AAAWater Corporation entered into a loan agreement with China Banking
Corporation and Metropolitan Bank & Trust Company to finance the investment program to expand water
supply and sanitation services. Pursuant to the program, the lenders agreed to provide loans to LAWC up to
P500 million bearing an effective interest rate of 7.26%. P250 million was drawn last November 2010.
On October 21, 2010, the Manila Water entered into a term loan agreement amounting to US$150 million to
partially finance its capital expenditures within the East Zone. The loan has a tenor of 10 years and is financed
by a syndicate of four banks- ING N.V. Tokyo, Mizuho Corporate Bank, Ltd., The Bank of Tokyo-Mitsubishi UFJ
Ltd. and Sumitomo Mitsui Banking Corporation and is insured by NEXI. As of September 30, 2011, the
Company has drawn US$84 million from the said facility.
On April 8, 2011, the Company issued P10.0 billion notes (“Fixed Rate Corporate Notes”), P5.0 billion of which
has an interest rate of 6.3385% payable in 5 years (“Five-Year FXCN Note”). The balance of P 5.0 billion has
an interest rate of 7.3288% with a 10 year (“Ten-Year FXCN Note”) term from the issue date. Interest on both
notes is payable quarterly.
On September 2, 2011, the Executive Committee of Manila Water approved the Company’s early redemption
on October 23, 2011 of its PhP4,000,000,000 Peso Fixed Rate Bonds due 2013 (the “Bonds”), in accordance
with the Terms and Conditions of the Bonds dated October 9, 2008.
Net long-term debt-to-equity was at 0.47x from 0.42x in the prior year. The Group maintained a favorable level
of total liabilities/equity ratio (excluding concession obligations) at 1.6x.
Stockholders’ equity
Stockholders’ equity increased by P1,812 million since December 31, 2010, as a result of higher retained
earnings. Book value per share was P10.44 per share. There were no new shares issued from January to
September this year, aside from the exercise of stock options granted under the Group’s employee benefits
plan.
Cash flows from operating activities
Net cash generated from operations increased by 21% year-on-year. This was due to the increase in payables
to suppliers and contractors because of higher capex. Furthermore, there is an increase in other current assets
brought about by mobilization costs for various projects.
Cash flows from investing activities
Net cash used in investing activities increased by 139% from the same period last year. The increase in cash
outlay was brought about by increased placements in short-term cash investments.
- 32 -
Cash flows from financing activities
Net cash provided by financing activities amounted to P12,155 million as of September 30, 2011. A total of
P14,294 million in loans was obtained during the period from existing facilities while P1,392 million was used to
pay principal and additional interest on new loan drawdowns.
- 33 -
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 3rd quarter of 2011
Regulatory Key Performance Indicators and Business Efficiency Measures
Tariff table
- 34 -
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, 2011.
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
Keiichi Asai
Simon Gardiner
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
Director
Independent Director
Independent Director
Corporate Secretary
Asst. Corporate Secretary
The following is a list of the Company’s key executive officers as of September 30, 2011.
Name
Gerardo C. Ablaza Jr.
Luis Juan B. Oreta
Virgilio C. Rivera Jr.
Ferdinand M. dela Cruz
Ruel T. Maranan
Geodino V. Carpio
Position
President and CEO
Chief Finance Officer and Treasurer
Group Director, Corporate Strategy and Development
Group Director, East Zone Business Operations
Group Director, Corporate Resources
Group Director, Operations
For more information about each of the members of the Board and management team, please visit our website
at www.manilawater.com.
- 36 -
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, 72% of the Group’s borrowings have fixed rates of interest as of
September 30, 2011 and December 31, 2010.
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.
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, 2011
Within 1 year
More than 5
Within 5 Years
years
(In Thousands)
Total
Cash equivalents and Short-term
cash investments
Interest Rates (Range)
0.00% to 4.57%
AFS Financial Assets
Bonds
Government Securities
RTBN
Interest Rates (Range)
6.25% to 9%
Corporate Bonds
Interest Rates (Range)
6.125% to 8.88%
P
= 12,295,740
200,000
150,185
P
= 12,445,925
P
= –
P
=–
P
= 12,295,740
107,365
–
107,365
340,000
447,365
P
= 447,365
80,000
80,000
P
= 80,000
620,000
727,365
P
= 12,973,290
December 31, 2010
Within 1 year
Cash equivalents and Short-term
cash investments
Interest Rates (Range)
0.00% to 11.50%
AFS Financial Assets
Bonds
Government Securities
RTBN
Interest Rates (Range)
6.25% to 8.50%
Corporate Bonds
Interest Rates (Range)
4.90% to 8.80%
Within 5 Years
(In Thousands)
P
= 2,648,122
P
=–
51,282
108,779
99,660
150,942
P
= 2,799,064
595,565
704,344
P
= 704,344
More than 5
years
Total
P
=– P
= 2,648,122
–
160,061
141,370
836,595
141,370
996,656
P
= 141,370 P
= 3,644,778
September 30, 2011
Within 5
Years More than 5 years
(In Thousands)
Within 1 year
Total
Fixed Rate Long Term Debt
(exposed to fair value risk)
P
= 1,138,745
P
= 6,620,607
P
= 114,326
P
= 7,873,678
Bonds Payable
(exposed to fair value risk)
430,254
2,142,116
1,483,113
4,055,483
Corporate Notes
(exposed to fair value risk)
–
5,000,000
5,000,000
10,000,000
702,284
P
= 2,271,283
5,461,042
P
= 19,223,765
2,333,277
P
= 8,930,716
8,496,603
P
= 30,425,764
Floating Rate Long Term Debt
(exposed to cash flow risk)
December 31, 2010
Within 1 year
Within 5 Years More than 5 years
(In Thousands)
Total
Fixed Rate Long Term Debt
(exposed to fair value risk)
P
= 672,711
4,889,255
P
= 726,020
P
= 6,287,986
Bonds Payable
(exposed to fair value risk)
–
4,000,000
–
4,000,000
502,271
P
= 1,174,982
2,009,086
P
= 10,898,341
1,526,104
P
= 2,252,124
4,037,461
P
= 14,325,447
Floating Rate Long Term Debt
(exposed to cash flow risk)
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 is generated in PHP, and
substantially all capital expenditures are also in PHP. Approximately 43% and 52% of debt as of
September 30, 2011 and December 31, 2010, respectively, was denominated in foreign currency. Under
Amendment 1 of its Concession Agreement, however, the Group’s foreign exchange risks on its loans and
concession fee payments for the East Zone are effectively mitigated through a recovery mechanism in the
tariff called Foreign Currency Differential Adjustment (FCDA).
Information on the Group’s foreign currency-denominated monetary assets and liabilities and their
Philippine Peso equivalents are as follows:
September 30, 2011
Original
Peso
Currency
Equivalent
(Amounts in Thousands)
Assets
Cash and cash equivalents
USD
YEN
Vietnamese Dong (VND)
December 31, 2010
Original
Peso
Currency
Equivalent
(Amounts in Thousands)
$ 2,961
Y VND 152,720
P
= 132,449
2,166
P
= 134,614
$7,476
Y364
VND1,083,849
P
= 327,755
195
2,439
P
= 330,389
Y4,982,482
$38,491
P
= 2,831,545
1,682,838
Y9,981,073
$50,448
P
= 5,389,779
2,211,640
Y662,759
$104,661
FRF3,717
377,352
4,575,779
33,653
9,501,167
Y740,731
$57,142
FRF3,783
399,995
2,505,105
33,442
10,539,961
Liabilities
Long-term debt
YEN loan
USD loan
Service concession obligations
YEN loan
USD loan
French Franc (FRF) loan
Net foreign currency-denominated
liabilities
P
= 9,368,396
P
= 10,209,572
The spot exchange rates used were P
= 43.72 to US$1, P
= 0.57 to JPY1 and P
= 9.05 to FRF1 in September 30, 2011 and P=43.84 to
US$1, P=0.54 to JPY1, P=8.84 to FRF1 and P=0.0022 to VND1 in 2010.
The following table demonstrates the sensitivity to a reasonably possible change in foreign exchange rates,
with all variables held constant, of the Group’s profit before tax (due to changes in the fair value of
monetary assets and liabilities taking into account the effect of the natural hedge due to the FCDA recovery
mechanism) as of September 30, 2011 and December 31, 2010:
September 30, 2011
Dollar
Yen
Increase/Decrease in
Effect on Profit
Foreign Exchange Rates
before Tax
(Amounts in Thousands)
P
= 1.00
(P
= 2,961)
(1.00)
2,961
0.02
(0.02)
-
December 31, 2010
Dollar
Yen
Increase/Decrease in
Effect on Profit
Foreign Exchange Rates
before Tax
(Amounts in Thousands)
P
= 1.00
(P
= 7,476)
(1.00)
7,476
0.02
(7)
(0.02)
7
The Group does not expect any movement of the VND against the Philippine Peso to have a significant
effect on the Group’s profit before tax.
- 39 -
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.
Ageing of Accounts Receivables
As of September 30, 2011
Up to 6 Months
Trade Receivable
P
= 790,802
Over 6 months to
1 year
Past due
(in thousands)
P
= 109,369
P
= 176,566
Total
P
= 1,076,737
The maximum exposure to credit risk for the components of the consolidated statements of financial
position is equal to its carrying value.
As of September 30, 2011 and December 31, 2010, the credit qualities per class of the Group’s financial
assets are as follows:
September 30, 2011
Neither Past Due nor Impaired
High Grade
Standard
Cash and cash equivalents*
Short-term cash investments
Receivables
Customers
Residential
Commercial
Semi-business
Industrial
Employees
Interest from banks
Receivable from SAWACO
Others
AFS financial assets
Quoted
Unquoted
Total
*Excludes cash on hand.
Past Due and
Impaired
P
= 12,288,166,967
3,612,772,210
–
–
405,305,309
88,121,746
28,357,103
10,777,634
–
95,781,291
85,623,517
41,919,500
83,409,489
17,321,260
8,729,613
2,494,745
45,752,094
–
–
–
976,779,429
620,000,000
P
= 18,253,604,706
–
–
- 40 -
P
= 157,707,201
Total
P
=– P
= 12,288,166,967
–
3,612,772,210
323,524,869
70,660,110
19,077,295
18,958,316
–
–
–
31,968,378
812,239,667
176,103,116
56,164,011
32,230,695
45,752,094
95,781,291
85,623,517
73,887,876
–
976,779,429
–
620,000,000
P
= 464,188,966 P
= 18,875,500,873
December 31, 2010
Cash and cash equivalents*
Short-term cash investments
Receivables
Customers
Residential
Commercial
Semi-business
Industrial
Employees
Interest from banks
Receivable from SAWACO
Others
AFS financial assets
Quoted
Unquoted
Total
Neither Past Due nor Impaired
High Grade
Standard
P
= 2,406,787,031
P
=–
1,546,339,222
–
Past Due and
Impaired
P
=–
–
Total
P
= 2,406,787,031
1,546,339,222
139,318,327
11,907,332
1,680,083
943
–
21,767,660
47,699,550
59,893,560
86,821,142
47,943,600
12,016,717
2,729,708
50,389,222
–
–
363,465,865
85,863,153
26,250,840
3,943,819
–
–
–
34,031,259
589,605,334
145,714,085
39,947,640
6,674,470
50,389,222
21,767,660
47,699,550
93,924,819
1,005,246,935
843,659,174
P
= 6,084,299,817
–
–
P
= 199,900,389
–
–
P
= 513,554,936
1,005,246,935
843,659,174
P
= 6,797,755,142
*Excludes cash on hand.
As of September 30, 2011 and December 31, 2010, 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 and short-term cash investments 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.
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:
Cash and cash equivalents
Short-term cash investments
Receivables:
Customers
Employees
Receivable from SAWACO
Interest from banks
Others
AFS financial assets
September 30, 2011
More than
1-5 years
5 years
(In Thousands)
Total - Gross
(In PhP)
P
= 12,288,167
3,612,772
P
=–
–
P
=–
–
P
= 12,288,167
3,612,772
1,076,737
45,752
95,781
85,624
119,640
200,000
P
= 17,524,473
–
–
–
–
–
447,365
P
= 447,365
–
–
–
–
1,076,737
45,752
95,781
85,624
119,640
1,596,779
P
= 18,921,252
- 41 -
949,414
P
= 949,414
Within 1 Year
Assets:
Cash and cash equivalents
Short-term cash investments
Receivables:
Customers
Employees
Receivable from SAWACO
Interest from banks
Others
AFS financial assets
December 31, 2010
More than
1-5 years
5 years
(In Thousands)
Total - Gross
(In PhP)
P
= 2,412,912
1,546,339
P
=–
–
P
=–
–
P
= 2,412,912
1,546,339
781,942
50,389
47,700
21,768
93,925
152,503
P
= 5,107,478
–
–
–
–
–
767,433
P
= 767,433
–
–
–
–
–
933,662
P
= 933,662
781,942
50,389
47,700
21,768
93,925
1,853,598
P
= 6,808,573
The Group’s financial liabilities based on contractual undiscounted payments:
Within 1 Year
September 30, 2011
More than
1-5 years
5 years
(In Thousands)
Total - Gross
(In PhP)
Liabilities:
Accounts and other payables
Payables to related parties
Long-term debt*
Service concession obligations
Customers’ guaranty and other
deposits
P
= 4,235,775
110,100
2,271,283
64,762
P
=–
–
19,223,764
1,914,678
–
–
8,930,715
3,007,344
P
= 4,235,775
110,100
30,425,762
4,986,784
–
P
= 6,681,920
–
P
= 21,138,442
391,916
P
= 12,329,975
391,916
P
= 40,150,337
December 31, 2010
More than
1-5 years
5 years
(In Thousands)
Total - Gross
(In PhP)
*Includes contractual interest cash flows
Within 1 Year
Liabilities:
Accounts and other payables
Payables to related parties
Long-term debt*
Service concession obligations
Customers’ guaranty and other
deposits
P
= 3,147,896
91,167
1,988,503
1,235,724
P
=–
–
12,529,493
3,551,987
P
=–
–
2,643,161
12,401,503
P
= 3,147,896
91,167
17,161,157
17,189,214
–
P
= 6,463,290
–
P
= 16,081,480
2,245,798
P
= 17,290,462
2,245,798
P
= 39,835,232
*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, 2011 December 31, 2010
P
= 43,180,330
P
= 28,642,711
7,148,219
7,953,589
35,922,011
20,689,122
21,790,232
19,977,977
P
= 57,712,243
P
= 40,667,099
Total liabilities
Less: Total service concession obligation
Total Stockholders' Equity
Total
62%
Gearing ratio
- 42 -
51%
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.
September 30, 2011
P
= 43,180,330
Total liabilities
Less:
Total service concession obligation
Cash and cash equivalents
Short-term cash investments
Available-for-sale financial assets
Net Debt
Total Stockholders' Equity
Total Net Debt and Stockholders’ Equity
Net Debt to Equity Ratio
- 43 -
December 31, 2010
P
= 28,642,711
7,258,319
12,295,740
3,612,772
1,675,992
24,842,823
18,337,507
21,790,232
P
= 40,127,739
7,953,589
2,412,912
1,546,339
1,848,906
13,761,746
14,880,965
19,977,977
P
= 34,858,942
46%
43%
APPENDIX
XC
MANILA W
WATER STO
OCK AND DIIVIDENDS IN
NFORMATIO
ON
Stock chart (Sep
ptember 2010 – Septemb
ber 2011)
R
*Source: Reuters
pany was liste
ed in the Philippine Stockk Exchange o
on March 18,, 2005 and itss listed share
es have since
e
The Comp
been activvely traded th
herein. The h
high and low sale prices ffor each quarrter that the C
Company’s sshares have
been listed
d are as follo
ows:
st
1 Quarterr
nd
2 Quarter
rd
3 Quarterr
th
4 Quarterr
High
1
19.16
1
19.34
1
19.84
-
High / Low Sale
es
2011
Low
16.08
17.96
18.50
-
2010
High
h
15.75
5
16.75
5
19.04
4
19.50
0
Low
14.75
15.00
16.50
18.24
west sale pricce was P 18.5
50.
For the thiird quarter off 2011, the hiighest sale price was P 19.84 and low
as of the closse of Septem
mber 30, 2011
1, was P18.9
98.
The price information a
- 44 -
Dividends Information
0.56
0.46
0.4
0.35
0.3
0.21
0.06
2003
0.1
2004
0.14
2005
2006
2007
2008
2009
2010
2011
In April 2011, the Board declared the first semester 2011 cash dividends: (i) P0.28 per share on the
outstanding common shares, and (ii) P 0.028 per share on the outstanding participating preferred shares. The
dividends are payable to stockholders of record as of April 27, 2011, to be paid on May 19, 2011.
In September 2011, the Board declared the second semester 2011 cash dividends: (i) P0.28 per share on the
outstanding common shares, and (ii) P 0.028 per share on the outstanding participating preferred shares. The
dividends are payable to stockholders of record as of October 4, 2011, payable on October 27, 2011.
- 45 -
APPENDIX D
SUMMARY OF CORPORATE DISCLOSURES DURING THE 3RD QUARTER OF 2011
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), the Philippine Stock
Exchange (PSE) and the Philippine Dealing and Exchange Corporation (PDEx). 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.
rd
Below is a summary of the corporate disclosures during the 3 quarter of 2011.
DATE
July 12, 2011
July 29, 2011
August 3, 2011
August 10, 2011
August 10, 2011
August 31, 2011
September 2, 2011
September 2, 2011
September 20, 2011
TOPIC
Results of Board Meeting
Term-Loan Facility for BIWC
Notice of Analysts' Briefing
First Semester Financial and Operational
Highlights
First Semester 2011 Financial Report
Sale of shares to JITF Water Infrastructure
Limited
Redemption of P4 Billion Bonds
Statement of Changes in Beneficial Ownership
of Securities
Results of Board meeting / Dividend
declarations
For more details on these disclosures, please visit our website at www.manilawater.com.
- 46 -
APPENDIX E
PERFORMANCE INDICATORS AND BUSINESS EFFICIENCY MEASURES
As of September 30, 2011
Key Performance Indicators
Domestic Water Service Connections (cum)
Continuity of Water Supply (24-hour supply)
Target
679,000
98%
Pressure of Water Supply (minimum of 7 psi)
82%
Water Quality at Plant Outlet (% compliance with PNSDW) (cum. for
the year 2011)
Water Quality in Distribution (% compliance with PNSDW) (cum. for
the year 2011)
Sampling (% compliance with PNSDW) (cum. for the year 2011)
Sewerage Connections (cum)
Sanitation (Septic Tanks Emptied) (cum. for the year 2011)
Wastewater Effluent Quality (%Compliance with DENR Standards)
(cum. for the year 2011)
Response to Customer Service Complaints (% of complaints
responded within 10 days) (cum. for the year 2011)
Response to Billing Complaints (% of complaints responded within 10
days) (cum. for the year 2011)
Response to Request for New Connections (% of requests
responded within 5 days) (cum. for the year 2011)
Installation of New Water Service Connections (no. of regular
connections installed within 7 days) (cum. for the year 2011) –
regular connections exclude individualization of subdivisions and
people’s organizations
Response to disruptive mains failure (% of disruptive main failures
repaired within 24 hours) (cum. for the year 2011)
Business Efficiency Measures
Billed Volume (mcm) (cum. for the year 2011)
Revenue Collection Rate (cum. for the year 2011)
Labor Cost ( cum. for the year 2011 - in million pesos)
Power Consumption ( cum. for the year 2011 - in million KwH)
Total Controllable OPEX ( cum. for the year 2011 - in million pesos)
CAPEX (cumulative from 2008 to 2012 - in million pesos)
Non-Revenue Water %
1/
2/
2011 year-end target
2012 year-end target
- 47 -
Actual
797,769
99.87% of the
Central
Distribution
System (CDS)
99.34% of
currentlyserved areas
99.41% of
CDS @ 19.6
psi (average)
95%
98.91% of
currentlyserved areas
@ 18.95 psi
(average)
99.97%
95%
100%
100%
98,700
1/
53,927
95%
115.20%
91,429
35,882
100%
95%
99.93%
90%
99.84%
100%
100%
2/
28,801
96%
100%
Target
1/
420
95%
1/
max. of 1,220
1/
max. of 93.50
1/
1,463
Actual
308.28
99.38%
781.49
66.69
710.50
24,755.67
11.40%
29,338
42,7862/
max. of 25%
APPENDIX F
AVERAGE TARIFF
Prev. Basic
CPI
Rate Rebasing
Total Basic Water
FCDA
EC (2010: 16% 2011:18%)
TOTAL
VAT
TOTAL w/ VAT
Sept 30, 2010
21.91
0.16
1.00
23.08
0.00
3.69
26.77
3.21
29.98
- 48 -
Dec. 31, 2010
23.08
23.08
0.10
3.71
26.89
3.23
30.12
Sept 30, 2011
23.08
1.03
1.00
25.11
0.29
4.57
29.97
3.60
33.57