1. law, govt and politics

ANNEX “A”
DETAILS AND RATIONALE OF THE AGENDA
1.
Call to Order
The Chairman of the Board of Directors, and the chairman of the meeting, Mr. Fernando
Zobel de Ayala, will call the meeting to order.
2.
Notice of Meeting, Certification of quorum and Rules of Conduct and Voting Procedures
The Corporate Secretary will certify the date when written notice of the date, time, place,
and purpose of the meeting was sent to all stockholders of record as of February 16,
2015, and the date of publication of the notice in the newspapers of general circulation.
The Corporate Secretary will further certify the presence of a quorum. The holders of
record for the time being of a majority of the stocks of the Company then issued and
outstanding and entitled to vote, represented in person or by proxy, shall constitute a
quorum for the transaction of the business.
The following are the Rules of Conduct and Voting Procedures:
a. Anyone who wish to make a remark or to make a query shall identify himself after
being acknowledged by the Chairman and shall limit his remarks and query to the
item in the agenda under consideration.
b. On the voting procedures, stockholders may opt for manual or online voting. For
manual voting, each stockholder will be given a ballot upon registration to enable the
stockholder to vote in writing per item in the agenda. For online voting, there will be
computer stations placed outside the Ballroom where stockholders may cast their
votes online. Both ballot and website platform will state the proposed resolutions for
consideration by the stockholders and each proposed resolution will be shown on the
screen as the same is taken up at the meeting.
c. All the items in the agenda requiring approval by the stockholders will need the
affirmative vote of stockholders representing at least a majority of the issued and
outstanding voting capital stock. Each outstanding share of stock entitles the
registered stockholder to one vote. All votes received shall be tabulated by the Office
of the Corporate Secretary, and the results shall be validated by an independent party
to be announced at the meeting.
The election of the directors shall be by plurality of votes and every stockholder shall
be entitled to cumulate his votes.i
3.
Approval of the minutes of the meeting of stockholders on April 4, 2014
Copies of the minutes of the stockholders meeting held on April 4, 2014 will be
distributed to the stockholders upon their registration for this meeting. The minutes are
also available at the Company website, www.manilawater.com.
The stockholders will be requested to approve the draft minutes of previous stockholders’
meeting and to acknowledge the completeness and accuracy thereof.
Below is the proposed resolution for this agenda item:
“RESOLVED, to approve the minutes
stockholders’ meeting held on April 4, 2014.”
4.
of
the
annual
Reports of the Chairman of the Board and the President
The Chairman, Mr. Fernando Zobel de Ayala, and the President, Mr. Gerardo C. Ablaza,
Jr. will deliver their reports on the highlights of the Y2014 Company performance as
reflected in the audited financial statements, and the outlook for Y2015.
5.
Approval of the Annual Report and of the Audited Financial Statements as of December
31, 2014
The Chairman will request the stockholders’ approval of the annual report and the
audited financial statements as of December 31, 2014.
The stockholders will be given opportunity to ask questions prior to submitting the
Annual Report and the Audited Financial Statements for approval by the stockholders.
Copies of the Annual Report and the Audited Financial Statements will be distributed to
the stockholders before the meeting. Further, the Audited Financial Statements will be
released by the Company and be made available at the Company website,
www.manilawater.com.
Below is the proposed resolution for this agenda item:
“RESOLVED, to approve the annual report and the 2014 audited
financial statements of the Company.”
6.
Ratification of all acts and resolutions during the preceding year of the Board of
Directors, Board Committees, Management and officers of the Company
The Chairman will request the stockholders to ratify all acts and resolutions adopted
during the preceding year by the Board of Directors, the Board Committees, Management
Committee and the officers of the Company.
The acts and resolutions of the Board and its Committees are reflected in the minutes of
meetings and they include approval of contracts and agreements, projects and
investments, treasury matters and acts and resolutions covered by disclosures to the SEC
and PSE. The acts of the Management and officers were those taken to implement the
resolutions of the Board or its Committees or taken in the general conduct of business.
Below is the proposed resolution for this agenda item:
“RESOLVED, to approve and ratify all acts and resolutions of
the Board of Directors, all the Board Committees, as well as all
the acts of the Management and officers of the Company taken
or adopted since the annual stockholders’ meeting on April 4,
2014 until April 7, 2015.”
7.
Election of directors, including independent directors
In accordance with Section 2, Article II of the Company’s By Laws, all nominations to
the Board of Directors must be submitted in writing to the Nomination Committee on or
before February 20, 2015. The Nomination Committee, in the exercised of its assigned
task under its charter and the Manual of Corporate Governance of the Company, shall
evaluate and determine whether the nominees for election to the Board of Directors
including the independent directors, have all the qualifications and none of the
disqualifications before submitting the nominees for election by the stockholders of the
eleven (11) members of the Board of Directors including the independent directors.
Copies of the curriculum vitae and profiles of the candidates to the Board of Directors
will be provided in the Preliminary Information Statement and in the Definitive
Information Statement.
8.
Re-appointment of the external auditor and fixing of its remuneration
The external auditor of the Company is tasked with the preparation of its annual audited
financial statements.
The stockholders approval for the re-appointment of Sycip Gorres Velayo and Company,
the Company’s external auditor, will be sought at the meeting.
The Audit Committee will endorse to the stockholders the re-appointment of SGV as
external auditor for the ensuing year, as well as the proposed remuneration. The profile of
the external auditor will be provided in the Preliminary Information Statement and the
Definitive Information Statement.
Below is the proposed resolution for this agenda item:
“RESOLVED, to approve the re-appointment of the firm of
SyCip Gorres Velayo & Company as external auditor of the
Company for the fiscal year January 1, 2015 to December 31,
2015.”
9.
Consideration of such other business as may properly come before the meeting
The Chairman will open the floor for comments and questions by the stockholders.
Stockholders may also propose to consider such other relevant matters and issues.
10.
Adjournment
Upon determination by the Corporate Secretary that there are no other matters to be
considered, and on motion by a stockholder duly seconded, the Chairman shall declare
the meeting adjourned.
i
Section 7, Article II, By Laws
Section 7. Election of Directors – The directors of the Corporation shall be elected by majority
vote at the annual meeting of the stockholders at which a quorum is present. At each election for
directors every stockholder shall have the right to vote, in person or proxy, the number of shares
owned by him for as many persons as there are directors to be elected, or to cumulate his votes
by giving one candidate as many votes as the number of such directors multiplied by the number
of his shares shall equal, or by distributing such votes at the same principle among any number
of candidates.
PROXY
The undersigned stockholder of MANILA WATER COMPANY, INC. (the “Company”) hereby appoints
__________________________ or in his absence, the Chairman of the meeting, as attorney-in-fact and proxy, with
power of substitution, to represent and vote all shares registered in his/her/its name as proxy of the undersigned
stockholder, at the Annual Meeting of Stockholders of the Company on April 7, 2015 and at any of the adjournments
thereof for the purpose of acting on the following matters:
5.
1.
Approval of minutes of previous meeting
Yes
No
Abstain
2.
Approval of Annual Report and 2014 Audited Financial Statements
Yes
No
Abstain
3.
Ratification of all acts and resolutions of the Board of Directors,
Board Committees, Management Committee and Officers
Yes
No
Abstain
4.
Election of Directors, including Independent Directors
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
Fernando Zobel de Ayala
Jaime Augusto Zobel de Ayala
Gerardo C. Ablaza Jr.
Antonino T. Aquino
Delfin L. Lazaro
John Eric T. Francia
Victoria P. Garchitorena
Jose L. Cuisia Jr.
(Independent)
4.9 Oscar S. Reyes
(Independent)
4.10 Sherisa P. Nuesa
(Independent)
4.11 Jaime C. Laya (Independent)
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
No
No
No
No
No
Abstain
Abstain
Abstain
Abstain
Abstain
Abstain
Abstain
Abstain
Yes
No
Abstain
Yes
No
Abstain
Yes
No
Abstain
6.
Election of Sycip Gorres Velayo & Co. as
Independent auditors.
Yes
No
Abstain
At their discretion, the proxies named above
are authorized to vote upon such other
matters as may properly come before the
meeting.
Yes
No
____________________________________
PRINTED NAME OF STOCKHOLDER
____________________________________
SIGNATURE OF STOCKHOLDER/AUTHORIZED
SIGNATORY
____________________________________
DATE
THIS PROXY SHOULD BE RECEIVED BY THE CORPORATE SECRETARY ON OR BEFORE MARCH 25, 2015, THE
DEADLINE FOR SUBMISSION OF PROXIES.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER AS DIRECTED HEREIN BY THE
STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED “FOR” THE ELECTION OF ALL
NOMINEES AND FOR THE APPROVAL OF THE MATTERS STATED ABOVE AND FOR SUCH OTHER MATTERS AS
MAY PROPERLY COME BEFORE THE MEETING IN THE MANNER DESCRIBED IN THE INFORMATION STATEMENT
AND/OR AS RECOMMENDED BY MANAGEMENT OR THE BOARD OF DIRECTORS.
A STOCKHOLDER GIVING A PROXY HAS THE POWER TO REVOKE IT AT ANY TIME BEFORE THE RIGHT GRANTED
IS EXERCISED. A PROXY IS ALSO CONSIDERED REVOKED IF THE STOCKHOLDER ATTENDS THE MEETING IN
PERSON AND EXPRESSED HIS INTENTION TO VOTE IN PERSON.
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 20-IS
Information Statement of
Manila Water Company, Inc. (the “Company” or “Manila Water”)
Pursuant to Section 20 of the Securities Regulation Code (the “Code” or “SRC”)
1.
Check the appropriate box:
[
] Preliminary Information Statement
[ x ] Definitive Information Statement
2.
Name of registrant as specified in its charter:
MANILA WATER COMPANY, INC.
3.
Province, country or other jurisdiction of incorporation or organization:
Republic of the Philippines
4.
SEC Identification Number: A 1996-11593
5.
BIR Tax Identification Code: 005-038-428
6.
Address of principal office:
MWSS Administration Building, 489 Katipunan Road
Balara, Quezon City, Metro Manila, Philippines 1105
7.
Registrant’s telephone number: (02) 9818129
8.
Date, time and place of the meeting of security holders:
Date:
Time:
Place:
9.
April 7, 2015
3:00 P.M.
Ballroom 2, Fairmont Makati, 1 Raffles Drive, Makati Ave., Makati City, Philippines
Approximate date on which the Information Statement is first to be sent or given to security
holders:
March 13, 2015
1
10.
Securities registered pursuant to Sections 8 and 12 of the SRC:
a. Shares of Stock as of January 31, 2015
Common Shares, par value P1.00 each – 2,047,519,1101
b. Debt Securities
None
The Company has no other registered securities either in the form of shares, debt or otherwise.
11.
Are any of registrant's securities listed in a stock exchange?
Yes.
As of January 31, 2015, 2,015,708,607 Common Shares with a par value P1.00 per share are
listed in the Philippine Stock Exchange (PSE).
1
2,015,708,607 Outstanding Common Shares
31,810,503 Shares Under the Stock Ownership Plans
2,047,519,110
2
INFORMATION REQUIRED IN INFORMATION STATEMENT
Date, time and place of meeting of security holders (hereafter, the “annual stockholders’ meeting” or
“meeting”):
Date
:
April 7, 2015
Time
:
3:00 P.M.
Place
:
Ballroom 2, Fairmont Makati, 1 Raffles Drive, Makati Ave., Makati City
Record Date
The record date for the purpose of determining stockholders entitled to notice of, and to vote at, the
meeting is February 16, 2015 (the “Record Date”).
Mailing address of principal office of the registrant:
MWSS Administration Building, 489 Katipunan Road, Balara, Quezon City, Philippines, 1105
Approximate date on which the Information Statement is first to be sent or given to security
holders: March 13, 2015
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
Right of Appraisal
There are no matters to be acted upon with respect to which a dissenting stockholder may exercise
appraisal rights under Sections 81 and 42 of the Corporation Code.
Interest of Certain Persons in or Opposition to Matters to be Acted Upon
No director, officer, or nominee for election as director or associate of any of the foregoing has any
substantial interest in any matter to be acted upon, other than election to office of such director, officer or
nominee.
No director has informed the Company that he intends to oppose any action to be taken at the meeting.
Voting Securities and Principal Holders Thereof
(a)
As of January 31, 2015, the outstanding and voting shares of the Company are as follows:
Common Shares: 2,047,519,110, out of which 910,735,735 number of shares are owned by
foreigners
3
Participating Preferred Shares: 4,000,000,000
Number of votes to which each share is entitled: One (1) vote
(b)
Stockholders entitled to vote:
Only stockholders of record as of the Record Date are entitled to vote at the meeting.
(c)
Manner of voting in the election of directors:
Section 7 Article 2 of the Company’s By-Laws (the “By-Laws”) provides: “The directors of the
Corporation shall be elected by majority vote at the annual meeting of the stockholders at which a
quorum is present. At each election for directors, every stockholder shall have the right to vote,
in person or by proxy, the number of shares owned by him for as many persons as there are
directors to be elected, or to cumulate his votes by giving one candidate as many votes as the
number of such directors multiplied by the number of his shares shall equal, or by distributing
such votes at the same principle among any number of candidates.”
(d)
Security Ownership of Certain Record and Beneficial Owners and Management
(i)
Title of
class
Security Ownership of Record and Beneficial Owners of more than 5% as of January 31,
2015:
Name and address of
record owner
Name of beneficial
owner
(and relationship with
issuer)
(and relationship with
record owner)
Citizenship
No of shares
held
Percent
of class
Common
Ayala Corporation
34F Tower One, Ayala
Triangle, Ayala Ave.,
Makati City
(Principal shareholder)
Ayala Corporation*
(The same as the record
owner)
Filipino
791,912,996
38.68%
Common
PCD Nominee
Corporation
G/F MSE Bldg. Ayala
Ave., Makati City
(Not related)
First State Investment
Management (UK)
Limited *
Multilateral
117,100,761
5.72%
Preferred
Philwater Holdings
Company, Inc.
MWSS Admin. Bldg., 489
Katipunan Rd., 1105
Balara, QC
(Principal owner)
Philwater Holdings
Company, Inc.*
(The same as the record
owner)
Filipino
3,999,999,998
99.99%
* The Boards of Directors of Ayala Corporation and Philwater Holdings Company, Inc. have the power to decide how their
respective shares in the Company are to be voted. The Company has no knowledge on how the shares of First State Investment
Management in the Company are to be voted.
4
(ii)
Security Ownership of Directors and Management as of January 31, 2015:
Title of
Class
Name of Beneficial Owner
Citizenship
Common
Fernando Zobel de Ayala
Filipino
Amount of
Beneficial
Ownership
1
Common
Jaime Augusto Zobel de Ayala
Filipino
200,001
Common
Common
Common
Preferred
Preferred
Common
Common
Gerardo C. Ablaza Jr.
Delfin L. Lazaro
Antonino T. Aquino
Victoria P. Garchitorena
John Eric T. Francia
Jaime C. Laya
Jose L. Cuisia Jr.
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
3,626,078
1
12,749,543
1
1
5,000
1
Common
Oscar S. Reyes
Filipino
330,001
Common
Common
Common
Common
Common
Common
Common
Common
Common
Sherisa P. Nuesa
Solomon M. Hermosura
Geodino V. Carpio
Luis Juan B. Oreta
Ferdinand M. dela Cruz
Virgilio C. Rivera, Jr.
Rodell A. Garcia
Abelardo P. Basilio
Ruel T. Maranan*
All Directors and Officers as a
group
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
5,309,607
50,100
1,372,500
1,281,341
921,517
1,974,212
253,500
609,800
1,981,200
Nature of Beneficial
Ownership
Percent of Class
Direct
Direct and Indirect
0.00000005%
Direct and Indirect
Direct
Direct and Indirect
Direct
Direct
Direct and Indirect
Direct
Direct and Indirect
0.17709617%
0.00000005%
0.62268249%
0.00000003%
0.00000003%
0.00024807%
0.00000005%
Direct and Indirect
Direct and Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct and Indirect
0.25931904%
0.00244686%
0.07299077%
0.06258017%
0.04500652%
0.09641971%
0.01238084%
0.02978238%
0.09676100%
30,664,403
0.00976797%
0.01611711%
1.50359925%**
*Mr. Ruel T. Maranan resigned as Group Director for Corporate Human Resources effective January 13, 2014.
**Excludes the percentage of the two (2) preferred shares in the name of Directors Garchitorena and Francia.
None of the members of the Company’s board of directors (the “Board”) and management owns
2.0% or more of the outstanding capital stock of the Company.
(e)
The Company knows of no person holding more than 5% of its common shares under a voting
trust or similar agreement.
(f)
No change in control of the Company has occurred since the beginning of its last fiscal year.
5
(iii)
Security Ownership of Nominees for Election to the Board of Directors as of January 31, 2015:
Amount of
Beneficial
Ownership
Title of
Class
Name of Beneficial Owner
Citizenship
Common
Fernando Zobel de Ayala
Filipino
1
Common
Jaime Augusto Zobel de Ayala
Filipino
200,001
Common
Gerardo C. Ablaza Jr.
Filipino
3,626,078
Common
Delfin L. Lazaro
Filipino
1
Common
Antonino T. Aquino
Filipino
12,749,543
Preferred
Preferred
Common
John Eric T. Francia
Victoria P. Garchitorena
Jose L. Cuisia Jr.
Filipino
Filipino
Filipino
1
1
1
Common
Oscar S. Reyes
Filipino
330,001
Common
Sherisa P. Nuesa
Filipino
5,309,607
Common
Jaime C. Laya
Filipino
5,000
Nature of
Beneficial
Ownership
Direct
Direct and
Indirect
Direct and
Indirect
Direct
Direct and
Indirect
Direct
Direct
Direct
Direct and
Indirect
Direct and
Indirect
Direct and
Indirect
Percent of
Class
0.00000005%
0.00979580%
0.17709617%
0.00000005%
0.62268249%
0.00000005%
0.00000005%
0.00000005%
0.01611711%
0.25931904%
0.00024420%
Directors and Executive Officers
The Company’s Articles of Incorporation (the “Articles”) provides for eleven (11) members of the Board.
The following are the incumbent members of the Board:
Fernando Zobel de Ayala
Jaime Augusto Zobel de Ayala
Gerardo C. Ablaza Jr.
Antonino T. Aquino
John Eric T. Francia
Delfin L. Lazaro
Victoria P. Garchitorena
Jaime C. Laya (Independent Director)
Sherisa P. Nuesa (Independent Director)
Jose L. Cuisia Jr. (Independent Director)
Oscar S. Reyes (Independent Director)
All of the incumbent directors have been nominated for election to the Board at the stockholders’
meeting.
Mr. Jaime C. Laya and Ms. Sherisa P. Nuesa were nominated by Mr. Thom Ryan Q. Ortega as
independent directors of the Company. Mr. Ortega, a stockholder of the Company, has no business or
professional relationship with Mr. Laya and Ms. Nuesa.
Messrs. Jose L. Cuisia Jr. and Oscar S. Reyes 2 were nominated by Ms. Janice Galapon as independent
directors of the Company for election at the annual stockholders’ meeting. A stockholder of the company,
Ms. Galapon has no business or professional relationship with Messrs. Cuisia and Reyes.
2
Pursuant to Memorandum Circular No. 9 Series of 2011 which took effect on January 2, 2012, the previous terms served by Messr s. Oscar S.
Reyes and Jose L. Cuisia Jr. as Independent Directors of the Company are not considered in the computation of term limits under the Circular.
6
The By-Laws of the Company was amended on June 21, 2005 incorporating the provisions of SRC Rule
38, as amended (Requirements on Nomination and Election of Independent Directors) and the same has
been complied with.3 The nominees for Independent Directors have all the qualifications and none of the
disqualifications of an Independent Director.
The directors elected at the meeting shall hold office for one year upon their election and until their
successors are elected and qualified.
The Company’s key executive officers as of January 31, 2015 are as follows:
Name*
Gerardo C. Ablaza Jr.
Luis Juan B. Oreta
Virgilio C. Rivera Jr.
Ferdinand M. dela Cruz
Geodino V. Carpio
Rodell A. Garcia
Abelardo P. Basilio
Position
President and CEO
Chief Finance Officer and Treasurer
Group Director, Corporate Strategy and Development
Group Director, East Zone Business Operations and
Corporate Strategic Affairs
Group Director, Operations
Group Director, Chief Technology Adviser
Group Director, Strategic Asset Management
*Mr. Ruel T. Maranan resigned as Group Director for Corporate Human Resources effective January 13, 2014 who has taken his
new role as Managing Director of Ayala Corporation and President of Ayala Foundation, Inc.
A summary of the qualifications as of January 31, 2015 of the incumbent directors, nominees for election
as directors at the stockholders’ meeting, and incumbent officers is set forth in Annex “A”.
Attendance of Directors in Board Meetings
A total of seven (7) board meetings were held in 2014: regular meeting on February 20, 2014, special
meeting on April 4, 2014, organizational meeting on April 4, 2014, meeting of the Non-Executive
Directors on April 4, 2014 and regular meetings on June 25, 2014, October 7, 2014 and November 27,
2014. Mr. Gerardo C. Ablaza, Jr., the only Executive Director, was not a required attendee to the meeting
of the Non-Executive Directors.
Below is the record of attendance of the directors in the board meetings held in 2014:
Directors
Fernando Zobel de Ayala
Jaime Augusto Zobel de Ayala
Gerardo C. Ablaza Jr.
Delfin L. Lazaro
Antonino T. Aquino
John Eric. T. Francia
Victoria P. Garchitorena
Jaime C. Laya
No. of Meetings
Attended/Held**
6/7
6/7
6/6
6/7
7/7
6/7
3/5
5/5
% Present
86%
86%
100%
86%
100%
86%
60%
100%
3
The Nomination Committee is composed of the following: Jose L. Cuisia Jr. (Chairman / independent director), Jaime Augusto Zobel de Ayala,
Jaime C. Laya (independent director) and Oscar S. Reyes (independent director).
7
Sherisa P. Nuesa
Jose L. Cuisia Jr.
Oscar S. Reyes
Ricardo Nicanor N. Jacinto*
Masaji Santo*
7/7
7/7
7/7
2/2
1/2
100%
100%
100%
100%
50%
* The term of office of directors Masaji Santo and Ricardo Nicanor Jacinto ended on April 4, 2014.
** In 2014, and during the incumbency.
Significant Employees
The Company considers its human resources working as a team as a key element for its continued
success. The Company has no employee who is not an executive officer and who is expected to make
individually on his own a significant contribution to the business.
Family Relationships
The Company’s Chairman, Fernando Zobel de Ayala, and director, Jaime Augusto Zobel de Ayala are
brothers.
Involvement in Certain Legal Proceedings
In the past five (5) years, up to January 31, 2015, there is no bankruptcy petition, conviction by final
judgment, order, judgment or decree or any violation of a securities or any relevant law involving any
director, any nominee for election as director or executive officer of the Company that occurred that is
material to an evaluation of the ability or integrity of such director, nominee for election as director or
executive officer of the Company.
Certain Relationships and Related Transactions
In March 1997, the Company contracted with Ayala Corporation for the provision of administrative,
technical and support services in relation to human resources, treasury, accounting, capital works,
corporate services and regulatory affairs and administrative management of the Company. No other
transaction was undertaken by the Company in which any director or executive officer or any nominee for
election as director or security holder owning 10% or more of the Company’s total outstanding shares,
and/or any member of their immediate family, was involved or had a direct or indirect material interest.
No Resignation of Directors Arising from Disagreement
Since the annual stockholders’ meeting of the Company on April 4, 2014, no director has resigned or
declined to stand for re-election due to any disagreement with the Company relative to its operations,
policies and practices.
8
Compensation of Directors and Executive Officers
The aggregate compensation paid or accrued during the last two (2) fiscal years and the ensuing fiscal
year to the Company’s Chief Executive Officer and the most highly compensated officers and all other
officers as a group is as follows:
Name and
Principal Position
Year
Annual Compensation in Millions of Pesos
Salary
Bonus
Other Annual
Compensation
Gerardo C. Ablaza, Jr.
President and CEO
Luis Juan B. Oreta
CFO and Treasurer
Virgilio C. Rivera, Jr.
Group Director, Corporate
Development
Strategy
and
Ferdinand M. Dela Cruz
Group Director, East Zone Business Operations
and Corporate Strategic Affairs
Geodino V. Carpio
Group Directors, Operations
Above-named officers as a group
All other officers as a group unnamed
2013
84.2
13.3
35.4
2014
90.1
14.5
22.7
Estimated
2015
96.4
15.3
24.3
2013
456.9
115.3
112.1
2014
490.0
123.6
120.2
Estimated
2015
524.3
132.3
128.6
The Company has no standard arrangement or any other arrangements or compensation plan or
arrangement with regard to the remuneration of its existing officers aside from the compensation herein
stated.
Directors’ Compensation4
In a special meeting held on April 11, 2011, the Board recommended for stockholders’ approval the
following compensation of the members of the Board and the Board Committees:
4
The Remuneration Committee is composed of the following: Oscar S. Reyes (Chairman / independent director), Jose L. Cuisia Jr. (independent
director), Gerardo C. Ablaza Jr., and Fernando Zobel de Ayala
9



A fixed retainer fee of P500,000 per year of service;
For each Board Director – P200,000.00 for each quarterly and annual meeting attended;
For each Board Committee Member – P50,000.00 per Committee meeting actually attended.
The aforesaid compensation of the members of the Board was approved by the stockholders in the annual
stockholders meeting held on April 11, 2011. This compensation scheme packaged has not changed since
then.
Currently, Article III, Section 10 of the By-Laws provides that: “By resolution of the Board, each director
shall receive a reasonable per diem for his attendance at each meeting of the Board. As compensation, the
Board shall receive and allocate an amount of not more than 1% of the net income before income tax of
the Company during the preceding year. Such compensation shall be determined and apportioned among
the directors in such manner as the Board may deem proper. The Board of Directors shall have the sole
authority to determine the amount, form and structure of the fees and other compensation of the
directors.”
The table below summarizes the compensation/remuneration received by the directors in 2014 as
members of the Board of Directors of the Company:
Name of Directors
Fernando Zobel de Ayala*
Jaime Augusto Zobel de Ayala*
Gerardo C. Ablaza, Jr.*
Delfin L. Lazaro*
Antonino T. Aquino
John Eric T. Francia*
Victoria P. Garchitorena
Sherisa P. Nuesa
Oscar S. Reyes
Jose L. Cuisia, Jr.
Jaime C. Laya
Ricardo Nicanor N. Jacinto
Masaji Santo**
Fixed
Retainer for
2014
Php500,000
500,000
500,000
500,000
500,000
500,000
500,000
500,000
500,000
500,000
500,000
-
Remuneration
for ASM and
Board Meetings
Attended in 2014
Php1,200,000
1,200,000
1,400,000
1,200,000
1,400,000
1,200,000
600,000
1,400,000
1,400,000
1,400,000
1,000,000
400,000
400,000
Remuneration
for Committee
Meetings
Attended in
2014
Php100,000
150,000
50,000
100,000
150,000
100,000
450,000
400,000
200,000
50,000
-
Total
Php1,800,000
1,850,000
1,950,000
1,700,000
1,900,000
1,800,000
1,250,000
2,000,000
2,350,000
2,300,000
1,700,000
450,000
400,000
*
The board remuneration of Messrs. Gerardo C. Ablaza Jr., Fernando Zobel de Ayala, Jaime Augusto Zobel de Ayala, John
Eric T. Francia and Delfin L. Lazaro were paid directly to Ayala Corporation.
** The board remuneration of Mr. Masaji Santo was paid directly to Mitsubishi Corporation.
Warrants and Options Outstanding
As of January 31, 2015, 31.81 million subscriptions are outstanding under the Company’s Employee
Stock Ownership Plan (ESOWN) which was approved by the Securities and Exchange Commission
(SEC) on January 31, 2006. The subscriptions include those for shares covered by options that were
granted in 2005 under the Company’s Executive Stock Option Plan (ExSOP) and converted to
subscriptions under the ESOWN. As a result of the conversion of options under the ExSOP to
subscriptions under the ESOWN, the Company will no longer grant options under the ExSOP. There
were disclosures on grants to senior officers under the ESOWN in 2005, 2006, 2007, 2008, 2009, 2011,
2012, 2013, and 2014.
10
The number of employees and officers of the Company who are eligible to participate in the ESOWN is
approximately 311.
As of January 31, 2015, the following are the outstanding grants under the ESOWN to the directors and
senior executive officers of the Company:
Name
Gerardo C. Ablaza,
Jr.
Luis Juan B. Oreta
Ferdinand M. Dela
Cruz
Above-named
officers as a group
All other officers
and directors as a
group unnamed
No. of Shares
5,669,543 common
shares
12,915,345 common
shares
Date of Grant
Exercise Price
Various
Various
Market Price at
Date of Grant
Various
Various
Various
Various
Various
Various
Various
Various
Various
Various
Various
Various
Various
The Exercise Price is the Subscription price. For 2014, the Subscription Price is based on the average
closing price at the PSE for twenty (20) consecutive trading days with a discount to be determined by the
Remuneration Committee at the date of grant.
Independent Public Accountants
The principal accountants and external auditors of the Company is the accounting firm of Sycip, Gorres,
Velayo and Company (SGV and Co.). The same accounting firm is being recommended for re-election at
the meeting for a remuneration of Php2 million, exclusive of VAT and out-of-pocket expenses. The
agreement with SGV and Co. covers the annual audit of the Company.
Representatives of SGV and Co. for the current year and for the most recently completed fiscal year are
expected to be present at the annual stockholders’ meeting. They will have the opportunity to make a
statement if they desire to do so and are expected to be available to respond to appropriate questions.
Pursuant to SRC Rule 68, Part I (3) (B) (iv), the Company has engaged SGV and Co. as external auditor.
Bernalette L. Ramos has been the partner-in-charge effective 2013.
Changes in, and Disagreements with Accountants on, Accounting and Financial Disclosure
SGV and Co. has been the principal accountant and external auditor of the Company since 1997 and
continues to perform the same services for the Company up to the present date.
11
There are no disagreements with SGV and Co. on accounting and financial disclosures.
External Audit Fees
Audit and Audit-Related Fees
2014
Audit of Financial Statements
All Other Fees*
Total
1,900,000.00
645,000,00
Php2,545,000.00
2013
1,864,000.00
375,000.00
Php2,239,000.00
*GPOBA, Proxy Validation, Validation of ASM Votes and Equity Restructuring
The Company’s Audit and Governance Committee5 reviews and approves the scope of audit work of the
external auditor and the amount of audit fees for a given year. The amount will then be presented for
approval by the stockholders in the annual meeting. The scope of and payment of services rendered by
the external auditor other than the audit of financial statements are also subject to review and approval by
the Audit and Governance Committee.
Financial and Other Information
The audited financial statements as of December 31, 2014, Management’s Discussion and Analysis,
Market Price of Shares and Dividends and other data related to the Company’s financial information are
attached as Annex “B”. The schedules required under SRC Rule 68 Part II (6) will be included in the
Annual Report (Form 17-A).
Legal Proceedings
The Company is presently involved in the following cases:
Manila Water Company, Inc. vs. MWSS
Arbitration under the Uncitral Rules (1976)
Case No. UNC 136/CYK
In a Resolution dated September 12, 2013, Metropolitan Waterworks and Sewerage System (“MWSS”)
denied the petition of Manila Water Company, Inc. (“Company”) for an upward adjustment of its tariffs
and instead ordered the Company to effect a negative adjustment of 29.47% of its 2012 average water
charge of P24.57 per cubic meter (the “Rate Rebasing Determination”).
The Company filed its formal objection to the Rate Rebasing Determination by serving the MWSS with a
Dispute Notice commencing the arbitration process, the dispute resolution mechanism prescribed under
the Concession Agreement. Pursuant to the said mechanism, MWSS and the Company convened an
Appeals Panel which has since then conducted proceedings in accordance with the arbitration rules of the
United Nations Commission on International Trade Law.
Until this dispute is settled, the current water rates are expected to remain in effect. At present, the
remaining issues between the parties have been submitted for resolution. The Appeals Panel is still
deliberating on the issues submitted by the parties.
5
The Audit and Governance Committee is composed of the following: Oscar S. Reyes (Chairman / independent director), Jose L. Cuisia Jr.
(independent director), Ricardo Nicanor N. Jacinto, and Sherisa P. Nuesa (independent director).
12
Manila Water Company, Inc. and Maynilad Water Services, Inc. vs. Hon. Borbe, et al.
CBAA Case No. L-69
Central Board of Assessment Appeals (“Central Board”)
This is an appeal from the denial by the Local Board of Assessment Appeals of Bulacan Province (the
“Local Board”) of the Company’s (and Maynilad’s) appeal from the Notice of Assessment and Notice of
Demand for Payment of Real Property Tax in the amount of P357,110,945 made by the Municipal
Assessor of Norzagaray, Bulacan. The Company is being assessed for half of the amount. In a letter
dated April 3, 2008, the Municipal Treasurer of Norzagaray and the Provincial Treasurer of the Province
of Bulacan, informed both MWSS concessionaires (Company and Maynilad) that their total real property
tax accountabilities have reached P648,777,944.60 as of December 31, 2007. This amount, if paid by the
concessionaires, will ultimately be charged to the customers as part of the water tariff rate. The
concessionaires (and the MWSS, which intervened as a party in the case) are thus contesting the legality
of the tax on a number of grounds, including the fact that the properties subject of the assessment, are
owned by the MWSS. MWSS is both a government-owned and controlled corporation and an
instrumentality of the National Government that is exempt from taxation under the Local Government
Code.
The Central Board conducted a hearing on June 25, 2009. In the said hearing, parties were given the
opportunity and time to exchange pleadings regarding a motion for reconsideration filed by the
Municipality to have the case remanded to and heard by the Local Board rather than by the Central Board.
Trial is now on-going and the Province of Bulacan is currently presenting its evidence. Manila Water and
Maynilad have already concluded presentation of their respective evidence and witnesses, while MWSS
has waived the presentation of its evidence.
Manila Water Company, Inc. vs. The Regional Director, Environmental Management BureauNational Capital Region, et al.
CA-G.R. No. 112023 (DENR-PAB Case No. NCR-00794-09)
Supreme Court
This case arose from a complaint filed by OIC Regional Director Roberto D. Sheen of the Environmental
Management Bureau-National Capital Region (“EMB-NCR”) before the Pollution Adjudication Board
(“PAB”) against the Company, Maynilad and the MWSS for alleged violation of R.A. No. 9275
(Philippine Water Act of 2004), particularly the five-year deadline imposed in Section 8 thereof for
connecting the existing sewage line found in all subdivisions, condominiums, commercial centers, hotels,
sports and recreational facilities, hospitals, market places, public buildings, industrial complex and other
similar establishments including households, to an available sewerage system. Two (2) similar complaints
against Maynilad and MWSS were consolidated with this case.
On April 22, 2009, the PAB through DENR Secretary and Chair Jose L. Atienza, Jr., issued a Notice of
Violation finding that the Company, Maynilad and MWSS have committed the aforesaid violation of
R.A. 9275. Subsequently, a Technical Conference was scheduled on May 5, 2009. In the said Technical
Conference, the Company, MWSS and Maynilad explained to the PAB their respective positions and it
was established that DENR has a great role to play to compel people to connect to existing sewer lines
and those that are yet to be established by the Company and Maynilad.
13
In addition to the explanations made by the Company during the Technical Conference, the Company
together with MWSS and Maynilad wrote a letter dated May 25, 2009 and addressed to the respondent
Secretary where they outlined their position on the matter.
In response to the May 25, 2009 letter, the OIC, Regional Director for NCR, the Regional Director of
Region IV-A and the Regional Director of EMB Region III submitted their respective Comments. The
Company thereafter submitted its letter dated July 13, 2009 to the PAB where it detailed its compliance
with the provisions of R.A. No. 9275 and reiterated its position that the continuing compliance should be
within the context of the Company’s CA with MWSS. Despite the explanations of the Company, the PAB
issued the Order dated October 7, 2009 which found the Company, Maynilad and MWSS to have violated
R.A. 9275. The Company filed its Motion for Reconsideration dated October 22, 2009 which the PAB
denied in an Order dated December 2, 2009. Hence, the Company filed its Petition for Review dated
December 21, 2009 with the Court of Appeals. The Company thereafter filed an amended Petition for
Review dated January 25, 2010.
In a Decision dated August 14, 2012, the Court of Appeals denied the Company’s Petition for Review and
on September 26, 2012, the Company filed a Motion for Reconsideration of the Court of Appeals’
Decision.
On April 29, 2013, the Company received the Resolution dated April 11, 2013 of the Court of Appeals,
denying its Motion for Reconsideration.
The Company has filed its appeal from the decision and resolution of the Court of Appeals in the form of
a Petition for Review on Certiorari with the Supreme Court on May 29, 2013. In this Petition, the
Company reinforced its argument that it did not violate Section 8 of R.A. 9275 as it was able to connect
existing sewage lines to available sewage facilities contrary to the findings of the Court of Appeals.
The case remains pending with the Supreme Court and is now submitted for decision.
Waterwatch Coalition, Inc. et al. vs. Ramon Alikpala, MWSS, et al.,
G.R. No. 207444,
Supreme Court
Water for All Refund Movement vs. MWSS, et al.,
G.R. No. 208207
Supreme Court
Javier vs. MWSS, et al.,
G.R. No. 210147, Supreme Court
Hereafter, the “Consolidated Cases”
The Waterwatch Petition:
On June 25, 2013, the Company received a copy of the “Petition for Certiorari and Mandamus with
Prayer for the Issuance of a Temporary Restraining Order” dated 20 June 2013 filed by the Waterwatch
Coalition, Inc. The issues raised in the Petition are as follows:
a.
The Concession Agreements are unconstitutional for granting inherent sovereign powers to the
Concessionaires who insists they are private entities and mere agents of the MWSS;
14
b.
c.
d.
e.
f.
The Concessionaires are public utilities;
The Concession system of MWSS, the Company and Maynilad is in a state of regulatory capture;
The Concession Agreements are State Contracts and cannot invoke the non-impairment clause in
the Constitution;
The Concessionaires have no vested property rights;
MWSS is in a state of regulatory capture;
The WARM Petition
On August 14, 2013, the Company received a copy of a Petition for Certiorari, Prohibition and
Mandamus dated August 5, 2013 filed by the Water for All Refund Movement. The issues raised in the
WARM Petition are as follows:
a.
b.
c.
d.
e.
The Concession Agreements unduly grant to the concessionaires the exercise of governmental
powers even without the benefit of legislation or at the very least, a franchise for such purpose;
Concessionaires performing public service and are therefore, governed by the Public Service
Law, and subject to the 12& profit cap;
Concessionaires are public utilities and they are not mere agents or contractors of the MWSS;
Public utility or not, Concessionaires may not, pass on their income taxes to the water consumers
as expenditures;
The Concession Agreements may not cause the creation of a Regulatory Office, a public office
performing public functions, and even source its funding from the concessionaires, which are the
very same entities supposed to be regulated;
The JAVIER Petition
On January 3, 2014, the Company received a copy of a Petition for Certiorari, Prohibition and Mandamus
dated December 13, 2013 filed by the Virginia S. Javier, et.al, who were suing in their capacity as
consumers/customers of the respondents. The issues raised in the Javier Petition are as follows:
a.
b.
c.
d.
e.
f.
The Concession Agreements are unconstitutional and/or ultra vires for being delegations of
sovereign power without consent of the Congress;
The Concessionaires are public utilities;
Respondents have improperly implemented RORB calculations for purposes of establishing
tariffs;
The Concession Agreements are not protected by the non-impairment clause;
Respondents should be enjoined from proceeding with arbitration;
MWSS is in a state of regulatory capture;
On February 4, 2014, the Company received a copy of the Supreme Court’s resolution dated January 14,
2014 consolidating the three (3) cases. The Company filed a consolidated Comment on the aforesaid
Petitions. The arguments raised by Manila Water in response to the Petitions are as follows:
a.
b.
c.
The CAs are valid, legal and constitutional as these have statutory basis and do not involve any
grant or delegation of the “inherent sovereign powers of police power, eminent domain and
taxation”.
The Concessionaires are not public utilities in themselves but are mere agents and contractors of a
public utility (MWSS).
The Concession Agreements are protected by the non-impairment clause. Petitioners cannot
invoke police power for Courts to nullify, modify, alter or supplant the Concession Agreements.
Police Power is exercised by Congress, through the enactment of laws for the general welfare. No
15
d.
e.
f.
such law or enactment is involved in this case. If and when Congress passes a law affecting the
Concession Agreements, only then will it be proper to examine the interplay between police
power vis-à-vis due process and the non-impairment clause.
The rates set under the Concession Agreements are compliant with the 12% rate of return cap in
the MWSS Charter.
Not being public utilities but mere agents of the MWSS, the concessionaires are not subject to
COA audit.
The concessionaires are authorized to pass on corporate income taxes to water consumers.
The Company has filed its Consolidated Comment to the petitions and these cases remain pending with
the Supreme Court.
ABAKADA Guro Party List vs. MWSS, et al.
G.R. No. 213227
Supreme Court
On September 22, 2014, the Company received another Petition for Certiorari and Prohibition filed by the
Abakada-Guro Party List, represented by Atty. Florante B. legaspi, Jr. This Petition was consolidated
with the Petitions of Waterwatch, WARM and Javier due to similarities in issues raised.
In particular, the petition questions the constitutionality of the Concession Agreements entered into by
MWSS with both the Company and Maynilad and the extension of the Concession Agreements for
another 15 years from the year 2022. The Petition also seeks to nullify the on-going arbitration
proceedings between MWSS and the concessionaires. The Company has filed its Comment on the
Petition.
This Petition has been consolidated with the “Consolidated Cases” discussed above.
Ofelia Lim Mendoza, et.al. vs. Manila Water Company, Inc.
NLRC NCR Case No. 06-08649-13
National Labor Relations Commission
On July 5, 2013, the Company and its President, Gerardo C. Ablaza, Jr., received summons from the
National Labor Relations Commission (“NLRC”), regarding the complaint for illegal dismissal (dated
June 11, 2013) filed by Ms. Ofelia L. Mendoza and 142 other former employees of the Company. The
complainants were former employees whose separation from employment was due to the retirement
program implemented by the Company last August 2012.
All of the complainants uniformly pray for reinstatement and payment of full backwages, 13th month pay,
moral & exemplary damages, and attorney’s fees.
In accordance with the rules and procedures of the NLRC, the mandatory conference was scheduled on
July 15 and 22, 2013. However, Labor Arbiter Eric Chuanico cancelled the mandatory conference
scheduled for July 22, 2013 and instead required the parties to submit their respective Position Papers on
July 25, 2013.
In its Position Paper, the Company and Mr. Ablaza state that Complainants’ employments were validly
terminated on the ground of redundancy. Moreover, the Release, Waiver and Quitclaims voluntarily
16
executed by the Complainants before a Labor Arbiter of the NLRC are valid are binding and
complainants are not entitled to reinstatement and to their money claims.
Out of the 433 employees who were being terminated, all or 100% received their separation packages and
voluntarily executed quitclaims. The Special Opportunity Package received by the Complainants include
the following:
a.
b.
c.
d.
e.
Three months Basic Salary for every year of service (tax free)
Cash conversion of all vacation leave and sick leave credits (Tax free)
Pro-rated 13th month bonus and year-end bonus (tax free)
Extension of the HMO coverage
(i)
Retiree up to January 31, 2014
(ii)
Existing one free dependent up to January 31, 2013
Extension of the Group Life Insurance coverage
(i)
Retiree up to December 31, 2013
(ii)
Existing one free dependent up to December 31, 2012
The Company and Mr. Ablaza filed their Reply to the Position Paper of the Complainants on August 2,
2013 and the Re-Joinder to the Reply of the Complainants on August 30, 2013.
The Company and Mr. Ablaza filed their Reply to the Position Paper of the Complainants on August 2,
2013 and the Re-Joinder to the Reply of the Complainants on August 30, 2013.
On December 3, 2013 the Commission issued “Notice of Judgment/Decision AO No. 02-06” notifying all
parties that on November 26, 2013 Labor Arbiter Eric Chuanico rendered a Decision dismissing the
Complaint for lack of merit. The Labor Arbiter found that the following requirements for Redundancy as
an authorized cause for dismissal are present:
a.
Written notice served on both employees and DOLE at least one month prior to the intended date
of retrenchment;
b.
Payment of separation pay equivalent to at least one month pay or at least one month pay for
every year of service, whichever is higher;
c.
Good faith in abolishing the redundant positions; and
d.
Fair and reasonable criteria in ascertaining what positions are to be declared redundant and
accordingly abolished.
Complainants filed a Memorandum of Appeal dated December 17, 2013, with the Commission. Manila
Water filed an Opposition on January 13, 2014. The Commission rendered a Decision dated April 29,
2014 reversing the decision of the Labor Arbiter.
The NLRC ruled that the last two requirements for valid Redundancy were not complied with. It found
that the evidence presented by the Company to support the existence of said requirements were not
sufficient. In addition, the NLRC ruled that the quitclaims executed by the Complainants were obtained
under force, and their consents thereto were vitiated by fraud and mistake.
The NLRC Decision called for the following:
17
a.
b.
c.
Reinstatement of Complainants to same or equivalent positions or ranks;
Payment of Complainants’ backwages from times of dismissals until reinstatement;
Payment of attorneys’ fees equivalent to 10% of the monetary award.
The amounts previously received by the Complainants shall be deducted from the monetary awards.
On May 19, 2014, the Company filed a Motion for Reconsideration, raising the following arguments: (a)
The Decision to outsource non-core functions is a valid exercise of management prerogative; (b) Manila
Water presented substantial evidence to prove the validity of its redundancy program; (c) Manila Water
has presented substantial evidence to show how Towers Watson identified which positions are considered
non-core and could be contracted out; (d) Manila Water has shown how outsourcing non-core functions
has benefited its operations and its customers; and (e) the complainants’ quitclaims are valid.
The Motion for Reconsideration is currently pending resolution with the Commission.
Allan Mendoza et al. vs. Manila Water Company, Inc.
Special Civil Action No. R-QZN-14-04863-SC
RTC QC Branch 77
On June 17, 2014, the Company received a copy of an Order from Branch 77 of the Regional Trial Court
in Quezon City requiring it to comment on the Petition for Mandamus filed by a group of separated and
current employees of the Company.
In the said Petition, the petitioners are requesting the court to render a judgment ordering the Company to
reinstitute the Welfare Fund and implement correctly the benefits indicated in Exhibit F of the Concession
Agreement. The petitioners took note of the non-diminution provision in the Concession Agreement
claiming that the Company, as a concessionaire, has the legal duty to grant to all concessionaire
employees benefits no less favorable than those granted to such former employees of MWSS. Pursuant to
said provision, the Company continued the Welfare Fund, but according to petitioners the Company
dissolved the welfare fund and the members were informed that their 100% contribution and 42%
employer share were returned and credited to their BPI accounts. Petitioners further claim that the
balance of the employer share were used, without authority, as seed money for the newly-established
Retirement Fund. Moreover, there was diminution of benefits as the Company neglected to grant, fully or
partially, the benefits enumerated in Exhibit F of the Concession Agreement.
In compliance with the order of the trial court, the Company filed its Comment on June 27, 2014 where it
stated the following:
a.
Petitioners have received benefits no less favorable than those granted to such employees by the
MWSS at the time of their separation from MWSS
The Enhanced Retirement and Welfare Plan contains features that improved on the Welfare Fund:
i.
The Welfare Fund was contributory (5% of basic monthly salary) whereas the Enhanced
Plan became non-contributory with a defined benefit (one month basic salary for every
year of service)
ii. All regular employees of the Company are covered by the Enhanced Plan whereas the
Welfare Plan was voluntary (only 29% of the employees as of 2004 were included)
iii. The Welfare Plan is subject to tax whereas the Enhanced Plan is non-taxable if the
requisites for early and normal retirement are complied with.
18
b.
That the court has no jurisdiction over the subject matter. The National Labor Relations
Commission has jurisdiction as the action is essentially an action for payment of employee
benefits
c.
Mandamus does not lie to enforce performance of contractual obligations
d.
The claims of petitioners have prescribed
The case remains pending with the trial court.
Action with Respect to Reports
The approval of the stockholders for the following will be sought:
1.
Minutes of the stockholders’ meeting (“Minutes”) on April 4, 2014
The approval or disapproval of the Minutes will constitute merely an approval or disapproval of
the correctness of the Minutes but not an approval or disapproval of any of the matters referred to
in the Minutes. The Minutes cover the following matters:
i.
ii.
iii.
iv.
v.
vi.
vii.
2.
Approval of the minutes of the stockholders’ meeting on April 15, 2013;
Annual report to the stockholders;
Approval of audited financial statements;
Ratification of all acts of the Board of Directors, Executive and Management Committees,
and officers;
Amendment of the Third Article of the Articles of Incorporation to change the principal
office from “Metro Manila” to “MWSS Administration Building, 489 Katipunan Road,
Balara, Quezon City, Metro Manila” in compliance with SEC Memorandum Circular No.
6, Series of 2014;
Election of eleven (11) members of the Board, including Independent Directors; and
Re-election of external auditor and fixing of its remuneration.
The Company’s annual report and the audited financial statements as of December 31, 2014.
Other Proposed Actions
1.
Ratification of all acts and resolutions during the preceding year of the Board of Directors, Board
Committees, Management and officers which were duly adopted in the normal course of trade or
business and involve:
i)
ii)
iii)
Approval of contracts, projects, investments, and other acts which have been covered by
disclosures to the PSE and the SEC;
Treasury matters, including borrowings, opening of accounts and bank transactions; and
Administrative matters, including the appointment of signatories and amendments thereof.
2.
Election of eleven (11) members of the Board
3.
Re-election of External Auditor and fixing of its remuneration.
19
Annex “A”
As of January 31, 2015
PROFILES OF THE INCUMBENT DIRECTORS OF THE COMPANY:
FERNANDO ZOBEL DE AYALA
Filipino, 54 years old
Chairman of the Board of Directors
Chairman of the Executive Committee
Member, Remuneration Committee
Director of Manila Water since May 15, 1997
Education and Trainings:
 Liberal Arts degree, Harvard College;
 Certificate in International Management, INSEAD, France.
Membership in the Board of Listed Companies:
 Manila Water Company, Inc. (Ayala Group)
 Ayala Corporation (Ayala Group)
 Ayala Land, Inc. (Ayala Group)
 Bank of the Philippine Islands (Ayala Group)
 Globe Telecom, Inc. (Ayala Group)
Membership in the Board of Non-Listed Companies:
 AC International Finance Ltd. (Ayala Group)
 AC Energy Holdings, Inc. (Ayala Group)
 LiveIt Investments, Ltd. (Ayala Group)
 Ayala International Holdings Ltd. (Ayala Group)
 Honda Cars Philippines, Inc. (Ayala Group)
 Isuzu Philippines Corporation (Ayala Group)
 Ayala Foundation, Inc.
 Pilipinas Shell Petroleum Corporation
 Hero Foundation, Inc.
 Manila Peninsula
 Habitat for Humanity International; Caritas Manila; Pilipinas Shell Foundation, Inc.; Kapit Bisig
para sa Ilog Pasig Advisory; and the National Museum.
Positions and Memberships in Other Organizations and Corporations:
 President and COO of Ayala Corporation
 Chairman of the Board of Directors of Ayala Land, Inc., AC International Finance Ltd., and AC
Energy Holdings, Inc.;
 Co-Chairman of the Board of Trustees of Ayala Foundation, Inc.
 Vice Chairman of the Executive Committee of BPI
 Chairman of the Habitat for Humanity’s Asia Pacific Capital Campaign Steering Committee
 Member, Harvard Club of the Philippines
 Member, Makati Business Club
 Member, Management Association of the Philippines,
 Member, Philippine- Singapore Business Council, INSEAD East Asia Council and World
Presidents' Organisation
21
JAIME AUGUSTO ZOBEL DE AYALA
Vice Chairman of the Board of Directors
Member, Nomination Committee
Filipino, 55 years old
Director of Manila Water since May 15, 1997
Education and Trainings:
 B.A. in Economics (with honors) degree, Harvard College
 MBA, Harvard Graduate School of Business
Membership in the Board of Listed Companies:
 Manila Water Company, Inc. (Ayala Group)
 Ayala Corporation (Ayala Group)
 Globe Telecom, Inc. (Ayala Group)
 Bank of the Philippine Islands (Ayala Group)
 Intergrated Micro-Electronics, Inc.(Ayala Group)
 Ayala Land, Inc. (Ayala Group)
Membership in the Board of Non-Listed Companies:
 AC Energy Holdings, Inc. (Ayala Group)
 Ayala Foundation, Inc. (Ayala Group)
Positions and memberships in Other Organizations and Corporations:
 Chairman of the Board of Directors and CEO of Ayala Corporation since April 1996
 Chairman of the Board of Directors of Globe Telecom, Inc., Bank of the Philippine Islands and
Integrated Micro-Electronics, Inc.
 Co-Chairman of Ayala Foundation, Inc.
 Vice Chairman of Ayala Land, Inc. and AC Energy Holdings, Inc.
 Chairman of Harvard Business School Asia-Pacific Advisory Board and Asia Business Council
 Vice Chairman of the Makati Business Club
 Member, Harvard Global Advisory Council, Mitsubishi Corporation International Advisory
Committee, JP Morgan International Council, and International Business Council of the World
Economic Forum
 Philippine Representative for the APEC Business Advisory Council
 Member, National Competitiveness Council
GERARDO C. ABLAZA JR.
President and CEO of the Manila Water since June 30, 2010
Member of the Board of Directors
Member, Executive Committee
Filipino, 60 years old
Director of Manila Water since November 26, 2009
Education and Training:
 Liberal Arts Degree, Major in Mathematics (Honors Program), summa cum laude, De La Salle
University in 1974
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As one of the most accomplished graduates of his alma mater, he sits as a member of the Board of
Trustees in various De La Salle Schools in the country.
Mr. Ablaza is a Senior Managing Director of Ayala Corporation and a member of the Ayala Group
Management Committee, a post he has held since 1998.
Membership in the Board of Listed Companies:
 Manila Water Company, Inc. (Ayala Group)
 Hochiminh City Infrastructure Investment Joint Stock Company (Ayala Group) (Ho Chi Minh
Stock Exchange)
 Globe Telecom, Inc. (Ayala Group)
Membership in the Board of Non-Listed Companies:
 Manila Water Philippine Ventures, Inc. (Manila Water Group)
 Laguna AAAWater Corporation (Manila Water Group)
 Boracay Island Water Company, Inc. (Manila Water Group)
 Cebu Manila Water Development, Inc. (Manila Water Group)
 Manila Water Consortium, Inc. (Manila Water Group)
 Manila Water International Solutions, Inc. (Manila Water Group)
 Clark Water Corporation (Manila Water Group)
 Manila Water Total Solutions Corporation (Manila Water Group)
 Manila Water Asia Pacific Pte. Ltd. (Manila Water Group)
 Manila Water South Asia Holdings Pte. Ltd.
 Kenh Dong Water Holdings Pte. Ltd. (Manila Water Group)
 Thu Duc Water Holdings Pte. Ltd. (Manila Water Group)
 Manila Water Foundation, Inc. (Manila Water Group)
 AG Holdings Ltd. (Ayala Group)
 AC Energy Holdings, Inc. (Ayala Group)
 Purefoods International Investment Ltd. (Ayala Group)
 Asiacom Philippines, Inc. (Ayala Group)
 Ayala Energy Holdings, Inc. (Ayala Group)
 ACST Business Holdings, Inc. (Ayala Group)
 Azalea International Venture Partners Ltd. (Ayala Group)
 LiveIt Investment Ltd. (Ayala Group)
 Ayala Foundation, Inc. (Ayala Group)
Positions in Other Organizations and Corporations:
 Senior Managing Director of Ayala Corporation
 Member of the Management Committee, Ayala Corporation
 Chairman of the Board of Directors of Manila Water Philippine Ventures, Inc., Boracay Island
Water Company, Inc., Cebu Manila Water Development, Inc., Manila Water Consortium, Inc.,
Clark Water Corporation, Manila Water Total Solutions Corp., Manila Water Asia Pacific Pte.
Ltd., Manila Water South Asia Holdings Pte. Ltd., Thu Duc Water Holdings Pte. Ltd., Kenh
Dong Water Holdings Pte.Ltd,
 President of Manila Water Consortium, Inc. and Manila Water International Solutions, Inc.
 Vice-Chairman of Laguna AAAWater Corporation
 Co-Vice Chairman of the Executive Committee of Globe Telecom, Inc.
 Chairman of the Board of Trustees of Manila Water Foundation, Inc.
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In 1997, Mr. Ablaza was the Chief Operating Officer of Globe Telecom, Inc. and became President and
CEO from 1998 to April 2009. He was also the Chairman of the Board of Directors of Innove
Communications, Inc., a wholly owned subsidiary of Globe Telecom Inc. from October 2003 to April
2009. In April 2009, he was tasked to handle AC Capital as Deputy CEO and became CEO the
following year. Before joining Ayala Group, he held several positions in Citibank: Vice-President and
Country Business Manager for the Philippines and Guam of Citibank, N.A. for its Global Consumer
Banking Business (1994-1997), Vice-President for Consumer Banking of Citibank, N.A. Singapore
(1994 – 1995), Vice President for Consumer Account Management Group-Citibank Manila in 1986 and
there after became the bank’s representative to the board of directors of City Trust Banking Corporation
and its various subsidiaries from 1987 to 1994.
In 2004, Mr. Ablaza was recognized by CNBC as the Asia Business Leader of the Year, making him the
first Filipino CEO to win the award. In the same year, he was awarded by Telecom Asia as the Best Asian
Telecom CEO. In 2013, he was recognized for his consistent leadership and innovation across the
banking, investment, telecommunications and utility service industries through the Citi Distinguished
Alumni Award for Leadership and Ingenuity. Mr. Ablaza was the first and only Filipino to be awarded
with such an honor.
ANTONINO T. AQUINO
Member of the Board of Directors
Member, Executive Committee
Filipino, 66 years old
Director of Manila Water since April 24, 1998
Education and Training:
 Bachelor of Science, major in Management degree, Ateneo de Manila University
 Masteral Degree in Business Management, Ateneo Graduate School of Business
Membership in the Board of Listed Companies:
 Manila Water Company, Inc. (Ayala Group)
 Ayala Land, Inc. (Ayala Group)
Membership in the Board of Non-Listed Companies:
 Makati Development Corporation (Ayala Group)
 North Triangle Depot Commercial Corporation (Ayala Group)
 Makati Commercial Estate Association, Inc. (Ayala Group)
 Ayala Foundation, Inc. (Ayala Group)
 Makati Commercial Estate Association, Inc.
 Station Square East Commercial Corporation
Positions in Other Organizations and Corporations:
 Chairman of the Board of Directors of Makati Development Corp., North Triangle Depot
Commercial Corp. and Station Square East Commercial Corp.
Mr. Aquino first joined Manila Water as Group Director for Corporate Affairs and was later appointed
President and CEO in January 1999. He left Manila Water to take on the position of President of Ayala
Land, Inc. on April 1, 2009, but remained a Director of the Company.
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He was named “Co-Management Man of the Year 2009” by the Management Association of the
Philippines for his leadership role in a very successful waterworks privatization and public-private sector
partnership.
Mr. Aquino has been with the Ayala Group in various capacities for the past thirty (30) years and has held
the position of Senior Managing Director in Ayala Corporation. He was President of the Ayala Property
Management Corporation from 1990 to 1998 and Senior Vice President of Ayala Land, Inc. from 1989 to
1998. He was also a Business Unit Manager at IBM Philippines, Inc. from 1968-1980.
DELFIN L. LAZARO
Member of the Board
Filipino, 68 years old
Director of Manila Water since May 6, 2002
Education and Training:
 B.S. in Metallurgical Engineering degree, University of the Philippines
 MBA (with Distinction), Harvard Graduate School of Business
Membership in the Board of Other Listed Companies:
 Manila Water Company, Inc. (Ayala Group)
 Ayala Land, Inc. (Ayala Group)
 Integrated Micro-Electronics, Inc. (Ayala Group)
Membership in the Board of Non-Listed Companies:
 Philwater Holdings Company, Inc. (Ayala Group)
 Michigan Power, Inc. (Ayala Group)
 Azalea International Venture Partners, Ltd. (Ayala Group)
 Ayala DBS Holdings, Inc. (Ayala Group)
 AYC Holdings, Ltd. (Ayala Group)
 Ayala International Holdings, Ltd. (Ayala Group)
 Bestfull Holdings Ltd. (Ayala Group)
 AG Holdings, Inc. (Ayala Group)
 Atlas Fertilizer and Chemicals, Inc.
 ACST Business Holdings, Inc.
 AI North America, Inc.
 Probe Productions, Inc.
 Empire Insurance Company
 and Insular Life Assurance Co., Ltd.
Positions in Other Organizations and Corporations:
 Member of the Management Committee of Ayala Corporation
 Chairman of the Board of Directors of Philwater Holdings Company, Inc. and Atlas Fertilizer &
Chemicals, Inc.
 Chairman of the Board of Directors and President of Michigan Power, Inc.
 Chairman of the Board of Directors and President of A.C.S.T. Business Holdings, Inc.
 Chairman of the Board of Directors of Azalea International Venture Partners, Ltd.
25
Mr. Lazaro was named Management Man of the Year 1999 by the Management Association of the
Philippines for his contribution to the conceptualization and implementation of the Philippine Energy
Development Plan and to the passage of the law creating the Department of Energy. He was also cited for
stabilizing the power situation that helped the country achieve successive high growth levels up to the
Asian crisis in 1997.
JOHN ERIC T. FRANCIA
Member of the Board of Directors
Member, Executive Committee
Filipino, 43 years old
Director of Manila Water since April 12, 2010
Education and Training:
 Undergraduate degree in Humanities and Political Economy, magna cum laude, University of
Asia & the Pacific
 Masters Degree in Management Studies, with First Class Honors, University of Cambridge,
United Kingdom
Membership in the Board of Listed Companies:
 Manila Water Company, Inc. (Ayala Group)
 Integrated Micro-Electronics, Inc. (Ayala Group)
 Hochiminh City Infrastructure Investment Joint Stock Company (Ayala Group) (Ho Chi Minh
City Stock Exchange)
Membership in the Board of Non-Listed Companies:
 AC Energy Holdings, Inc. (Ayala Group)
 AC Infrastructure Holdings Corporation (Ayala Group)
 LiveIt Investments Ltd. (Ayala Group)
 Northwind Power Development Corporation (Ayala Group)
 North Luzon Renewable Energy Corporation (Ayala Group)
 South Luzon Thermal Energy Corporation (Ayala Group)
 Quadriver Energy Corporation (Ayala Group)
 Automated Fare Collection Services, Inc. (Ayala Group)
 Light Rail Manila Corporation (Ayala Group)
Positions in Other Organizations and Corporations:
 President and CEO of AC Energy Holdings, Inc. and AC Infrastructure Holdings Corporation.
 Managing Director of Ayala Corporation
 Member of the Management Committee of Ayala Corporation
Prior to joining Ayala, Mr. Francia was involved in the fields of management consulting, academe and
media.
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SHERISA P. NUESA
Independent Director, Board of Directors
Member, Executive Committee
Member, Remuneration Committee
Filipino, 60 years old
Independent Director of the Company since April 15, 2013
Education and Training:
 Certified Public Accountant
 BS in Commerce degree, Summa cum Laude, Far Eastern University
 Advanced Management Program, Harvard Business School
 Master in Business Administration degree, Ateneo-Regis Graduate School of Business
Membership in the Board of Listed Companies:
 Manila Water Company, Inc. (Ayala Group)
 Far Eastern University
Membership in the Board of Non-Listed Companies:
 ALFM Mutual Funds Group
 East Asia College
 Psi Technologies, Inc.
 FERN Realty Corporation
 Institute of Corporate Directors
 Financial Executives Institute of the Philippines (FINEX)
 ING Foundation (Philippines)
Positions in Other Organizations and Corporations:
 President of the ALFM Mutual Funds Group
 Vice President for External Affairs of the Financial Executives Institute of the Philippines
Ms. Nuesa was a Managing Director of Ayala Corporation where she served in various senior
management positions until December 2011 which included the following: Chief Finance Officer and
Chief Administrative Officer, Integrated Micro-Electronics, Inc. - IMI (January 2009 to July 2010); Chief
Finance Officer, Manila Water Company Inc. (January 2000 to December 2008); Group Controller and
later Vice President for Commercial Centers, Ayala Land, Inc. (January 1989 to March 1999); Member
of the boards of various subsidiaries of ALI and IMI and member of the board of trustees of Manila Water
Foundation, Inc. Her other past board directorships include the Blackhorse Emerging Enterprises Fund in
Singapore, (from January 2010 to March 2014), and the Philippine Reclamation Authority (from January
2013 to March 2014).
Ms. Nuesa was awarded the ING-FINEX Chief Finance Officer of the Year for 2008.
27
OSCAR S. REYES
Independent Director, Board of Directors
Chairman, Audit and Governance Committee
Chairman, Remuneration Committee
Member, Nomination Committee
Filipino, 68 years old
Independent Director of the Company since February 3, 20056
Education and Training:
 Bachelor of Arts degree in Economics, Cum Laude, Ateneo de Manila University
 Post-Graduate studies at the Ateneo Graduate School of Business, Waterloo Lutheran University
and the Harvard Business School.
Membership in the Board of Listed Companies:
 Manila Water Company, Inc. (Ayala Group)
 Bank of the Philippine Islands (Ayala Group)
 Manila Electric Company
 Philippine Long Distance Telephone Company
 Pepsi Cola Products (Philippines), Inc.
 Basic Energy Corporation
 Cosco Capital, Inc.
 Sun Life Financial Philippines, Inc.
Membership in the Board of Non-Listed Companies:
 Meralco PowerGen Corporation
 Meralco Industrial Engineering Services Corporation (MIESCOR)
 CIS Bayad Center
 Meralco Energy, Inc. (MEI)
 Redondo Peninsula Energy, Inc.
 PacificLight Pte. Ltd.
 One Meralco Foundation, Inc.
 Pilipinas Shell Foundation, Inc.
 SGV Foundation, Inc.
 El Nido Foundation, Inc.
Positions in Other Organizations and Corporations:
 Member of the Advisory Board of the Philippine Long Distance Telephone Company (PLDT)
 Chairman of the Board of Directors of Pepsi Cola Products (Phils.), Inc.
 President and CEO of Meralco
 President of Meralco PowerGen Corporation
 Chairman of MIESCOR, CIS Bayad Center, MEI, Redondo Peninsula Energy, Inc. and
PacificLight Pte., Ltd.
Mr. Reyes served as Country Chairman of the Shell Companies in the Philippines and concurrently
President of Pilipinas Shell Petroleum Corporation and Managing Director of Shell Philippines
Exploration B.V.
6
Pursuant to SEC Memorandum Circular No. 9 Series of 2011 of the Securities and Exchange Commission, all previous terms served
by existing Independent Directors as of January 2, 2012 shall not be included in the application of the term limits under the Circular.
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JOSE L. CUISIA JR.
Independent Director, Board of Directors
Chairman, Nomination Committee
Member, Remuneration Committee
Member, Audit and Governance Committee
Filipino, 69 years old
Independent Director of the Company since April 12, 20107
Education and Training:
 AB-BSC degrees, Magna Cum Laude, De La Salle University
 MBA degree, University of Pennsylvania (University Scholar)
Membership in the Board of Directors of Listed Companies:
 Manila Water Company, Inc. (Ayala Group)
 SM Prime Holdings
 PHINMA Corporation
Membership in the Board of Other Organizations and Corporations:
 The Covenant Car Company, Inc.
 Philam Life
 BPI Philam Life Assurance Company of the Philam Group
 AIG Shared Services – Business Processing, Inc.
 Phinma, Inc.
Positions in Other Organizations and Corporations:
 Chairman of the Board of Directors of The Covenant Car Company, Inc.
 Vice-Chairman of SM Prime Holdings
 Vice Chairman of Philam Life
Mr. Cuisia is presently the Philippine Ambassador Extraordinary and Plenipotentiary to the United States
of America.
Before becoming Philam Life’s President and CEO for 16 years, Mr. Cuisia served the Philippine
Government as Governor of the Central Bank of the Philippines and Chairman of its Monetary Board
from 1990-1993. He was also appointed Commissioner, representative of the Employer’s Group, for the
Social Security System (SSS) in September 2010. Mr. Cuisia was also Governor for the Philippines to the
International Monetary Fund and Alternate Governor to the World Bank. Prior to service in the Central
Bank, he was also Administrator and CEO of the Philippine Social Security System from 1986- 1990.
Ambassador Cuisia is active in educational institutions, being the CV Starr Chairman of Corporate
Governance for the Asian Institute of Management (AIM), and the Convenor-Trustee of the Philippine
Business for Education (PBEd).
7
Pursuant to SEC Memorandum Circular No. 9 Series of 2011 of the Securities and Exchange Commission, all previous terms served
by existing Independent Directors as of January 2, 2012 shall not be included in the application of the term limits under the Circular.
29
JAIME C. LAYA
Independent Director, Board of Directors
Member, Audit and Governance Committee
Member, Nomination Committee
Filipino, 75 years old
Independent Director of the Company since April 4, 2014
Education and Training:
 Certified Public Accountant
 BSBA, Magna cum Laude, University of the Philippines
 M.S. in Industrial Management, Georgia Institute of Technology
 Ph.D. in Financial Management, Stanford University in 1966
 Certified Public Accountant.
Membership in the Board of Listed Companies:
 Independent Director of Manila Water Company, Inc. (Ayala Group)
 Independent Director of Ayala Land, Inc. (Ayala Group)
 Philippine Trust Company (Philtrust Bank)
 Independent Director of GMA Network, Inc.
 Independent Director of GMA Holdings, Inc.
Membership in the Board of Non-Listed Companies:
 Philippine AXA Life Insurance Co., Inc.
 Cultural Center of the Philippines
 St. Paul’s University – Quezon City
 Bankers Association of the Philippines
 Ayala Foundation, Inc.
 Fundacion Santiago
 Metropolitan Museum of Manila
 Yuchengco Museum
 CIBI Foundation, Inc.
 Escuela Taller de Filipinas Foundation, Inc.
 Manila Polo Club.
Positions in Other Organizations and Corporations:
 Chairman of the Board of Directors and President of Philippine Trust Company (Philtrust Bank).
Mr. Laya has served as Minister of the Budget; Minister of Education, Culture and Sports; Governor of
the Central Bank of the Philippines; Chairman of the National Commission for Culture and the Arts; and
Professor and Dean of Business Administration of the University of the Philippines.
30
VICTORIA P. GARCHITORENA
Member of the Board of Directors
Member, Audit and Governance Committee
Filipino, 70 years old
Director of the Company since April 4, 2014
Education and Training:
 B.S. Physics, Magna cum Laude, College of the Holy Spirit
 Post-graduate studies in Management Development Program, Asian Institute of Management
 Post-graduate studies in Environmental Economics & Policy Analysis, Harvard Institute for
International Development
Membership in the Board of Listed Companies:
 Manila Water Company, Inc. (Ayala Group)
Membership in the Board of Non-Listed Companies:
 UCPB-CIIF Finance and Development Corp.
 Avignon Tower Condominium Corporate
 Asian Institute of Management
 Ayala Foundation, Inc.
 SPARK (Samahan ng mga Pilipina Para sa Reportma at Kaunlaran); Alvarez Foundation, Inc.
Positions in Other Organizations and Corporations:
 Consultant of Ayala Corporation
 President of Alvarez Foundation, Inc.
 Member, Philippine Army Multi Sectoral Advisory Board, Former Senior Government Officials
 Member, Makati Business Club
 Member, Management Association of the Philippines
 Member, National Executive Committee of the Bishops-Businessmen's Conference for Human
Development
 Member, International Center on innovation, Transformation and Excellence in Governance
 Member, AWARE (Alliance of Women for Action Toward Reform) and Black and White
Movement.
Ms. Garchitorena has served as a member of the Management Committee of Ayala Corporation (Ayala
Group) from 2006 until 2011.
She was a Managing Director of Ayala Corporation, President of Ayala Foundation, Inc. and Philippine
Development Foundation (formerly Ayala Foundation USA). Her other significant past positions include:
Trustee of the International Center on Innovation, Transformation and Excellence in Governance and
Pinoy Me Foundation; member of the Asia Pacific Advisory Council Against Corruption-World Bank and
the World Bank Social Protection Advisory Board; League of Corporate Foundations and Makati
Business Club; and member of the National Committee of Bishops-Businessmen’s Council for Human
Development.
Previously, she was a Senior Consultant on Poverty Alleviation and Good Governance and the Head of
the Presidential Management Staff and Secretary to the Cabinet under the Office of the President of the
Republic of the Philippines; a Director of Philippine Charity Sweepstakes Office; Executive Assistant to
the Chairman and President of the Meralco Foundation, Inc.; a Trustee of the Ramon Magsaysay Awards
Foundation; and Co-Chairperson of EDSA People Power Commission; a Board Member of the US based
31
Council of Foundations; Member of the Global Foundation Leaders Advisory Group of World Economic
Forum and Governor of Management Association of the Philippines.
PROFILES OF NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
All of the above incumbent directors have been nominated for re-election at the annual stockholders
meeting. Mssrs. Oscar S. Reyes, Jose L. Cuisia and Jaime C. Laya, and Ms. Sherisa P. Nuesa have been
nominated for re-election as independent directors.
PROFILES OF INCUMBENT OFFICERS
GERARDO C. ABLAZA JR.
President and CEO
Member of the Board of Directors
Member, Executive Committee
Filipino, 60 years old
Please see profile of Mr. Ablaza under the section “Incumbent Directors”.
LUIS JUAN B. ORETA
Chief Finance Officer and Treasurer
Group Director for Corporate Finance and Governance
Compliance Officer
Filipino, 58 years old
Mr. Oreta joined the company in January 1, 2009. Prior to his appointment as CFO of Manila Water, Mr.
Oreta was Managing Director of Ayala Corporation - Strategic Planning Group from March 1997 to 2008
and was CFO of Integrated Microelectronics, Inc. until December 31, 2008. He has also served the Bank
of the Philippine Islands in various capacities from October 1983 to March 1997, where his last position
was Vice President of BPI Capital Corporation.
At present, he is a member of the Board of Directors of the following local and international subsidiaries
and affiliates of Manila Water: Manila Water Philippine Ventures, Inc., Laguna AAAWater Corporation,
Boracay Island Water Company, Inc., Clark Water Corporation, Manila Water Total Solutions
Corporation, Manila Water International Solutions, Inc., Manila Water Asia Pacific Pte. Ltd., Manila
Water South Asia Holdings Pte. Ltd., Kenh Dong Water Holdings Pte. Ltd., Thu Duc Water Holdings Pte.
Ltd., Thu Duc B.O.O. Corporation, and Saigon Water Infrastructure Corporation. He is also a member of
the Board of Trustees of Manila Water Foundation, Inc.
He also holds the following positions:
 Concurrently the Compliance Officer and Group Director for Corporate Finance and Governance
Group of Manila Water
 CFO and Treasurer of Manila Water Philippine Ventures, Inc., Boracay Island Water Company,
Inc. and Manila Water International Solutions, and Manila Water Foundation, Inc.
 Chairman of the Board of Controllers of Kenh Dong Water Supply and Joint Stock Company
32
He graduated from the University of the Philippines with a Bachelor of Science degree in Business
Economics. He has a Masters degree in Business Administration from the Rutgers University, Graduate
School of Management.
VIRGILIO C. RIVERA JR.
Group Director, Corporate Strategy and Development
Filipino, 52 years old
Mr. Rivera has been with the Ayala Group for more than twenty (20) years and has held appointments in
Ayala Corporation. Positions he has held include Managing Director, Manager of the Strategic Planning
Group, and Head of Strategic Planning of Integrated Microelectronics, Inc.
Concurrently, he is a managing director of Ayala Corporation, seconded to Manila Water Company, Inc.
as Head of the Corporate Strategy and Development Group. In this role, he acquired extensive experience
in Public Private Partnerships (PPP) in the water business sector and successfully managed price reviews
during the past 15 years for Manila Water. Mr. Rivera also acted as chairman of the management's
negotiating panel for the 2006 and 2008 Collective Bargaining Agreement.
Mr. Rivera is responsible for growing the business of Manila Water outside the east zone of Metro Manila
as well as in the Asian region. At present, he is a director of the following companies within the Manila
Water Group: Manila Water Philippine Ventures, Inc., Laguna AAAWater Corporation, Boracay Island
Water Company, Inc., Clark Water Corporation, Cebu Manila Water Development, Inc., Manila Water
Consortium, Inc., Manila Water International Solutions, Inc., Manila Water Total Solutions Corporation,
Manila Water Asia Pacific Pte. Ltd., Manila Water South Asia Holdings Pte. Ltd., Kenh Dong Water
Holdings Pte. Ltd., Thu Duc Water Holdings Pte. Ltd., Thu Duc B.O.O. Corporation, Kenh Dong Water
Supply and Joint Stock Company, and Saigon Water Infrastructure Corporation.
In addition, Mr. Rivera has held a critical line position as President of the key subsidiaries of Manila
Water: Manila Water Philippine Ventures, Inc., Laguna AAAWater Corporation, Clark Water
Corporation, Boracay Island Water Company, Inc. and Cebu Manila Water Development, Inc. He is
responsible for growing the business of Manila Water outside the east zone of Metro Manila as well as in
the Asian region.
His achievements have earned him distinction as a valuable resource person in international conferences
on infrastructure privatization, regulation and PPP initiatives sponsored by the World Bank, Asian
Development Bank, Japan International Co-operation Agency, IWA, academic institutions such as TERI
and Stanford University, and host national governments in emerging countries.
He holds two university degrees in economics and behavioural science from the University of Santo
Tomas. He also completed graduate-level course work in M.S. Economics from De La Salle University.
In 2011, Mr. Rivera completed the Advanced Management Program of the Harvard Business School. His
book on Manila Water, Tap Secrets: The Manila Water Story, was published by the Asian Development
Bank.
33
RUEL T. MARANAN
Group Director, Corporate Human Resources
Filipino, 51 years old
Mr. Maranan joined Manila Water in January 2004 and has since led the Corporate Human Resources
Group. Mr. Maranan introduced numerous innovations in human resources management, rallying behind
the company’s being the first Filipino company to win the prestigious Asian Human Capital Award in
2011, an award sponsored by the Singapore Ministry of Manpower, CNBC Asia-Pacific, and INSEAD.
Through his leadership in human resources, Manila Water was vested the 2006 Outstanding Employer of
the Year by the People Management Association of the Philippines.
He also holds a seat in the Board of Directors of Manila Water Philippine Ventures, Inc. and Laguna
AAAWater Corporation. In addition, he is a member of the Board of Trustees of Manila Water
Foundation, Inc.
Before joining the Company, he was the Division Head for Strategic Staffing and Employee Relations at
Globe Telecom. He served as Chairman and an incumbent Director of the Ayala Multi-Purpose
Cooperative. He was the Vice President of the People Management Association of the Philippines
(PMAP) last 2009. In 2011, he received the Communications Excellence in Organizations or CEO
EXCEL Award from the International Association of Business Communicators (IABC). This is in
recognition of his leadership in the Corporate Communications initiatives of Manila Water.
In addition to his professional commitments, he devotes time to community and nation building, being the
battalion commander of the 503rd Water Battalion and holding the rank of lieutenant colonel.
Mr. Maranan earned his AB Social Sciences degree from the Ateneo de Manila University and his law
degree from the University of Santo Tomas. He has also completed the Harvard Leadership Management
Program.
Mr. Maranan resigned as Group Director of Corporate Human Resources of Manila Water effective
January 13, 2015 due to his appointment as Managing Director of Ayala Corporation and as President of
Ayala Foundation, Inc.
FERDINAND M. DELA CRUZ
Group Director, East Zone Business Operations
Group Director, Corporate Strategic Affairs
Filipino, 48 years old
Mr. dela Cruz joined the Company in July 2011 as the East Zone Business Operations Group Director and
as Group Director for Corporate Strategic Affairs Group in December 2011. He is also currently the
President of Manila Water Foundation, Inc. and President of Manila Water Total Solutions Corporation.
Mr. dela Cruz also holds a board seat in Clark Water Corporation, Manila Water Total Solutions
Corporation and Manila Water Foundation, Inc.
Before joining the Company, Mr. dela Cruz was the head of the Consumer Sales Group and the Consumer
Sales and After Sales Group of Globe Telecom for two years, and was head of its Wireless Business
Group for nearly seven years from October 2002 to June 2009. Prior to that, he was the President and
General Manager of Kraft Foods (Philippines) Inc. for more than a year and the same company’s Country
General Manager for its various operating companies in Indonesia for two years.
34
Mr. dela Cruz also had senior leadership roles in Ayala Land, San Miguel Brewing Philippines, Inbisco
Philippines and Unilever Philippines. He started his working career as a Junior Engineer in DCCD’s
Mechanical Engineering Division in 1986.
Mr. dela Cruz holds a B.S. in Mechanical Engineering degree (cum Laude) from the University of the
Philippines. He is a board topnotcher and a licensed Mechanical Engineer.
GEODINO V. CARPIO
Group Director, Operations
Filipino, 54 years old
Mr. Carpio joined Manila Water Company, Inc. in 1997 as Chief Information Officer. His responsibility
as such included the implementation, operation and maintenance of Information Technology
Infrastructure and applications for the Company’s head office, 8 business areas, and various operations
facilities.
In 2004, he became Group Director for the Project Delivery Group (PDG) responsible for the formulation
of strategy, planning and management of capital works for the Company. Since 2010, he has lead the
Operations Group, ensuring the efficient and reliable operation of all treatment and primary conveyance
facilities for water sources, drinking water and used water.
Mr. Carpio is also a member of the Board of Directors of Manila Water Philippine Ventures, Inc., Laguna
AAAWater Corporation, Boracay Island Water Company, Inc., Clark Water Corporation, Manila Water
International Solutions, Inc., Manila Water Total Solutions Corporation, Manila Water Asia Pacific Pte.
Ltd., Manila Water South Asia Holdings Pte. Ltd., Kenh Dong Water Holdings Pte. Ltd., Thu Duc Water
Holdings Pte. Ltd., and Kenh Dong Water Supply and Joint Stock Company. He is also a member of the
Board of Trustees and the Vice President of Manila Water Foundation, Inc.
Before joining Manila Water, Mr. Carpio was the Vice President for Information Technology for the
Marsman Group of Companies (1995 to 1997). In that role, Mr. Carpio was responsible for the IT
planning and management for the four Marsman companies across 32 branches nationwide.
He holds a B.S. in Physics Teaching degree (Cum Laude) from the Philippine Normal College in
consortium with De La Salle University under the National Science Development Board Scholarship
Grant and attended a Software Engineering Course under the Scholarship Grant from the Center for
International Cooperation for Computerization in Tokyo, Japan in 1986.
RODELL A. GARCIA
Chief Technology Adviser
Filipino, 58 years old
Mr. Garcia has been in the IT industry for over 38 years. He joined Manila Water in September 2012 to
oversee the transformation of the company’s information and communications technology. Prior to this
appointment, Mr. Garcia was with Globe Telecom as Chief Information Officer (CIO) from 2000 to 2009,
Chief Technical Officer (CTO) from 2009 to 2010, and Head of IT Transformation from 2011 up to 2012.
As CIO, Mr. Garcia was responsible for defining and implementing Globe’s IT strategy, and for ensuring
the stability of the IT infrastructure. As CTO, he was primarily responsible for Network Technology
Strategy, Planning, Engineering, and Network Operations.
35
Mr. Garcia also spent 22 years in the banking industry, having worked in various capacities in companies
such as Citytrust Banking Corporation, where he last held the position of Vice President of Corporate
Technology Division, and DBS Bank Philippines as Executive Vice President of Information
Technology.
Mr. Garcia graduated from the Ateneo de Manila University with a degree in Bachelor of Science in
Mathematics, under a scholarship grant from the National Science Development Board.
ABELARDO P. BASILIO
Group Director, Strategic Asset Management
Filipino, 53 years old
Mr. Basilio has been with Manila Water Company for 17 years and has held several appointments under
various capacities within the company including Director of Technical Services Group and Group
Director of East Zone Business Operations. He is currently the Group Director of Strategic Asset
Management Group.
Mr. Basilio joined Metropolitan Waterworks and Sewerage Systems (MWSS) as a young cadet in 1984
and gained experiences in utility operations which include hydraulic engineering, water treatment,
distribution and network management. He later joined Manila Water in 1997. Currently, as the Strategic
Asset Management Group Director, he provides comprehensive, holistic and integrated strategic plans
that sets up the platform for capital investment, operation and maintenance of existing and new assets and
the rationalization and disposal of assets.
He holds a degree in Civil Engineering from the University of the Philippine under the university
scholarship program. He completed a Management Development Program in Asian Institute of
Management, Water Network Design and Modelling in Manchester, United Kingdom and
SCADA/Telemetry Training in Singapore.
THOMAS T. MATTISON
Group Director, Project Delivery8
British, 49 years old
Mr. Mattison has worked in the Utility industry for 33 years, 31 of which being in the Water Sector and 2
of which being in the Electricity Sector. He was seconded to Manila Water Company, Inc. in 1996 as
Technical Manager for Maintenance Services and in 2007 as Reliability and Efficiency Consultant. In
2011, he became the Operations Support Services Director managing 9 diverse departments under the
Operations Group. These included: Maintenance Services, Fleet Services, Property Services, Laboratory
Services, Environmental Management, Safety Solutions, Business Continuity, Engineering Standards,
Energy Management and System Analytics.
In September 2013, Mr. Mattison was designated to lead the Project Delivery Group and has since that
designation began transforming the function of the Group into a full engineering services provider. He is
responsible for the management of the engineering and project delivery function within the Company as
well as the management of the design and construction of all Water, Used Water and Network capital
projects.
8
Mr. Mattison was appointed Group Director for Project Delivery on February 6, 2015. His appointment’s effectivity is on March 1, 2015.
36
In recognition of his exemplary contributions to the Company, Mr. Mattison was appointed Group
Director of Project Delivery Group of the Company in February 2015.
Mr. Mattison graduated from Manchester Metropolitan University, UK with a degree in Engineering.
SOLOMON M. HERMOSURA
Corporate Secretary
Filipino, 51 years old
Mr. Hermosura assumed his role as Corporate Secretary on April 3, 2006.
Mr. Hermosura has served as Managing Director of Ayala since 1999 and a member of the Management
Committee of Ayala (Holding Company) since 2009 and the Group Management Committee since 2010.
He also holds the following positions:






Group Head of Corporate Governance of Ayala Corporation
General Counsel, Compliance Officer, and the Corporate Secretary of Ayala Corporation
CEO of Ayala Group Legal.
Corporate Secretary and General Counsel of Ayala Land, Inc.
Corporate Secretary of Globe Telecom, Inc., Manila Water Company, Inc., Integrated MicroElectronics, Inc., and Ayala Foundation, Inc.;
Member of the Board of Directors of a number of companies in the Ayala group.
Mr. Hermosura graduated valedictorian with Bachelor of Laws degree from San Beda College of Law in
1986 and placed third in the 1986 Bar Examinations.
37
Annex “B”
MANAGEMENT REPORT
I.
Management’s Discussion & Analysis of Results of Operations and Financial Condition
The following management’s discussion and analysis (“MD&A”) of Manila Water Company Inc.’s
(“MWCI”) financial condition and results of operations should be read in conjunction with the Group’s
unaudited financial statements, including related notes. This report may contain forward-looking
statements that involve risks and uncertainties. The actual results may differ materially from those
discussed in the 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”, “MWCI” or the “Group” shall refer to Manila
Water Company, Inc., including its subsidiaries. Any reference to “Manila Water Company”, “Manila
Water”, “MWC” or the “Company” shall refer to the parent company only.
Additional information about the Group, including recent disclosures of material events and annual/
quarterly reports, are available at our corporate website at www.manilawater.com.
OVERVIEW OF THE BUSINESS
Manila Water Company holds the exclusive right to provide water and waste water services to the eastern
side (“East Zone”) of Metro Manila under a Concession Agreement (“CA”) entered into between the
Company and Metropolitan Waterworks and Sewerage System (“MWSS”) in August 1997. The original
term of the concession was for a period of 25 years to expire in 2022. The Company’s concession was
extended by another 15 years by MWSS and the Philippine Government in 2009, thereby extending the
term from May 2022 to May 2037.
The Company provides water treatment, water distribution, sewerage and sanitation services to more than
six million people in the East Zone, comprising a broad range of residential, commercial and industrial
customers. The East Zone encompasses 23 cities and municipalities spanning a 1,400-square kilometer
area that includes Makati, Mandaluyong, Pasig, Pateros, San Juan, Taguig, Marikina, most parts of
Quezon City, portions of Manila, as well as the following towns of Rizal: Angono, Antipolo, Baras,
Binangonan, Cardona, Jala-Jala, Morong, Pililia, Rodriguez, San Mateo, Tanay, Taytay and Teresa.
Under the terms of the CA, the Company has the right to the use of land and operational fixed assets, and
the exclusive right, as agent of MWSS, to extract and treat raw water, distribute and sell water, and
collect, transport, treat and dispose wastewater, including reusable industrial effluent discharged by the
sewerage system in the East Zone. The Company is entitled to recover over the concession period its
operating, capital maintenance and investment expenditures, business taxes, and concession fee payments,
and to earn a rate of return on these expenditures for the remaining term of the concession.
Aside from the East Zone, the Group currently has three operating subsidiaries in the Philippines, namely
Laguna AAA Water Corporation (“LWC”), Boracay Island Water Company (“BIWC”) and Clark Water
Corporation (“CWC”). A fourth subsidiary named Manila Water Consortium, which provides bulk water
in the province of Cebu, commenced operations on January 5, 2015.
38
The Group also has a presence in Vietnam through two affiliated companies, namely Thu Duc Water
B.O.O Corporation (“TDW”) and Kenh Dong Water Supply Joint Stock Company (“KDW”), and a
holding company listed in the Ho Chi Minh City Stock Exchange called Saigon Water Infrastructure
Corporation (“SII”). TDW and KDW supply treated water to Saigon Water Company under a take-or-pay
arrangement. The Company’s pilot leakage reduction project in Ho Chi Minh City which started in 2008
was completed in August 2014.
RESULT OF OPERATIONS (2014 VS. 2013)
CONSOLIDATED FINANCIAL PERFORMANCE
The Group’s key financial performance indicators are discussed below:
Consolidated net income grew by 1% to P5,813 million in 2014 from P5,752 million the previous year
despite of the absence of a tariff adjustment in the East Zone. Consolidated operating revenues rose by
3% to P16,357 million driven largely by the continued expansion in the East Zone, with its billed volume
growing by 3.6%. The contribution from the domestic operating subsidiaries amounting to P1,450
million, higher by 48% year-on-year, also helped improve the growth in revenues. This offset the decline
in revenues due to the completion of the leakage reduction project in Zone 1 of Ho Chi Minh City in
2014.
39
A breakdown of the revenue drivers is shown below:
BREAKDOWN OF REVENUE DRIVERS
Water
Environmental charges
Sewer
Revenue from management contracts
Others
Total operating revenues
For the years ended December 31
(in thousand Pesos)
Increase/
2014
2013
(Decrease)
12,847,211
11,995,693
851,518
2,303,873
2,250,483
53,390
419,720
396,664
23,056
25,488
174,939
(149,451)
760,853
1,108,039
(347,186)
16,357,145
15,925,817
431,328
%
7%
2%
6%
-85%
-31%
3%
The Group derived 78% of its operating revenues from water bills, while 17% came from environmental
and sewer charges. Other revenues, which accounted for the balance of 5%, came from connection fees
and laboratory fees, among others.
On the other hand, consolidated operating costs and expenses (excluding depreciation and amortization)
rose by 9% to P5,088 million in 2014. Non-personnel costs led the growth with an increase of 7%,
primarily because of the increase in power, light and water due to the higher power rates, and other direct
costs, materials and supplies.
Below is a summary of the operating expenses incurred during the period:
Meanwhile, other income (net of expense) declined by 22% to P291 million in 2014 from P375 million
the previous year, due largely to higher transaction costs incurred for a loan, that outweighed the higher
equity share in net income of associates. The two bulk water companies in Vietnam, Thu Duc Water and
Kenh Dong Water, together with Saigon Water Infrastructure, contributed P357 million in net income,
growing by 22% in 2014 from the previous year.
The movements in operating revenues and expenses, together with the decrease in other income, resulted
in consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) of P11,561
million in 2014, slightly dropping by 1% from the previous year. EBITDA margin declined to 71% from
73% as the growth of expenses outpaced revenues.
40
BUSINESS SEGMENTS’ FINANCIAL AND OPERATING PERFORMANCE
Results of operations detailed as to business segment are shown below:
SEGMENT REPORTING
Revenue
Operating expenses (including depreciation and amortization)
Operating income
Revenue from rehabilitation works
Cost of rehabilitation works
Interest income
Interest expense
Share in equity income of associates
Others
Income before income tax
Provision for tax
Net income (loss)
Other comprehensive income
Other comprehensive income (PAS 19)
Income tax effect
Unrealized gain (loss) on AFS Financial assets
Cumulative translation adjustment
Total comprehensive income
For the year ended December 31, 2014
(in thousand Pesos)
Operating Management
East Zone
Subsidiaries
Contracts Consolidated
14,882,023
1,449,633
25,488
16,357,145
6,537,113
940,347
54,287
7,531,746
8,344,910
509,287
(28,798)
8,825,399
2,749,201
686,588
3,435,789
(2,749,201)
(686,588)
(3,435,789)
94,485
91,150
185,635
(1,513,124)
(123,013)
(1,636,137)
357,298
357,298
(84,188)
18,239
(65,949)
6,842,083
852,962
(28,798)
7,666,247
1,693,581
142,717
1,836,298
5,148,502
710,245
(28,798)
5,829,949
40,538
(370)
(3,301)
5,185,369
(3,310)
112
101,970
809,018
(28,798)
37,228
(258)
(3,301)
101,970
5,965,588
5,185,369
5,185,369
792,158
16,860
809,018
(28,798)
(28,798)
5,948,728
16,860
5,965,588
Segment assets, exclusive of deferred assets
Investments in asociates
Deferred tax assets
60,977,236
819,584
61,796,820
7,833,131
4,961,500
61,599
12,856,230
206,854
206,854
69,017,221
4,961,500
881,183
74,859,904
Segment liabilities, exclusive of deferred liabilities
Deferred tax liabilities
35,428,341
35,428,341
4,236,623
68,950
4,305,573
24,420
24,420
39,689,384
68,950
39,758,334
2,924,926
2,192,870
13,693
919,491
251,117
21,876
-
3,844,417
2,443,987
35,570
Total comprehensive net income attributable to:
Equity holders of MWCI
Noncontrolling interest
Segment additions to equipment and SCA
Depreciation and amortization
Noncash expenses other than depreciaiton and amortization
The Group is composed of the Metro Manila East Zone Concession, its operating subsidiaries and
management contracts secured outside of the service concession. The operating subsidiaries in the
Philippines include Boracay Island Water Company (“BIWC”), Clark Water Corporation (“CWC”) and
Laguna AAAWater Corporation (“LWC”). The Group is also the single largest shareholder in two bulk
water suppliers in Ho Chi Minh City in Vietnam, namely Thu Duc Water BOO Corporation (“TDW”) and
Kenh Dong Water Supply Joint Stock Company (“KDW”). It also has a stake in the listed holding
company, Saigon Water Infrastructure Corporation (“SII”), and it has completed its performance-based
leakage reduction contract in Zone 1 of Ho Chi Minh City. Meanwhile, the project in the Province of
Cebu started its commercial operations following the delivery of first water on January 5, 2015.
41
Net income in 2014 was derived largely from the East Zone Concession, accounting for 89% of the total.
Businesses outside the East Zone contributed the balance of 11% to consolidated net income.
East Zone Concession (“East Zone”)
For the years ended December 31
Increase/
(Decrease)
2014
2013
Operating Highlights
Billed volume (in million cubic meters)
Domestic
Semi-Commercial
Commercial
Industrial
Number of water connections
Non-revenue water
Financial Highlights (in thousand Pesos)
Revenues
Cost and expenses
EBITDA
Net income
449.0
292.9
47.3
91.0
17.7
949,230
11%
14,882,023
4,428,431
10,453,592
5,148,502
433.6
283.6
45.3
89.0
15.7
921,898
11%
14,794,066
4,123,258
10,670,808
5,102,510
%
15.4
9.3
2.0
2.0
2.0
27,332
0%
4%
3%
4%
2%
13%
3%
87,957
305,173
(217,216)
45,992
1%
7%
-2%
1%
East Zone’s billed volume, reported in millions of cubic meters (“mcm”), increased by 4% to 449 mcm in
2014, driven largely by the continued growth of domestic/residential customers. Aside from this segment,
all other customer classes registered improvements in billed volume. Semi-commercial accounts grew by
4% with the completion of new buildings and the conversion of deep well users in the areas of Taguig,
Marikina and Rizal, while industrial accounts rose by 13%. Commercial accounts, which were on a
decline the previous year, also posted a 2% growth.
The growth in billed volume outpaced the growth in water connections as the latter increased at 3% to
949,000 customers at the end of 2014, mostly from the expansion areas of Pasig, Marikina and Rizal.
Average consumption was almost flat at 43.3 cubic meters, while average effective tariff was kept at
P31.35 per cubic meter with the absence of any tariff increase in 2014.
The level of system losses, as measured by the non-revenue water (“NRW”) ratio, was maintained at 11%
at the end of 2014. The NRW of the East Zone has stabilized since the operational adjustments made in
late-2012 to the water flows from the primary transmission lines going to the expansion areas to service
the demand of the existing and new customers.
Collection efficiency in 2014 registered at 100%, slightly lower than the 101% the previous year
following Manila Water’s alignment with MWSS policy of allowing for a longer disconnection period.
Average account receivable days however improved to 19 days from 20 days in 2013. The impact of the
longer reading and billing days following the implementation in August 2012 of a new meter reading and
billing system has already normalized.
On 12 September 2013, MWSS released the final tariff determination for the East Zone after reviewing
Manila Water’s submitted business plan for the 2013 Rate Rebasing exercise. MWSS determined a
negative adjustment of 29.47% from Manila Water’s 2012 average basic water charge, eliminating what
the Company believes to be significant programs for building and maintaining the water and used water
systems in the East Zone.
42
Manila Water, on 24 September 2013, raised its objection by filing a Dispute Notice with the
International Chamber of Commerce, formally commencing the arbitration process which is a dispute
resolution mechanism outlined under the Concession Agreement. While awaiting the outcome of the
arbitration process which is ongoing to date, existing tariffs previously approved by the MWSS have been
maintained in the East Zone.
Boracay Island Water Company (“BIWC”)
For the years ended December 31
2014
2013
Increase/
(Decrease)
4.0
6,125
16%
3.6
5,647
14%
0.4
478
2%
11%
8%
60,476
28,819
31,657
23,288
23%
26%
20%
32%
%
Operating Highlights
Billed volume (in million cubic meters)
Number of water connections
Non-revenue water
Financial Highlights (in thousand Pesos)
Revenues
Cost and expenses
EBITDA
Net income
327,266
140,139
187,127
96,058
266,790
111,320
155,470
72,770
BIWC posted an increase in billed volume of 11% in 2014 to 4.0 mcm from 3.6 mcm in 2013 on the back
of an 8% increase in both water service connections and tourist arrivals, with the latter totaling 1.5
million. It however faced a slight setback in NRW as this increased to 16% in 2014 from 14% the
previous year due to leaks in the main line and defective meters that are due for replacement.
The growth in billed volume coupled with the higher average tariff led to a 23% improvement in total
revenues to P327 million. BIWC implemented a scheduled tariff adjustment as part of the February 2013
rate rebasing resulting in an increase in average effective tariff by 8%. Meanwhile, operating expenses
increased by 26% to P140 million due to higher direct costs, thereby leading to an EBITDA of P187
million, with an EBITDA margin of 57%. With the slower growth of depreciation and amortization, net
income grew by 32% to P96 million.
Clark Water Corporation (“CWC”)
For the years ended December 31
Increase/
(Decrease)
2014
2013
Operating Highlights
Billed volume (in million cubic meters)
Number of water connections
Non-revenue water
Financial Highlights (in thousand Pesos)
Revenues
Cost and expenses
EBITDA
Net income
%
11.6
1,978
5%
9.8
1,975
8%
1.8
3
-3%
18%
0%
382,592
197,049
185,543
100,195
335,612
167,483
168,129
85,627
46,980
29,566
17,414
14,568
14%
18%
10%
17%
43
CWC posted a billed volume growth of 18% to 11.6 mcm as it continued to connect new commercial
customers in its concession area. Efforts to reduce non-revenue water resulted in significant results as the
NRW level declined further to 5% in 2014 from 8% in 2013 due to the proper management of water
levels and monitoring of water pumping schedules.
The increase in billed volume, tempered by a 4% reduction in average effective tariff, led to a revenue
growth of 14% from P336 million in 2013 to P383 million in 2014. Meanwhile, operating expenses
increased by 18% to P197 million largely due to higher direct costs, resulting in a 10% EBITDA growth
to P186 million. Net income growth of 17% to P100 million in 2014 outpaced EBITDA growth as
depreciation and amortization was lower by 4% due to the concession extension.
CWC, together with Clark Development Corporation, signed in August 2014 an amendment agreement to
extend the original concession period for another 15 years up to 2040. The extension requires an
investment by CWC of P5.0 billion over the life of the concession, while the recovery will henceforth be
defined by a rebasing mechanism that is similar to the East Zone concession.
Laguna AAAWater Corporation (“LWC”)
For the years ended December 31
Increase/
(Decrease)
2014
2013
Operating Highlights
Billed volume (in million cubic meters)
Number of water connections
Non-revenue water
Financial Highlights (in thousand Pesos)
Revenues
Cost and expenses
EBITDA
Net income
31.8
90,016
12%
676,883
322,976
353,908
163,949
11.4
66,433
18%
332,308
132,174
200,134
107,539
%
20.4
23,583
-6%
179%
35%
344,575
190,802
153,774
56,410
104%
144%
77%
52%
Billed volume of LWC grew by 179% to 31.8 mcm in 2014 brought about by the additional volume of
13.3 mcm coming from the 160 industrial customers of Laguna Technopark, Inc. (LTI). LWC officially
took over at the beginning of 2014 as the exclusive water provider in LTI, which is an industrial estate
located within the cities of Sta. Rosa and Biñan in Laguna, following the signing of an Asset Purchase
Agreement with LTI for the acquisition of the latter’s water reticulation and sewerage system. Excluding
LTI, additional service connections in the base business totaling almost 24,000 also helped raise billed
volume to 18.6 mcm, growing by 7.2 mcm or 63% year-on-year. The NRW ratio improved by six
percentage points to end 2014 at 12% from 18% in 2013 following the continuing leak repair programs.
Revenues grew by 104% in 2014 to P677 million as a result of the significant increase in billed volume
despite the 14% drop in average effective tariff to P16.72 per cubic meter. On the other hand, operating
expenses grew by 144% to P323 million, resulting in an EBITDA growth of 77% to P354 million. Net
income of LWC reached P164 million in 2014, growing by 52% from the previous year.
44
Thu Duc Water B.O.O Corporation (“TDW”)
For the years ended December 31
Increase/
(Decrease)
2014
2013
Operating Highlights
Billed volume (in million cubic meters)
Financial Highlights (in million VND)
Revenues
Cost and expenses
EBITDA
Net income
in PFRS (in thousand Pesos)
Net income (49% contribution)
-0.7
%
119.7
120.4
-1%
331,622
101,207
230,414
117,154
323,994
97,639
226,355
111,702
7,628
3,568
4,059
5,452
2%
4%
2%
5%
217,705
216,301
1,404
1%
TDW sold a total of 119.7 mcm in 2014, slightly less than the 120.4 mcm billed volume in 2013, due to
the lower water intake of Saigon Water Corporation (SAWACO). Nevertheless, the billed volume of 328
million liters per day (mld) is higher than the guaranteed minimum consumption of 300 mld under the
bulk water supply take-or-pay arrangement with SAWACO.
Under Vietnamese Accounting Standards (VAS), revenues grew by 2% to VND332 billion while
operating expenses went up by 4%, attributable to the increase in direct costs brought about by higher
power rates and cost of raw materials. It led to a 2% growth in EBITDA and 5% improvement in net
income to VND117 billion as the Company booked lower interest expenses owing to the continued
paydown of its debt. In peso terms, the PFRS-translated income reflected in the consolidated financial
statements as Equity Share in Net Income of Associates amounted to P218 million, equivalent to Manila
Water’s 49% stake in TDW.
Kenh Dong Water Supply Joint Stock Company (“KDW”)
For the years ended December 31
Increase/
(Decrease)
2014
2013
Operating Highlights
Billed volume (in million cubic meters)
Financial Highlights (in million VND)
Revenues
Cost and expenses
EBITDA
Net income
in PFRS (in thousand Pesos)
Net income (47% contribution)
55.2
20.6
34.6
%
168%
203,018
51,580
151,438
47,103
74,509
18,795
55,714
(1,002)
128,509
32,785
95,724
48,105
172%
174%
172%
-4801%
111,800
76,653
35,147
46%
KDW registered a billed volume of 55.2 mcm in its first full year of operations in 2014, more than
doubling the volume of 20.6 mcm posted the previous year as it started commercial operations in July
2013. The billed volume is in line with the guaranteed minimum consumption of 150 million liters per
day (mld) under the bulk water supply take-or-pay arrangement with SAWACO.
Under Vietnamese Accounting Standards (VAS), KDW posted revenues of VND203 billion and an
EBITDA of VND151 billion. Together with depreciation and interest expenses of VND103 billion, this
45
led to a net income of VND47 billion. Similar to TDW, income from KDW is translated into PFRS using
the financial asset model due to its take-or-pay arrangement, and is reported as Equity in Net Earnings of
Associates in the consolidated financial statements. In peso terms, the PFRS-translated income of Manila
Water’s 47.35% stake in KDW amounted to P112 million.
BALANCE SHEET
The consolidated balance sheet remained strong and geared for expansion at the end of 2014. Strong cash
inflows attributable to the high collection efficiency during the period and the delay in the implementation
of capital expenditure projects due to the ongoing arbitration brought cash and cash equivalents to P6.5
billion. Total assets rose by 3% to P74.9 billion as the Company continued to make additional capital
investments on network, water and used water expansion projects, albeit at a slower pace. Liabilities, on
the other hand, dropped by 5% to P39.8 billion due to the payment of debt and other service concession
obligations.
The Company continued to be compliant with its loan covenants. Debt to equity ratio stood at 0.92x,
excluding concession obligations, while, net bank debt to equity registered at 0.56x.
The Company declared cash dividends for the first and second semesters of the year on February 20, 2014
and October 7, 2014, respectively. Under the Company’s cash dividend policy, shareholders are entitled
to annual cash dividends equivalent to 35% of the prior year’s net income, payable semi-annually. As
such, common shareholders received P0.8063 per common share, while preferred shareholders got
P0.0806 per preferred share, for dividends totaling to P1.97 billion in 2014.
CAPITAL EXPENDITURES
The Company’s East Zone spent a total of P4,135 million (inclusive of concession fee payments) for
capital expenditures in 2014, 12% less than the P4,682 million spent the previous year. The bulk of
capital expenditures was spent on wastewater expansion and network reliability projects, which accounted
for 72% of the total. The balance of 28% or P1,167 million was accounted for by concession fees paid to
MWSS. Capital expenditures in 2014 was limited to on-going and service reliability projects in the
absence of an approved business and capital expenditure plan as part of the 2013 Rate Rebasing exercise.
Meanwhile, total capital expenditures of the domestic subsidiaries amounted to P1,062 million in 2014,
growing by 11% from the previous year. Of the total amount, P758 million or 71% was used by Laguna
Water for its network coverage expansion, while the balance was disbursed by Boracay Island Water and
Clark Water.
Material Changes (Increase or Decrease of 5% or more in the financial statements)
Income Statement Items (End 2014 vs. End 2013)
CONSOLIDATED REVENUE
Water, environmental charges and sewer revenue – 6% increase
Increase of P
=928 million was due to strong billed volume growth of the Parent Company and the
operating subsidiaries following an increase in the number of new water service connections.
46
Revenue from management contracts – 85% decrease
Decrease of =
P149 million was attributable to the completion in August 2014 of the contract with Saigon
Water Company (SAWACO) in Ho Chi Minh City, Vietnam for a leakage project in Zone 1.
Other operating income – 31% decrease
Decrease of =
P347 million was accounted for mainly by lower income realized from the liquidation of
service connection costs advanced by the Parent Company for private residential subdivisions.
CONSOLIDATED OPERATING COSTS AND EXPENSES
Salaries, allowance and benefits – 12% increase
Increase of P
=156 million was mainly attributable to improvements in the Group’s compensation package
and other benefits, higher shared options expense and retirement costs.
Power, light and water – 23% increase
Increase of P
=197 million was on account of higher power consumption due mainly to the commissioning
of East La Mesa Treatment Plant starting October 2013 and power rate increase of Meralco commencing
the later part of 2013.
Management, technical and professional fees – 18% decrease
Decrease of =
P108 million was due to the one-time consultancy service for enterprise transformation study
and accrual of professional fees related to the Parent Company’s rate rebasing arbitration process in 2013.
Repairs and maintenance – 9% increase
Increase of P
=33 million was attributable to the increase in maintenance activities brought about by the
expanding service coverage area including the commissioning of additional treatment and pumping
station facilities.
Contractual services – 25% increase
Increase of P
=54 million was due mainly to outsourced IT Help Desk, operations and maintenance of the
Records Management Center and increase in the number of outsourced administrative support service as
the Group expands its business operations.
Regulatory costs – 51% increase
Increase of P
=34 million was attributable to the payment to Metropolitan Waterworks and Sewerage
System (MWSS) of prior years concession fees and the cumulative effects of CPI adjustments on the
operating cost component of annual regulatory fees.
Occupancy costs – 12% increase
Increase of P
=14 million was on account of additional janitorial and security costs related to the
commissioning of East La Mesa Plant and the mandated increase in the wage rate of security and
janitorial personnel.
Wastewater costs – 10% increase
Increase of P
=9 million was mainly due to higher volume of desludged wastes from customers’ septic
tanks in 2014.
Water treatment chemicals – 10% decrease
Decrease of =
P8 million was attributable to lower chemical usage this year due to better raw water quality
and use of more cost-efficient treatment chemicals.
47
Postage, telephone and supplies – 8% decrease
Decrease of =
P4 million was due to the combination of lower communication expenses and the decrease in
office supplies due to the implementation of the Parent Company of the Manage Print Services (MPS)
System wherein the printing equipment together with printing supplies are provided by an independent
supplier, costs of which are charged under equipment rental.
Provision for probable losses – 10% increase
Increase of P
=17 million was mainly attributable to additional provision for various taxes in 2014.
Business meetings and representation – 14% increase
Increase of P
=18 million was due to activities related to business expansion programs of the Group.
Donations – 1352% increase
Increase of P
=29 million was solely on account of the donation made by the Parent Company to the Manila
Water Foundation to support increase in the number of beneficiaries of the ‘Kabuhayan Para sa
Barangay’ program and expanded socio-civic activities, such as environmental protection, health and
educational campaigns.
Cost of inventory sold – 75% decrease
Decrease of =
P56 million was due to lower volume of materials sold to contractors and other parties during
the year.
Premium on performance bond – 23% decrease
Decrease of =
P2 million was due to a lower premium rate on the stand-by letter of credit guaranteeing the
Parent Company’s performance under the Concession Agreement with MWSS.
Cost of new market development – 98% decrease
Decrease of =
P8 million was mainly due to a one-time cost of organizational restructuring study related to
key accounts development in 2013. No similar expense was incurred in 2014.
Reversal of prepaid transaction costs – 100% decrease
Decrease of =
P33 million was a non-recurring cost incurred in 2013 related to the reclassification to
operating expense from prepaid expenses of arrangement fees for a loan to finance an expansion project
which did not materialize.
Other expenses – 55% increase
Increase of P
=91 million was attributable to higher overhead cost and miscellaneous expenses due to the
expanding service area, increasing number of customers and increased operational activities.
OTHER INCOME (EXPENSES)
Revenue from and cost of rehabilitation works – 32% decrease
Decrease of =
P1,635 million was primarily on account of lower rehabilitation works due to constrained
capital expenditure in 2014 pending the resolution of ongoing rate rebasing arbitration.
Interest income – 7% increase
Increase of P
=13 million was mainly attributable to the accretion of interest income related to the
concession financial receivable of CMWD.
48
Amortization of deferred credits – 17% increase
Increase of P
=1 million was the result of higher unamortized discounts of customers’ guaranty deposits in
2014.
Interest expense – 6% decrease
Decrease of =
P97 million was mainly due to lower interest rates of the Group’s loans and lower interest
expense on service concession loans on account of diminishing outstanding balance.
Equity share in net income of associates – 22% increase
Increase of P
=63 million was due to higher net income generated by associates in Vietnam, namely, Thu
Duc Water B.O.O., Kenh Dong Water Supply Joint Stock Company, and Saigon Water Infrastructure
Corporation.
Gain on disposal of property and equipment – 216% increase
Increase of P
=0.03 million was attributable to higher gain on disposal, as property and equipment with
greater value was sold in 2014.
Gain (loss) on revaluation of receivable from Bonifacio Water Corporation – 100% decrease
Decrease of =
P1 million was due to non-recognition of revaluation loss in 2014 of Parent Company’s
receivable from Bonifacio Water Corporation.
Other loss – 194% decrease
Decrease of =
P136 million was mainly attributable to the reversal of accrued transaction costs related to
Parent Company’s loan facility which was neither activated nor disbursed and was subsequently cancelled
in November 2014.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (END 2014 vs. END 2013)
Cash and cash equivalents – 11% decrease
Decrease of =
P727 million was mainly due to settlement of loan, dividends and service concession
obligation partially offset by loan availment by the operating subsidiaries.
Short-term cash investments – 324% increase
Increase of P
=306 million was due to money placements of Boracay Water pending disbursements for
projects.
Receivables (net) – 22% increase
Increase of P
=301 million was due to higher water, sewer and environmental billings and increase in
collection period of the Parent Company as a result of strict implementation of disconnection guidelines.
Materials and supplies – at cost – 80% increase
Increase of P
=83 million was mainly due to higher stock purchases for chemical inventories, water meter
and service connection supplies during the year due to reclassification of water meters inventory.
Other current assets – 10% increase
Increase of P
=63 million was mainly due to higher advances to contractors attributable to new projects
implemented by the subsidiaries during the year and higher input value-added tax (VAT), which will be
applied against future output VAT.
49
Property, plant and equipment (net) – 5% increase
Increase of P
=93 million was mainly due to acquisition of technical equipment and IT hardware and
software in line with SAP enhancement upgrade and business intelligence projects.
Available for sale financial assets (AFS) – 98% decrease
Decrease of =
P103 million was accounted for by the maturity of AFS investments of the Parent Company
in 2014.
Deferred tax assets (net) – 7% increase
Increase of P
=59 million was caused by higher deferred tax benefit derived from the decrease in net
temporary differences related to service concession assets, service concession obligation and deferred
FCDA.
Investment in associates – 5% increase
Increase of P
=253 million was mainly attributable to the higher equity share in the net earnings of Saigon
Water Infrastructure Corporation, Thu Duc Water B.O.O., Kenh Dong Water Supply Joint Stock
Company and cumulative translation adjustment during the year as a result of the conversion of the
MWAP financial statements from USD to PHP, net of dividend income from Thu Duc Water B.O.O..
Concession financial receivable – net of current portion – 49% increase
Increase of P
=295 million was due to the accretion of interest income related to the financial receivable of
CMWD as a result of the signing of the Bulk Water Supply Contract with MCWD in December 2013 and
additional revenue from construction works in 2014.
Other noncurrent assets – 16% increase
Increase of P
=126 million was accounted for mainly by deferred FCDA on account of foreign exchange
losses in 2014 which are recoverable through water tariff adjustment.
Accounts and other payables – 9% decrease
Decrease of =
P376 million was mainly brought about by the reduction in contracts payable due to
settlements of project related expenditures and payments of trade payables during the year.
Current portion of long term debt – 32% increase
Increase of P
=605 million was mainly due to the reclassification of noncurrent portion of EIB loan to
current following the Parent Company’s decision to prepay the EIB loan on February 20, 2015.
Current portion of service concession obligation – 21% decrease
Decrease of =
P271 million was accounted for by the diminishing outstanding balance of concession loans.
Income tax payable – 9% decrease
Decrease of =
P45 million was due to payment of the 2013 tax due and the first three quarters of 2014
corporate income tax.
Payable to related parties – 92% decrease
Decrease of =
P128 million was accounted for by the settlement by Manila Water Consortium of its
shareholder loan from Metropac Water and VICSAL.
Long term debt- net of current portion – 6% decrease
Decrease of =
P1,386 million was mainly attributed to loan settlement in 2014 and reclassification of EIB
loan noncurrent portion to current.
50
Pension liability – 90% decrease
Decrease of =
P343 million was attributable to additional contribution to the retirement fund amounting to
=400 million in 2014 partially offset by the recognition of retirement expense during the year pursuant to
P
PAS 19, Employee Benefits.
Deferred tax liability – 100% increase
Increase of P
=69 million was mainly due to the deferred tax liabilities recognized by CMWD related to the
concession financial receivable.
Provisions – 18% increase
Increase of P
=152 million pertains to accrual of various taxes for the year which are either pending
decision by the courts or being contested.
Other noncurrent liabilities – 16% decrease
Decrease of =
P162 million was mainly accounted for by liquidation of collections for service connection
costs advanced by the Parent Company.
Subscriptions receivable – 11% decrease
Decrease of =
P32 million was due to collection of subscriptions made under the Executive Stock
Ownership Plan (ESOWN) in 2014.
Common stock options outstanding – 17% increase
Increase of P
=2 million was attributable to additional subscriptions under the ESOWN for 2014.
Appropriated Retained earnings – 100% decrease
Decrease of =
P7,000 million was on account of the reversal of appropriation of the Parent Company’s
retained earnings.
Unappropriated Retained earnings – 62% increase
Increase of P
=10,800 million was on account of net income generated in 2014, net of cash dividends
declared and =
P7,000 million reversal of appropriated retained earnings.
Unrealized gain on available for sale financial asset – 100% decrease
Decrease of =
P3 million was due to maturity of the remaining AFS investment in 2014.
Remeasurement gain (loss) on defined benefit plans – 27% decrease
Decrease of P37 million pertains to remeasurement adjustments on valuation of pension liabilities in
accordance with PAS 19, Employee Benefits.
Cumulative translation adjustment – 86% increase
Increase of P102 million was attributable to the exchange differences arising from the translation of
Manila Water Asia Pacific Pte., Ltd.'s books from United States Dollar into Philippine Peso which was
stronger at year-end 2014.
51
RESULT OF OPERATIONS (2013 VS. 2012)
CONSOLIDATED FINANCIAL PERFORMANCE
The Group’s key financial performance indicators are discussed below:
For the years ended December 31
15,925,817
(in thousand Pesos)
2012
Increase/
(Decrease)
14,553,068
1,372,749
4,653,609
375,264
293,975
81,289
11,647,472
2,494,763
9,152,709
(1,560,575)
7,592,134
1,811,573
5,780,561
28,199
5,752,362
4,228,846
393,637
206,762
186,875
10,717,859
2,320,075
8,397,784
(1,299,439)
7,098,345
1,595,053
5,503,292
12,849
5,490,443
2013
Total operating revenues
Total cost and expenses, excluding depreciation and
amortization
Other income/(expense) - net
Equity share in net income of associates
Others
EBITDA
Depreciation and amortization
Income before other income/expenses
Interest income/(expense) - net
Income before income tax
Provision for income tax
Net income
Non-controlling interests
Net income attributable to MWC
424,763
(18,373)
87,213
(105,586)
929,613
174,688
754,925
(261,136)
493,789
216,520
277,269
15,350
261,919
%
9%
10%
-5%
42%
-57%
9%
8%
9%
20%
7%
14%
5%
119%
5%
Manila Water posted P5,752 million in net income for the year 2013, 5% higher than the P5,490 million
recorded the previous year. Consolidated operating revenues reached P15,926 million, or 9% higher
year-on-year. The increase was driven largely by the continued expansion in the East Zone, with the
1.5% billed volume growth and 2% improvement in average effective tariff resulting from the CPI
adjustment of 3.2% implemented at the beginning of the year. The contribution from the domestic
operating subsidiaries amounting to P957 million, higher by 30% year-on-year, also helped improve the
growth in revenues.
A breakdown of the revenue drivers is shown below:
For the years ended December 31
Water
Environmental charges
Sewer
Revenue from management contracts
Other operating income
Total operating revenues
2013
11,995,693
2,250,483
396,664
174,939
1,108,038
15,925,817
(in thousand Pesos)
Increase/
2012
(Decrease)
11,491,724
503,969
2,236,951
13,532
390,635
6,029
169,450
5,489
264,308
843,730
14,553,068
1,372,749
%
4%
1%
2%
3%
319%
9%
52
The Group derived 75% of its operating revenues from water bills, while 17% came from environmental
and sewer charges. Other revenues, which accounted for the balance of 8%, were from connection fees,
management contracts in Vietnam, and septic sludge disposal, among others. The Company realized
income from reconciliation of service connection costs amounting to P609 million, helping boost other
operating income.
On the other hand, consolidated operating costs and expenses (excluding depreciation and amortization)
rose by 10% to P4,654 million in 2013. Non-personnel costs led the growth with an increase of 19%.
Overhead, in particular, rose by 30% as higher management and professional fees were incurred during
the period arising from the ongoing arbitration proceedings with MWSS. This will be discussed in more
detail in the East Zone Concession section. Higher non-personnel costs were however tempered by lower
salaries, wages and employee benefits which dropped by 8% as the Company continued to benefit from
the manpower restructuring program initiated in 2012.
Below is a summary of the operating expenses incurred during the period:
For the years ended December 31
Salaries wages and employee benefits
Non personnel costs
Direct costs, materials and supplies
Overhead
Premises
Other expenses
Total operating expenses
2013
1,258,241
3,152,824
1,302,190
1,676,804
173,831
242,544
4,653,609
(in thousand Pesos)
Increase/
2012
(Decrease)
1,373,488
(115,247)
2,639,405
513,419
1,196,637
105,553
1,285,965
390,839
156,803
17,028
215,953
26,591
4,228,846
424,763
%
-8%
19%
9%
30%
11%
12%
10%
Meanwhile, other income (net of expense) decreased by 5% to P375 million from P394 million in 2012.
The two bulk water companies in Vietnam, Thu Duc Water and Kenh Dong Water, contributed
P294 million in net income, growing by 42% from the previous year.
The movements in revenues and operating expenses, together with other income that decreased by 5%,
resulted in a consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) of
P11,647 million in 2013, growing by 9% from the previous year. EBITDA margin was maintained at
73%.
53
BUSINESS SEGMENTS’ FINANCIAL AND OPERATING PERFORMANCE
Results of operations detailed as to business segment are shown below:
For the years ended December 31
(in thousand Pesos)
Revenue
Operating expenses
Operating income
Revenue from rehabilitation works
Cost of rehabilitation works
Interest income
Interest expense
Share in equity income of associates
Others
Income before income tax
Provision for income tax
Net income
Other comprehensive income
Unrealized loss on AFS financial assets
Cumulative translation adjustment
Actuarial loss on pension liabilities - net
Total comprehensive income
East Zone
14,794,066
6,421,361
8,372,705
4,177,636
(4,177,636)
152,614
(1,671,312)
6,039
6,860,046
1,757,536
5,102,510
Operating Management
Subsidiaries
Contracts Consolidated
956,812
174,939
15,925,817
630,798
96,213
7,148,372
326,014
78,726
8,777,445
893,622
5,071,258
(893,622)
(5,071,258)
20,211
172,825
(62,088)
(1,733,400)
293,975
293,975
75,250
81,289
653,362
78,726
7,592,134
54,037
1,811,573
599,325
78,726
5,780,561
(18,568)
(66,233)
5,017,709
127,109
(1,462)
724,972
78,726
(18,568)
127,109
(67,695)
5,821,407
5,017,709
5,017,709
696,870
28,102
724,972
-
5,714,579
28,102
5,742,681
Segment assets, exclusive of deferred assets
Investments in associates
Deferred tax assets
60,651,146
781,409
61,432,555
6,479,136
4,708,207
40,331
11,227,674
197,296
197,296
67,327,578
4,708,207
821,740
72,857,525
Segment liabilities, exclusive of deferred liabilities
Deferred tax liabilities
38,388,811
38,388,811
3,390,062
3,390,062
24,595
24,595
41,803,468
41,803,468
4,856,870
2,298,103
32,677
1,388,686
196,660
22,968
-
6,245,556
2,494,763
55,645
Net income attributable to:
Equity holders of MWCI
Noncontrolling interest
Segment additions to equipment and SCA
Depreciation and amortization
Noncash expenses other than depreciaiton and amortization
54
The Group is comprised of the Metro Manila East Zone Concession, its operating subsidiaries and
management contracts secured outside of the service concession. The operating subsidiaries in the
Philippines include Boracay Island Water Company (“BIWC”), Clark Water Corporation (“CWC”) and
Laguna AAAWater Corporation (“LWC”). The Group also has a leakage reduction contract and stakes in
two bulk water suppliers in Ho Chi Minh City in Vietnam, namely Thu Duc Water BOO Corporation
(Thu Duc Water) and Kenh Dong Water Supply Joint Stock Company (Kenh Dong Water). Meanwhile,
contribution from the new project in the Province of Cebu will be recognized upon completion of the
transmission lines which is expected to be in the second quarter of 2014.
Net income in 2013 was derived largely from the East Zone Concession, accounting for 88% of the total.
Businesses outside the East Zone contributed the balance of 12% to consolidated net income.
East Zone Concession (“East Zone”)
For the years ended December 31
Increase/
(Decrease)
2013
2012
Operating Highlights
Billed volume (in million cubic meters)
Domestic
Semi-Commercial
Commercial
Industrial
Number of water connections
Non-revenue water
Financial Highlights (in thousand Pesos)
Revenues
Operating expenses
EBITDA
Net income
433.6
283.6
45.3
89.0
15.7
921,898
11.2%
14,794,066
4,123,258
10,670,808
5,102,510
427.3
278.2
43.0
92.4
13.8
896,148
12.2%
13,648,127
3,841,492
9,806,635
5,130,555
%
6.4
5.4
2.3
-3.3
1.9
25,750
-1.0%
1%
2%
5%
-4%
14%
3%
1,145,939
281,766
864,173
(28,045)
8%
7%
9%
-1%
East Zone’s billed volume, reported in millions of cubic meters (“mcm”), increased by nearly 1.5% in
2013. The number of water connections grew by 3% to 921,898 customers at the end of the period,
mostly from the expansion areas of Marikina, Pasig and Rizal. However, since the new connections were
mostly residential customers with relatively lower water usage, average consumption dropped by 2% to
43.1 cubic meters from 44.2 cubic meters in the previous year. The impact on tariff of the slight change
in customer mix biased towards residential customers was muted by the CPI adjustment of 3.2%
implemented at the beginning of the year resulting in a 2% improvement in average effective tariff.
Aside from the continued growth in residential customers, billed volume growth was also driven by the
improvement in semi-commercial accounts by 5% with the completion of new buildings and the
conversion of deep well users in the areas of Pasig and Taguig, as well as the 14% growth of industrial
customers. This was however tempered by the 4% decline in commercial accounts.
The level of system losses, as measured by the non-revenue water (“NRW”) ratio, improved to 11.2% at
the end of 2013 from 12.2% at the end of 2012. The NRW of the East Zone deteriorated in 2012 as a
result of the stabilization of the Company’s operational adjustment in the water flows from the primary
transmission lines going to the expansion areas of Marikina, Pasig, Rizal and some parts of Taguig to
service the demand of the existing and new customers.
55
Collection efficiency in 2013 was recorded at 101%, a significant improvement from the previous year’s
97%. However, average account receivable days rose to 20 days in 2013 from 17 days in 2012 as a result
of the longer reading and billing days following the implementation in August 2012 of a new meter
reading and billing system.
On 12 September 2013, MWSS released a new set of tariffs for the East Zone as part of the rate rebasing
review of Manila Water’s investment plan for the continuing provision of quality water supply and
wastewater services to its customers. MWSS determined a negative adjustment of 29.47% from Manila
Water’s 2012 average basic water charge, eliminating what the Company believes to be significant
programs for building and maintaining the water and wastewater systems in the East Zone.
Manila Water, on 24 September 2013, raised its objection by filing a Dispute Notice with the
International Chamber of Commerce, formally commencing the arbitration process which is a dispute
resolution mechanism outlined under the Concession Agreement. While awaiting the outcome of the
arbitration proceedings, existing tariffs as previously approved by the MWSS will be maintained in the
East Zone at present levels.
Boracay Island Water Company (“BIWC”)
For the years ended December 31
Operating Highlights
Billed volume (in million cubic meters)
Number of water connections
Non-revenue water
Financial Highlights (in thousand Pesos)
Revenues
Operating expenses
EBITDA
Net income
2013
2012
Increase/
(Decrease)
3.6
5,647
13%
3.1
5,288
14%
0.5
359
-1%
266,790
111,320
155,470
72,770
223,480
108,400
115,080
32,820
43,310
2,920
40,390
39,950
%
15%
7%
19%
3%
35%
122%
BIWC posted a 15% increase in billed volume in 2013 to 3.6 mcm from 3.1 mcm in the previous year on
the back of a 7% increase in water service connections and 13% growth in tourist arrivals that reached 1.4
million. With the continued improvement in network operations, the NRW level improved by one
percentage point to 13% in 2013 from 14% in the previous year.
The growth in billed volume coupled with higher average tariff led to a 19% improvement in total
revenues to P267 million. BIWC implemented its approved rate rebasing tariff adjustment in February
2013 resulting in an increase in average tariff of 6%. Operating expenses increased at a slower rate of 3%
to P111 million, corresponding to the higher water production and wastewater expansion, thereby
improving its EBITDA margin to 58% from 51% last year. Net income grew by 122% to P73 million as
higher depreciation and amortization charges were offset by lower interest expense and deferred tax
provision.
56
Clark Water Corporation (“CWC”)
For the years ended December 31
Increase/
(Decrease)
2013
2012
Operating Highlights
Billed volume (in million cubic meters)
Number of water connections
Non-revenue water
Financial Highlights (in thousand Pesos)
Revenues
Operating expenses
EBITDA
Net income
9.8
1,975
6%
335,612
167,483
168,129
85,627
9.0
1,913
12%
318,567
149,213
169,354
85,935
%
0.8
62
-6%
9%
3%
17,045
18,270
(1,225)
(308)
5%
12%
-1%
0%
CWC posted a billed volume growth of 9% to 9.8 mcm as it continued to connect new customers in its
concession area. Efforts to reduce non-revenue water resulted in significant results as the NRW level as of
the end of 2013 declined to 6% from 12% in 2012. Proper management of water levels and monitoring of
water pumping schedules led to the NRW improvement.
The increase in billed volume led to a revenue growth of 5% from P319 million in 2012 to P336 million
in 2013. Meanwhile, operating expenses increased by 12% to P167 million, thereby resulting in a slight
decline in EBITDA to P168 million. Net income of CWC reached P86 million in 2013, moving
sideways, as the higher depreciation was offset by lower interest expense during the year.
Laguna AAAWater Corporation (“LWC”)
For the years ended December 31
Increase/
(Decrease)
2013
2012
Operating Highlights
Billed volume (in million cubic meters)
Number of water connections
Non-revenue water
Financial Highlights (in thousand Pesos)
Revenues
Operating expenses
EBITDA
Net income
11.4
65,665
18%
332,308
132,174
200,134
107,539
8.1
42,343
25%
189,554
89,300
100,254
56,478
3.3
23,322
-7%
142,754
42,874
99,880
51,061
%
41%
55%
75%
48%
100%
90%
Billed volume of LWC grew by 41% to 11.4 mcm largely due to the additional service connections
totaling more than 23,000. LWC converted a number of residential subdivisions and commercial
accounts during year. The NRW ratio improved by seven percentage points to end 2013 at 18% from
25% the previous year with the completion of the pipe replacement projects in Cabuyao and leak repair
activities in the old Matang Tubig Spring transmission lines in late 2012.
Revenues grew by 75% in 2013 to P332 million as a result of the higher billed volume and average
effective tariff that went up by 8% to P21.07 per cubic meter with the improved share of commercial
customers in the mix. On the other hand, operating expenses grew at a slower rate of 48%, resulting in an
EBITDA growth of 100% to P200 million. Net income of LWC reached P108 million in 2013, growing
by 90% from the previous year.
57
On January 2, 2014, LWC signed an Asset Purchase Agreement with Laguna Technopark, Inc. for the
acquisition of the water reticulation and sewerage system of Laguna Technopark which is an industrial
estate located within the cities of Sta. Rosa and Binan in Laguna. LWC officially took over at the
beginning of 2014 as the exclusive water provider in the said industrial estate that is home to some of the
region’s largest and more successful light to medium non-polluting industries.
Thu Duc Water B.O.O Corporation (“TDW”)
For the years ended December 31
Increase/
(Decrease)
2013
2012
Operating Highlights
Billed volume (in million cubic meters)
Financial Highlights (in million VND)
Revenues
Operating expenses
EBITDA
Net income
in PFRS (in thousand Pesos)
Net income (49% contribution)
120.4
360,167
99,358
260,809
240,507
122.4
312,568
90,674
221,894
94,352
-2.0
47,599
8,684
38,915
146,155
%
-2%
15%
10%
18%
155%
216,301
TDW sold a total of 120.4 mcm in 2013, dropping by 2% from the 122.4 mcm billed volume the previous
year, due to the lower water intake of Saigon Water Corporation (SAWACO). The billed volume is
however still higher than the guaranteed minimum consumption of 300 million liters per day (mld) under
the bulk water supply take-or-pay arrangement with SAWACO.
Using Vietnamese Accounting Standards (VAS), revenues grew by 15% to VND360 billion despite the
slight decline of 2% in billed volume as SAWACO drew less water from TDW during the year.
Meanwhile, operating expenses went up by 10%, attributable to the increase in General and
Administrative Expenses. This led to a growth of 18% in EBITDA and 155% improvement in net income
to VND241 billion as the company booked lower interest expenses owing to the continued paydown of its
debt, and recognized deferred tax assets. In peso terms, the PFRS-translated income reflected in the
consolidated financial statements as Equity Share in Net Income of Associates amounted to P216 million,
equivalent to Manila Water’s 49% stake in TDW.
58
Kenh Dong Water Supply Joint Stock Company (“KDW”)
For the years ended December 31
Increase/
(Decrease)
2013
2012
Operating Highlights
Billed volume (in million cubic meters)
Financial Highlights (in million VND)
Revenues
Operating expenses
EBITDA
Net income
in PFRS (in thousand Pesos)
Net income (47% contribution)
20.6
200,383
58,162
142,221
79,929
%
-
76,653
KDW started commercial operations in July 2013, registering a billed volume of 20.6 mcm in the sixmonth period ending December. The billed volume started lower than the guaranteed minimum
consumption of 150 million liters per day (mld) under the bulk water supply take-or-pay arrangement
with SAWACO but improved to 150 mld in December 2013.
Using Vietnamese Accounting Standards (VAS), KDW posted revenues of VND200 billion and an
EBITDA of VND142 billion. Together with depreciation and interest expenses of VND62 billion, this led
to a net income of VND80 billion. Similar to TDW, income from KDW is translated into PFRS and is
reported as Equity in Net Earnings of Associates in the consolidated financial statements. In peso terms,
the PFRS-translated income of Manila Water’s 47% stake in KDW amounted to P77 million.
BALANCE SHEET
The consolidated balance sheet remained strong and prepared for expansion at the end of 2013. Strong
cash inflows brought about by the higher collection efficiency during the period and additional debt
brought cash and cash equivalents to P6.8 billion. Total assets rose by 9% to P72.9 billion as the
Company continued to lay additional capital investments on network, water and wastewater expansion
projects. Liabilities, on the other hand, rose by 4% to P41.8 billion due to new loan availments.
The Company continued to be compliant with the loan covenants, as the debt to equity ratio stood at
1.09x, excluding concession obligations. Meanwhile, net bank debt to equity registered at 0.64x.
CAPITAL EXPENDITURES
The Company’s East Zone spent a total of P4,682 million (inclusive of concession fee payments) for
capital expenditures in 2013, 35% less than the P7,215 million spent the previous year. The bulk of
capital expenditures was spent on network reliability, water supply and wastewater expansion projects,
which accounted for 76% of the total. The balance of 24% was accounted for by concession fees paid to
MWSS. Capital expenditures in 2013 were limited to on-going and service reliability projects in the
absence of an approved business and capital expenditure plan as part of the 2013 Rate Rebasing exercise.
Meanwhile, total capital expenditures of the subsidiaries amounted to P954 million, growing by 101%
from 2012. Of the total amount, 79% was used by Laguna Water for its network coverage expansion,
while the balance was disbursed by Boracay Island Water and Clark Water.
59
Material Changes (Increase or Decrease of 5% or more in the financial statements)
Income Statement Items (End 2013 vs. End 2012)
CONSOLIDATED REVENUE
Other operating income – 319% increase
Increase of P844 million was accounted for mainly by income realized from the liquidation of service
connection costs advanced by the Parent Company including the effect of change in the treatment of
service connection fees directly as revenue starting January 2013.
CONSOLIDATED OPERATING COSTS AND EXPENSES
Depreciation and Amortization –8% increase
Increase of P175 million arose from additional investments and capitalizations during the year,
particularly service concession assets consisting of pipe network extensions, treatment plants and pump
stations.
Salaries, allowance and benefits – 8% decrease
Decrease of P115 million was mainly attributable to the cost of the early retirement program implemented
in 2012, a non-recurring expense needed for organizational streamlining in that year.
Management, technical and professional fees – 46% increase
Increase of P184 million was accounted for by the cost of a one-time consultancy service for enterprise
transformation study and accrual of professional fees related to the on-going Rate Rebasing 2013
arbitration.
Repairs and maintenance – 16% increase
Increase of P50 million was attributable to the increase in maintenance activities brought about by the
expanding service coverage area including the commissioning of additional treatment and pumping
station facilities.
Contractual services – 50% increase
Increase of P73 million was due mainly to outsourcing of the Parent Company’s meter reading and billing
services and outsourced administrative support service.
Provision for probable losses – 102% increase
Increase of P87 million was mainly attributable to additional provision for various taxes in 2013.
Business meetings and representation – 21% decrease
Decrease of P34 million was due to higher representation activities in 2012 related to a major planned
acquisition.
Occupancy costs – 14% increase
Increase of P15 million was attributable to the deployment of additional security guards and janitors for
new facilities and the additional cost arising from the mandated increase in their minimum wage.
Wastewater costs – 27% increase
Increase of P18 million was mainly due to higher volume of desludged wastes from customers’ septic
tanks in 2013 compared to the volume in 2012.
60
Water treatment chemicals – 44% decrease
Decrease of P62 million was attributable to lower chemical usage this year due to lower water turbidity
and use of more cost efficient treatment chemicals.
Cost of inventory sold – 70% increase
Increase of P31 million was due to higher volume of materials withdrawn by contractors and other parties
during the year.
Transportation and travel – 12% decrease
Decrease of P9 million mainly represented full year savings in 2013 against 5 months reduction in
transportation expenses in 2012 due to outsourcing of meter reading services which started in August
2012.
Regulatory costs – 31% increase
Increase of P15 million was attributable to the cumulative effects of CPI adjustments on the operating
cost component of annual regulatory fees paid to the Metropolitan Waterworks and Sewerage System
(MWSS).
Insurance – 5% increase
Increase of P2 million pertains to higher property insurance premium paid on account of higher asset
base.
Postage, telephone and supplies – 41% increase
Increase of P15 million was due to the upgrade of communication network and systems necessitated by
the expanding business operations.
Reversal of prepaid transaction costs – 100% increase
This is a non-recurring item in which the increase of P33 million was a reclassification to operating
expense of prepaid loan arrangement fees related to an expansion project which did not materialize.
Advertising -15% increase
Increase of P3 million was due to additional cost to run waste water advocacy programs and higher
promotional and marketing costs in support of the launch of the new Manila Water brand and logo.
Cost of new market development – 293% increase
Increase of P6 million was on account of the continued pursuit of new businesses.
Premium on performance bond – 18% increase
Increase of P1 million was due to a higher premium rate on the stand-by letter of credit guaranteeing the
Parent Company’s performance under the Concession Agreement with MWSS.
Other expenses – 113% increase
Increase of P90 million was attributable to higher overhead cost and miscellaneous expenses necessitated
by the expanding service area and increased operational activities.
61
OTHER INCOME (EXPENSES)
Interest income – 35% decrease
Decrease of P92 million was driven by lower investment in Available-for-sale Financial Assets (AFS) and
lower interest rates in 2013.
Amortization of deferred credits – 21% increase
Increase of P1 million was the result of higher unamortized discounts of customers’ guaranty deposits in
2013.
Interest expense – 11% increase
Increase of P169 million was mainly due to cessation of capitalization of the interest expense related to a
concession (MWSS) loan. The loan was utilized for the activities related to the Angat Water Utilization
Improvement Project which was completed in 2012.
Equity share in net income of associates – 42% increase
Increase of P87 million was due to higher net income generated by associates in Vietnam, namely Thu
Duc Water B.O.O., Kenh Dong Water Supply Joint Stock Company and a new associate, Saigon Water
Infrastructure Corporation, which was acquired in October 2013.
Gain on disposal on property and equipment – 100% decrease
Decrease of P4 million was due mainly to fewer disposals of property and equipment in 2013.
Gain on disposal on AFS –100% decrease
Decrease of P13 million was mainly attributable to the liquidation or sale of majority of AFS in 2012.
Gain (loss) on revaluation of receivable from Bonifacio Water Corporation – 101% decrease
Decrease of P115 million was due to lower revalued receivables as of December 31, 2013 on account of
non-implementation of projected tariff increase as a result of delay in the completion of the rate rebasing
review.
Other income – 125% increase
Increase of P39 million was mainly attributable to indemnity income from Kenh Dong Water Holdings,
Pte. Ltd. related to the delayed start of operations of Kenh Dong Water Supply Joint Stock Company.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (END 2013 vs. END 2012)
Cash and cash equivalents – 22% increase
Increase of P1,240 million mainly came from the proceeds of the Parent Company’s P5 billion loan from
Metrobank and the return of escrow account from Other Current Assets.
Short-term cash investments – 100% increase
Increase of P94 million represented money placements during the year while awaiting disbursements for
projects.
Concession financial receivable – current portion – 100% increase
Increase of P77 million represented current portion of a recognized receivable of Cebu Manila Water
Development, Inc.’s (CMWD) from Metropolitan Cebu Water District (MCWD) by virtue of the
application of the financial asset model under IFRIC12, Service Concession Arrangements. This is based
62
on the Notice of Award for the supply of bulk water issued by MWCD to CMWD following which,
CMWD and MCWD signed on December 18, 2013 a 20-year Bulk Water Supply Contract for the supply
of 18 million liters per day of water for the first year and 35 million liters per day of water for years two
to twenty.
Materials and supplies – at cost – 7% decrease
Decrease of P8 million was mainly due to lower stock purchases for chemical inventories, water meter
and service connection supplies during the year.
Other current assets – 44% decrease
Decrease of P493 million pertains mainly to the return to Cash and Cash Equivalents of the escrow
deposit intended for a new business acquisition.
Property, plant and equipment (net) – 12% decrease
Decrease of P279 million was mainly due to reclassification of certain components of the “Land” account
to Service Concession Assets, being part of an on-going project.
Service concession asset (net) – 8% increase
Increase of P3,828 million was the net effect of additional capital expenditures and amortizations during
the year.
Available for sale financial assets (AFS) – 79% decrease
Decrease of P389 million was due to the maturities and sale of investments in 2013.
Investment in associates – 29% increase
Increase of P1,063 million was mainly attributable to acquisition of shares in Saigon Water Infrastructure
Corporation and equity pick-up in net earnings of Thu Duc Water B.O.O., Kenh Dong Water Supply Joint
Stock Company and Saigon Water Infrastructure Corporation.
Concession financial receivable – net of current portion – 100% increase
Increase of P604 million represented first-time take-up of CMWD’s financial receivable as a result of the
signing of the Bulk Water Supply Contract with MCWD in 2013 (non-current portion).
Other noncurrent assets – 8% increase
Increase of P59 million was accounted for mainly by deferred FCDA on account of foreign exchange
losses during the last quarter of 2013, recoverable through water tariff adjustment.
Current portion of long term debt – 56% decrease
Decrease of P2,374 million was mainly due to the settlement during the year of peso-loan maturities
under bullet payment term.
Current portion of service concession obligation – 54% increase
Increase of P450 million was accounted for by maturing concession loans and the new MWSS loan used
for the Angat Water Utilization Improvement Project.
Income tax payable – 13% increase
Increased of P63 million was on account of higher revenues during the period.
Payable to related parties – 404% increase
Increase of P111 million was accounted for by Manila Water Consortium’s shareholder loan from
Metropac Water and VICSAL in 2013.
63
Long term debt- net of current portion – 23% increase
Increase of P4,554 million was mainly attributed to the loan availment of the Parent Company from
Metrobank amounting to P5 billion in 2013.
Deferred tax liability – 100% decrease
Decrease of P0.16 million was due to lower amortization expense differential and deferred taxes arising
from other comprehensive income relating to the re-measurement effects on defined benefit plans under
PAS 19.
Provisions for probable losses – 16% increase
Increase of P116 million pertains to accrual of various taxes for the year. Said taxes are either pending
decision by the courts or being contested.
Other noncurrent liabilities – 52% decrease
Decrease of P1,048 million was mainly accounted for by deferred FCDA due to the implementation of
negative FCDA effective July 2013 and liquidation of collected service connection costs.
Subscriptions receivable – 28% increase
Increase of P62 million was due to subscriptions made under the 2013 ESOWN grant.
Unappropriated Retained earnings – 28% increase
Increase of P3,847 million was on account of net income generated in 2013, net of cash dividends paid.
Unrealized gain on available for sale financial asset – 85% decrease
Decrease of P19 million was due to investment maturities and sale of AFS financial assets in 2013.
Remeasurement gain (loss) on defined benefit plans – 93% increase
Increase of P68 million pertains to re-measurement loss adjustments on valuation of pension liabilities in
accordance with PAS 19, Employee Benefits.
Cumulative translation adjustment – 1433% decrease
Decrease of P127 million was attributable to the exchange differences arising from the translation of
Manila Water Asia Pacific Pte., Ltd.'s books from Singapore Dollar into Philippine Peso which was
stronger at year-end 2013.
Non-controlling interest – 116% increase
Increase of P310 million was attributable to higher net income of subsidiaries where MWC has noncontrolling interests and the decrease in ownership in MW Consortium in 2013 from 84% to 51%.
RESULT OF OPERATIONS (2012 vs. 2011)
Operational Performance
Consolidated
Consolidated billed volume for 2012 reached 579.4 million cubic meters (“mcm”), a 38% growth from
the figure in 2011. The growth in billed volume was due to the increase in coverage in the expansion
areas of the East Zone, as well as the increase in billed volume from the operating subsidiaries.
64
The East Zone Business Operations (“EZBO”), which continues to be the Company’s biggest contributor,
accounted for 74% of the consolidated billed volume or 427.3 mcm. Sales volume was 4% higher from
last year’s 411.6 mcm billed volume. The growth was attributed to the increase in coverage in the
expansion areas of Marikina, Pasig and Rizal, and the higher consumption of semi-commercial and
industrial accounts. The growth in sales volume was partly driven by the 4% increase in service
connections to 896,148. The level of systems losses in the East Zone, as measured by its non-revenue
water (“NRW”) ratio slightly declined to 12.2% from last year’s level of 11.2%. This was attributed to
system adjustments implemented during the last quarter of the year. The areas in Rodriguez and San
Mateo which were previously supplied by deep wells were transferred to the North Rizal System as the
newly built East La Mesa Treatment Plant has been commissioned. Operational adjustments will
continue until the first quarter of 2013 where the distribution system will be normalized. The Company
considers an NRW level of around 10-12% as the optimal level given current operating conditions.
Boracay Island Water Company, Inc. (“BIWC”), Clark Water Corporation (“CWC”), Laguna AAAWater
Corporation (“LWC”) and Thu Duc Water B.O.O Corporation (“TDW”) contributed a total of 152.1
mcm, which accounted for 26% of the consolidated billed volume in 2012. This was a significant
improvement from last year’s 8.2 mcm, with the addition of full year sales volume of CWC and the 13month recognition of sales volume of TDW.
East Zone’s capital expenditures for the year 2012 reached PHP7,696 million. On the other hand, BIWC,
CWC and LWC disbursed PHP205 million, PHP34 million and PHP227 million on capital expenditures,
respectively.
Capital investment projects in the East Zone were directed towards ensuring the reliability of water
supply and the expansion of water and wastewater services. Reliability projects, which consist of water
supply, network, wastewater and natural calamity projects, accounted for 26% or PHP1,971 million.
Projects for expansion, consisting of new water sources, network and wastewater projects, accounted for
62% of total or PHP4,797 million. The balance of PHP928 million was spent on concession fee payments
and purchase of materials for on-going projects.
One of the key projects completed in 2012 was the North Rizal Water System Project, which includes the
150-million-liters-per-day (“mld”) Rodriguez Water Treatment Plant, two reservoirs, water transmission
lines and distribution network. This will serve a population of over 940,000 in the municipalities of
Montalban and San Mateo. These areas have been previously dependent on deep wells as their main
water source. The plant was inaugurated last September 28, 2012.
The Company has been adhering to world-class water quality standards since 1998. The water quality in
the East Zone has been surpassing the Philippine National Standards for Drinking Water, which is based
on the World Health Organization’s water quality guidelines. Samples are collected regularly on a
monthly basis for bacteriological examination of treated surface water and ground water resources from
its treatment plants and from its distribution lines. Likewise, wastewater effluent quality is being
monitored on a regular basis to ensure that they pass the standards set by the Laguna Lake Development
Authority (“LLDA”) and the Department of Environment and Natural Resources (“DENR”).
Manila Water has enhanced its Business Continuity program to ensure the preparedness of the
organization for natural events, such as flooding and earthquake. This was done through the acquisition
of new equipment, conducting drills and re-defining roles and responsibilities within the organization.
On several occasions, the Company was requested by the government to respond to calamity-stricken
areas outside of the East Zone. Help was extended to typhoon damaged provinces such as Davao and
Cagayan De Oro, by providing the affected communities with potable drinking water using its mobile
water treatment facilities.
65
Operating Subsidiaries and Projects
BIWC’s billed volume improved by 26% to 3.1 mcm this year, from 2.5 mcm in 2011. Sales volume
increased on the back of the growth in both residential and commercial accounts, as well as the increase
in tourist arrivals by 33% from 908,874 in 2011 to 1,206,252 in 2012. Effective tariff slightly increased
by 2% to PHP58.8 per cu. m. from PHP57.3 per cu. m. in 2011. NRW ratio improved by 9 percentage
points at the current NRW level of 14.3% from 22.9% NRW level in 2011, due to efficient water supply
management and leak repair activities.
CWC generated a year-to date December 2012 sales volume of 9.0 mcm, which was 14% higher than the
billed volume of the same period last year. Note however that in 2011, the Company recognized only the
billed volume generated in December. The 14% growth was due to the additional commercial and
industrial locators in 2012, which accounted for 83% of CWC’s total billed volume. Full-year average
effective tariff slightly improved to PHP35.0 per cu. m. in 2012 from PHP34.6 per cu.m. last year.
CWC’s water service connections grew by 1% to 1,913 accounts. The NRW ratio for CWC improved by
two percentage points to 12% from 14% last year due to network upgrades, effective supply management
and the completion of the repair of a major leak in June 2012.
LWC’s billed volume increased by 63% to 8.0 mcm from 4.9 mcm in 2011. This was due to the increase
in water consumption by existing customers coupled with new water service connections as a result of the
completion of LWC’s expansion projects in Biňan and Sta. Rosa. Average effective tariff improved by
13% to PHP19.5 per cu.m. from PHP17.2 per cu.m. in the previous year . The growth in billed volume
was mainly driven by a 44% increase in the number of water connections to 42,243 from 29,235 last year.
The NRW ratio improved to 25% in 2012 from 38% in 2011 due to major rehabilitation projects of the
Matang Tubig Spring pipelines, extensive leak repair and the completion of pipe replacement projects.
For the period December 2011 to December 2012, TDW sold 132.0 mcm, equivalent to 362.0 mld. This
is higher by 21% from the guaranteed volume of 300 mld for the year under the contract with SAWACO.
Almost a year after the purchase of 49% stake of TDW, the Company further enhanced its position in
Vietnam by completing the acquisition of 47.35% stake in Kenh Dong Water Supply Joint Stock
Company (”KDW”) in the third quarter of 2012. KDW is another Vietnamese bulk water supplier in Ho
Chi Minh City. The 200 mld capacity treatment plant is currently under construction and will be
completed and operational by the second quarter of 2013.
The Company also signed a Joint Investment Agreement with the Provincial Government of Cebu for the
development and operation of a bulk water supply system during the first quarter of 2012. The
construction of the 35-mld capacity treatment plant and transmission lines is on-going and is expected to
be completed in the fourth quarter of 2013.
In October 2012, the Company signed a share purchase agreement to acquire 51% shares of Suez
Environnement in PT Pam Lyonnaise Jaya (“PALYJA”), the west concessionaire of Jakarta subject to the
fulfilment of conditions which includes government and regulatory approvals. Similar to Manila Water,
the Jakarta concession was privatized in 1997. It currently has over 414,000 water service connections
and produces 702 mld of water with an estimated NRW of 39%. The transaction is expected to be closed
by mid-April 2013.
66
Financial Performance
Consolidated
The Company closed 2012 with a consolidated net income of PHP5,440 million, a 28% increase from last
year’s PHP4,266 million. The increase in net income is partly due to the first time recognition of income
contribution by the Company’s new acquisitions namely, Thu Duc Water BOO Corporation and Kenh
Dong Water Joint Stock Company with a total amount of PHP207 million. Consolidated return on equity
increased to 20% from 19% in the previous year, and net income margin improved to 37% from 36% the
previous year.
The Company registered consolidated revenues of PHP14,553 million in 2012, a 21% year-on-year
growth from the PHP12,004 million revenues generated in the previous year. Core revenues (composed of
water, environmental and sewer revenues) amounted to PHP14,119 million, 21% higher than that of last
year. The Company also recognized PHP169 million of revenues from management contracts in Vietnam
this year. Other income at PHP264 million was higher relative to 2011’s PHP134 million due to the
recognition of PHP102 million in additional income from the reconciliation of the trust liability account.
Other income also included revenues recognized from inventories purchased by subsidiaries, reopening
fees, and fees collected from septic sludge disposal and bacteriological water analysis.
Consolidated operating expenses amounted to PHP4,306 million in 2012, a 20% increase from last year’s
PHP3,599 million. The growth was largely a result of increases in personnel costs (19%); power, light
and water (16%); water treatment chemicals (53%); management, technical and professional fees (28%);
repairs and maintenance (48%); regulatory costs (73%) and taxes and licenses (64%).
The significant increase in manpower cost was due to the organizational re-structuring program
implemented by the Company to achieve higher productivity and further improve efficiency. Excluding
the impact of this initiative, the increase in total operating cost was at 12%. The increase in management
and professional fees was due to the consultants engaged for various initiatives, such as rate rebasing
preparation. All other expenses mentioned grew with the expansion in water and wastewater services.
Earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to PHP10,641 million
in 2012, 30% higher than last year’s PHP8,190 million due to higher revenues and improved operating
efficiencies in investments in and outside the East Zone. The 2012 figure included a PHP207 million
additional revenue from equity share in net income of associates, as well as the PHP187 million gain from
rehabilitation works, foreign currency differentials and other income, bringing the EBITDA margin to
73%, 5 percentage points higher compared to last year’s 68%.
Consolidated interest expense decreased to PHP1,539 million in 2012, 6% lower than last year’s expense
of P1,629 million due to the prepayment of the PHP4 billion bonds in September 2011. Similarly, interest
income declined by 53% to PHP265 million, which resulted to a 20% increase in net interest expense.
The Company’s financial position remained solid as total assets grew by 10%, reaching PHP67,127
million as of December 31, 2012. The PHP6,230 million growth in total assets was due to the additional
capital investments in major water and wastewater system projects, incessant expansion in the East Zone,
and the continual growth of the Company’s operating subsidiaries.
By the end of 2012, total cash reserves (including short term cash investments and investments in
marketable securities held as available-for-sale financial assets) amounted to P6,034 million, 16% lower
than last year’s level of PHP7,205 million, reducing current ratio to 0.8x from 1.2x in 2011. Average
days in receivables rose to 17 days from 14 days last year, as collection efficiency declined to 97.3% from
67
100%. This is due to the adjusted number of reading days during the transition to the new meter reading
and billing system which was implemented on the second half of the year.
Long-term debt in 2012 increased to PHP24,071 million from PHP23,268 million in the previous year.
As of end December 2012, 53% of the Company’s total long-term debt was in Philippine Pesos, while the
rest was denominated in US Dollars and Japanese Yen. The Company has the right to recover foreign
currency losses resulting from its foreign currency denominated loans used to finance its capital
investments in the East Zone. Fixed rate loans account for approximately 61% of the Company’s total
direct borrowings amounting to PHP14.5 billion. The Company’s debt-equity ratio (total liabilities net of
service concession obligations) declined to 1.19x in 2012 from 1.32x in 2011.
Stockholders’ equity increased by PHP4,086 million as a result of higher retained earnings. Consolidated
basic earnings per share is higher at PHP2.21 per share versus last year’s P1.74, while consolidated
diluted earnings per share also increased to PHP2.21 per share from PHP1.73 a year ago.
Cash and cash equivalents balance as of end December 31, 2012 reached PHP5,540 million, higher by 6%
from last year’s cash balance. Consolidated net cash generated from operations reached PHP3,164 million
for the year, which was due to higher operating income. Consolidated net cash used in investing activities
reached PHP663 million mainly due to increase in cash investments. Consolidated net cash used in
financing activities amounted to PHP2,196 million as more than 99% of that amount was utilized to pay
dividends, long-term debts, service concession obligations and interests.
Operating Subsidiaries
BIWC’s revenues in 2012 reached PHP224 million, a 22% increase from last year’ PHP183 million. The
increase in revenue was mainly from water revenues, which grew by 29% compared to the previous year.
Water revenues, which accounted for 83% of the total revenues in 2012, rose due to the growth in billed
volume and increase in number of connections. EBITDA grew by 14% to PHP113 million on the back of
the 22% growth in revenues and 32% increase in total costs and expenses. EBITDA margin slightly
dropped to 51% from 54% margin last year due to the spike in overhead cost for 2012. Net income
margin improved to 15% from 11% in 2011 due to higher revenues.
Full-year revenues of CWC reached PHP319 million, which was 14% higher than the full-year 2011
revenues of PHP278 million. The growth came from the 16% and 14% increase in water and wastewater
revenues, respectively, but was partly offset by the 31% decline in other income. The operating expenses
for the full-year 2012 decreased by less than 1% to PHP142 million. The EBITDA for the year 2012
increased by 21% reaching PHP 168 million, which brought EBITDA margin to 53% from 49% in 2011.
The full-year net income increased by 20% to PHP86 million from PHP71 million in 2011.
Total revenues of LWC grew by 97% to PHP190 million from PHP96 million last year. The growth in
revenues was driven by the improvement in water sales due to an increased number of water service
connections with the realization of expansion projects in Biňan and Sta. Rosa. Operating expenses
reached P89 million, a 33% increase from last year’s PHP67 million. EBITDA rose by 243% in 2012
despite a 33% year-on-year increase in operating cost. This brought EBITDA margin to 53% from 30%
in 2011. Net income for the year reached PHP57 million from PHP21 million, an improvement of 165%
compared to that of last year.
TDW’s net income contribution as of yearend 2012 was at PHP165 million. This is based on
International Financial Reporting Standards (IFRS) translated financial statements from the Vietnamese
Accounting Standards (VAS) as previously reported.
68
Material Changes (Increase or Decrease of 5% or more in the financial statements)
Income Statement Items (End 2012 vs. End 2011)
CONSOLIDATED REVENUE
Water revenue – 18% increase
Increase of 18% was due to the 38% growth of billed volume from 2011. Billed volume reached 579.4
million cubic meters (“mcm”) due to the increase in coverage in the expansion areas of the East Zone as
well as the increase in billed volume from the operating subsidiaries.
Environmental charges – 33% increase
Revenues from environmental charges increased due to the upward adjustment in the environmental
charge from 18% to 20% of the East Zone customers’ basic water bill.
Sewer revenue – 23% increase
Sewer revenue increased by 23% driven in part by the increase in sewer connections, from 99,300 in 2011
to 109,700 in 2012 and tariff adjustments.
Other operating income – 97% increase
Other income increased by PHP130 million or 97% due to the recognition of PHP102 million in
additional income from the reconciliation of the trust liability account for the year-ended 2012.
CONSOLIDATED OPERATING COSTS AND EXPENSES
Depreciation and Amortization – 23% increase
Depreciation and amortization increased by 23% to PHP2,320 million due to the additional amortization
arising from the capitalization of completed projects during the period.
Salaries, allowance and benefits – 19% increase
The increase of PHP227 million was largely due to the payment of the manpower restructuring program
expenses of the Company in the third quarter of 2012.
Power, light and water – 16% increase
The increase of 16% was due to the increase in power consumption from new water and wastewater
facilities, increase in effective cost per kwh compared to the same period last year, and the consolidation
of the newly acquired Clark Water Company.
Repairs and maintenance – 48% increase
The increase was due to the recognition of expenses previously capitalized related to network
improvement, including the cost of repairs of tertiary pipelines (300mm and below) in the eight business
areas.
Management, technical and professional fees – 28% increase
The increase was due to the consultancy services for the 2013 Rate Rebasing consultants and the
adjustment of the Board of Directors’ remuneration.
69
Water treatment chemicals – 53% increase
The higher water treatment chemicals was due to increased requirement for alum caused by quality of raw
water drawn from the La Mesa bypass during the period and additional requirements for wastewater
treatment.
Collection fees – 8% decrease
The decrease was due to decrease in collection efficiency, from 100% in 2011 to 97.3% in 2012.
Occupancy Costs – 6% increase
This was due to the deployment of additional security guards and janitors in the new and upcoming water
and wastewater facilities, as well as the increase in insurance expense.
Wastewater costs – 16% decrease
The decrease of 16% was due to lower volume of desludged waste from septic tanks in the current year
compared to the volume in 2011.
Regulatory costs – 73% increase
The increase was due to the compounded CPI adjustments charged to operating expense computed on the
base regulatory fee of PHP396 million.
Insurance – 50% increase
The increase of PHP16.7 million was due to higher premium on insurance for sabotage and terrorism,
comprehensive general liability, and industrial all risk policy which cover buildings, machinery, furniture
and fixtures.
Transportation and travel – 18% decrease
The decrease of 18% or PHP16.5 million was due to lower transportation expense billed by the Group’s
outsourced meter readers from Indra Philippines from September to December 2012.
Postage, telephone and supplies – 5% increase
The increase was due to additional requirements for radios and communication devices for employees due
to business expansion of water and wastewater units.
Taxes and licenses – 64% increase
The increase was due to the additional business taxes and permits paid on account of a higher revenue
base.
Business meetings and representation – 40% increase
This was due to the increase in various activities to support the business expansion programs of the
Company.
Advertising – 33% decrease
The decrease was attributable to lower promotional and marketing expenses which are related to key
accounts management.
Premium on performance bond – 29% decrease
The decrease was a result of lower premium rate for the applicable period.
70
OTHER INCOME (EXPENSES)
Interest income – 53% decrease
The decrease in interest income was driven by lower interest rates in 2012.
Interest expense – 6% decrease
Interest expense decreased to PHP1,539 million in 2012, 6% lower than last year’s expense of PHP1,629
million due to the prepayment of the company’s PHP4 billion bond issue in September 2011.
Equity share in net income of associates
In 2012, the Group’s equity share in net income of associates amounted to PHP164.5 million and
PHP42.26 million from Thu Duc Water and Kenh Dong Water Supply Joint Stock Company,
respectively.
Gain (loss) on disposal on AFS – 9% increase
The gain was attributable to the disposal made in 2012 amounting to book value of PHP800 million.
Gain (loss) on disposal on PPE – 6,145% increase
In 2012, the Group had a gain on disposal of property, plant and equipment amounting to PHP4 million.
This was related to PPE disposal of PHP20 million (cost) and accumulated depreciation of PHP18
million.
Gain on revaluation of receivable from Bonifacio Water Corporation
In 2012, the Group recognized gain amounting to PHP113.49 million that was derived from the change in
the forecasted collections and the actual collections made.
CONSOLIDATED BALANCE SHEET (END 2012 vs. END 2011)
Cash and cash equivalents – 6% increase
Cash and cash equivalents as of December 31, 2012 stood at PHP5.54 billion, increasing by PHP305
million or 6% due to the net effect of additional loan drawdown from NEXI amounting to PHP1.3 billion,
cash generation through investment liquidation coupled by a lower-than-budget achievement in capital
expenditure disbursement. The increase in cash was invested in short-term money market instruments and
is included as part of cash equivalents.
Short-term cash investments – 100% decrease
The decrease in short-term cash investments of PHP658 million was due to the redemption of the
investments that matured during the period.
Receivables (net) – 49% increase
Receivables had an increase of PHP479 million or 49% as a result of higher billed volume.
Other current assets – 33% increase
The increase of PHP276 million in other current assets pertain mainly to the 15% deposit made for the
purchase price of PT PAM Lyonnaise Jaya (PALYJA), the Indonesian Water concessionaire for the West
Zone of Jakarta and held by an escrow agent.
Property, plant and equipment (net) – 11% increase
The increase was mainly due to the PHP627 million gross additions during the year.
71
Service concession asset (net) –11% increase
Service concession assets increased to PHP50,754 million. This is higher by PHP5,058 million (net of
amortizations) than the end of 2011 level which includes the capitalization of projects completed during
the year.
Available for sale financial assets (AFS) – 62% decrease
The decrease was due to the matured AFS amounting to PHP800 million in acquisition cost.
Deferred tax asset – 9% increase
Deferred tax assets increased in relation to the increase in deferred tax benefit during the period. This was
caused by the increase in net temporary differences arising from service concession assets, service
concession obligation and deferred FCDA.
Investment in associates – 104% increase
The increase was mainly attributable to the additional investment in associates of PHP1,857 million.
Other noncurrent assets – 43% decrease
The decrease of 43% was mainly due to the recovered amounts from customers amounting to PHP742.6
million for realized losses attributable to the payments of foreign loans based on the difference between
the drawdown or rebased rate versus the closing rate at payment date.
Accounts and other payables – 13% increase
The increase was due to higher volume of payables to contractors and suppliers.
Current portion of long term debt – 248% increase
The movement in this account was due to the additional current portion from the USD 30 million NEXI
loan availed during the period, amounting to PHP79.2 million (USD 1,875 million) and the current
portion from the outstanding loans maturing one year from the balance sheet date.
Current portion of service concession obligation – 14% decrease
The 14% decrease was brought by the payment of PHP1,287 million in 2012, this was higher compared to
payment made in 2011 amounted to PHP1,140 million.
Income tax payable – 144% increase
Income tax payable increased on account of provision for income tax during the period.
Payable to related parties – 73% decrease
The decrease was due the settlement of claims for the year-ended December 31, 2012.
Long term debt- net of current portion – 10% decrease
The movement in this account was due to the net effect of additional loan availed during the year
amounting to PHP2,913 million, payment of PHP1,110 million and the effect of foreign exchange rate
from revaluation and accretion of transaction costs in 2012.
Service concession obligation- net of current portion – 6% increase
The increase of 6% or PHP455 million was mainly brought by the recognition of additional PHP1,085.50
million due to MWSS repayment of the Export-Import Bank of China loan and revaluation of foreign
denominated loans due to the fluctuation of foreign exchange rate from USD 1 = PhP 43.84/JPY 1 = PhP
0.5621 on December 31, 2011 to USD 1 = PhP41.05/JPY 1 = PhP 0.47704 on December 31, 2012.
72
Pension liabilities – 27% decrease
The decrease was due to lower accrual of pension liability based on the result of the latest actuarial study.
Deferred tax liability – 26% decrease
The decrease of 26% was due to higher amortization expense differential. The Group recognized
PHP1.245 million in 2012 and PHP1.151 million in 2011.
Other noncurrent liabilities – 24% increase
The increase of 24% was attributable to the customers guaranty deposits and other depository liabilities.
Subscriptions receivable – 59% increase
This was due to subscriptions made for the 2012 ESOWN
Common stock options outstanding – 35% decrease
The decrease was due to the cancellation of shares of grantees who resigned before the expiration of the
3-year holding period.
Retained earnings – 24% increase
Increase in appropriated retained earnings represents the net income for 2012 net of cash dividends paid.
Unrealized gain on available for sale financial asset – 53% decrease
The decrease was due to the change in the treatment of realized gains/ losses on valuation of AFS. These
are now charged to the profit and loss account instead of equity.
Other equity reserves – 100% increase
The group recognized PHP7.5 million of other equity reserves in 2012 which pertains to the dilution in
NWRC.
Cumulative translation adjustment – 17% decrease
The movement was attributable to the exchange differences arising from the translation of Manila Water
Asia Pacific Pte., Ltd.'s books from Singapore Dollar into Philippine Peso.
Treasury shares at cost – 100% decrease
Preferred shares previously held in treasury amounting to PHP500 million was retired during the year.
Non-controlling interest – 52% increase
This was attributable to the Group’s non-controlling ownership in the equity shares of its subsidiaries.
73
Risks Disclosure
2014 TOP CORPORATE RISKS
EAST ZONE BUSINESS
ENVIRONMENT
Failure to adapt to the changing
business environment in the East
Zone as a result of market saturation,
increasing cost of operations and
increasingly demanding political and
consumer environment.
INVESTMENT PLAN
EXECUTION
Failure to meet CAPEX targets
within the approved cost, time and
quality.
REGULATORY
Failure
to
meet
regulatory
requirements
and
manage
threats/changes to such requirements
which may adversely affect the
organization.
WATER SUPPLY
Failure to ensure adequacy and
reliability of raw water supply.
NEW BUSINESS OPERATIONS
Failure to manage risks/issues linked
to operating new businesses.
MITIGATION STRATEGIES
Weekly quarterbacks are in place to review operational
highlights. Power-saving initiatives and other activities to
improve operational efficiency were implemented. Management
of key accounts was strengthened to maximize revenue
opportunities. In addition, the Manila Water Total Solutions was
scaled up to generate new revenue sources.
A capex optimization project is being undertaken to optimize
processes, functions and resources to ensure projects are
implemented within budget and timeline, and at an acceptable
quality level. A rigorous review and approval process for project
approval, variation orders and time extensions are in place. Risk
assessments and action plans are also being developed for critical
projects and are reviewed as part of the project approval process.
A project risk management program is in place wherein projects
are categorized in different tiers with varying frequency of review
and reporting of risks and levels for risk acceptance. Risk
management and business continuity workshops were conducted
to suppliers, vendors and contractors to cascade the risk
management mindset to partners. Furthermore, there is a random
safety audit for on-going projects.
Programs have been implemented to ensure control of regulatory
and socio-political risks at both compliance and strategic levels.
Monitoring of the Company's compliance with various regulatory
requirements (all regulatory agencies) is done. Organizational
enhancements were implemented to improve the regulatory
compliance of the organization. In addition, the document
management system has been enhanced to improve readiness in
regulatory review and audit.
Activities are being done to further increase reliability and
efficiency of the current water supply system such as the
development of medium-term water sources, weekly monitoring
and investigation of NRW contributors, preventive and corrective
maintenance of dam facilities, and aqueducts and implementation
of metering at raw water portal and tailrace metering. The
development of new water sources has been included in the plans.
There were organizational changes to improve Manila Water’s
control and visibility in the subsidiaries. Risk officers have been
appointed to strengthen risk governance in the subsidiaries. The
enterprise risk management framework had been implemented by
the new businesses and their top risks and action plans are being
reported to Manila Water. To meet the talent requirements of new
businesses, services of third parties and head hunters were
employed.
74
As the Company continues to embark on expansion projects locally and internationally, the Company
understands the need for effective Risk Management to identify major risks in the Company’s business
operations and development projects. Towards this end, the Company established its Enterprise Risk
Management (“ERM”) Program, taking the existing risk management process to a higher level and
developing a common risk language and framework that is easily understandable. The ERM is a way of
managing risk and uncertainty in the new economy. It aligns the Company’s strategy, processes, people,
technology and knowledge to meet its risk management purpose and achieve its objectives. The Company
aims to make ERM a way of life where managing risks becomes the responsibility of everyone in the
organization with end view of increasing shareholder value and enhancing the already effective risk
management programs of the Company. The Chief Risk Officer is appointed by the Board to champion
the ERM Framework across the entire organization.
Contractual Obligations and Commercial Commitments
The following table summarizes the Company’s significant contractual obligations and commercial
commitments that affect the Company’s liquidity as of December 31, 2014:
Contractual Obligations:
Long-term debt, including
current portion
Domestic
Foreign
Concession Fees
Capital Expenditure
Commitments
Total Contractual
Obligations
Payments due by period
2015
2016
2013
(Peso millions)
2014
2017
Total
2,496
1,749
1,119
75
1,696
1,167
75
2,357
1,961
4,950
1,165
2,543
50
1,076
2,348
7,646
8,043
9,138
3,563
2,968
11,839
11,698
8,960
39,028
8,927
5,906
16,232
20,356
12,434
63,855
Under the CA, the Company is required to post a performance bond, bank guarantee or other security
acceptable to MWSS amounting to US$60 million in favor of MWSS as a bond for the full and prompt
performance of the Company’s obligation under the CA. A new standby letter of credit (in compliance
with the 2014 performance bond) was issued by The Bank of Tokyo-Mitsubishi UFJ, Ltd. for the full
amount of US$60 million prior to the expiry of the performance bond in December 31, 2014.
The capital expenditures of the Company shall be financed by a combination of internally-generated fund
and long-term debt.
There are no known trends, events or uncertainties that may have a material effect on sales, significant
elements of income or loss from continuing operations and seasonal aspects that may have a material
effect on the financial statements.
75
II. Market Price of and Dividends on the registrant’s Common Equity
On March 18, 2005, the Company was listed in the Philippine Stock Exchange and its listed shares have
since been actively traded therein. The high and low sale prices for each quarter that the Company’s
shares have been listed are as follows:
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
High
25.40
27.15
30.00
29.45
HIGH / LOW PRICE
2014
2013
Low
High
Low
21.60
40.00
32.00
23.85
41.00
29.35
25.50
33.80
26.30
27.50
28.00
21.35
The price information as of the close of the latest practicable trading date, March 12, 2015, is 27.15.
Dividends
Subject to the preferential dividend rights of the participating preferred shares (“PPS”), each holder of a
share of stock is entitled to such dividends as may be declared in accordance with the Company’s
dividend policy. Under the Company’s cash dividend policy, common shares shall be entitled to annual
cash dividends equivalent to 35% of the prior year’s net income, payable semi-annually in May and
October. The Company’s Board may change the cash dividend policy at any time.
The Company’s Board is authorized to declare cash dividends. A cash dividend declaration does not
require any further approval from the stockholders. A stock dividend declaration requires the further
approval of stockholders representing not less than two-thirds (2/3) of the Company’s outstanding capital
stock. The Corporation Code defines the term “outstanding capital stock” to mean the “total shares of
stock issued”, regardless of nomenclature, classification or voting rights, except treasury shares. Such
stockholders’ approval may be given at a general or special meeting duly called for the purpose.
Dividends may be declared only from unrestricted retained earnings. Some of the Company’s loan
agreements carry covenants that restrict declaration of payments of dividends under certain
circumstances, such as in the event of default or if payment would cause an event of default, if certain
financial ratios are not met or if payment would cause them not to be met, requiring revenues of the
Company to be applied toward certain expenses prior to the payment of dividends, and other
circumstances.
Within the last two years, the Company has declared the following dividends:
Declaration Date
Payment Date
Amount*
(P thousands)
Nature of Dividends Declared
November 27, 2014
December 26, 2014
40,000
10% cash dividends to PPS
October 7, 2014
November 5, 2014
825,354
0.4031 cash dividends to common shares
October 7, 2014
November 5, 2014
161,200
0.0403 cash dividends to PPS
February 20, 2014
March 21, 2014
825,354
0.4031 cash dividends to common shares
February 20, 2014
March 21, 2014
161,200
0.0403 cash dividends to PPS
November 28, 2013
December 27, 2013
40,000
10% cash dividends to PPS
76
September 26, 2013
October 25, 2013
779,930
0.382 cash dividends to common shares
September 26, 2013
October 25, 2013
152,800
0.0382 cash dividends to PPS
April 15, 2013
May 15, 2013
779,930
0.382 cash dividends to common shares
April 15, 2013
May 15, 2013
152,800
0.0382 cash dividends to PPS
* Gross amount of dividend
Holders
There are 916 certificated stockholders of the Company as of the latest practicable date January 31, 2015.
The Scripless shareholders of the Company are counted under PCD Nominee Corporation (Filipino) and
PCD Nominee Corporation (Non-Filipino). The following are the holders of the common shares of the
Company as of January 31, 2015:
Rank Stockholder Name
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
PCD NOMINEE CORPORATION (NON-FILIPINO)*
AYALA CORPORATION
PCD NOMINEE CORPORATION (FILIPINO)
ANTONINO AQUINO
ESOWN ADMINISTRATOR 2013**
ESOWN ADMINISTRATOR 2005**
ESOWN ADMINISTRATOR 2009**
ESOWN ADMINISTRATOR 2008**
JANINE T. CARREON (AS MWCI ESOP
ADMINISTRATOR)
ESOWN ADMINISTRATOR 2011**
ESOWN ADMINISTRATOR 2012**
ERNESTO O. CHUA CHIACO AND/OR MARGARET SY
CHUA CHIACO
SHERISA P. NUESA
GENEVIEVE SY CHUACHIACO
PEACE EQUITY ACCESS FOR COMMUNITY
EMPOWERMENT FOUNDATION, INC.
ERNESSON SY CHUA CHIACO
MARGARET SY CHUA CHIACO
LOZANO A. TAN
ESOWN ADMINISTRATOR 2007**
VIRGINIA Z. JUGO
No. of Common
Shares
Percentage
(of Common
Shares)
909,996,735
791,912,996
271,323043
7,200,000
5,805,678
5,757,501
5,637,080
5,095,370
44.4438%
38.6767%
13.2513%
0.3516%
0.2835%
0.2811%
0.2753%
0.2488%
4,644,924
4,450,957
4,249,534
0.2268%
0.2173%
0.2075%
2,240,000
1,900,000
1,490,500
0.1094%
0.0927%
0.0727%
1,345,000
1,258,000
1,106,000
850,000
857,499
700,000
0.0656%
0.0614%
0.0540%
0.0463%
0.0418%
0.0341%
* PCD Nominee Corporation includes the shares of First State Investment Management
** Shares granted under the Company’s ESOWN Plan.
The Company has 4,000,000,000 outstanding participating preferred shares. Philwater Holdings
Company, Inc. owns the 3,999,999,998 preferred shares of the Company. The two preferred shares are
nominee shares of directors John Eric T. Francia and Victoria P. Garchitorena.
77
Recent Sale of Unregistered Securities
Date
Security Sold
No. of Shares
Purchaser
Consideration
February 1999
Common Shares
104,443,965
P1.00 par
April 2004
RPS
310,344,828
ESOP
Shareholders
Ayala
April 2004
RPS
68,965,517
BPI Capital
P1.00 par
April 2004
RPS
120,689,655
United Utilities
P1.00 par
August 2004
Common Shares
176,400,000
IFC
P4.75 per share
P1.00 par
The foregoing table sets out details of the issuance of new shares from 1999 up to December 31, 2004.
Under existing regulations, the original issuance, an issuance to existing shareholders, and issuance
pursuant to a private placement are exempt from the registration requirement for the sale of securities.
On June 11, 2001, the SEC approved the exemption from registration of the proposed issuance of 120
million common shares to the Company’s qualified employees pursuant to the ESOP under Section 10.2
of the SRC.
For its grant of 23.6 million shares under the Executive SOP, Manila Water sought the SEC’s
confirmation that such issuance is exempt from the registration requirements of the SRC. In a resolution
dated March 3, 2005, the SEC granted Manila Water’s application for confirmation.
On January 31, 2006, the SEC approved the registration exemption of the Company’s proposed issuance
of 25 million common shares under its ESOWN Plan.
On October 12, 2006, the PSE approved the listing of additional 25 million common shares to cover the
Company’s ESOWN Plan. The PSE further resolved that the remaining 1,525,000 listed treasury shares
previously allocated for the Company’s Executive SOP, be re-allocated and distributed under the
Company’s ESOWN Plan. The actual listing of the shares shall take effect only upon full payment.
As of January 31, 2015, of the 26,525,000 common shares (including 1,525,000 treasury shares) approved
for listing by the PSE in its letter dated October 12, 2006 (the “PSE Letter”) for the Company’s ESOWN
Plan (the “Plan”), 12,199,974 shares have been fully paid.
III.
Compliance with Leading Practices on Corporate Governance
The Corporate Governance Manual
Manila Water is dedicated to observing the highest standards of corporate governance in order to serve
the best interests of the investing public. The Board, the Management, the employees, and shareholders
of the Company believe that sound and effective leadership is fundamental to its continued success and
stability. These principles and practices enable the company to create and sustain increased value for all
the shareholders.
The corporate governance policy of Manila Water is primarily contained in its Manual of Corporate
Governance (“Manual”). As contained in the Manual, the Company’s corporate governance framework is
based on the principles of Accountability, Fairness and Transparency and Sustainability.
78
The Manual contains the governance principles that the Company applies in all its undertakings and
supplements Manila Water’s Articles of Incorporation and By-Laws. The adoption of the Manual
instituted the policies on (i) the Board of Directors’ and management’s roles, functions and
responsibilities in relation to good governance; (ii) the institution of training for the Board Directors,
executive directors and employees and evaluation of the Board and Management’s performance; (iii) the
enhanced roles of the Corporate Secretary and Audit and Governance Committee in corporate
governance; (iv) related party transactions; (v) conflict of interest; and, (vi) disclosures.
As a key policy, the members of the Board and key executives of the Company are required to disclose to
the Board any material interest, whether direct or indirect, they may have in any transaction or matter that
directly affects the Company. The directors are required to comply with all disclosure requirements of the
Manual and the SRC and its Implementing Rules and Regulations and voluntarily disclose any conflict of
interest, whether actual or potential, upon its occurrence. The disclosure of any conflict of interest,
including related party transactions, is to be made fully and immediately. In case related party
transactions exist, it is the Company’s policy that complete information on such conflict be immediately
disclosed and if a director or officer is involved, the director or officer concerned shall not be allowed to
participate in the decision-making process. The policy also mandates that a director who has a continuing
conflict of interest of a material nature shall be required to resign, or if the Board deems appropriate, be
removed as a member of the Board.
The Board commits, at all times, to adequately and timely disclose all material information that could
potentially affect Manila Water’s share price and such other information that are required to be disclosed
pursuant to the SRC and its Implementing Rules and Regulations as well as other relevant laws. This
information includes, but is not limited to, results of earnings, acquisition or disposal of significant assets,
off balance sheet transactions, changes in Board membership as well as changes in shareholdings of
directors and officers, and remuneration of directors and officers and related party transactions.
The Company’s Manual was revised in 2010 in compliance with the SEC’s Revised Code of Corporate
Governance Memorandum Circular No. 6, Series of 2009, and was further amended in 2011. The latest
amendment to the Manual was in June, 2014 in compliance with SEC Memorandum Circular No. 9 Series
of 2014.
The revised Manual strengthened protection to shareholders and stakeholders, particularly the minority,
through the inclusion of additional provisions on transparency on business operations; communication of
important information from Management to the Board and from the Board to the shareholders and
stakeholders; disclosures on and evaluation of directors’ and Management’s performance; qualifications
and disqualifications of directors; participation of independent directors in all meetings of the Board; and
full and consistent compliance with financial, legal and regulatory requirements. The Manual is available
for download at the Company’s website.
Related Party Transactions
To further establish the Company’s policies on Related Party Transactions, the Board in its special
meeting held on April 4, 2014 adopted the Policy on Related Party Transactions. This policy is also
available for download at the Company’s website: www.manilawater.com.
The Policy confirms that the Company and its subsidiaries shall enter into any related-party transactions
solely in the ordinary course of business, on ordinary commercial terms, and on the basis of arm’s length
arrangements, and subject to appropriate corporate approvals and actions of the Company or the Related
Parties, as the case may be. Any related-party transactions entered into by the Company or its Affiliates
shall be in accordance with applicable law, rules and regulations and this Policy. Related party
79
transactions entered into by the Company with one or more of its directors or officers are voidable at the
option of the Company unless the transaction is deemed fair and reasonable under the circumstances and
conducted in arm’s length and neither the presence nor vote of the concerned director or officer is
necessary to approve such transaction. The policy provides for the process of approving related party
transactions, as well as the implications for violations thereof. In addition, the Policy prohibits related
party transactions involving loans and/or financial assistance to a Director and loans and/or financial
assistance to members of the management, except when allowed pursuant to an established Company
benefit or plan.
In its regular meeting held on February 20, 2015, the Board revised the Policy to require the approval of
material Related Party Transactions only by the independent directors comprising the Audit and
Governance Committee, provided that there are at least three (3) independent directors in the Audit and
Governance Committee.
The Code of Business Conduct and Ethics
The Company’s commitment to the highest standards of ethics, good governance, competence, and
integrity was institutionalized in other aspects of the business with the adoption of the Code of Business
Conduct and Ethics (the “Code”) in 2006. The Code addresses the issues and relationships between and
among the Company’s directors, officers and employees, and its customers, suppliers, business partners,
government offices, and other stakeholders. The Code was further revised in 2014 which confirmed the
Company’s commitment to the highest standards of ethics, good governance, competence and integrity in
the relationship among its directors, officers and employees and with the Company’s customers,
suppliers, business partners, government offices and the public.
The revised Code consolidates and enhances the Company’s existing policies on: Honesty and Fair
Dealing; Reporting of Fraudulent or Dishonest Acts (the Whistle Blower Policy); Conflict of Interest;
Corporate Entertainment and/or Gifts; Insider Trading; Disclosure; Creditor Rights; Anti-Corruption;
Anti-Sexual Harassment; and Diversity of Board Membership.
Copies of the Code were distributed to all directors, officers and employees of the Company to inform
them of the basic mandates and policies of the Company under the Code. A copy of the Code is also
available for download at the Company website: www.manilawater.com. Any officer or employee who
commits a violation of the Code shall be subject to disciplinary action, without prejudice to any civil or
criminal proceedings that the Company or regulators may file for violation of existing laws. The Office
of the Compliance Officer is responsible for implementing and monitoring compliance with the Code and
shall also have the authority to decide any issues that may arise in connection with the implementation of
the Code.
The Policy on Honesty and Fair Dealing under the Code mandates that Directors, Officers and employees
shall not engage in any unfair dealing practices, such as taking advantage of anyone through abuse of
confidential information, manipulation, concealment, or misrepresentation or other similar acts.
The Code also provides for the procedure to be followed in the reporting of fraudulent or dishonest acts
(“Whistle Blower Policy”) to encourage all covered persons to report fraudulent or dishonest acts in order
to protect the good name and reputation of the Company, and in the process discourage the commitment
of such acts. Hence, Directors, Officers, and employees are required to immediately report all suspected
or actual fraudulent or dishonest acts to the Board, in case of directors, and to the immediate supervisor or
to the Office of the Compliance Officer in case of officers and employees. The Company shall promptly
identify and investigate any suspected fraudulent or dishonest acts. Without prejudice to applicable
80
administrative sanctions, the Company may pursue civil and/or criminal actions against directors, officers
and employees as may be warranted.
The policy on Conflict of Interest specifies conflict of interest situations involving all directors, officers
employees and their relatives up to the fourth degree of consanguinity and/or affinity, including common
law relationships. A conflict of interest arises when a Director, or an Officer or employee appears to have
a direct or indirect personal or financial interest in any transaction, which may deter or influence him
from acting in the best interest of the Company. It is not required that there be an actual conflict, it is
only required that there could be perceived or seen to be a conflict by an impartial observer. All such
existing contracts/arrangements by directors, officers and employees and their relatives were required to
be terminated immediately and correspondingly reported ultimately to the Office of the Compliance
Officer, as required under the Code.
The Insider Trading Policy prohibits directors, officers and confidential employees from trading in Manila
Water shares (a) ten days before and three days after the release of the financial statements; and (b) three
days before and three days after the release of other material information. In addition, Directors and
Officers who may be covered by the reporting requirements of the SEC and the PSE in respect of their
shareholding in the Company or any changes thereof are required to report their dealings in Company
shares within three (3) business days after the dealing.
The policy on Corporate Entertainment/Gifts prohibits all officers and employees from accepting
corporate entertainment/gifts from suppliers, contractors and other business partners, which can be
viewed as influencing the manner on which an officer or employee may discharge his duties.
On the other hand, the Disclosure Policy under the Code encourages prompt and adequate disclosure of
all material facts or changes in the affairs of the Company including any information likely to affect the
market price of the Company’s shares, while the Policy on Creditor Rights institutionalizes the
Company’s adherence to its loan covenants and agreements.
The Anti-Corruption Policy under the Code strictly prohibits giving facilitating payments to any private
or government officials or employees, their agents or intermediaries in order to expedite or secure
performance of any governmental action, or to gain any perceived or actual favor or advantage from any
private or government entities. The Company must ensure that it and its directors, officers and employees
fully comply with the laws governing bribes, unlawful payments and other corrupt practices. The Policy
against Sexual Harassment recognizes the Company’s protection of the dignity of its human resources
while the policy on Diversity in Board Membership promotes equality among the members of the Board
regardless of gender, age, ethnicity, or political, religious or cultural beliefs.
Procurement Policies
Officers and employees involved in the procurement process for services, materials, supplies, and
equipment for Manila Water are required to comply with the Procurement Policies. The objectives of the
Procurement Policies are to promote transparency in the procurement process, and to afford vendors equal
access to business opportunity with Manila Water, to the end view of enhancing vendor participation and
the interest of Manila Water. A copy of the Procurement Policies is downloadable at the Company
website: www.manilawater.com.
The Vendors’ Code of Conduct
As business partners of Manila Water, its Vendors are expected to act with utmost integrity, efficiency,
and urgency in performing awarded contracts and/or delivering ordered products. They should
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demonstrate a strong sense of responsibility for public safety and interest that will ultimately promote and
protect the good name of Manila Water. The Vendors’ Code of Conduct sets out the rules that will guide
Manila Water’s Vendors in the performance of their obligations and/or transacting business with Manila
Water, thus avoiding acts contrary to standards, policies, laws and morals. A copy of the Vendor’s Code
of Conduct is downloadable at the Company website: www.manilawater.com.
The Enterprise Risk and Insurance Management Policy
Manila Water operates in a regulated and dynamic business environment where uncertainties, both
detrimental and opportune to the Company, abound. The Company is accountable to its regulators,
shareholders, employees and customers, among others, even as profitability, sustainable development and
corporate social responsibility are expected to be continuously enhanced.
In order to achieve its
corporate objectives, Manila Water acknowledges the need for the active management of the risks
inherent in its business which should involve the entire organization.
For this reason, Manila Water has established an Enterprise Risk Management (ERM) Program which
aims to use a globally-accepted approach in managing imminent and emerging risks in its internal and
external operating environments. Under the ERM Program, Manila Water shall appropriately respond to
risks and manage them in order to increase shareholder value and enhance its competitive advantage. The
ERM Program is aligned with the Company’s Manual of Corporate Governance which mandates the
Board of Directors to ensure the presence of organizational and procedural controls supported by an
effective management information system and risk management reporting system.
In addition, the Company’s Audit and Governance Committee, as stated in the Audit and Governance
Committee Charter, is required to provide oversight to management functions relating to financial,
operational, legal and other risks of the Company which involves periodic disclosure of risk exposures
and related risk management activities.
Safety, Health and Welfare Policy
An orientation towards healthy and safe practices at work is ingrained in the culture of Manila Water.
Manila Water is committed to achieving customer satisfaction, upholding environmental sustainability
and ensuring safety, preservation of life and health of its employees and all stakeholders.
Stockholder Rights
To promote transparency and goodwill, it is a Company policy to encourage the attendance of all its
shareholders, including minority shareholders and institutional shareholders in any stockholders meeting.
The Company also makes it a point to invite stakeholders such as its regulators, customers and creditors,
to attend its shareholders meetings.
Under the Company’s By-Laws, the affirmative vote of stockholders as of the record date constituting at
least a majority of the outstanding voting capital stock of the Company is necessary to approve matters
requiring stockholders’ action.
In all items for approval, each share of stock entitles its registered owner as of the record date to one vote.
At each election for directors, every stockholder shall have the right to vote, in person or by proxy, the
number of shares owned by him for as many persons as there are directors to be elected, or to cumulate
his votes by giving one candidate as many votes as the number of such directors multiplied by the number
of his shares shall equal, or by distributing such votes at the same principle among any number of
candidates.
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The Company has two classes of shares, common and participating preferred shares. Both classes of
shares have equal voting rights.
The Company continues its practice of offering its shareholders an equitable share of the Company’s
profits. In 2013, the Board of Directors confirmed the dividend payout which entitles holders of
Common Shares and Participating Preferred Shares to annual cash dividends equivalent to 35% of the
prior year’s net income payable at least semi-annually, on such dates as may be determined by the Board
of Directors, subject to applicable rules and regulations on record dates and payment dates. The
participating preferred shares participate in the earnings at a rate of 1/10 of the dividends paid to a
common share. As a matter of policy, payment dates of dividends declared are fixed within thirty (30)
days from date of declaration. In 2014, the Company paid a total of Php2.013 billion as dividends.
The Manual also provides for stockholders’ pre-emptive rights to subscribe to the capital stock of the
Company, right of inspection of corporate books and records, as well as annual report and financial
statements, right to information on all material items upon request and for a legitimate corporate purpose,
and appraisal rights as provided under the law.
The revised Manual presently provides that the minority shareholders shall have the right to propose the
holding of a meeting as well as the right to propose items in the agenda of the meeting, provided that the
items proposed are for legitimate business purposes. Upon request and for a legitimate purpose, a
shareholder shall be provided with periodic reports which disclose personal and professional information
about the directors and officers and certain other matters such as their holdings of the Company’s shares,
dealings with the Company, relationships among directors and key officers, and the aggregate
compensation of directors and officers. As a policy, notices and agenda of the Annual Stockholders’
Meeting are disclosed to the public at least two (2) months before the scheduled meeting. The
shareholders have an opportunity in the Annual Stockholders’ Meeting to ask questions and raise their
issues regarding the Company, its directors and the performance of its executive officers. The minutes of
the meeting record the shareholder questions and corresponding answers given by the directors and
officers of the Company. Copies of the minutes are available for download at the Company’s website.
Further rights of the Company’s shareholders include their respective rights to participate in decisions
concerning fundamental corporate changes such as amendments to the Company's constitution,
authorization of additional shares and transfer of all or substantially all assets, which in effect result in the
sale of the Company, as provided in the Corporation Code which is adhered to by the Company.
Public Ownership
The Company is compliant with the requirement of the PSE on minimum public ownership with 58.48%
of its shares subscribed and owned by the public as of December 31, 2014. In compliance with the
requirements of the PSE, the Company regularly and timely discloses its public ownership report and
immediately makes a public disclosure of any change thereon.
Company Website
In the pursuit of the Company’s thrust to continuously improve awareness in best practices in the conduct
of its business and operations especially in corporate governance across the organization, including
dealings with its business partners and customers, Manila Water constantly updates its website,
www.manilawater.com, with a portion dedicated to corporate governance. The Corporate Governance
section of the website contains all disclosures made by the Company to the PSE and SEC which can be
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readily accessed and downloaded. The Company discloses its corporate governance practices, corporate
events calendar, and other material information on its website in a timely manner.
The website also has a dedicated Investor Relations section that houses all information that may be
required by the investors, shareholders and stakeholders. The site has been enhanced to be user-friendly
and is accessible to the public at all times.
Corporate Governance Recognition and Awards
The Company’s perseverance in its commitment to uphold the highest standards of good governance has
been confirmed and recognized by several reputable award-giving bodies. The Corporate Governance
Asia in its Annual Recognition Awards cited Manila Water as an icon of the best corporate governance
practices in Asia. The Company was also awarded its third Bell Awards by the Philippine Stock
Exchange for being one of the five publicly-listed companies that uphold the highest standard of
corporate governance. Finally, Mr. Solomon M. Hermosura, the Company’s Corporate Secretary was
also accorded the Asian Company Secretary of the Year Award by the Corporate Governance Asia which
are given “for people who possess strong leadership in guiding the board of directors and the company
management in compliance, and at the same time uphold the highest ethics in business practices”.
Corporate Governance Campaign
Awareness of the Company’s corporate governance practices among its stakeholders is a key initiative of
the Compliance Officer in close coordination with the Office of the Corporate Secretary, the Legal and
Governance Department, and Audit and Governance Committee. This is achieved by conducting
corporate governance orientations and by communicating the corporate governance practices of the
Company through the Company website, annual reports, seminars and other literature. Furthermore,
Manila Water offers various trainings, programs and workshops for its directors, officers and employees
in order to ingrain good corporate practices in its everyday operations.
IV. Sustainable Development Projects
A renewed focus on sustainability issues that are materially affecting the organization from a more
strategic perspective characterized the year 2014 in terms of embedding and advancing sustainability in
Manila Water.
In 2014, part of the portfolio of the Sustainable Development Department of Manila Water was
transferred to the Operations Group, incorporating it into the Environment Department that has been renamed the Sustainability Department. There is now an expanded mandate to reinforce the embedded
sustainability principles (Society, Economy and Environment) into the Company’s day to day operations
and continue developing Sustainability Champions in all of Manila Water’s internal and external
stakeholders through a programmatic approach of raising employee awareness, communicating its
sustainability initiatives to various audiences, encouraging active involvement from all stakeholders and
embedding sustainability in Manila Water’s planning, core and support processes.
Headed by the Sustainability Department and Strategic Asset Planning Department, the Climate Change
Committee (“CCC”) was able to identify gaps and areas for improvement to streamline and optimize
Manila Water’s efforts to address the impacts of climate change, whether through mitigation initiatives or
adaptation efforts. Aside from safeguarding Manila Water’s critical infrastructures, the CCC will oversee
the implementation of the Company’s commitments in promulgating its Climate Change Policy.
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The Sustainability Council, on the other hand, act as the guardians of Manila Water’s sustainability pillars
and also serve as an oversight body that ensures the adequacy, effectiveness and continuing improvement
of Manila Water’s sustainability commitments and their implementation. The Council consists of
champions from the various departments and was tasked to fine tune a sustainability scorecard that is
intended as a measure of the Company’s maturity along its sustainability journey year-on-year. This is in
alignment with the latest GRI G4 standard which no longer requires comprehensive reporting on its list of
material indicators, but encourages companies to “address what matters where it matters”.
In addition to the aforementioned management initiatives, Manila Water continued to focus on five
sustainability pillars:
a.
Developing Employees
Manila Water seeks to embed sustainability in the daily activities of its employees through employee
engagement and knowledge transfer programs on top of the training and competency development
initiatives of the Company. The objective is to develop more Sustainability Champions to enhance
organizational capabilities in managing its resources, adapting to a changing environment and addressing
social and environmental risks and impacts.
In 2014, the Manila Water University (“MWU”) was launched in response to the needs of a continuously
growing organization. The MWU affords talents with the opportunity to take charge of their individual
career development, communicate career aspirations, seek support through coaching, feedback and
meaningful job assignments, and eventually drive career growth within the Company. It is also the
Company’s institutionalized approach to learning, development and competency building that would
strengthen and develop competencies that are important to its business. The MWU has online resources
on various topics ranging from Asset Management, Finance, Regulatory and Public Policy, among others.
There are also trainings and seminars on leadership and functional competencies where employees can
register online.
Aside from training and development, Manila Water complements core and functional competencies with
various employee engagement initiatives that seek to instill and cultivate the value of sustainability in the
daily activities of its employees. With the Human Resources Group at the forefront of the Company’s
human development programs through its training and employee engagement initiatives, a number of
activities facilitated by various departments (Safety Solutions, Sustainability, Innovations, Energy) have
all contributed to the employee development efforts of the Company. Several trainings and seminars on
environmental and energy-related topics such as Cleaner Production Assessment, Energy Audit,
Hazardous Waste Management, Eco-driving, PCO Basic Training, Continuing education for PCOs, and
Climate Change were conducted. Likewise, there were a number of workshops that were also conducted
on Safety such as Chemical Safety, Electrical Safety, Fire Safety, Defensive Driving, Confined Space and
First Aid. To spur creativity and innovation, Brown Bag meetings were facilitated and conducted as well.
b.
Helping Build Communities
Manila Water’s flagship program Tubig Para sa Barangay (“TPSB”) or Water for Low-Income
Communities, continued to benefit the urban poor through the round-the-clock provision of potable water
with immeasurable impacts on community life. The program has allowed residents from marginalized
communities to avail of the Company’s services at considerably lower connection fees and less stringent
requirements. As of December 2014, more than 1.8 million people from urban poor communities have
been served by the program with 208,436 water service connections and 307,761 households. With the
total number of water service connections in the East Zone reaching 892,602 at the end of 2014, roughly
23% of Manila Water’s customers is under the TPSB program. In September 2014, Channel News Asia
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has recognized the TPSB program for its social impact and put Manila Water on the second spot of its
Philippine rankings of most sustainable companies through its inaugural Sustainability Rankings. Manila
Water and Ayala Land, Inc., which took the no. 1 spot, have further demonstrated Ayala Group’s
pioneering stance on sustainability.
Complementing the TPSB program which also led to considerable improvements in the quality of
community life is Manila Water’s Lingap program, which seeks to improve water supply and sanitation
facilities in public service institutions such as schools, hospitals, city jails, markets and orphanages,
furthering empowering these institutions to more effectively carry out their respective roles in society.
Through Lingap programs, Manila Water has rehabilitated the water reticulation system and installed
wash facilities and drinking fountains of public service institutions. As of 2014, 354 institutions have
benefitted from Lingap with an estimated 1.5 million people served through the program.
Aside from the aforementioned social initiatives, the Company has strengthened its focus on enhancing
operational reliability by strengthening its ability to respond to disasters and other emergency situations.
Moreover, Manila Water exhibited its genuine concern for its communities by readily providing relief
operations in response to major disasters in the country. The Business Continuity Department (“BCD”)
has been very active in disaster response actions by leading Manila Water’s Mobile Treatment Plant
(“MTP”) teams to disaster stricken areas such as in Tacloban, Bohol, Cebu. The BCD was also
responsible for the successful conduct of a company-wide earthquake drill in August 2014. The drill was
able to simulate Manila Water’s incident management system, evaluate earthquake response protocols as
well as business continuity plans, and familiarize employees with their individual roles and
responsibilities. In this drill, the East Zone service area was divided into four “quadrants” based on Metro
Manila Earthquake Impact Reduction Study, which assumes key lifelines of the metro to be unavailable in
the event of a major earthquake.
As one of the pioneering members of the Philippine Disaster Recovery Foundation (“PDRF”), Manila
Water’s active involvement in PDRF has further leveraged its impact as a provider of lifeline services in
times of disaster and the subsequent yet more daunting tasks of rebuilding communities. A coalition of
like-minded corporations and institutions, PDRF is co-chaired by Ayala Corporation’s Chairman Jaime
Augusto Zobel de Ayala while Manila Water’s Operations Group Director, Geodino V. Carpio also serves
as one of its Trustees. Last year, Manila Water started talks / dialogues with other lifeline companies in
Metro Manila (from the power, telecommunications, transportation among other industries) to discuss
interoperability during disasters.
c.
Protecting the Environment
To enable the Company to fulfill its service obligations more effectively and to sustain operational
efficiency, Manila Water’s environmental protection advocacies and programs are geared towards
ensuring water security, managing its environmental compliance risks and strengthening its used water
program.
Watershed management continued to be one of the imperatives for Manila Water, especially now that the
El Nino phenomenon would from time to time threaten to put Metro Manila’s water supply in an
imminent water crisis. In August last year, the Integrated Watershed Management Plan for the La Mesa
Watershed was completed and the Water Source Department was designated to manage the Company’s
upstream activities. The Company continued to plant and nurture trees, as well as host Nature Walks in
La Mesa watershed for its employees and their families and friends.
On the environmental compliance side, Manila Water has dramatically enhanced its proactive approach in
addressing environmental compliance risks through the introduction of new compliance tools: the Facility
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Self-Assessment Report (FSAR) and risk-weighted compliance audit and monitoring system, further
enabling process owners and front liners to actively own compliance at their level.
In terms of its used water treatment operations, the Company was able to treat 28,686,940 m3 of used
water for the whole year of 2014 and in the process removed 6,097,493 tons of Biological Oxygen
Demand (BOD), further alleviating the pollution load in Metro Manila’s waterways. As of December
2014, there are now 112,282 sewer connections in the East Zone while about 180,920 m3 of sludge were
removed from 65,742 septic tanks in 2014.
The Company continues to implement the Lakbayan Program or the Water Trail Tour to raise awareness
on the importance of water, used water and the environment. This program involves an educational tour
of the Water Trail to show the participants the process that the raw water undergoes from the source to
treatment and prior to distribution to customers, and how the consumers’ used water is collected and
treated. Participants are given a tour of the water and wastewater treatment facilities of the Company.
The Program aims to promote stakeholder awareness on the need to conserve water and to care for water
sources. So far, Lakbayan Program tours have been participated in by 1,114 groups that involved 38,126
participants from Non-Governmental Agencies (“NGA”), Local Government Units (“LGU”), academe,
media, corporates, Non-Governmental Organizations, and similar entities.
Moreover, Manila Water demonstrates proper used water management through Toka Toka advocacy,
aimed at reviving the Metro’s heavily-polluted rivers and tributaries. This particular campaign encourages
consumers and partner organizations to practice proper waste disposal, ensure proper sewer line
connections, have septic tanks desludged every five years and support the company’s other communitybased projects. Since 2012, there are now 17 Toka Toka partners from LGUs, NGAs and private
institutions that have pledged their own commitments for the environment.
To strengthen the Company’s campaign on used water and strengthen the support of community
kasanggas in its advocacy programs, Edukasyong Pangkalikasan, an environmental education series, was
conducted in all the 8 Business Areas (“BAs”) of the Company. To perpetuate the overwhelming positive
response of the community kasanggas on the Edukasyong Pangkalikasan initiative and to strengthen the
development of sustainability champions at the BAs, a capacity building program was initiated to train
frontliners in communicating used water education.
To show its commitment to its Toka Toka advocacy, Manila Water continued with its annual Companywide recycling fair dubbed “Junk for Joy-All In”, so called as Manila Water subsidiaries have likewise
joined the much anticipated recycling contest. Junk for Joy is a way of promoting the 3R’s (Reduce,
Reuse and Recycle). The proceeds of last year’s Junk for Joy were donated to two charity institutions the Guanella Center Servants of Charity and the Lapis at Papel program.
In 2014, Manila Water became the first Philippine company to be certified in ISO 50001:2011 Energy
Management System (“EnMS”) in ten (10) of its biggest energy consuming facilities. The certification is
an attestation that Manila Water EnMS conforms to international standards. The EnMS was able to
effectively establish the systems and processes necessary to improve energy performance, including
energy efficiency, use, and consumption.
Manila Water is also the first company in the Philippines that installed solar panels in its wastewater
treatment plant. An 80 kWp capacity solar panels were installed at its FTI Septage Treatment Plant and
was commissioned in February 2014. A 105 kWp capacity solar panel was also installed and
commissioned at the Magallanes Sewage Treatment Plant in April 2014. Manila Water is also looking
into harnessing power from mini -hydro plants and in fact, it caused the conduct of a feasibility study to
determine its viability. The Company is also exploring other initiatives such as waste to energy projects.
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d.
Safeguarding Health and Safety
Manila Water recognizes its responsibility to safeguard health and safety not only of its employees and
contractors but also to the general public. It continues to put a high premium on ensuring water quality
and ensuring the health and safety of its supply chain.
To provide all personnel with a safe and healthy work environment, Manila Water established Safety
Management System Standards that is aligned with an internationally-recognized safety management
system, BSI OSHAS 18001 – Health and Safety. This safety management system requires a commitment
to safety of the public and its visitors, but the Company also recognizes the risks and mitigation controls
unique to its operations. This incorporates quality, environment, occupational safety and health into a
single framework so called Operational Management Systems.
To guide employees in achieving a safe work environment for the Company’ personnel and vendors,
Manila Water defines a rigorous set of operational controls to manage the known hazards and risks of its
operations. Full implementation of these controls will ensure that the Company is providing workplaces
that meet the requirement to Safety standards. Manila Water extends these safety programs to its vendors
through the conduct of monthly Safety Officer’s Network Meeting and Contractor’s Safety Forum for
sharing of best practices amongst contractors. As of end of 2014, Manila Water has registered a running
total of 2,323,152 safe man hours indicating a strong safety culture among its employees and contractors.
In addition, Manila Water has established an internal audit process to help ensure that it is effectively
implementing its operational controls and management routines. The Company has also engaged
recognized external audit firms to assess the compliance status of its operations with applicable laws and
regulations and occupational safety and health requirements.
The quality of Water that Manila Water supplies has always been 100% compliant with the Philippine
National Standards for Drinking Water, and there has been no major water contamination since the
Company began its operations in 1997. To maintain this record, the Company collects water samples
from raw, untreated water to treatment plants and directly from the faucets of at least 843 customers each
month. Water quality is stringently monitored and water samples are tested in a world-class laboratory
that is recognized by the Philippine Department of Environment and National Resources, certified with
and against ISO 9001 (quality management), ISO 14001:2008 (environmental management), OHSAS
18000 (Occupational Health and Safety), and accredited by the Philippine Department of Health (DOH)
and ISO/IEC 17025:2005 (competence for testing and calibration laboratories). A Water Safety Plan,
which was completed in 2009, is currently being reviewed and targeted to be updated by 2015. The plan
is a multi-barrier approach to ensure that contamination is minimized and/or eliminated at each stage. It
involves the application of an extensive risk assessment and risk management approach that encompasses
all steps in water supply system from the sources, production, storage and conveyance to consumers to
ensure safety of drinking water supply.
e.
Contributing to Local and National Economies
To promote inclusive growth, Manila Water’s policy on purchases from small- and medium-scale
enterprises (SMEs) or cooperatives states that they are guaranteed at least 20% of total contract awards.
To date, of the 240 contractors in the Company’s Supply Chain, about 40% or around 95 of them are
small enterprises (60% or about 145 are big). Some of these contractors were in fact part of the 64
cooperatives (benefitting 22,554 families) under the Kabuhayan Para sa Barangay (KPSB) program of
Manila Water. Indeed, inclusive growth is a mandate for Manila Water.
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A Sustainability Summit for the Supply Chain was held in November 2014, in coordination with the
Contracts and Vendors Management Department (CVMD) of the Company, for vendors and contractors.
The objective of the summit was to enable the Supply Chain to better understand the Company’s
sustainability initiatives, to encourange them to adopt the same in the conduct of their business for better
alignment of their company policies and programs with Manila Water’s sustainability thrusts.
Upon the written request of the stockholders, the Company undertakes to furnish said stockholders
with a copy of SEC Form 17-A free of charge. Any written request for a copy of SEC Form 17-A
shall be addressed to the following:
Manila Water Company, Inc.
MWSS Administration Building, 489 Katipunan Road,
1105 Balara, Quezon City, Philippines
Attention: Luis Juan B. Oreta
Compliance Officer
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NATURE AND SCOPE OF BUSINESS
Manila Water is a Philippine company with the exclusive rights to provide water delivery and sewerage
and sanitation services under the terms of its Concession Agreement to more than six million people in
the East Zone (the “East Zone”), comprising a broad range of residential, commercial and industrial
customers.
The East Zone encompasses 23 cities and municipalities that include major business districts and
residential areas in the eastern part of Metro Manila and the adjacent Rizal Province. For 2014, the
Company’s total billed volume reached 449.0 million cubic meters of water partly due to the increase in
water connections to 949,230, and the rising contribution of its operating subsidiaries in Boracay, Clark,
Laguna, and Vietnam.
Under the terms of the Concession Agreement entered into on February 21, 1997 (the “Concession
Agreement”) with the Metropolitan Waterworks and Sewerage System (“MWSS”), a government-owned
and controlled corporation, the Company was granted exclusive rights to service the East Zone as an
agent and contractor of MWSS. Under the Concession Agreement, MWSS granted the Company the use
of MWSS’s land and operational fixed assets and the exclusive right, as agent of MWSS, to extract and
treat raw water, distribute and sell water, and collect, transport, treat and dispose wastewater, including
reusable industrial effluent discharged by the sewerage system for the East Zone.
On April 16, 2009, the Company’s application for a 15-year extension of the CA was acknowledged and
approved by the MWSS Board of Trustees through Resolution No. 2009-072. The resolution was
confirmed by the Department of Finance following the special authority granted by the Office of the
President. With the CA extension, the term of the concession was extended from May 7, 2022 to May 6,
2037. Under the said agreement, the Company is entitled to recover operating and capital expenditures,
business taxes, concession fee payments and other eligible costs, and to earn a reasonable rate of return on
these expenditures over the extended life of the concession.
Manila Water has also expanded its services outside of the East Zone. The Company operates several
subsidiaries in the Philippines, namely Laguna AAAWater Corporation (“LWC”), Boracay Island Water
Company (“BIWC”), Clark Water Corporation (“CWC”) and Cebu Manila Water Development
(“CMWD”). It has also established its presence in Vietnam through a leakage reduction project in Ho Chi
Minh City and the acquisition of shares in Thu Duc Water B.O.O Corporation (“TDW”). In 2012, it has
acquired shares in Kenh Dong Water Supply Joint Stock Company (“KDW”) and this was followed a
year later by the acquisition of primary shares in Saigon Water Infrastructure Joint Stock Company
(“SII”).
It was in 2008, when BIWC entered into a joint venture agreement with the Tourism Infrastructure and
Enterprise Zone Authority (“TIEZA”- formerly Philippine Tourism Authority) with shareholdings of 80%
and 20%, respectively, covering the provision of water and wastewater services in the Island of Boracay
for a period of 25 years. BIWC’s primary purpose is to engage in the development, improvement,
upgrade and expansion of water, sewerage, wastewater and drainage facilities and infrastructure,
including the financing, design, engineering, construction, upgrading, testing, commissioning, operation
and maintenance of such facilities and infrastructure, and provide the services necessary or incidental
thereto. In September 2009, the Company acquired 70% of LWC, which has an existing Concession
Agreement with the Province of Laguna covering the provision of water services in Biñan, Cabuyao and
Sta. Rosa City in Laguna. A joint venture (“JV”) between AAA Water Corporation, a wholly-owned
subsidiary of the Company, and the Province of Laguna (POL) was formed to undertake the development,
design, construction, operation, maintenance and financing of the water facilities that will serve the needs
of its concession area. LWC entered into a Concession Agreement with the POL for a period of 25 years.
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In December 2011, the Company acquired 100% ownership of CWC from Veolia Water Philippines and
Philippine Water Holdings, Inc. CWC is the water and wastewater concessionaire of the Clark Freeport
Economic Zone in Angeles Pampanga, having a 25-year concession with the Clark Development
Corporation until October 2025. CWC’s primary purpose is to engage in the development, management,
operation and maintenance of dams, reservoirs, conduits, aqueducts, tunnels, purification plants, water
mains, pipes and other fixed and immovable assets required to provide water treatment and sewerage
services, and to purchase, own or otherwise hold shares of stock or equity in corporations engaged in the
foregoing activities. During the same period, Manila Water purchased 49% of TDW via Thu Duc Water
Holdings, Pte. Ltd,- a Singapore-based company that is wholly-owned by Manila Water Asia Pacific Pte.,
Ltd. (“MWAP”). TDW is one of the largest private bulk water suppliers in Ho Chi Minh City, Vietnam
having a water purchase agreement with Saigon Water Corporation (“SAWACO”) which has a minimum
consumption of 300 million liters per day (mld) on a take-or-pay arrangement. TDW’s principal activities
consist of construction investments, development, operating Thu Duc Water Plant in the form of buildown-operate (“B.O.O”); exploiting, processing and supplying water; investment in construction
techniques in supplying water and watering treatment.
The Company continues to explore new business opportunities. In the first quarter of 2012, the Company
through Northern Waterworks and Rivers of Cebu (a consortium of Manila Water and the Vicsal-Gaisano
group), signed a Joint Investment Agreement with the Provincial Government of Cebu for the
development and operation of a bulk water supply system in the province. This project aims to develop
the water supply facilities and to supply treated water to the various local government units, water
districts and other water distributor in the central and northern parts of the Province of Cebu through the
abstraction of raw water from the Luyang River. On January 5, 2015, CMWD marked the delivery of its
initial 18 mld bulk water supply to the Metropolitan Cebu Water District. CMWDI will supply treated
water to the Water District equivalent to 18 mld in the first year and 35 mld starting the second year. In
the third quarter of 2012, and almost a year after the purchase of 49% stake of TDW in December 2011,
the Company further enhanced its position in Vietnam by completing the acquisition of a 47.35% stake in
KDW, another Vietnamese bulk water supplier in Ho Chi Minh City. Its water treatment plant located in
the Cu Chi District has a capacity of 200 mld. Kenh Dong has a bulk water supply contract with Saigon
Water Corporation (“SAWACO”) for a guaranteed volume of 150 mld. KDW was established to build,
own and operate major water infrastructure facilities in Ho Chi Minh City. In October 8, 2013, the
Company, through its subsidiary Manila Water South Asia Holdings Pte. Ltd., completed the acquisition
of 18.37 million primary shares in Saigon Water Infrastructure Joint Stock Company (“SII”) which
constitutes 31.47% of SII’s outstanding capital stock. SII is a Vietnamese company listed in the Ho Chi
Minh City Stock Exchange which targets to become the first fully-integrated company in the Vietnam
water and wastewater infrastructure sector.
91
COVER SHEET
for
AUDITED FINANCIAL STATEMENTS
SEC Registration Number
A 1 9 9 6
-
1 1 5 9 3
Company Name
M A N I
L A
S U B S
I
W A T E R
D I
A R I
C O M P A N Y
,
I
N C .
A N D
E S
Principal Office (No./Street/Barangay/City/Town/Province)
M W S S
K a
A d m i
t
i
p u n a n
C i
t
y
n
Form Type
i
s
t
r
a
R o a d
,
t
i
o n
B a
l
a
B u
i
r
,
a
Department requiring the report
l
d
i
n g
,
Q u e z o n
Secondary License Type, If Applicable
A A F S
COMPANY INFORMATION
Company’s Email Address
Company’s Telephone Number/s
[email protected]
02-917-5900
Mobile Number
No. of Stockholders
Annual Meeting
Month/Day
Fiscal Year
Month/Day
916
04/07
12/31
CONTACT PERSON INFORMATION
The designated contact person MUST be an Officer of the Corporation
Name of Contact Person
Email Address
Telephone Number/s
Luis Juan B. Oreta
[email protected]
02-981-8156
Mobile Number
Contact Person’s Address
nd
2
floor, MWSS Administration Building, Katipunan Road, Balara, Quezon City
Note: In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission
within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated.
*SGVFS011134*
SyCip Gorres Velayo & Co.
6760 Ayala Avenue
1226 Makati City
Philippines
Tel: (632) 891 0307
Fax: (632) 819 0872
ey.com/ph
BOA/PRC Reg. No. 0001,
December 28, 2012, valid until December 31, 2015
SEC Accreditation No. 0012-FR-3 (Group A),
November 15, 2012, valid until November 16, 2015
INDEPENDENT AUDITORS’ REPORT
The Stockholders and the Board of Directors
Manila Water Company, Inc.
MWSS Administration Building, Katipunan Road
Balara, Quezon City
We have audited the accompanying consolidated financial statements of Manila Water Company, Inc.
and its subsidiaries, which comprise the consolidated statements of financial position as at
December 31, 2014 and 2013, and the consolidated statements of comprehensive income, statements
of changes in equity and statements of cash flows for each of the three years in the period ended
December 31, 2014, and a summary of significant accounting policies and other explanatory
information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with Philippine Financial Reporting Standards and for such internal control
as management determines is necessary to enable the preparation and fair presentation of
consolidated financial statements that are free from material misstatement, whether due to fraud or
error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity’s preparation and fair presentation of the consolidated financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
*SGVFS011134*
A member firm of Ernst & Young Global Limited
-2Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of Manila Water Company, Inc. and its subsidiaries as at December 31, 2014 and
2013, and their financial performance and their cash flows for each of the three years in the period
ended December 31, 2014 in accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Bernalette L. Ramos
Partner
CPA Certificate No. 0091096
SEC Accreditation No. 0926-AR-1 (Group A),
April 15, 2013, valid until April 14, 2016
Tax Identification No. 178-486-666
BIR Accreditation No. 08-001998-81-2012,
June 19, 2012, valid until June 18, 2015
PTR No. 4751347, January 6, 2015, Makati City
February 20, 2015
*SGVFS011134*
A member firm of Ernst & Young Global Limited
SyCip Gorres Velayo & Co.
6760 Ayala Avenue
1226 Makati City
Philippines
Tel: (632) 891 0307
Fax: (632) 819 0872
ey.com/ph
BOA/PRC Reg. No. 0001,
December 28, 2012, valid until December 31, 2015
SEC Accreditation No. 0012-FR-3 (Group A),
November 15, 2012, valid until November 16, 2015
INDEPENDENT AUDITORS’ REPORT
ON SUPPLEMENTARY SCHEDULES
The Stockholders and the Board of Directors
Manila Water Company, Inc.
MWSS Administration Building, Katipunan Road
Balara, Quezon City
We have audited in accordance with Philippine Standards on Auditing, the consolidated financial
statements of Manila Water Company, Inc. and its subsidiaries as at December 31, 2014 and 2013,
and for each of the three years in the period ended December 31, 2014, included in this Form 17-A
and have issued our report thereon dated February 20, 2015. Our audits were made for the purpose
of forming an opinion on the basic consolidated financial statements taken as a whole. The Schedules
A to L listed in the Index to Consolidated Financial Statements and Supplementary Schedules are the
responsibility of the Company’s management. These schedules are presented for purposes of
complying with the Securities Regulation Code Rules 68, As Amended (2011) and are not part of the
basic consolidated financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic consolidated financial statements and, in our opinion,
present fairly in all material respects the information required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.
SYCIP GORRES VELAYO & CO.
Bernalette L. Ramos
Partner
CPA Certificate No. 0091096
SEC Accreditation No. 0926-AR-1 (Group A),
April 15, 2013, valid until April 14, 2016
Tax Identification No. 178-486-666
BIR Accreditation No. 08-001998-81-2012,
June 19, 2012, valid until June 18, 2015
PTR No. 4751347, January 6, 2015, Makati City
February 20, 2015
*SGVFS011134*
A member firm of Ernst & Young Global Limited
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
For the Years Ended December 31
2014
2013
ASSETS
Current Assets
Cash and cash equivalents (Notes 5 and 28)
Short-term cash investments (Notes 5 and 28)
Receivables - net (Notes 6, 22 and 28)
Concession financial receivable - current portion (Note 10)
Materials and supplies - at cost (Note 7)
Other current assets - net (Note 8)
Total Current Assets
Noncurrent Assets
Property and equipment (Note 9)
Service concession assets - net (Notes 4 and 10, 22 and 24)
Concession financial receivable - net of current portion (Note 10)
Available-for-sale financial assets (Notes 11, 27 and 28)
Investments in associates (Note 12)
Goodwill (Note 3)
Deferred tax assets - net (Note 19)
Other noncurrent assets (Notes 13 and 28)
Total Noncurrent Assets
P
= 6,052,553,832
400,000,000
1,694,446,688
76,914,317
186,290,061
683,859,757
9,094,064,655
P
= 6,779,780,845
94,344,600
1,393,550,067
77,458,500
103,597,262
620,673,091
9,069,404,365
2,131,965,618
55,835,665,758
899,069,520
2,409,290
4,961,499,753
130,319,465
881,182,911
923,726,626
65,765,838,941
P
= 74,859,903,596
2,038,760,917
54,582,229,395
603,905,224
105,710,006
4,708,206,865
130,319,465
821,740,345
797,248,227
63,788,120,444
P
= 72,857,524,809
P
= 3,846,824,496
P
= 4,222,768,767
2,495,629,251
1,019,515,457
484,703,087
11,490,133
7,858,162,424
1,890,774,750
1,290,405,792
529,962,936
139,018,853
8,072,931,098
22,975,121,467
24,360,904,354
6,981,693,612
38,769,100
68,949,798
1,013,824,883
821,812,248
31,900,171,108
39,758,333,532
7,143,299,801
381,600,900
–
861,360,246
983,371,655
33,730,536,956
41,803,468,054
P
= 2,047,270,452
400,000,000
2,447,270,452
P
= 2,047,270,452
400,000,000
2,447,270,452
LIABILITIES AND EQUITY
Current Liabilities
Accounts and other payables (Notes 14 and 28)
Current portion of:
Long-term debt (Notes 15, 27 and 28)
Service concession obligation (Notes 10, 27 and 28)
Income tax payable (Note 19)
Payables to related parties (Notes 22 and 28)
Total Current Liabilities
Noncurrent Liabilities
Long-term debt - net of current portion (Notes 15, 27 and 28)
Service concession obligation - net of current portion
(Notes 10, 24, 27 and 28)
Pension liabilities (Note 16)
Deferred tax liabilities - net (Note 19)
Provisions (Note 30)
Other noncurrent liabilities (Notes 17 and 27)
Total Noncurrent Liabilities
Total Liabilities
Equity
Attributable to equity holders of Manila Water Company, Inc.
Capital stock (Note 20)
Common stock
Preferred stock
(Forward)
*SGVFS011134*
-2-
Additional paid-in capital
Subscriptions receivable
Total paid-up capital
Common stock options outstanding (Note 20)
Retained earnings
Appropriated for capital expenditures (Note 20)
Unappropriated
Unrealized gain on available-for-sale financial assets
(Notes 11 and 28)
Remeasurement loss on defined benefit plans (Note 16)
Other equity reserve (Notes 1 and 20)
Cumulative translation adjustment (Note 2)
Non-controlling interests (Note 1)
Total Equity
For the Years Ended December 31
2014
2013
P
= 3,969,016,591
P
= 3,908,364,990
(251,543,666)
(283,527,324)
6,164,743,377
6,072,108,118
16,206,572
13,806,787
–
28,202,654,069
28,202,654,069
7,000,000,000
17,402,675,096
24,402,675,096
–
(103,140,677)
7,500,000
220,209,709
34,508,173,050
593,397,014
35,101,570,064
P
= 74,859,903,596
3,300,716
(140,372,917)
7,500,000
118,239,494
30,477,257,294
576,799,461
31,054,056,755
P
= 72,857,524,809
See accompanying Notes to Consolidated Financial Statements.
*SGVFS011134*
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31
2014
2013
REVENUE
Water (Note 22)
East Zone
Outside East Zone
Environmental charges (Note 22)
Sewer (Note 22)
East Zone
Outside East Zone
Revenue from management contracts (Note 23)
Other operating income (Note 18)
2012
P
= 11,772,381,095
1,074,829,358
2,303,873,152
P
= 11,322,404,038
673,289,068
2,250,482,542
P
= 10,901,483,294
590,241,076
2,236,950,897
271,008,639
148,710,996
25,488,456
760,853,355
16,357,145,051
265,462,739
131,201,229
174,938,833
1,108,039,013
15,925,817,462
264,938,493
125,696,513
169,449,785
264,308,289
14,553,068,347
2,135,943,763
1,049,288,817
1,009,782,892
409,090,595
384,165,387
270,242,113
109,241,055
99,493,003
98,763,316
92,601,779
71,179,346
45,775,658
26,154,855
18,342,226
14,679,755
174,681,629
6,009,426,189
2,384,936,194
960,101,617
814,227,751
412,606,429
358,204,520
215,824,474
114,102,430
65,882,799
98,618,208
84,042,255
79,103,032
49,702,630
40,531,449
23,020,977
22,505,452
149,422,277
5,872,832,494
2,139,883,760
1,106,810,417
765,611,866
259,885,308
243,865,112
143,528,460
110,973,894
50,411,509
73,029,541
66,318,906
141,157,469
45,215,416
37,676,982
14,141,421
8,879,767
49,036,332
5,256,426,160
10,347,718,862
10,052,984,968
9,296,642,187
OPERATING EXPENSES (Note 18)
1,522,320,184
1,275,539,592
1,292,494,676
INCOME BEFORE OTHER INCOME (EXPENSES)
8,825,398,678
8,777,445,376
8,004,147,511
3,435,789,320
(3,435,789,320)
(174,789,330)
167,614,258
185,635,301
7,240,954
(1,636,136,708)
5,071,257,510
(5,071,257,510)
545,916,143
(539,490,917)
172,825,432
6,167,676
(1,733,400,506)
5,877,838,288
(5,877,838,288)
(1,014,755,476)
1,034,389,895
264,518,215
5,100,313
(1,563,957,454)
COST OF SERVICES
Depreciation and amortization (Notes 9 and 10)
Salaries, wages and employee benefits (Notes 16, 20 and 22)
Power, light and water
Management, technical and professional fees (Note 22)
Repairs and maintenance
Contractual services
Collection fees
Regulatory costs (Note 1)
Occupancy costs (Note 25)
Wastewater costs
Water treatment chemicals
Insurance
Transportation and travel
Postage, telephone and supplies
Taxes and licenses
Other expenses
GROSS PROFIT
OTHER INCOME (EXPENSES)
Revenue from rehabilitation works (Notes 1, 2 and 10)
Cost of rehabilitation works (Notes 1, 2 and 10)
Foreign currency differentials (Note 1)
Foreign exchange gains (losses)
Interest income (Note 18)
Amortization of deferred credits (Note 17)
Interest expense (Notes 15 and 18)
Equity share in net income of associates and joint venture (Note
12)
Gain on disposal of property and equipment
Gain on disposal of available-for-sale financial assets
(Note 11)
Gain (loss) on revaluation of receivable from Bonifacio Water
Corporation (Notes 6 and 13)
Other income (expenses) (Notes 12 and 15)
357,298,362
42,524
293,975,032
13,448
206,762,409
4,352,290
–
–
13,112,046
–
(66,057,375)
(1,159,152,014)
(1,411,856)
70,093,853
(1,185,311,695)
INCOME BEFORE INCOME TAX
7,666,246,664
7,592,133,681
7,098,344,897
PROVISION FOR INCOME TAX (Note 19)
1,836,298,011
1,811,572,574
1,595,053,389
NET INCOME
5,829,948,653
5,780,561,107
5,503,291,508
113,488,599
31,186,549
(905,802,614)
(Forward)
*SGVFS011134*
-2Years Ended December 31
2014
2013
OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) to be reclassified to profit
and loss in subsequent periods:
Unrealized fair value loss on available-for-sale financial
assets (Note 11)
Realized fair value gain on available-for-sale transferred
to profit or loss (Note 11)
Cumulative translation adjustment (Note 12)
Other comprehensive income (loss) not to be reclassified to profit
or loss in subsequent periods:
Actuarial gain (loss) on pension liabilities (Note 16)
Income tax effect (Note 19)
TOTAL COMPREHENSIVE INCOME
Net Income Attributable to:
Equity holders of Manila Water Company, Inc.
Non-controlling interests (Note 1)
Total Comprehensive Income Attributable to:
Equity holders of Manila Water Company, Inc.
Non-controlling interests (Note 1)
Earnings Per Share (Note 21)
Basic
Diluted
2012
(P
= 3,300,716)
(P
= 3,502,145)
(P
= 6,537,179)
–
101,970,215
98,669,499
(15,065,800)
127,109,003
108,541,058
(17,934,347)
1,865,431
(22,606,095)
37,227,700
(257,680)
36,970,020
(68,194,900)
499,830
(67,695,070)
(96,530,204)
98,130
(96,432,074)
P
= 5,965,588,172
P
= 5,821,407,095
P
= 5,384,253,339
P
= 5,813,088,880
16,859,773
P
= 5,829,948,653
P
= 5,752,361,946
28,199,161
P
= 5,780,561,107
P
= 5,490,442,663
12,848,845
P
= 5,503,291,508
P
= 5,948,616,019
16,972,153
P
= 5,965,588,172
P
= 5,793,304,768
28,102,327
P
= 5,821,407,095
P
= 5,372,723,580
11,529,759
P
= 5,384,253,339
P
= 2.34
P
= 2.34
P
= 2.24
P
= 2.23
P
= 2.36
P
= 2.36
See accompanying Notes to Consolidated Financial Statements.
*SGVFS011134*
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
2014
Years Ended December 31
2013
2012
ATTRIBUTABLE TO EQUITY HOLDERS OF MANILA WATER
COMPANY, INC.
CAPITAL STOCK (Note 20)
Common stock - P
= 1 par value
Authorized - 3,100,000,000 shares
Issued and outstanding - 2,016,708,607 in 2014,
2,015,301,474 in 2013 and 2,005,443,965 in 2012
Subscribed common stock 30,561,845 shares in 2014, 31,968,978 shares in 2013, and
36,009,267 shares in 2012
Balance at beginning of year
Additions during the year
Issuance of shares
Balance at end of year
Preferred stock - P
= 0.10 par value, 10% cumulative, voting
participating, nonredeemable and nonconvertible
Authorized, issued and outstanding - 4,000,000,000
shares
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year
Additions during the year
Balance at end of year
SUBSCRIPTIONS RECEIVABLE
Balance at beginning of year
Additions during the year
Collections during the year
Balance at end of year
COMMON STOCK OPTIONS OUTSTANDING (Note 20)
Balance at beginning of year
Granted
Exercised
Balance at end of year
RETAINED EARNINGS (Note 20)
Appropriated for capital expenditures:
Balance at beginning and end of year
Transfer to unappropriated retained earnings
Unappropriated:
Balance at beginning of year
Net income
Transfer from appropriated retained earnings (Note 20)
Dividends declared (Note 20)
Balance at end of year
UNREALIZED GAIN ON AVAILABLE-FOR-SALE FINANCIAL
ASSETS
Balance at beginning of year
Other comprehensive income:
Unrealized fair value loss on available-for-sale financial
assets (Note 11)
Realized fair value gain on available-for-sale financial assets
transferred to profit and loss (Note 11)
Balance at end of year
P
= 2,016,708,607
31,968,978
–
(1,407,133)
30,561,845
P
= 2,015,301,474
36,009,267
5,817,220
(9,857,509)
31,968,978
P
= 2,005,443,965
31,696,853
4,312,414
–
36,009,267
400,000,000
2,447,270,452
400,000,000
2,447,270,452
400,000,000
2,441,453,232
3,908,364,990
60,651,601
3,969,016,591
3,750,425,522
157,939,468
3,908,364,990
3,601,805,187
148,620,335
3,750,425,522
(283,527,324)
–
31,983,658
(251,543,666)
(221,425,456)
(113,151,413)
51,049,545
(283,527,324)
(139,045,131)
(113,816,191)
31,435,866
(221,425,456)
13,806,787
63,051,386
(60,651,601)
16,206,572
13,578,433
50,833,629
(50,605,275)
13,806,787
20,830,032
31,864,959
(39,116,558)
13,578,433
7,000,000,000
(7,000,000,000)
–
7,000,000,000
–
7,000,000,000
7,000,000,000
–
7,000,000,000
17,402,675,096
5,813,088,880
7,000,000,000
(2,013,109,907)
28,202,654,069
28,202,654,069
13,555,773,394
5,752,361,946
–
(1,905,460,244)
17,402,675,096
24,402,675,096
9,558,014,858
5,490,442,664
–
(1,492,684,128)
13,555,773,394
20,555,773,394
3,300,716
21,868,661
(3,300,716)
(3,502,145)
(6,537,179)
–
–
(15,065,800)
3,300,716
(17,934,347)
21,868,661
46,340,187
(Forward)
*SGVFS011134*
-2-
2014
REMEASUREMENT GAIN (LOSS) ON DEFINED BENEFIT
PLANS (Note 16)
Balance at beginning of year
Actuarial gain (loss) on pension liabilities
Income tax effect
Balance at end of year
OTHER EQUITY RESERVE (Notes 1 and 20)
CUMULATIVE TRANSLATION ADJUSTMENT
(Notes 2 and 12)
Balance at beginning of year
Other comprehensive income
Balance at end of year
TREASURY SHARES - cost (Note 20)
Balance at beginning of the year
Retirement of shares
Balance at end of the year
NON-CONTROLLING INTERESTS (Notes 1 and 2)
Balance at beginning of year
Additions
Remeasurement loss on defined benefit plans
Net income
Balance at end of year
(P
= 140,372,917)
37,602,300
(370,060)
(103,140,677)
7,500,000
118,239,494
101,970,215
220,209,709
Years Ended December 31
2013
(P
= 72,774,681)
(68,094,610)
496,374
(140,372,917)
7,500,000
(8,869,509)
127,109,003
118,239,494
–
–
–
34,508,173,050
–
–
–
30,477,257,294
576,799,461
–
(262,220)
16,859,773
593,397,014
P
= 35,101,570,064
266,739,634
281,957,500
(96,834)
28,199,161
576,799,461
P
= 31,054,056,755
2012
P
= 23,588,702
(96,432,074)
68,691
(72,774,681)
7,500,000
(10,734,940)
1,865,431
(8,869,509)
(500,000,000)
500,000,000
–
26,487,529,596
174,451,981
79,507,499
(68,691)
12,848,845
266,739,634
P
= 26,754,269,230
See accompanying Notes to Consolidated Financial Statements.
*SGVFS011134*
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
2014
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization (Notes 9 and 10)
Interest expense (Notes 15 and 18)
Provision for probable losses (Notes 6 and 30)
Share-based payments (Note 20)
Gain on disposal of available-for-sale financial assets
(Note 11)
Loss (gain) on revaluation of receivable from Bonifacio Water
Corporation (Notes 6 and 13)
Gain on disposal of property and equipment
Equity share in net income of associates (Note 12)
Interest income (Note 18)
Operating income before changes in operating assets and
liabilities
Changes in operating assets and liabilities
Decrease (Increase) in:
Receivables
Materials and supplies
Service concession assets (Note 31)
Concession financial receivable
Other current assets
Increase (Decrease) in:
Accounts and other payables
Pension liabilities
Payables to related parties
Net cash provided by operations
Income tax paid
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received
Acquisitions of:
Investments in associates (Notes 1 and 12)
Property and equipment (Note 9)
Available-for-sale financial assets (Note 11)
Proceeds from:
Maturities of available-for-sale financial assets
Sale of shares of stock of a subsidiary (Notes 1 and 20)
Sale of property and equipment
Decrease (increase) in:
Short-term cash investments (Note 5)
Other noncurrent assets
Net cash provided by (used) in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt (Note 15):
Availments
Payments
Payments of service concession obligation (Note 10)
Payments of dividends (Note 20)
Collection of subscriptions receivable (Note 20)
Interest paid
Decrease in other noncurrent liabilities (Note 17)
Increase in non-controlling interests of consolidated subsidiaries
(Note 1)
Net cash used in financing activities
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS
AT END OF YEAR (Note 5)
Years Ended December 31
2013
2012
P
= 7,666,246,664
P
= 7,592,133,681
P
= 7,098,344,897
2,443,987,307
1,636,136,708
188,034,322
63,051,387
–
2,494,762,992
1,733,400,506
171,294,230
50,833,629
–
2,320,075,185
1,563,957,454
84,761,395
31,864,959
(13,112,046)
–
(42,524)
(357,298,362)
(185,635,301)
1,411,856
(13,448)
(293,975,032)
(172,825,432)
(113,488,599)
(4,352,290)
(206,762,409)
(264,518,215)
11,454,480,201
11,577,022,982
10,496,770,331
(291,607,402)
(82,692,799)
(3,252,081,286)
(212,288,640)
(158,105,895)
40,374,240
7,704,418
(4,677,183,266)
(681,363,724)
391,470,005
(472,215,297)
45,489,899
(5,710,773,652)
–
(248,516,927)
(197,048,448)
(324,173,020)
(127,528,720)
6,808,953,991
(1,777,131,404)
5,031,822,587
(640,874,433)
(68,614,844)
111,459,197
6,059,994,575
(1,714,907,911)
4,345,086,664
589,092,433
(76,957,558)
(74,184,899)
4,548,704,330
(1,384,792,142)
3,163,912,188
58,444,925
133,816,460
–
(352,516,515)
–
(642,759,834)
(274,945,648)
–
100,000,000
–
1,243,709
370,043,605
–
3,042,742
841,343,498
15,000,000
5,725,352
(305,655,400)
(261,013,705)
(759,496,986)
(94,344,600)
520,967,502
15,820,227
657,999,988
(181,478,555)
(663,375,497)
1,235,628,647
(1,886,518,477)
(698,927,235)
(2,013,109,906)
31,983,658
(1,507,049,894)
(161,559,407)
6,195,926,714
(4,255,918,126)
(924,935,673)
(1,905,460,244)
51,049,545
(1,515,973,850)
(1,047,922,996)
2,912,890,175
(1,110,022,633)
(1,287,180,900)
(1,508,069,536)
31,435,866
(1,244,264,127)
(62,323,453)
–
(4,999,552,614)
281,957,500
(3,121,277,130)
72,007,500
(2,195,527,108)
(727,227,013)
230,686,698
(1,572,144,058)
(626,717,563)
(33,790,857)
1,239,629,761
305,009,583
6,779,780,845
5,540,151,084
5,235,141,501
P
= 6,052,553,832
P
= 6,779,780,845
P
= 5,540,151,084
See accompanying Notes to Consolidated Financial Statements.
*SGVFS011134*
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Corporate Information
Manila Water Company, Inc. (the Parent Company) was incorporated on January 6, 1997 and started
commercial operations on January 1, 2000. It became a publicly listed company via an initial public offering
on March 18, 2005. The Parent Company is a subsidiary of Ayala Corporation (Ayala). Ayala is a publicly
listed company which is 49.03% owned by Mermac, Inc., 10.18% owned by Mitsubishi Corporation and the
rest by the public. The Parent Company and its Subsidiaries (collectively referred to as the Group) are
involved in providing water, sewerage and sanitation, distribution services, pipeworks and management
services.
The Parent Company’s principal place of business is MWSS Administration Building, Katipunan Road,
Balara, Quezon City.
On May 31, 2004, International Finance Corporation (IFC) became one of the principal shareholders of the
Parent Company. Ayala held part of its shares in the Parent Company through MWC Holdings, Inc.
(MWCHI) until MWCHI was merged into the Parent Company on October 12, 2004.
On December 23, 2004, Ayala and United Utilities Pacific Holdings, BV(UU) assigned and transferred their
participating preferred shares in the Parent Company comprising of 2.0 billion and 1.33 billion shares,
respectively, to Philwater Holdings Company, Inc. (Philwater) in exchange for its 333.33 million common
shares. Philwater is a special purpose company, 60.0% of which is owned by Ayala and 40.0% is owned by
UU.
The Parent Company was a joint venture among Ayala, UU, a subsidiary of United Utilities PLC and
Mitsubishi Corporation until it became a subsidiary of Ayala in 2010. As of December 31, 2010 and 2009,
Philwater owns 4.00 billion and 3.33 billion participating preferred shares, respectively, of the Parent
Company. Ayala owns 651.91 million common shares of the Parent Company and has 60% share in
Philwater which holds the whole 4.00 billion preferred shares of the Parent Company. These conditions
warrant the treatment of the Parent Company as Ayala’s subsidiary.
On December 16, 2013, Ayala acquired 140 million common shares of the Parent Company representing
5.7% interest in the Company. The shares were acquired from its strategic partner, Mitsubishi Corporation,
which has been a long-time partner of Ayala since 1974 and has been a shareholder of the Parent Company
since 1997. Ayala’s stake in the Parent Company increased from 43.1% to 48.8% while Mitsubishi remained
a shareholder with a 1.2% interest. This transaction is valued at P
= 2.8 billion and was executed via a special
block sale through the Philippine Stock Exchange (PSE).
The consolidated financial statements comprise the financial statements of the Parent Company and the
following wholly and majority owned subsidiaries:
Percentages
Country of
of Ownership
Incorporation
2014
2013
Philippines
Manila Water International Solutions, Inc. (MWIS)
100
100
-doManila Water Total Solutions Corp. (MWTS)
100
100
Singapore
Manila Water Asia Pacific Pte. Ltd. (MWAP)
100
100
-doManila Water South Asia Holdings Pte. Ltd. (MWSAH)
100
100
Thu Duc Water Holdings Pte. Ltd. (TDWH)
-do100
100
Kenh Dong Water Holdings Pte. Ltd. (KDWH)
-do100
100
Manila Water Philippine Ventures, Inc. (MWPVI) [formerly
AAA Water Corporation (AWC)]
Philippines
100
100
-doLaguna AAAWater Corporation (Laguna Water)
70
70
-doClark Water Corporation (Clark Water)
100
100
Manila Water Consortium Inc. (MW Consortium)
-do51
51
Cebu Manila Water Development, Inc. (CMWD)
-do51
51
Boracay Island Water Company, Inc. (Boracay Water)
-do80
80
Unless otherwise indicated, the Philippines is the principal place of business and country of incorporation of
the Group’s investments in subsidiaries.
*SGVFS011134*
-2-
The voting rights held by the Group in its investments in subsidiaries are in proportion to its ownership
interest.
MWAP incorporated KDWH in June 2012 for the purpose of carrying on the business of investment holding,
and to undertake and to transact all kinds of investment business (see Note 12).
In March 2012, the Northern Waterworks and Rivers of Cebu, Inc. (NWRC) entered into a joint investment
agreement with the Province of Cebu wherein NWRC will have 51% equity share in a joint venture company,
whose principal activity is to provide bulk water supply to Cebu. Subsequently, in May 2012, CMWD was
incorporated pursuant to the joint investment agreement. NWRC also changed its business name to Manila
Water Consortium, Inc. (MW Consortium).
In 2012, the Parent Company sold its 10% interest in MW Consortium to Vicsal Development Corporation for
P
= 15.00 million. Gain on sale recognized as other equity reserves amounted to P
= 7.50 million. Subsequently,
the Parent Company subscribed to additional shares in MW Consortium, thus increasing its ownership to
84% as of December 31, 2012. In January 2013, Metropac Water Investments Corporation (MWIC) has
entered into a subscription agreement with MW Consortium for 39% equity ownership. The entry of MWIC
through the issuance of additional shares diluted the Parent Company’s ownership in MW Consortium from
84% to 51%.
On June 19, 2014, the SEC approved the change in corporate name of AWC to Manila Water Philippine
Ventures, Inc. (MWPVI) and the increase of its authorized capital stock from 150.00 million shares to 750.00
million shares. On Februay 20, 2015, the SEC approved the increase of the authorized capital stock of
MWPVI from 750.00 million shares to 1,750.00 million shares. The Board of Directors (BOD) approved the
subscription of the Parent Company to new and additional shares of MWPVI and the exchange of shares
between the Parent Company and MWPVI for the Parent Company’s shares in Boracay Water, Clark Water
and MW Consortium.
Parent Company’s Concession Agreement with Metropolitan Waterworks and Sewerage System (MWSS)
On February 21, 1997, the Parent Company entered into a Concession Agreement (the Concession
Agreement) with MWSS, a government corporation organized and existing pursuant to Republic Act (RA)
No. 6234, as amended, with respect to the MWSS East Zone (East Zone). The Concession Agreement sets
forth the rights and obligations of the Parent Company throughout the 25-year concession period. The
MWSS Regulatory Office (MWSS-RO) monitors and reviews the performance of each of the Concessionaires
- the Parent Company and Maynilad Water Services, Inc. (Maynilad), the West Zone Concessionaire.
Under the Concession Agreement, MWSS grants the Parent Company (as contractor to perform certain
functions and as agent for the exercise of certain rights and powers under RA No. 6234) the sole right to
manage, operate, repair, decommission, and refurbish all fixed and movable assets (except certain retained
assets) required to provide water delivery and sewerage services in the East Zone for a period of 25 years
commencing on August 1, 1997 (the Commencement Date) up to May 6, 2022 (the Expiration Date) or the
early termination date as the case may be. While the Parent Company has the right to manage, operate,
repair and refurbish specified MWSS facilities in the East Zone, legal title to these assets remains with
MWSS. The legal title to all fixed assets contributed to the existing MWSS system by the Parent Company
during the Concession remains with the Parent Company until the Expiration Date (or until the early
termination date) at which time all rights, titles and interest in such assets will automatically vest in MWSS.
On Commencement Date, the Parent Company officially took over the operations of the East Zone and
rehabilitation works for the service area commenced immediately thereafter. As provided in the Parent
Company’s project plans, operational commercial capacity will be attained upon substantial completion of the
rehabilitation work.
Under the Agreement, the Parent Company is entitled to the following rate adjustments:
a.
Annual standard rate adjustment to compensate for increases in the consumer price index (CPI);
b.
Extraordinary price adjustment (EPA) to account for the financial consequences of the occurrence of
certain unforeseen events stipulated in the Concession Agreement; and
Foreign Currency Differential Adjustment (FCDA) to recover foreign exchange losses including accruals
and carrying costs thereof arising from MWSS loans and any Concessionaire loans used for capital
expenditures and concession fee payments, in accordance with the provisions set forth in Amendment
No. 1 of the Concession Agreement dated October 12, 2001 (see Notes 2, 10 and 15).
c.
*SGVFS011134*
-3-
These rate adjustments are subject to a rate adjustment limit which is equivalent to the sum of CPI published
in the Philippines, EPA and Rebasing Convergence Adjustment as defined in the Concession Agreement.
The Concession Agreement also provides a general rate setting policy for rates chargeable by the Parent
Company for water and sewerage services as follows:
1.
For the period through the second Rate Rebasing date (January 1, 2008), the maximum rates
chargeable by the Parent Company (subject to interim adjustments) are set out in the Concession
Agreement; and
2.
From and after the second Rate Rebasing date, the rates for water and sewerage services shall be set
at a level that will permit the Parent Company to recover, over the 25-year term of the concession, its
investment including operating, capital maintenance and investment incurred, Philippine business taxes
and payments corresponding to debt service on the MWSS loans and the Parent Company’s loans
incurred to finance such expenditures, and to earn a rate of return equal to the appropriate discount rate
(ADR) on these expenditures for the remaining term of the concession.
The maximum rates chargeable for such water and sewerage services shall be subject to general adjustment
at five-year intervals commencing on the second Rate Rebasing date, provided that the MWSS-RO may
exercise its discretion to make a general adjustment of such rates.
The Parent Company submitted a Business Plan which included proposed expenditures on (1) a Reliability
Investment Plan which will focus on service level sustainability, earthquake and natural calamity contingency
and Angat reliability; and (2) an Expansion Investment Plan which includes the development of new water
sources, network expansion and implementation of the MWSS wastewater masterplan. These investments
amount to an estimated P
= 187.00 billion to be spent over a 15-year period, for both capital and operating
expenditures.
On December 14, 2007, MWSS passed Resolution No. 2007-278 adopting and approving the MWSS-RO’s
resolutions that contain the final evaluation and determination of the Parent Company’s Rate Rebasing
Proposal. Under the said resolution, the MWSS approved a one-time tariff adjustment of 75.07% over the
basic tariff. However, in order to temper the increases in favor of the customers, the tariff adjustments were
implemented on a staggered basis over a five year period, but adjusted for the net present value impact.
The said staggered implementation was premised on certain conditions, such as the adoption of additional
performance targets and other conditions such as rationalization of sewerage and environmental charges,
reclassification of some government institutions, among others. As of December 31, 2014, the Parent
Company has complied with all these targets and conditions.
The first of a series of annual adjustments were implemented on January 1, 2008 amounting to an increase
of P
= 4.47 per cubic meter based on the basic charge.
On April 16, 2009, the MWSS Board of Trustees passed Resolution No. 2009-072 approving the 15-year
extension of the Concession Agreement (the Extension) from May 7, 2022 to May 6, 2037. This resolution
was confirmed by the Department of Finance (by authority from the office of the President of the Republic of
the Philippines) on October 19, 2009. The significant commitments under the Extension follow:
a.
To mitigate tariff increases such that there will be reduction of the balance of the approved 2008 rebased
tariff by 66%, zero increase of the rebased tariff in 2009 and a P
= 1.00 increase for years 2010 to 2016,
subject to CPI and FCDA adjustments.
b.
To increase the share in the current operating budget support to MWSS by 100% as part of the
concession fees starting 2009.
c.
To increase the total investments from the approved P
= 187.00 billion for the periods 2008 to 2022 to
P
= 450.00 billion for 2008 to 2037.
As a result of the increase in the annual regulatory cost, service concession assets and service concession
obligations as of October 19, 2009 increased by P
= 3.36 billion and P
= 3.17 billion, respectively. Also, with the
approval of the Extension, the recovery period for the Parent Company’s investment is now extended by
another 15 years from 2022 to 2037.
*SGVFS011134*
-4-
In March 2010, MWSS entered into a loan agreement with The Export-Import Bank of China to finance the
Angat Water Utilization and Aqueduct Improvement Project Phase II (the Project). Total loan facility
amounted to $116.60 million with maturity of 20 years including 5 years grace period. Interest rate is 3% per
annum.
MWSS then entered into a Memorandum of Agreement (MOA) with the Parent Company and Maynilad for
the Parent Company and Maynilad to shoulder equally the repayment of the loan with such repayment to be
part of the concession fees.
In March 2012, the Parent Company submitted to MWSS a business plan embodying its rate rebasing
proposals for charging year 2013. The MWSS conducted a review of the proposal including the Parent
Company’s last five (5) years financial performance. The financial review process extended up to the third
quarter of 2013. On September 10, 2013, MWSS-RO issued Resolution No. 13-09-CA providing for a
negative rate rebasing adjustment of 29.47% to the Parent Company’s 2012 average basic water rate of
P
= 24.57 per cubic meter. The adjustment shall be implemented in 5 equal tranches of negative 5.894% per
charging year. The Parent Company objected to MWSS’ Rate Rebasing determination and formally filed its
Dispute Notice on September 24, 2013, before a duly-constituted Appeals Panel, commencing the arbitration
process, as provided under Section 12 (in relation to Section 9.4 of the Concession Agreement).
On December 10, 2013, the MWSS Board of Trustees thru R.O. Resolution No. 13-012 CA, approved the
implementation of a status quo for the Parent Company’s Standard Rates including FCDA, until such time
that the Appeals Panel has rendered a final award on the 2013 Rate Rebasing determination.
On December 17, 2014, the MWSS Board of Trustees approved the implementation of an FCDA adjustment
of P
= 0.36 per cubic meter based on the exchange rates of USD1: P
= 44.80 and JPY1:P
= 0.42, which was
published on December 31, 2014 and took effect 15 days after its publication. The FCDA component of the
water bill was adjusted to 1.32% of the basic charge in the first quarter of 2015. The FCDA has no impact on
the projected net income of the Parent Company.
As of February 20, 2015, the Parent Company continues to implement the current Standard Rates pending
final award by the Arbitration Panel.
Laguna Water’s Concession Agreement with the Provincial Government of Laguna (PGL)
On April 9, 2002, Laguna Water entered into a concession agreement (as amended on March 31, 2004 and
July 22, 2009) with PGL, a local government unit organized and existing under Philippine Laws.
Under the terms of the concession agreement, PGL grants Laguna Water (as contractor and as agent for the
exercise of certain rights in Laguna) the sole and exclusive right and discretion during the concession period
to manage, occupy, operate, repair, maintain, decommission and refurbish the identified facilities required to
provide water services to specific areas for an operational period of 25 years.
While Laguna Water has the right to manage, occupy, operate, repair, maintain, decommission and refurbish
specified PGL facilities, legal title to these assets shall still remain with PGL. Legal title to all assets procured
by Laguna Water in the performance of its obligations under the agreement shall remain with Laguna Water
and shall not pass to PGL. Laguna Water will also have exclusive rights to provide water services in the
service areas specified in the concession agreement. Concession fees set forth in the concession
agreement shall be computed as a percentage of revenue from water services (see Note 10).
Seventy percent (70%) of the concession fees shall be applied against any advances made by Laguna Water
to PGL. The remaining thirty percent (30%) of the concession fees shall be payable annually 30 days after
the submission of the audited financial statements by Laguna Water, starting on the first operational period,
which will begin upon the expiration of the transition period. The operational period is the 25 year period
commencing on the takeover date which was formalized on October 20, 2004.
Boracay Water’s Concession Agreement with Tourism Infrastructure and Enterprise Zone
Authority (TIEZA)
On December 17, 2009, Boracay Water entered into a concession agreement with TIEZA, formerly Philippine
Tourism Authority (PTA). The Concession Agreement sets forth the rights and obligations of Boracay Water
as concessionaire throughout the 25 year concession period. The TIEZA regulatory office will monitor and
review the performance of the concessionaire throughout the concession period.
*SGVFS011134*
-5-
As part of the agreement, Boracay Water advanced concession fees to TIEZA amounting to P
= 60.00 million,
which will be applied as payment of, and shall be offset against the annual concession fees payable to TIEZA
equivalent to 5% of the annual gross revenue of Boracay Water.
Under its concession agreement, Boracay Water is entitled to the following rate adjustments:
a.
Annual standard rate adjustment to compensate for increases in the consumer CPI;
b.
EPA to account for the financial consequences of the occurrence of certain unforeseen events stipulated
in the Agreement; and
c.
FCDA to recover foreign exchange losses including accruals and carrying costs thereof arising from
TIEZA loans and any loans used for capital expenditures and concession fee payments (see Notes 2, 10
and 15).
These rate adjustments are subject to a rate adjustment limit which is equivalent to the sum of CPI published
in the Philippines, EPA and Rebasing Convergence adjustment as defined in Boracay Water’s concession
agreement.
The rate rebasing date is set every 5 years starting January 1, 2011. Hence, the first rate rebasing period
shall commence on January 1, 2010 and end on December 31, 2010, and in the case of subsequent rate
rebasing periods, the period commencing on the last rate rebasing date and ending on December 31 of the
fifth year thereafter.
Boracay Water requested for the deferment of the rate rebasing since it was not able to commence
operations in June 2009, as originally planned, because the SEC required the Company to seek conformity
from the Department of Finance before it could be incorporated.
In January 2013, TIEZA approved the Rebasing Convergence adjustment for Boracay Water which is
equivalent to an increase from its existing rates of 35% to be implemented on a staggered basis for a period
of four years with 10.10% increase in 2013; 9.18% for 2014; 8.40% in 2015; and 7.75% in 2016, effective
February 1, 2013.
For 2013 and 2014, only the approved rate rebasing adjustment was implemented while the CPI adjustment
was deferred due to economic considerations relative to the first time adjustment and natural calamities in
2013.
Also part of the concession agreement, Boracay Water assumed certain property and equipment of Boracay
Water Sewerage System (BWSS), as well as its outstanding loan from Japan International Cooperation
Agency (JICA) and regulatory costs.
As a result of the above terms of the concession agreement, Boracay Water recognized a total of P
=986.86
million service concession assets on commencement date. It includes the JICA loan assumed by Boracay
Water, regulatory costs, construction costs for the improvement and expansion of the water and wastewater
facilities and the advanced concession fees.
Clark Water’s Concession Agreement with Clark Development Corporation (CDC)
On March 16, 2000, Vivendi Water Philippines, Inc. which subsequently changed its name to Veolia Water
Philippines, Inc (VWPI), entered into a concession agreement with Clark Development Corporation (CDC), a
government corporation organized and existing under Executive Order No. 80, series of 1993. The
concession agreement sets out the terms and conditions under which VWPI will finance, design, construct,
operate and maintain the water and sewerage system inside the CFZ commencing on October 1, 2000 and
ending on the date falling 25 years thereafter or as may be extended by the terms of the concession
agreement. As the implementing arm of the Bases Conversion Development Authority and the regulatory
and development body for the CFZ, CDC has the power and authority to regulate and monitor the
performance and compliance of VWPI, or its assignee, with its obligations under the concession agreement.
On September 1, 2000, in accordance with the terms of the concession agreement, VWPI assigned its rights
and obligations under the concession agreement to Clark Water by virtue of an assignment and assumption
agreement between VWPI and Clark Water.
As consideration for the grant of the concession and franchise to develop, operate and maintain the water
and sewerage system within CFZ, Clark Water pays CDC an annual franchise fee of P
= 1.50 million.
*SGVFS011134*
-6-
On September 29, 2000, CDC leased in favor of Clark Water the existing facilities in compliance with the
condition precedent to the effectivity of and the respective obligations of Clark Water and CDC under the
concession agreement. Under the lease agreement, Clark Water was required to make a rental deposit
amounting to P
= 2.80 million equivalent to six months lease rental and a performance security amounting to
P
= 6.70 million to ensure the faithful compliance of Clark Water with the terms and conditions of the lease
agreement. Clark Water pays semi-annual rental fees of P
= 2.80 million amounting to a total of P
= 138.30 million
for the entire concession period. The lease term shall be co-terminus with the concession period unless
sooner terminated for any of the reasons specified in the concession agreement.
On August 15, 2014, the Clark Water and CDC signed an amendment agreement to the concession
agreement dated March 16, 2000. The Amendment provides for the following:
·
Extension of the original concession period for another 15 years up to October 1, 2040;
·
Additional investment of P
=4.00 billion provided under the amended concession agreement to be spent
for further improvement and expansion water and waste water services in the area. Investment
requirement under the original CA amounted to P
= 3.00 billion and the amended concession agreement
required an additional investment of P
=2.00 billion. Total investment prior to the amendment of the
concession agreement amounted to P
= 1.00 billion;
·
Introduction of rate rebasing mechanism for every four years starting 2014;
·
Reduction in tariff rates by 3.9% (from Php25.63/m3 to Php24.63/m3) effective September 1, 2014,
subject to the Extraordinary Price Adjustment; and
·
Increase in tariff rates by:
o P
= 0.41/m 3 (from Php24.63/m3 to Php25.04/m 3 ) in 2018
o P
= 0.42/m 3 (from Php25.04/m3 to Php25.45/m 3 ) in 2019
o P
= 0.42/m 3 (from Php25.45/m3 to Php25.87/m 3 ) in 2020
o P
= 0.43/m 3 (from Php25.87/m3 to Php26.30/m 3 ) in 2021
As a result of the extension of the concession period, service concession assets and service concession
obligation as of August 15, 2014 increased by P
= 56.58 million. Further, the recovery period of the Company’s
investment is now extended by another 15 years from 2025 to 2040.
On July 28, 2014, Clark Water’s BOD approved and authorized the equity restructuring of Clark Water. Clark
Water converted 700 issued and outstanding common stock to redeemable preferred stock with par value of
P
= 100.00 per share. Subsequently, on September 29, 2014, Clark Water redeemed all issued and
outstanding preferred stock.
MW Consortium Agreement with the Provincial Government of Cebu (PGC)
On March 21, 2012, MW Consortium has signed a joint investment agreement with the PGC for the formation
of a joint venture company with 51% and 49% equity participation for MW Consortium and the PGC,
respectively. Under the joint investment agreement, the parties agreed to develop and operate a bulk water
supply system that will supply 35.00 million liters of water per day to target areas in the province of Cebu with
the joint venture company serving as a bulk water provider. The term of the agreement is 30 years starting
March 2012, renewable for another 25 years. MW Consortium and the PGC incorporated CMWD pursuant to
the joint investment agreement.
On December 13, 2013, CMWD received a Notice of Award for the bulk supply of water to the Metropolitan
Cebu Water District (MCWD). On December 18, 2013, CMWD and MCWD signed a 20-year Bulk Water
Supply Contract for the supply of 18.00 million liters per day of water for the first year and 35.00 million liters
per day of water for years 2 up to 20. CMWD delivered its first water to MCWD on January 5, 2015 (see
Note 32).
Asset Purchase Agreement with LTI
On December 27, 2013, Laguna Water signed an Asset Purchase Agreement with Laguna Technopark, Inc.
(LTI) with a purchase price of P
= 625.00 million for the acquisition of the water reticulation system of LTI.
Laguna Water officially took over as the exclusive water service provider of LTI starting December 31, 2013.
MWSAH acquisition of Saigon Water
On October 8, 2013, the Parent Company thru its subsidiary MWSAH, acquired a 31.47% minority stake in
Saigon Water Infrastructure Corporation (Saigon Water) equivalent to 18.37 million shares at VND16,900 per
share for a total consideration of P
= 642.76 million. Saigon Water is a listed water company in Vietnam.
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Memorandum of Understanding with Yangon City Development Committee (YCDC)
On March 17, 2014, the Parent Company and Mitsubishi Corporation, signed a Memorandum of
Understanding with the YCDC in Yangon City, Myanmar for the development of a proposed non-revenue
water reduction project for Yangon City. YCDC is an administrative body of the city government in Yangon in
charge of the water, infrastructure, business licenses and city property management, among others.
Joint Venture for Non-revenue Water Reduction Activities with Zamboanga City Water District (ZCWD)
On December 19, 2014, the Parent Company received a notice from the ZCWD awarding the project for nonrevenue water reduction activities in Zamboanga City. The project shall be implemented through a joint
venture company to be formed by ZCWD and the Parent Company.
On January 30, 2015, the Parent Company and ZCWD signed and executed a Joint Venture Agreement in
relation to the non-revenue water reduction project in Zamboanga City. The joint venture company shall
perform the project for a period of 10 years. The Parent Company and ZCWD shall own 70% and 30%,
respectively, of the joint venture company’s outstanding capital stock.
Approval for the Issuance of the Consolidated Financial Statements
The (BOD approved and authorized the issuance of the accompanying consolidated financial statements on
February 20, 2015.
2.
Summary of Significant Accounting Policies
Basis of Preparation
The consolidated financial statements of the Group have been prepared using the historical cost basis,
except for available-for-sale (AFS) financial assets that have been measured at fair value. The Parent
Company’s presentation and functional currency is the Philippine Peso (P
= ). Amounts are rounded off to the
nearest peso, except otherwise stated.
Statement of Compliance
The consolidated financial statements of the Group have been prepared in compliance with Philippine
Financial Reporting Standards (PFRS).
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Group as of December 31,
2014, and 2013, and for each of the three years in the period ended December 31, 2014.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with
the investee and has the ability to affect those returns through its power over the investee. Specifically, the
Group controls an investee if and only if the Group has:
a) power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of
the investee);
b) exposure, or rights, to variable returns from its involvement with the investee; and
c) the ability to use its power over the investee to affect its returns.
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all
relevant facts and circumstances in assessing whether it has power over an investee, including:
a) the contractual arrangement with the other vote holders of the investee;
b) rights arising from other contractual arrangements; and
c) the Group’s voting rights and potential voting rights.
The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there
are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the
Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary.
Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included
in the consolidated statement of comprehensive income from the date the Group gains control until the date
the Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders
of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling
interests having a deficit balance. When necessary, adjustments are made to the financial statements of
subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group
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assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of
the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity
transaction. If the Group loses control over a subsidiary, it:
·
derecognises the assets (including goodwill) and liabilities of the subsidiary;
·
derecognises the carrying amount of any non-controlling interests;
·
derecognises the cumulative translation differences recorded in equity;
·
recognises the fair value of the consideration received;
·
recognises the fair value of any investment retained;
·
recognises any surplus or deficit in profit or loss; and
·
reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained
earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or
liabilities.
Changes in Accounting Policies and Disclosures
The accounting policies adopted in the preparation of the consolidated financial statements are consistent
with those of the previous financial years except for the new PFRS, amended PFRS and improvements to
PFRS which were adopted as of January 1, 2014. Except as otherwise stated, the nature and the impact of
each of new standards and amendments are described below:
·
Investment Entities (Amendments to PFRS 10, Consolidated Financial Statements, PFRS 12,
Disclosure of Interests in Other Entities, and PAS 27, Separate Financial Statements)
These amendments provide an exception to the consolidation requirement for entities that meet the
definition of an investment entity under PFRS 10. The exception to consolidation requires investment
entities to account for subsidiaries at fair value through profit or loss. The amendments must be applied
retrospectively, subject to certain transition relief. These amendments did not have an impact to the
Group’s financial statements since the Parent Company’s investments in subsidiaries would not qualify
as investment entities.
·
PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities
(Amendments)
These amendments clarify the meaning of ‘currently has a legally enforceable right to set-off’ and the
criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting and are
applied retrospectively. These amendments did not have any impact on the Group’s financial position or
financial performance since it does not offset its financial instruments.
·
PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives and
Continuation of Hedge Accounting (Amendments)
These amendments provide relief from discontinuing hedge accounting when novation of a derivative
designated as a hedging instrument meets certain criteria and retrospective application is required.
These amendments did not have any impact on the Group’s financial position or performance since it
does not have novated derivatives in current or prior periods.
·
PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-financial Assets
(Amendments)
These amendments remove the unintended consequences of PFRS 13, Fair Value Measurement, on the
disclosures required under PAS 36. In addition, these amendments require disclosure of the
recoverable amounts for assets or cash-generating units (CGUs) for which impairment loss has been
recognized or reversed during the period. The application of these amendments did not have an impact
on the disclosure in the Group’s consolidated financial statements.
·
Philippine Interpretation IFRIC 21, Levies
IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as
identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum
threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum
threshold is reached. Retrospective application is required for IFRIC 21. This interpretation has no
impact on the Group as it has applied the recognition principles under PAS 37, Provisions, Contingent
Liabilities and Contingent Assets, consistent with the requirements of IFRIC 21 in prior years.
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Annual Improvements to PFRSs (2010 - 2012 cycle)
The annual improvements to PFRS (2010 - 2012 cycle) contain non-urgent but necessary amendment to the
following standard:
·
PFRS 13, Fair Value Measurement
The amendment to PFRS 13 is effective immediately and it clarifies that short-term receivables and
payables with no stated interest rates can be measured at invoice amounts when the effect of
discounting is immaterial. The amendment did not have an impact on the Group’s financial position or
performance since the Group’s policy is already consistent with the amendment.
Annual Improvements to PFRSs (2011 - 2013 cycle)
The annual improvements to PFRS (2011 - 2013 cycle) contain non-urgent but necessary amendment to the
following standard:
·
PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - First-time Adoption of PFRS
The amendment to PFRS 1 is effective immediately. It clarifies that an entity may choose to apply either
a current standard or a new standard that is not yet mandatory, but permits early application, provided
either standard is applied consistently throughout the periods presented in the entity’s first PFRS
financial statements. This amendment has no impact on the Group as it is not a first time PFRS adopter.
Future Changes in Accounting Policies
The Group will adopt the following new and amended standards and interpretations enumerated below when
these become effective. Except as otherwise indicated, the Group does not expect the adoption of these
new and amended PFRS and Philippine Interpretations to have significant impact on the consolidated
financial statements.
Effective in 2015
·
PAS 19, Employee Benefits – Defined Benefit Plans: Employee Contributions (Amendments)
PAS 19 requires an entity to consider contributions from employees or third parties when accounting for
defined benefit plans. Where the contributions are linked to service, they should be attributed to periods
of service as a negative benefit. These amendments clarify that, if the amount of the contributions is
independent of the number of years of service, an entity is permitted to recognize such contributions as a
reduction in the service cost in the period in which the service is rendered, instead of allocating the
contributions to the periods of service. This amendment is effective for annual periods beginning on or
after January 1, 2015. It is not expected that this amendment would be relevant to the Group, since
none of the entities within the Group has defined benefit plans with contributions from employees or third
parties.
Annual Improvements to PFRSs (2010-2012 cycle)
The Annual Improvements to PFRSs (2010-2012 cycle) are effective for annual periods beginning on or after
January 1, 2015 and are not expected to have a material impact on the Group, unless otherwise stated.
They include the following:
·
PFRS 2, Share-based Payment - Definition of Vesting Condition
This improvement is applied prospectively and clarifies various issues relating to the definitions of
performance and service conditions which are vesting conditions, including:
o A performance condition must contain a service condition;
o A performance target must be met while the counterparty is rendering service;
o A performance target may relate to the operations or activities of an entity, or to those of another
entity in the same group;
o A performance condition may be a market or non-market condition; and
o If the counterparty, regardless of the reason, ceases to provide service during the vesting period,
the service condition is not satisfied.
·
PFRS 3, Business Combinations - Accounting for Contingent Consideration in a Business Combination
The amendment clarifies that a contingent consideration that meets the definition of a financial
instrument should be classified as a financial liability or as equity in accordance with PAS 32.
Contingent consideration that is not classified as equity is subsequently measured at fair value through
profit or loss whether or not it falls within the scope of PFRS 9 (or PAS 39, if PFRS 9 is not yet adopted).
The amendment shall be prospectively applied to business combinations for which the acquisition date is
on or after July 1, 2014. The Group shall consider this amendment for future business combinations.
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PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation of the Total of
the Reportable Segments’ Assets to the Entity’s Assets (Amendment)
The amendments require entities to disclose the judgment made by management in aggregating two or
more operating segments. This disclosure should include a brief description of the operating segments
that have been aggregated in this way and the economic indicators that have been assessed in
determining that the aggregated operating segments share similar economic characteristics. The
amendments also clarify that an entity shall provide reconciliations of the total of the reportable
segments’ assets to the entity’s assets if such amounts are regularly provided to the chief operating
decision maker. These amendments are effective for annual periods beginning on or after July 1, 2014
and are applied retrospectively. The amendments affect disclosures only on the judgment made by
management in aggregating operating segments and will have no impact on the Group’s financial
position or performance.
·
PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets - Revaluation Method Proportionate Restatement of Accumulated Depreciation (Amendment)
The amendment clarifies that, upon revaluation of an item of property, plant and equipment, the carrying
amount of the asset shall be adjusted to the revalued amount, and the asset shall be treated in one of
the following ways:
a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the
carrying amount of the asset. The accumulated depreciation at the date of revaluation is adjusted to
equal the difference between the gross carrying amount and the carrying amount of the asset after
taking into account any accumulated impairment losses.
b. The accumulated depreciation is eliminated against the gross carrying amount of the asset.
The amendment is effective for annual periods beginning on or after July 1, 2014. The amendment shall
apply to all revaluations recognized in annual periods beginning on or after the date of initial application
of this amendment and in the immediately preceding annual period. The amendment will not have an
impact on the Group’s financial position or performance since the Group does not carry its property and
equipment at revalued amount.
·
PAS 24, Related Party Disclosures - Key Management Personnel (Amendment)
The amendment clarify that an entity is a related party of the reporting entity if the said entity, or any
member of a group for which it is a part of, provides key management personnel services to the reporting
entity or to the parent company of the reporting entity. The amendments also clarify that a reporting
entity that obtains management personnel services from another entity (also referred to as management
entity) is not required to disclose the compensation paid or payable by the management entity to its
employees or directors. The reporting entity is required to disclose the amounts incurred for the key
management personnel services provided by a separate management entity. The amendments are
effective for annual periods beginning on or after July 1, 2014 and are applied retrospectively. The
amendments will not have an impact on the Group’s financial position or performance since the key
management personnel of the Group are employees of the Group.
Annual Improvements to PFRSs (2011-2013 cycle)
The Annual Improvements to PFRSs (2011-2013 cycle) are effective for annual periods beginning on or after
January 1, 2015 and are not expected to have a material impact on the Group. They include the following:
·
PFRS 3, Business Combinations - Scope Exceptions for Joint Arrangements
The amendment clarifies that PFRS 3 does not apply to the accounting for the formation of a joint
arrangement in the financial statements of the joint arrangement itself. The amendment is effective for
annual periods beginning on or after July 1, 2014 and is applied prospectively. The amendment will
have no impact on the Group’s consolidated financial statements since the Parent Company has not
entered into any joint arrangements.
·
PFRS 13, Fair Value Measurement - Portfolio Exception
The amendment clarifies that the portfolio exception in PFRS 13 can be applied to financial assets,
financial liabilities and other contracts. The amendment is effective for annual periods beginning on or
after July 1, 2014 and is applied prospectively. The amendment will have no impact on the Group’s
financial position or performance since the Group’s accounting policy is already consistent with the
improvement.
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PAS 40, Investment Property
The amendment clarifies the interrelationship between PFRS 3 and PAS 40 when classifying property as
investment property or owner-occupied property. The amendment stated that judgment is needed when
determining whether the acquisition of investment property is the acquisition of an asset or a group of
assets or a business combination within the scope of PFRS 3. This judgment is based on the guidance
of PFRS 3. This amendment is effective for annual periods beginning on or after July 1, 2014 and is
applied prospectively. The Group shall consider this amendment for future acquisition of investment
property.
Effective in 2016
·
PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets - Clarification of Acceptable
Methods of Depreciation and Amortization (Amendments)
The amendments clarify the principle in PAS 16 and PAS 38 that revenue reflects a pattern of economic
benefits that are generated from operating a business (of which the asset is part) rather than the
economic benefits that are consumed through use of the asset. As a result, a revenue-based method
cannot be used to depreciate property, plant and equipment and may only be used in very limited
circumstances to amortize intangible assets. The amendments are effective prospectively for annual
periods beginning on or after January 1, 2016, with early adoption permitted. These amendments are
not expected to have any impact to the Group given that the Group has not used a revenue-based
method to depreciate its property and equipment.
·
PAS 16, Property, Plant and Equipment, and PAS 41, Agriculture - Bearer Plants (Amendments)
The amendments change the accounting requirements for biological assets that meet the definition of
bearer plants. Under the amendments, biological assets that meet the definition of bearer plants will no
longer be within the scope of PAS 41. Instead, PAS 16 will apply. After initial recognition, bearer plants
will be measured under PAS 16 at accumulated cost (before maturity) and using either the cost model or
revaluation model (after maturity). The amendments also require that produce that grows on bearer
plants will remain in the scope of PAS 41 measured at fair value less costs to sell. For government
grants related to bearer plants, PAS 20, Accounting for Government Grants and Disclosure of
Government Assistance, will apply. The amendments are retrospectively effective for annual periods
beginning on or after January 1, 2016, with early adoption permitted. These amendments are not
expected to have any impact as the Group does not have any bearer plants.
·
PAS 27, Separate Financial Statements - Equity Method in Separate Financial Statements
(Amendments)
The amendments will allow entities to use the equity method to account for investments in subsidiaries,
joint ventures and associates in their separate financial statements. Entities already applying PFRS and
electing to change to the equity method in its separate financial statements will have to apply that
change retrospectively. For first-time adopters of PFRS electing to use the equity method in its
separate financial statements, they will be required to apply this method from the date of transition to
PFRS. The amendments are effective for annual periods beginning on or after January 1, 2016, with
early adoption permitted. These amendments will not have any impact on the Group’s consolidated
financial statements. The Group is currently assessing the impact of these amendments in the separate
financial statements of each entity in the Group.
·
PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates and Joint
Ventures - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
These amendments address an acknowledged inconsistency between the requirements in PFRS 10 and
those in PAS 28 (2011) in dealing with the sale or contribution of assets between an investor and its
associate or joint venture. The amendments require that a full gain or loss is recognized when a
transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is
recognized when a transaction involves assets that do not constitute a business, even if these assets are
housed in a subsidiary. These amendments are effective from annual periods beginning on or after 1
January 2016. These amendments are not expected to have any impact to the Group.
·
PFRS 11, Joint Arrangements - Accounting for Acquisitions of Interests in Joint Operations
(Amendments)
The amendments to PFRS 11 require that a joint operator accounting for the acquisition of an interest in
a joint operation, in which the activity of the joint operation constitutes a business must apply the relevant
PFRS 3 principles for business combinations accounting. The amendments also clarify that a previously
held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same
joint operation while joint control is retained. In addition, a scope exclusion has been added to PFRS 11
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to specify that the amendments do not apply when the parties sharing joint control, including the
reporting entity, are under common control of the same ultimate controlling party.
The amendments apply to both the acquisition of the initial interest in a joint operation and the
acquisition of any additional interests in the same joint operation and are prospectively effective for
annual periods beginning on or after January 1, 2016, with early adoption permitted. These amendments
are not expected to have any impact to the Group.
·
PFRS 14, Regulatory Deferral Accounts
PFRS 14 is an optional standard that allows an entity, whose activities are subject to rate-regulation, to
continue applying most of its existing accounting policies for regulatory deferral account balances upon
its first-time adoption of PFRS. Entities that adopt PFRS 14 must present the regulatory deferral
accounts as separate line items on the statement of financial position and present movements in these
account balances as separate line items in the statement of profit or loss and other comprehensive
income. The standard requires disclosures on the nature of, and risks associated with, the entity’s rateregulation and the effects of that rate-regulation on its financial statements. PFRS 14 is effective for
annual periods beginning on or after January 1, 2016. Since the Group is an existing PFRS preparer,
this standard would not apply.
Annual Improvements to PFRSs (2012-2014 cycle)
The Annual Improvements to PFRSs (2012-2014 cycle) are effective for annual periods beginning on or after
January 1, 2016 and are not expected to have a material impact on the Group. They include the following:
·
PFRS 5, Non-current Assets Held for Sale and Discontinued Operations - Changes in Methods of
Disposal
The amendment is applied prospectively and clarifies that changing from a disposal through sale to a
disposal through distribution to owners and vice-versa should not be considered to be a new plan of
disposal, rather it is a continuation of the original plan. There is, therefore, no interruption of the
application of the requirements in PFRS 5. The amendment also clarifies that changing the disposal
method does not change the date of classification.
·
PFRS 7, Financial Instruments: Disclosures - Servicing Contracts
PFRS 7 requires an entity to provide disclosures for any continuing involvement in a transferred asset
that is derecognized in its entirety. The amendment clarifies that a servicing contract that includes a fee
can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee
and arrangement against the guidance in PFRS 7 in order to assess whether the disclosures are
required. The amendment is to be applied such that the assessment of which servicing contracts
constitute continuing involvement will need to be done retrospectively. The amendment will not have an
impact on the Group’s financial statements since the Group does not offer servicing contracts that
involves continuing involvement in a derecognized financial asset.
·
PFRS 7 - Applicability of the Amendments to PFRS 7 to Condensed Interim Financial Statements
This amendment is applied retrospectively and clarifies that the disclosures on offsetting of financial
assets and financial liabilities are not required in the condensed interim financial report unless they
provide a significant update to the information reported in the most recent annual report. The
amendment will not have any impact on the Group’s financial position and performance since it does not
offset its financial instruments.
·
PAS 19, Employee Benefits - regional market issue regarding discount rate
This amendment is applied prospectively and clarifies that market depth of high quality corporate bonds
is assessed based on the currency in which the obligation is denominated, rather than the country where
the obligation is located. When there is no deep market for high quality corporate bonds in that currency,
government bond rates must be used. The amendment will not have an impact on the Group’s financial
statements since the Group’s policy is already consistent with the amendment.
·
PAS 34, Interim Financial Reporting - disclosure of information ‘elsewhere in the interim financial report’
The amendment is applied retrospectively and clarifies that the required interim disclosures must either
be in the interim financial statements or incorporated by cross-reference between the interim financial
statements and wherever they are included within the greater interim financial report (e.g., in the
management commentary or risk report). The amendment will not have an impact on the Group’s
financial statements since the Group already presents the required interim disclosures in its financial
statements.
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Effective in 2018
·
PFRS 9, Financial Instruments
In July 2014, the final version of PFRS 9, Financial Instruments, was issued. PFRS 9 reflects all phases
of the financial instruments project and replaces PAS 39, Financial Instruments: Recognition and
Measurement, and all previous versions of PFRS 9. The standard introduces new requirements for
classification and measurement, impairment, and hedge accounting. PFRS 9 is effective for annual
periods beginning on or after January 1, 2018, with early application permitted. Retrospective
application is required, but comparative information is not compulsory. Early application of previous
versions of PFRS 9 is permitted if the date of initial application is before February 1, 2015.
The adoption of PFRS 9 is not expected to have any significant impact on the Group’s consolidated
financial statements since the Group is not involved in any hedging transactions.
Interpretation with Deferred Effective Date
·
Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate
This interpretation covers accounting for revenue and associated expenses by entities that undertake the
construction of real estate directly or through subcontractors. The SEC and the Financial Reporting
Standards Council (FRSC) have deferred the effectivity of this interpretation until the final revenue
standard is issued by the International Accounting Standards Board (IASB) and an evaluation of the
requirements of the final revenue standard against the practices of the Philippine real estate industry is
completed. This interpretation is not relevant to the Group since the Group does not engage in the
construction of real estate directly or indirectly through subcontractor.
Standard issued but not yet adopted by Financial Reporting Standards Council
·
IFRS 15, Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising
from contracts with customers. Under IFRS 15 revenue is recognised at an amount that reflects the
consideration to which an entity expects to be entitled in exchange for transferring goods or services to a
customer. The principles in IFRS 15 provide a more structured approach to measuring and recognising
revenue. The new revenue standard is applicable to all entities and will supersede all current revenue
recognition requirements under IFRS. Either a full or modified retrospective application is required for
annual periods beginning on or after January 1, 2017 with early adoption permitted. The Group is
currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective
date once adopted locally.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that
are readily convertible to known amounts of cash with original maturities of three months or less from dates
of acquisition and that are subject to an insignificant risk of change in value.
Short-term Cash Investments
Short term cash investments are short-term placements with maturities of more than three months but less
than one year from the date of acquisition. These earn interest at the respective short-term investment rates.
Financial Assets and Financial Liabilities
Date of recognition
The Group recognizes a financial asset or a financial liability on the consolidated statement of financial
position when it becomes a party to the contractual provisions of the instrument. Purchases or sales of
financial assets that require delivery of assets within the time frame established by regulation or convention in
the marketplace are recognized on the settlement date.
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,
available-for-sale (AFS) financial assets and loans and receivables. The Group classifies its financial
liabilities as either financial liabilities at FVPL or other financial liabilities. The classification depends on the
purpose for which the investments were acquired and whether these are quoted in an active market.
Management determines the classification of its investments at initial recognition and, where allowed and
appropriate, re-evaluates such designation at every reporting date.
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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.
Fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value measurement is based on
the presumption that the transaction to sell the asset or transfer the liability takes place either:
·
In the principal market for the asset or liability; or
·
In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible to the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use
when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair
value measurement of a nonfinancial asset takes into account a market participant's ability to generate
economic benefits by using the asset in its highest and best use or by selling it to another market participant
that would use the asset in its highest and best use.
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments
by valuation technique:
·
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
·
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value
are observable, either directly or indirectly
·
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are
not based on observable market data.
For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the
Group determines whether transfers have occurred between Levels in the hierarchy by reassessing
categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at
the end of each reporting period.
The Group’s management determines the policies and procedures for both recurring fair value measurement,
such as unquoted AFS financial assets, and for non-recurring fair value measurement.
Day 1 profit
For transactions other than those related to customers’ guaranty deposits 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 profit or loss under “Other income” unless it qualifies for recognition as some other type of
asset or liability. 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 profit or loss 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.
Embedded derivatives
An embedded derivative is separated from the host contract and accounted for as a derivative if all of the
following conditions are met: a) the economic characteristics and risks of the embedded derivative are not
closely related to the economic characteristics and risks of the host contract; b) a separate instrument with
the same terms as the embedded derivative would meet the definition of a derivative; and c) the hybrid or
combined instrument is not recognized at FVPL. Embedded derivatives are measured at fair value with fair
value changes being reported through profit or loss, and are carried as assets when the fair value is positive
and as liabilities when the fair value is negative.
Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly
modifies the cash flows that otherwise would be required under the contract, in which case reassessment is
required. The Group determines whether a modification in the cash flows is significant by considering the
extent to which the expected future cash flows associated with the embedded derivative, the host contract, or
both have changed and whether the change is significant relative to the previously expected cash flows from
the contract.
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The Group has certain closely and clearly related derivatives that are embedded in the host contract (such as
long-term debt) which does not require bifurcation.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments and fixed maturities that are
not quoted in an active market. These are not entered into with the intention of immediate or short-term
resale and are not designated as AFS financial assets or financial assets at FVPL. These are included in
current assets if maturity is within twelve months from the reporting date otherwise, these are classified as
noncurrent assets.
After initial measurement, loans and receivables are subsequently measured at amortized cost using the
effective interest rate method, less allowance for impairment. Amortized cost is calculated by taking into
account any discount or premium on acquisition and fees that are an integral part of the effective interest
rate. The amortization is included in “Interest income” in profit or loss. The losses arising from impairment of
such loans and receivables are recognized as “Provision for probable losses” in profit or loss.
This accounting policy applies primarily to the Group’s cash and cash equivalents, short-term cash
investments, receivables, concession financial receivable and deposits.
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 profit
or loss. 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 (loss) on available-for-sale financial assets”
under OCI.
When the investment is disposed of, the cumulative gain or loss previously recognized under OCI is
recognized as “Gain (loss) on disposal of available-for-sale financial assets” in profit or 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 to receive payment has been established. The losses arising from
impairment of such investments are recognized as “Provisions for probable losses” in profit or 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 statement of financial
position. The details of the Group’s AFS financial assets are disclosed in Note 11.
Other financial liabilities
Issued financial instruments or their components, which are not designated as at FVPL are classified as other
financial liabilities where the substance of the contractual arrangement results in the Group having an
obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than
by the exchange of a fixed amount of cash or another financial asset for a fixed number of its own equity
shares. The components of issued financial instruments that contain both liability and equity elements are
accounted for separately, with the equity component being assigned the residual amount, after deducting
from the instrument as a whole the amount separately determined as the fair value of the liability component
on the date of issuance.
After initial measurement, other financial liabilities are subsequently measured at amortized cost using the
effective interest rate method. Amortized cost is calculated by taking into account any discount or premium
on the issue and fees that are an integral part of the effective interest rate. Any effects of restatement of
foreign currency-denominated liabilities are recognized in profit or loss.
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This accounting policy applies primarily to the Group’s long-term debt, accounts and other payables,
customers’ guaranty deposits and other deposits under other noncurrent liabilities, service concession
obligation, payable to related parties and other payables that meet the above definition (other than liabilities
covered by other accounting standards, such as pension liabilities and income tax payable).
Derecognition of Financial Assets and Liabilities
Financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of financial assets) is
derecognized when:
1.
2.
3.
the right to receive cash flows from the asset has expired;
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,
the Group has transferred its right 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 risks
and rewards of the asset but has transferred the control of the asset.
Where the Group has transferred its right 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, 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 reporting date whether there is objective evidence that a financial asset or
group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be
impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has
occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has
an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be
reliably estimated. Objective evidence of impairment may include indications that the borrower or a group of
borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal
payments, the probability that they will enter bankruptcy or other financial reorganization and where
observable data indicate that there is a measurable decrease in the estimated future cash flows, such as
changes in arrears or economic condition that correlate with default. For the Group’s receivables from
customers, evidence of impairment may also include noncollection of the Group’s trade receivables, which
remain unpaid after thirty days from bill generation. The Group shall provide the customer with not less than
seven days’ prior written notice before any disconnection.
Loans and receivables
For loans and receivables carried at amortized cost, the Group first assesses whether objective evidence of
impairment exists individually for financial assets that are individually significant, or collectively for financial
assets that are not individually significant. If the Group determines that no objective evidence of impairment
exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group
of financial assets with similar credit risk characteristics and collectively assessed for impairment. Those
characteristics are relevant to the estimation of future cash flows for groups of such assets by being
indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being
evaluated. Assets that are individually assessed for impairment and for which an impairment loss is, or
continues to be recognized, are not included in a collective assessment for impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured
as the difference between the asset’s carrying amount and the present value of the estimated future cash
flows (excluding future credit losses that have not been incurred). The carrying amount of the asset is
reduced through use of an allowance account and the amount of loss is charged to profit or loss. Interest
income continues to be recognized based on the original effective interest rate of the asset. Receivables,
*SGVFS011134*
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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 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 cost. 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 profit or loss - is removed from OCI and
recognized in profit or loss. Impairment losses on equity investments are not reversed through profit or loss.
Increases in fair value after impairment are recognized directly in OCI.
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 profit or loss.
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 or loss, the impairment loss is
reversed through profit or loss.
Financial Guarantee Contracts
Financial guarantee contracts issued by the Parent Company to its subsidiaries are those contracts that
require a payment to be made to reimburse the holder for a loss it incurs because the specified holder fails to
make a payment when due in accordance with the terms of a debt instrument. Financial guarantees are
initially recognized at fair value, and the initial fair value is amortized over the life of the financial guarantee.
The guarantee liability is subsequently carried at the higher of this amortized amount and the present value
of any expected payment (when a payment under the guaranty has become probable).
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 (NRV). Cost is determined
using the moving average method.
Prepaid Expenses
Prepaid expenses are carried at cost less the amortized portion. These typically include prepayments for
business taxes, insurance and employee health care expenses and other benefits.
Value-Added Tax (VAT)
The input VAT pertains to the 12% indirect tax paid by the Group in the course of the Group’s trade or
business on local purchase of goods or services.
Output VAT pertains to the 12% tax due on the local sale of goods and services by the Group.
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If at the end of any taxable month, the output VAT exceeds the input VAT, the outstanding balance is
included under “Accounts and other payables” account. If the input VAT exceeds the output VAT, the excess
shall be carried over to the succeeding months and included under “Other current asset” account.
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 5 years or the term of the lease, whichever is shorter.
Plant and technical equipment are depreciated over 5 years or the term of the related management contract,
whichever is shorter.
The EUL and depreciation and amortization method are reviewed periodically to ensure that the period and
method of depreciation and amortization are consistent with the expected pattern of economic benefits from
items of property and equipment.
When property and equipment is retired or otherwise disposed of, the cost and the related accumulated
depreciation and amortization and accumulated impairment, if any, are removed from the accounts and any
resulting gain or loss is credited to or charged against current operations.
Service Concession Assets and Obligations
The Group accounts for its concession arrangements with MWSS, PGL, TIEZA and CDC under the
Intangible Asset model as it receives the right (license) to charge users of public service. Under the Group’s
concession agreements, the Group is granted the sole and exclusive right and discretion during the
concession period to manage, occupy, operate, repair, maintain, decommission and refurbish the identified
facilities required to provide water services. The legal title to these assets shall remain with MWSS, PGL,
TIEZA and CDC at the end of the concession period.
On the other hand, the concession arrangement with the PGC is accounted for under the Financial Asset
model as it has an unconditional contractual right to receive cash or other financial asset for its construction
services from or at the direction of the grantor. Under the concession arrangements, CMWD is awarded the
right to deliver Bulk Water supply to the grantor for a specific period of time under the concession period.
The “Service concession assets” (SCA) pertain to the fair value of the service concession obligations at
drawdown date, construction costs related to the rehabilitation works performed by the Group and other local
component costs and cost overruns paid by the Group. These are amortized using the straight-line method
over the life of the related concession.
In addition, the Parent Company, Boracay Water, Clark Water and Laguna Water recognize and measure
revenue from rehabilitation works in accordance with PAS 11, Construction Contracts, and PAS 18,
Revenue, for the services it performs. Recognition of revenue is by reference to the ‘stage of completion
method’, also known as the ‘percentage of completion method’ as provided under PAS 11. Contract revenue
and costs from rehabilitation works are recognized as “Revenue from rehabilitation works” and “Cost of
rehabilitation works” in profit or loss in the period in which the work is performed.
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Investments in Subsidiaries
The Group determined that it has control over its subsidiaries (see Note 1) by considering, among others, its
power over the investee, exposure or rights to variable returns from its involvement with the investee, and the
ability to use its power over the investee to affect its returns. The following were also considered:
·
·
·
The contractual arrangement with the other vote holders of the investee;
Rights arising from other contractual agreements; and
The Group’s voting rights and potential voting rights.
Investments in Associates and Joint Venture
Investments in associates and jointly controlled entities are accounted for under the equity method. An
associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint
venture. A joint venture is a contractual arrangement whereby two or more parties undertake an economic
activity that is subject to joint control, and a jointly controlled entity is a joint venture that involves the
establishment of a separate entity in which each venturer has an interest.
An investment in an associate or jointly controlled entities is accounted for using the equity method from the
day it becomes an associate or joint venture. On acquisition of investment, the excess of the cost of
investment over the investor’s share in the net fair value of the investee’s identifiable assets, liabilities and
contingent liabilities is accounted for as goodwill and included in the carrying amount of the investment and
neither amortized nor individually tested for impairment. Any excess of the investor’s share of the net fair
value of the associate’s identifiable assets, liabilities and contingent liabilities over the cost of the investment
is excluded from the carrying amount of the investment, and is instead included as income in the
determination of the share in the earnings of the investees.
Under the equity method, investments in associates and jointly controlled entities are carried in the
consolidated statement of financial position at cost plus post-acquisition changes in the Group’s share in the
net assets of the investees, less any impairment in value. The Group’s share in the investee’s postacquisition profits or losses is recognized in profit or loss, and its share of post-acquisition movements in the
investee’s equity reserves is recognized directly in equity. Profits and losses resulting from transactions
between the Group and the investee companies are eliminated to the extent of the interest in the investee
companies and to the extent that for unrealized losses, there is no evidence of impairment of the asset
transferred. Dividends received are treated as a reduction of the carrying value of the investment.
The Group discontinues applying the equity method when its investment in an investee company is reduced
to zero. Accordingly, additional losses are not recognized unless the Group has guaranteed certain
obligations of the investee company. When the investee company subsequently reports profits, the Group
resumes recognizing its share of the profits only after its share of the profits equals the share of net losses
not recognized during the period the equity method was suspended.
The reporting dates of the investee companies and the Group are identical and the investee companies’
accounting policies conform to those used by the Group for like transactions and events in similar
circumstances.
Business Combinations and Goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the
amount of any non-controlling interest in the acquiree. For each business combination, the acquirer
measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the
acquiree’s identifiable net assets. Acquisition costs are expensed as incurred.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic circumstances and
pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host
contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously
held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss
included under “Remeasurement gain (loss) arising from business combination.”
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the
acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to
be an asset or liability will be recognized in accordance with PAS 39 either in profit or loss or as a change to
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OCI. If the contingent consideration is classified as equity, it should not be remeasured until it is finally
settled within equity.
If the initial accounting for a business combination can be determined only provisionally by the end of the
period in which the combination is effected because either the fair values to be assigned to the acquiree’s
identifiable assets, liabilities or contingent liabilities or the cost of the combination can be determined only
provisionally, the acquirer shall account for the combination using those provisional values. The acquirer
shall recognize any adjustments to those provisional values as a result of completing the initial accounting
within twelve months of the acquisition date as follows: (i) the carrying amount of the identifiable asset,
liability or contingent liability that is recognized or adjusted as a result of completing the initial accounting
shall be calculated as if its fair value at the acquisition date had been recognized from that date; (ii) goodwill
or any gain recognized shall be adjusted by an amount equal to the adjustment to the fair value at the
acquisition date of the identifiable asset, liability or contingent liability being recognized or adjusted; and (iii)
comparative information presented for the periods before the initial accounting for the combination is
complete shall be presented as if the initial accounting has been completed from the acquisition date.
Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and
the amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities
assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the
difference is recognized in profit or loss.
Following initial recognition, goodwill is measured at cost less any accumulated impairment loss. Goodwill is
reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the
carrying value may be impaired. For purposes of impairment testing, goodwill acquired in a business
combination is, from the acquisition date, allocated to each of the Group’s cash-generating units (CGUs), or
groups of CGUs, that are expected to benefit from the synergies of the combination, irrespective of whether
other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of
units to which the goodwill is allocated should:
·
·
represent the lowest level within the Group at which the goodwill is monitored for internal management
purposes; and
not be larger than an operating segment determined in accordance with PFRS 8, Operating Segments.
Impairment is determined by assessing the recoverable amount of the CGU (or group of CGUs), to which the
goodwill relates. Where the recoverable amount of the CGU (or group of CGUs) is less than the carrying
amount, an impairment loss is recognized. Where goodwill forms part of a CGU (or group of CGUs) and part
of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is
included in the carrying amount of the operation when determining the gain or loss on disposal of the
operation. Goodwill disposed of in these circumstances is measured based on the relative values of the
operation disposed of and the portion of the CGU retained. If the acquirer’s interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the
acquirer shall recognize immediately in profit or loss any excess remaining after reassessment.
Impairment of Non-financial Assets
This accounting policy applies primarily to the Group’s property and equipment and investments in
associates. The Group assesses at each reporting date whether there is an indication that an asset may be
impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group
makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is calculated as the
higher of the asset’s or CGU’s fair value less costs to sell and its value in use and is determined for an
individual asset, unless the asset does not generate cash inflows that are largely independent of those from
other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount,
the asset is considered impaired and is written down to its recoverable amount. In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessment of the time value of money and the risks specific to the asset. In
determining fair value less cost to sell, an appropriate valuation model is used. These calculations are
corroborated by valuation multiples or other fair value indicators. Impairment losses of continuing operations
are recognized in profit or loss in those expense categories consistent with the function of the impaired asset.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any
indication that previously recognized impairment losses may no longer exist or may have decreased. If such
indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed
only if there has been a change in the estimates used to determine the asset’s recoverable amount since the
last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its
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recoverable amount. That increased amount cannot exceed the carrying amount that would have been
determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in
prior years. Such reversal is recognized in profit or loss unless the asset is carried at revalued amount, in
which case the reversal is treated as revaluation increase. After such a reversal, the depreciation and
amortization charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any
residual value, on a systematic basis over its remaining useful life.
Investments in associates and jointly controlled entities
After application of the equity method, the Group determines whether it is necessary to recognize any
additional impairment loss with respect to the Group’s net investment in the investee company. The Group
determines at each reporting date whether there is any objective evidence that the investment in the investee
company is impaired. If this is the case, the Group calculates the amount of impairment as being the
difference between the recoverable amount of the investee company and the carrying cost and recognizes
the amount in profit or loss.
Impairment of goodwill
For assessing impairment of goodwill, a test for impairment is performed annually and when circumstances
indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the
recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. Where the recoverable
amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses
relating to goodwill cannot be reversed in future periods.
Leases
The determination of whether an arrangement is, or contains a lease, is based on the substance of the
arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of a
specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly
specified in an arrangement.
A reassessment is made after the inception of the lease only if one of the following applies:
(a) There is a change in contractual terms, other than a renewal of or extension of the arrangement;
(b) A renewal option is exercised or extension granted, unless the term of the renewal or extension was
initially included in the lease term;
(c) There is a change in the determination of whether fulfillment is dependent on a specified asset; or
(d) There is a substantial change to the asset.
Where reassessment is made, lease accounting shall commence or cease from the date when the change in
circumstances gave rise to the reassessment scenarios (a), (c) or (d) and at the date of renewal or extension
period for scenario (b).
A lease where the lessor retains substantially all the risks and benefits of ownership of the asset is classified
as an operating lease.
Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and
the revenue can be reliably measured. The following specific recognition criteria must also be met before
revenue is recognized.
Water and Sewer Revenue
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. Twenty percent (20%) of
water revenue is recognized by the Parent Company as environmental charges with the rationalization of the
sewerage and environmental charges as approved in the 2008 rate rebasing.
Interest Income
Interest income is recognized as it accrues, taking into account the effective yield of the assets.
Revenue from Rehabilitation Works and Cost of Rehabilitation Works
Revenue from rehabilitation works is recognized and measured by the Group in accordance with PAS 11 for
the construction and PAS 18 for the service. This includes revenue from rehabilitation works which is
equivalent to the related cost for the rehabilitation works covered by the service concession arrangements
which is recognized as part of SCA.
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When the Group provides construction or upgrade services, the consideration received or receivable is
recognized at fair value. The Group accounts for revenue and costs relating to operation services in
accordance with PAS 18 under the captions “Revenue from rehabilitation works” and Cost of rehabilitation
works” in the consolidated statement of comprehensive income.
Management Contracts
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.
Other operating income
Other customer related fees such as connection, reconnection and disconnection fees are recognized when
these services have been rendered.
The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as
principal or agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements.
Cost of Services and Operating Expenses
Cost of services and operating expenses are recognized as they are incurred.
Foreign Currency Denominated Transactions
Foreign exchange differentials 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 Agreement,
the following will be recovered through billings to customers:
a.
b.
c.
d.
Restatement of foreign currency-denominated loans;
Excess of actual concession fee payment over the amounts of concession fees translated using the base
exchange rate assumed in the business plan approved every rate rebasing exercise. The current base
exchange rate is P
=44.00:US$1.00 based on the last rate rebasing exercise effective on January 1, 2008.
Excess of actual interest payment translated at exchange spot rate on settlement date over the amount
of interest translated at drawdown rate; and
Excess of actual payment of other financing charges relating to foreign currency-denominated loans
translated at exchange spot rate on settlement date over the amount of other financing charges
translated at drawdown rate.
The functional and presentation currency of the Parent Company and its Philippine subsidiaries is the
Philippine Peso (P
= ). Each entity in the Group determines its own functional currency and items included in
the separate financial statements of each entity are measured using that functional currency. Transactions in
foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency
rate of exchange ruling at the reporting date. All differences are taken to profit or loss with the exception of
differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity.
These are recognized in OCI until the disposal of the net investment, at which time they are recognized in
profit or loss. Tax charges and credits attributable to exchange differences on those borrowings are also
dealt with in equity. Nonmonetary items that are measured in terms of historical cost in a foreign currency
are translated using the exchange rate as at the date of initial transaction. Nonmonetary items measured at
fair value in a foreign currency are translated using the exchange rate at the date when the fair value was
determined.
The functional currency of MWAP, MWSAH, TDWH and KDWH is the United States Dollar (USD). As at the
reporting date, the assets and liabilities of these subsidiaries are translated into the presentation currency of
the Group at the rate of exchange ruling at the reporting date and their profit and loss accounts are translated
at the weighted average exchange rates for the year. The exchange differences arising on the translation are
recognized in OCI and reported as “Cumulative translation adjustment”, a separate component of equity. On
disposal of a foreign entity, the deferred cumulative amount recognized in OCI relating to that particular
foreign operation shall be recognized in profit or loss.
In view of the automatic reimbursement mechanism, the Group recognizes deferred FCDA (included as part
of “Other noncurrent assets” or “Other noncurrent liabilities” in the consolidated statement of financial
position) for both the realized and unrealized foreign exchange gains and losses. Other water revenueFCDA is credited (debited) upon recovery (refund) of realized foreign exchange losses (gains). The write-off
or reversal of the deferred FCDA pertaining to concession fees will be made upon determination of the
rebased foreign exchange rate, which is assumed in the business plan approved by MWSS-RO during the
*SGVFS011134*
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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 necessarily takes a
substantial period of time to get ready for its intended use 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 interest capitalized is calculated using the Group’s weighted average cost of borrowings after adjusting
for borrowing associated with specific developments. Where borrowings are associated with specific
developments, the amounts capitalized is the gross incurred on those borrowings less any investment
income arising on their temporary investment.
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 consolidated statement of financial position and are amortized using the effective interest rate
method.
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 reporting date and adjusted to reflect the
current best estimate.
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.
Defined Benefit Plan
The net defined benefit liability or asset is the aggregate of the present value of the defined benefit obligation
at the end of the reporting period reduced by the fair value of plan assets (if any), adjusted for any effect of
limiting a net defined benefit asset to the asset ceiling. The asset ceiling is the present value of any economic
benefits available in the form of refunds from the plan or reductions in future contributions to the plan.
The cost of providing benefits under the defined benefit plans is actuarially determined using the projected
unit credit method.
Defined benefit costs comprise the following:
a) Service cost
b) Net interest on the net defined benefit liability or asset
c) Remeasurements of net defined benefit liability or asset
Service costs which include current service costs, past service costs and gains or losses on non-routine
settlements are recognized as expense in profit or loss. Past service costs are recognized when plan
amendment or curtailment occurs. These amounts are calculated periodically by independent qualified
actuaries.
Net interest on the net defined benefit liability or asset is the change during the period in the net defined
benefit liability or asset that arises from the passage of time which is determined by applying the discount
rate based on government bonds to the net defined benefit liability or asset.
*SGVFS011134*
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Net interest on the net defined benefit liability or asset is recognized as expense or income in consolidated
statement of comprehensive income.
Remeasurements comprising actuarial gains and losses, return on plan assets and any change in the effect
of the asset ceiling (excluding net interest on defined benefit liability) are recognized immediately in other
comprehensive income in the period in which they arise. Remeasurements are not reclassified to profit or
loss in subsequent periods.
Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurance policies.
Plan assets are not available to the creditors of the Group, nor can they be paid directly to the Group. The fair
value of plan assets is based on market price information. When no market price is available, the fair value
of plan assets is estimated by discounting expected future cash flows using a discount rate that reflects both
the risk associated with the plan assets and the maturity or expected disposal date of those assets (or, if they
have no maturity, the expected period until the settlement of the related obligations). If the fair value of the
plan assets is higher than the present value of the defined benefit obligation, the measurement of the
resulting defined benefit asset is limited to the present value of economic benefits available in the form of
refunds from the plan or reductions in future contributions to the plan.
The Group’s right to be reimbursed of some or all of the expenditure required to settle a defined benefit
obligation is recognized as a separate asset at fair value when and only when reimbursement is virtually
certain.
Termination Benefit
Termination benefits are employee benefits provided in exchange for the termination of an employee’s
employment as a result of either an entity’s decision to terminate an employee’s employment before the
normal retirement date or an employee’s decision to accept an offer of benefits in exchange for the
termination of employment.
A liability and expense for a termination benefit is recognized at the earlier of when the entity can no longer
withdraw the offer of those benefits and when the entity recognizes related restructuring costs. Initial
recognition and subsequent changes to termination benefits are measured in accordance with the nature of
the employee benefit, as either post-employment benefits, short-term employee benefits, or other long-term
employee benefits.
Short-term Employee Benefits
Short-term employee benefits include items such as salaries and wages, social security contributions and
nonmonetary benefits, if expected to be settled wholly within twelve months after the end of the reporting
period in which the employees rendered the related services. Short-term employee benefits are recognized
as expense as incurred. When an employee has rendered service to the Company during the reporting
period, the Company recognizes the undiscounted amount of short-term employee benefits expected to be
paid in exchange for that service as a liability (accrued expense), after deducting any amount already paid.
Employee Leave Entitlement
Employee entitlements to annual leave are recognized as a liability when they are accrued to the employees.
The undiscounted liability for leave expected to be settled wholly before twelve months after the end of the
annual reporting period is recognized for services rendered by employees up to the end of the reporting
period.
Share-Based Payment
Employee share purchase plans
The Parent Company has an employee stock ownership plan (ESOWN) which allows the grantees to
purchase the Company’s shares at a discounted price. The Parent Company recognizes stock
compensation expense over the holding period. The Parent Company treats its ESOWN plan as option
exercisable within a given period. These are accounted for similar to the PFRS 2 options. Dividends paid on
the awards that have vested are deducted from equity and those paid on awards that are unvested are
charged to profit or loss. For the unsubscribed shares where the employees still have the option to subscribe
in the future, these are accounted for as options.
Equity
When the shares are sold at premium, the difference between the proceeds at the par value is credited to
“Additional paid-in capital” account. Direct costs incurred related to equity issuance are chargeable to
“Additional paid-in capital” account. If additional paid-in capital is not sufficient, the excess is charged against
*SGVFS011134*
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retained earnings. When the Group issues more than one class of stock, a separate account is maintained
for each class of stock and the number of shares issued.
Subscriptions receivable pertains to the uncollected portion of the subscribed shares.
Retained earnings represent accumulated earnings of the Group less dividends declared.
Own equity instruments which are reacquired (treasury shares) are recognized at cost and deducted from
equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the
Group’s own equity instruments. Any difference between the carrying amount and the consideration, if
reissued, is recognized in additional paid-in capital. Voting rights related to treasury shares are nullified for
the Group and no dividends are allocated to them respectively. When the shares are retired, the capital
stock account is reduced by its par value and the excess of cost over par value upon retirement is debited to
additional paid-in capital to the extent of the specific or average additional paid-in capital when the shares
were issued and to retained earnings for the remaining balance.
Other reserves pertain to gain from sale of investments in a subsidiary by the Parent Company that did not
result to a loss of control.
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 have been enacted or substantively enacted as of the reporting date.
Deferred tax
Deferred tax is provided, using the liability method, for all temporary differences, with certain exceptions, at
the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
·
When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a
transaction that is not a business combination, and, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss.
·
In respect of taxable temporary difference associated with investments in subsidiaries, associates and
interests in joint ventures, when the timing of the reversal of the temporary difference can be controlled
and it is probable that the temporary difference will not reverse in the forseeable future,
Deferred 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 tax assets 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 tax assets is reviewed at each reporting 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 tax
assets to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are
recognized to the extent that it has become probable that future taxable income will allow all or part of the
deferred tax assets to be recovered.
Deferred 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
substantively enacted as of the reporting 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.
*SGVFS011134*
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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, PGL, TIEZA and CDC that are operated by the Group under the Group’s
concession agreements are not reflected in the consolidated statement of financial position but are
considered as Assets Held in Trust.
Segment Reporting
The Group’s operating businesses are organized based on geographic location. Financial information on
business segments is presented in Note 26 to the consolidated financial statements.
Events After the Reporting Date
Any post year-end event up to the date of the auditors’ report that provide additional information about the
Group’s financial position at the reporting 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 consolidated financial
statements when material (see Note 32).
3.
Management’s Judgments 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, Service Concession Arrangements, the Group has made a
judgment that its concession agreements with MWSS, PGL, TIEZA and CDC qualify under the Intangible
Asset model while its concession agreement with the Provincial Government of Cebu qualifies under the
Financial Asset model. The accounting policy on the Group’s SCA under the Intangible Asset and Financial
Asset models are discussed in Note 2.
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 the cost of these assets 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 months for quoted securities. In addition, the Group
evaluates other factors, including the future cash flows and the discount factors of these securities.
Redeemable preferred shares
In 2007, the Parent Company redeemed its outstanding redeemable preferred shares amounting to P
= 500.00
million. These shares are treated as equity and are therefore presented under the “equity” section of the
consolidated statement of financial position, as management concluded that these are not mandatorily
redeemable since the redemption of the preferred shares is at the Parent Company’s option. In 2012, the
Parent Company’s shareholders approved the retirement of the said shares. See Note 20 for the related
balances.
Investments in subsidiaries
The Parent Company considers MWTS, MWIS, MWPVI, Laguna Water, Clark Water, Boracay Water,
MWAP, MWSAH, TDWH, KDWH, MW Consortium and CMWD as its subsidiaries because it exercises
control over the said entities. The Group is exposed, or has rights to variable returns from its involvement
with the entities and has the ability to affect those returns through its power over the entities (see Note 1).
*SGVFS011134*
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Investments in associates
The Parent Company considers Thu Duc Water B.O.O. Corporation (TDW), Kenh Dong Water Supply Joint
Stock Company (KDW) and Saigon Water Infrastructure Corporation (Saigon Water) as associates because
it has the power to participate in the financial and operating policy decisions of these entities but does not
have control or joint control over those policies. See Note 12 for the related balances.
Impairment of investments in associates
The Group has determined that there are no indicators of impairment for its investments in TDW, KDW and
Saigon Water. Accordingly, no impairment testing was done for these investments.
Operating lease commitments - Group as lessee
The Group has determined, based on the evaluation of the terms and conditions of the arrangements, that
the significant risks and rewards for properties leased from third parties are retained by the lessors and
accordingly, accounts for these contracts as operating leases.
Contingencies
The Group is currently involved in various legal proceedings in the ordinary conduct of business. The
estimate of the probable costs for the resolution of these claims has been developed in consultation with
internal and outside counsels handling the defense in these matters and is based upon an analysis of
potential results.
The Group currently does not believe these proceedings will have a material or adverse effect on the Group’s
financial position and results of operations (see Note 30).
Use of Estimates
Key assumptions concerning the future and other sources of estimation uncertainty at the reporting date that
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities 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 the following revenue and costs:
·
Management contracts
The Group’s management contracts recognized based on the percentage of completion method is
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.
·
Rehabilitation works
The Group measures revenue from rehabilitation works at the fair value of the consideration received or
receivable. The Company’s revenue from rehabilitation works recognized based on the percentage of
completion are measured principally on the basis of the estimated completion of a physical proportion of
the contract works, and by reference to the actual costs incurred to date over the estimated total costs of
the project. Revenue from rehabilitation works recognized by the Group is equivalent to the costs of
rehabilitation works incurred as these costs are recovered by the Group through its right to charge the
customers.
·
Water and Sewerage
The Group’s revenue from 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. Twenty percent (20%) of water revenues are recognized by the Parent Company as
environmental charges with the rationalization of the sewerage and environmental charges as approved
in the 2008 rate rebasing.
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
*SGVFS011134*
- 28 -
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.
As of December 31, 2014 and 2013, the outstanding balance of allowance for doubtful accounts amounted to
P
= 717.73 million and P
= 683.42 million, respectively (see Note 6).
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.
In 2014 and 2013, there were no changes in the estimated useful lives of the Group’s property and
equipment. As of December 31, 2014 and 2013, the carrying value of property and equipment amounted to
P
= 2.13 billion and P
= 2.04 billion, respectively (see Note 9).
Asset impairment
The Group assesses the impairment of assets (property and equipment, SCA, other current assets and other
noncurrent 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, discount rates to be applied and the expected period of benefits. See Notes 8,
9, 10, 12 and 13 for the related balances.
Goodwill impairment
Goodwill impairment testing requires an estimation if the recoverable amount which is the fair value less cost
to sell or value in use of the cash-generating units to which the goodwill is allocated. Estimating value in use
amount requires management to make an estimate of the expected future cash flows for the cash-generating
unit and also to choose a suitable discount rate in order to calculate the present value of cash flows.
The Parent Company’s impairment test for goodwill related to the acquisition of Clark Water is based on
value in use and fair value less cost to sell calculations. The value in use calculations in 2014 used a
discounted cash flow model. The cash flows are derived from the budget for the next 36 years and assume a
steady growth rate. The Parent Company used the remaining concession life of Clark Water, which is a
period longer than the maximum of five years. The recoverable amount is most sensitive to discount rate
used for the discounted cash flow model. The post-tax discount rate applied to cash flow projections is
10.69% for 2014.
The carrying value of goodwill in the consolidated statement of financial position amounted to
P
= 130.32 million as of December 31, 2014 and 2013. No impairment loss was recognized as a result of the
impairment testing performed.
*SGVFS011134*
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Deferred tax assets
The Group reviews the carrying amounts of deferred income taxes at each reporting 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.
Also, 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. See Note 19 for the related balances.
Deferred FCDA
Under the concession agreements entered into by the Parent Company and Boracay Water with MWSS and
TIEZA, respectively, the Parent Company and Boracay Water are entitled to recover (refund) foreign
exchange losses (gains) arising from concession loans and any concessionaire loans. The Parent Company
and Boracay Water recognized deferred FCDA (included as part of “Other noncurrent assets” or “Other
noncurrent liabilities” in the consolidated statement of financial position) for both realized and unrealized
foreign exchange gains and losses. Deferred FCDA is set up as an asset for the realized and unrealized
exchange losses since this is a resource controlled by the Parent Company and Boracay Water as a result of
past events and from which future economic benefits are expected to flow to the Parent Company and
Boracay Water. Realized and unrealized foreign exchange gains, on the other hand, which will be refunded
to the customers, are presented as liability. As of December 31, 2014 and 2013, the Parent Company and
Boracay Water’s deferred FCDA classified under “Other noncurrent assets” amounted to P
= 141.19 million and
P
= 55.41 million (see Note 13).
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 which may be different from the expected volatility of the shares of stock of
the Parent Company. See Note 20 for the related balances.
Pension and other retirement benefits
The cost of defined benefit pension plans and other post-employment medical benefits as well as the present
value of the pension obligation are determined using actuarial valuations. The actuarial valuation involves
making various assumptions. These include the determination of the discount rates, future salary increases,
mortality rates and future pension increases. Due to the complexity of the valuation, the underlying
assumptions and its long-term nature, defined benefit obligations are highly sensitive to changes in these
assumptions. All assumptions are reviewed at each reporting date. The net benefit liability as of
December 31, 2014 and 2013 is P
= 38.77 million and P
= 381.60 million, respectively (see Note 16).
In determining the appropriate discount rate, management considers the interest rates of government bonds
that are denominated in the currency in which the benefits will be paid, with extrapolated maturities
corresponding to the expected duration of the defined benefit obligation.
The mortality rate is based on publicly available mortality tables for the specific country and is modified
accordingly with estimates of mortality improvements. Future salary increases and pension increases are
based on expected future inflation rates for the specific country.
Further details about the assumptions used are provided in Note 16.
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded in the consolidated statement of
financial position or disclosed in the notes 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
(see Note 27).
*SGVFS011134*
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4.
Acquisition of a Business
Laguna Technopark, Inc.
On December 23, 2013, Laguna Water signed an Asset Purchase Agreement with Laguna Technopark, Inc.
(LTI) with a purchase price of P
= 625.00 million for the acquisition of the water reticulation system of LTI, under
the caption “Service concession assets”. Upon execution of the agreement, Laguna Water paid 45% of the
purchase price or P
= 281.25 million to LTI, while the remaining balance of 55% or P
= 343.75 million was paid in
2014. Laguna Water officially took over as the exclusive water service provider of LTI on December 31,
2013.
The fair value of the water assets purchased has been determined based on the present value of the
projected cash flows from operations. No goodwill is recognized based on the purchase price allocation.
5.
Cash and Cash Equivalents and Short-Term Cash Investments
Cash and cash equivalents consist of:
Cash on hand and in banks (Note 22)
Cash equivalents
2014
P
= 1,478,227,092
4,574,326,740
P
= 6,052,553,832
2013
P
= 1,527,786,387
5,251,994,458
P
= 6,779,780,845
Cash in banks earns interest at the respective bank deposit rates. Cash equivalents are highly liquid
investments that are made for varying periods of up to three months depending on the immediate cash
requirements of the Group, and earn interest at the respective short-term rates.
Short-term cash investments pertain to the Group’s time deposits with maturities of more than three months
up to one year and earned interest of 0.50% to 3.25% and 1.25% to 5.00% in 2014 and 2013, respectively.
As of December 31, 2014 and 2013, the Group’s short-term cash investments amounted to P
= 400.00 million
and P
= 94.34 million, respectively.
Interest income earned from cash in banks, cash equivalents and short-term cash investments amounted to
P
= 66.98 million, P
= 99.63 million and P
= 191.69 million in 2014, 2013 and 2012, respectively (see Note 18).
6.
Receivables
This account consists of receivables from:
2014
Customers (Note 28)
Residential
Commercial
Semi-business
Industrial
Saigon Water Corporation (SAWACO) (Note 23)
BWC (Note 13)
Employees
Interest from banks
Others
Less allowance for doubtful accounts
Less noncurrent portion of receivable from BWC (Note 13)
P
= 1,638,350,565
229,566,366
81,124,140
47,132,293
32,888,246
529,500,647
39,554,286
11,941,957
267,174,450
2,877,232,950
(717,734,719)
2,159,498,231
(465,051,543)
P
= 1,694,446,688
2013
P
= 1,306,382,980
224,096,635
77,597,988
37,522,466
101,904,224
544,373,611
54,446,968
11,550,628
150,478,433
2,508,353,933
(683,423,459)
1,824,930,474
(431,380,407)
P
= 1,393,550,067
*SGVFS011134*
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The classes of the Group’s receivables arising from water and sewer services rendered to customers,
collectible within 30 days from bill generation, follow:
·
·
·
·
Residential - pertains to receivables from residential households.
Commercial - pertains to receivables from commercial customers.
Semi-business - pertains to receivables from small businesses.
Industrial - pertains to receivables from customers for industrial and manufacturing purposes.
Receivable from SAWACO pertains to the unpaid portion of billing for services rendered by the Group in
relation to its management contract with SAWACO (see Note 23).
Receivable from BWC pertains to the assigned receivable from the Share Purchase Agreement (SPA)
between the Parent Company and Veolia Water Philippines, Inc. (VWPI) related to the acquisition of VWPI’s
interest in Clark Water in 2011. The loss from revaluation amounting to P
= 1.41 million in 2013 was recorded
as “Gain (loss) on revaluation of receivable from Bonifacio Water Corporation” in the consolidated
statements of comprehensive income.
Others include receivables from indemnity related to the acquisition of KDW (see Note 12), and receivables
from shared facilities, insurance agencies and collection facilities.
Movements in the Group’s allowance for doubtful accounts follow:
At January 1
Provision
At December 31
Individual impairment
Collective impairment
At January 1
Provision
At December 31
Individual impairment
Collective impairment
7.
Residential
P
= 460,288,640
21,103,738
P
= 481,392,378
P
= 25,953,548
455,438,830
2014
Receivable from Customers
Commercial Semi-Business
P
= 107,303,430
P
= 32,118,694
6,107,791
1,131,968
P
= 113,411,221
P
= 33,250,662
P
= 10,893,892
P
= 1,895,555
102,517,329
31,355,107
Industrial
P
= 4,962,559
681,789
P
= 5,644,348
P
= 855,138
4,789,210
Other
Receivables
P
= 78,750,136
5,285,974
P
= 84,036,110
P
= 2,411,865
81,624,245
Total
P
= 683,423,459
34,311,260
P
= 717,734,719
P
= 42,009,998
675,724,721
Residential
P
= 426,063,068
34,225,572
P
= 460,288,640
P
= 24,815,772
435,472,868
2013
Receivable from Customers
Commercial Semi-Business
P
= 97,397,951
P
= 30,282,894
9,905,479
1,835,800
P
= 107,303,430
P
= 32,118,694
P
= 10,307,199
P
= 1,831,024
96,996,231
30,287,670
Industrial
P
= 3,856,849
1,105,710
P
= 4,962,559
P
= 751,845
4,210,714
Other
Receivables
P
= 70,177,461
8,572,675
P
= 78,750,136
P
= 2,260,156
76,489,980
Total
P
= 627,778,223
55,645,236
P
= 683,423,459
P
= 39,965,996
643,457,463
Materials and Supplies - at cost
This account consists of:
Maintenance materials
Water meters and connection supplies
Water treatment chemicals
8.
2014
P
= 90,142,091
66,646,295
29,501,675
P
= 186,290,061
2013
P
= 74,845,669
1,243,885
27,507,708
P
= 103,597,262
2014
P
= 419,941,769
125,899,202
117,025,342
20,993,444
P
= 683,859,757
2013
P
= 398,405,369
130,665,205
77,162,833
14,439,684
P
= 620,673,091
Other Current Assets
This account consists of:
Advances to contractors
Prepaid expenses
Value-added input tax
Others
*SGVFS011134*
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Advances to contractors are normally applied within a year against progress billings.
Prepaid expenses include prepayments for business taxes, insurance and employee health care expenses
and other benefits.
Value-added input tax is fully realizable and will be applied against future output tax.
9.
Property and Equipment
The rollforward analysis of this account follows:
2014
Office Furniture
and Equipment
Cost
At January 1
Additions
Disposals
At December 31
Accumulated Depreciation
and Amortization
At January 1
Depreciation and amortization
Disposals
At December 31
Net Book Value at
December 31
P
= 1,334,639,136
93,307,101
(44,104)
1,427,902,133
Land
Leasehold
Improvements
Plant
and Technical
Equipment
P
= 419,011,115 P
= 1,472,106,478
33,729,574
23,149,054
(8,038,929)
–
444,701,760
1,495,255,532
P
= 236,175,702
49,522,442
–
285,698,144
P
= 888,808,157
152,808,344
–
1,041,616,501
P
= 4,350,740,588
352,516,515
(8,083,033)
4,695,174,070
–
–
–
–
184,489,353
21,205,164
–
205,694,517
626,687,589
110,510,987
–
737,198,576
2,311,979,671
258,110,629
(6,881,848)
2,563,208,452
P
= 1,495,255,532
P
= 80,003,627
P
= 304,417,925
P
= 2,131,965,618
Land
Leasehold
Improvements
Plant
and Technical
Equipment
Total
Transportation
Equipment
1,174,089,196
94,124,520
(31,312)
1,268,182,404
326,713,533
32,269,958
(6,850,536)
352,132,955
P
= 159,719,729
P
= 92,568,805
Office Furniture
and Equipment
Transportation
Equipment
P
= 1,190,254,076
145,016,805
–
(113,765)
(517,980)
1,334,639,136
P
= 397,374,297 P
= 1,663,195,722
30,035,389
7,288,628
–
(198,377,872)
–
–
(8,398,571)
–
419,011,115
1,472,106,478
Total
2013
Cost
At January 1
Additions
Transfer (Note 10)
Retirement
Disposals
At December 31
Accumulated Depreciation
and Amortization
At January 1
Depreciation and amortization
Retirement
Disposals
At December 31
Net Book Value at
December 31
991,417,340
183,182,680
(6,320)
(504,504)
1,174,089,196
299,442,260
32,788,404
–
(5,517,131)
326,713,533
P
= 160,549,940
P
= 92,297,582
P
= 204,966,120
31,209,582
–
–
–
236,175,702
–
–
–
–
–
162,861,246
21,628,107
–
–
184,489,353
P
= 1,472,106,478
P
= 51,686,349
P
= 827,442,377
61,395,244
P
= 4,283,232,592
274,945,648
(198,377,872)
(29,464)
(143,229)
–
(8,916,551)
888,808,157
4,350,740,588
511,763,657
114,926,463
(2,531)
–
626,687,589
P
= 262,120,568
1,965,484,503
352,525,654
(8,851)
(6,021,635)
2,311,979,671
P
= 2,038,760,917
As of December 31, 2013, land amounting to P
= 198.38 million was transferred to service concession assets
since it forms part of rehabilitation works or service expansions (Note 10).
As of December 31, 2014 and 2013, fully depreciated property and equipment that are still in use by the
Group amounted to P
=529.54 million and P
= 471.63 million, respectively.
*SGVFS011134*
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10. Service Concession Assets and Obligations
A.
Service concession assets
The movements in this account follow:
Cost
Balance at beginning of year
Additions during the year (Note 1)
Rehabilitation works (Note 9)
Loan drawdowns
Local component cost
Acquired through business combination (Note 4)
Balance at end of year
Accumulated Amortization
Balance at beginning of year
Amortization
Balance at end of year
Net Book Value
2014
2013
P
= 69,942,684,717
P
= 63,972,074,319
3,435,789,320
–
3,523,721
–
73,381,997,758
5,071,257,510
253,846,082
20,506,806
625,000,000
69,942,684,717
15,360,455,322
2,185,876,678
17,546,332,000
P
= 55,835,665,758
13,218,217,984
2,142,237,338
15,360,455,322
P
= 54,582,229,395
SCA consists of the present value of total estimated concession fee payments, including regulatory costs and
local component costs, of the Parent Company, Laguna Water, Boracay Water and Clark Water, pursuant to
the Group’s concession agreements and the revenue from rehabilitation works which is equivalent to the
related cost for the rehabilitation works covered by the service concession arrangements.
Total interest and other borrowing costs capitalized as part of the rehabilitation works amounted to
P
= 377.70 million, P
= 299.48 million and P
= 343.92 million in 2014, 2013 and 2012, respectively. The
capitalization rates used ranged from 7.01% to 8.78% in 2014, 4.16% to 7.06% in 2013 and 4.89% to 7.23%
in 2012.
In March 2010, the Parent Company entered into a MOA with MWSS for the repayment of the Export-Import
Bank of China loan which resulted in additional SCA and SCO amounting to P
= 253.85 million in 2013 (see
Note 1).
B.
Service concession obligations
The breakdown of service concession obligations follows:
Current
Noncurrent
2014
P
= 1,019,515,457
6,981,693,612
P
= 8,001,209,069
2013
P
= 1,290,405,792
7,143,299,801
P
= 8,433,705,593
MWSS Concession Fees
The aggregate concession fees of the Parent Company pursuant to the Agreement are equal to the sum of
the following:
a.
10% of the aggregate peso equivalent due under any MWSS loan which has been disbursed prior to the
Commencement Date, including MWSS loans for existing projects and the Umiray Angat Transbasin
Project (UATP), on the prescribed payment date;
b.
10% of the aggregate peso equivalent due under any MWSS loan designated for the UATP which has
not been disbursed prior to the Commencement Date, on the prescribed payment date;
c.
10% of the local component costs and cost overruns related to the UATP;
d.
100% of the aggregate peso equivalent due under MWSS loans designated for existing projects, which
have not been disbursed prior to the Commencement Date and have been either awarded to third party
bidders or elected by the Parent Company for continuation;
100% of the local component costs and cost overruns related to existing projects;
e.
*SGVFS011134*
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f.
Parent Company’s share in the repayment of MWSS loan for the financing of new projects; and
g.
One-half of MWSS annual corporate operating budget.
The schedule of undiscounted future concession fee payments follows:
Foreign Currency
Denominated
Loans
Peso Loans/
(Translated to
Project Local
Total Peso
US Dollars)
Support
Year
Equivalent*
$7,871,129
P
= 395,714,907
P
= 747,711,806
2015
2016
8,682,118
395,714,907
783,979,212
2017
6,927,835
395,714,907
705,527,673
2018
7,107,025
395,714,907
713,541,071
2019 onwards
51,784,480
7,518,583,229
9,834,385,161
$82,372,587
P
= 9,101,442,857
P
= 12,785,144,923
*Peso equivalent is translated using the closing rate as of December 31, 2014 amounting to P
= 44.72 to US$1.
PGL Concession Fees
Under Laguna Water’s concession agreement with PGL, Laguna Water is required to pay concession fees to
PGL computed as a percentage of water sales as follows:
Operational Period
Years 1 to 5
Years 6 to 10
Years 11 to 25
Percentage of Water Sales
4%
3%
2%
Advance payment to PGL was made for the said concession fees and 70% of the annual concession fees is
applied against the said advances. The remaining 30% of the annual concession fees is expensed in the
period they are incurred. Advances as of December 31, 2014 and 2013 amounted to P
= 102.83 million and
P
= 124.18 million, respectively.
TIEZA Concession Fees
The aggregate concession fee pursuant to Boracay Water’s concession agreement with TIEZA is equal to the
sum of the following:
a.
Servicing the aggregate peso equivalent of all liabilities of BWSS as of commencement date;
b.
5% of the monthly gross revenue of Boracay Water, inclusive of all applicable taxes which are for the
account of Boracay Water.
c.
Payment of annual operating budget of the TIEZA Regulatory Office starting 2010. For 2010 and 2011,
the amount shall not exceed P
= 15.00 million. For the year 2012 and beyond, Boracay Water shall pay not
more than P
= 20.00 million, subject to annual CPI adjustments.
In addition, advance payment of P
= 60.00 million was provided to TIEZA which shall be offset against the
annual concession fees amounting to 5% annual gross revenue of Boracay Water, within a period of 10 years
from the signing of the concession agreement or until fully paid. Any amount payable after application of the
advance payment will be expensed in the period this is incurred. The remaining balance of the advances
amounted to P
= 4.16 million and P
= 27.73 million as of December 31, 2014 and 2013, respectively.
CDC Concession Fees
The aggregate concession fee pursuant to Clark Water’s concession agreement with CDC is equal to the
sum of the following:
a.
Annual franchise fee of P
= 1.50 million; and
b.
Semi-annual rental fees of P
= 2.80 million for leased facilities from CDC.
As a result of the extension of the Concession Agreement of Clark Water, payment of rental fees on the
CDC existing facilities was extended by an additional 15 years, from October 1, 2025 to October 1, 2040
(see Note 1).
*SGVFS011134*
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Estimated concession fee payments on future concession projects, excluding the Group’s share in
current operating budget is still not determinable. It is only determinable upon loan drawdowns and
actual construction of the related concession projects.
C. Concession financial receivable
On December 13, 2013, CMWD received a Notice of Award for the bulk supply of water to the
Metropolitan Cebu Water District (MCWD). In relation to this, CMWD and MCWD signed a 20-year Bulk
Water Supply Contract for the supply of 18 million liters per day of water for the first year and 35 million
liters per day of water for years 2 up to 20.
Concession financial receivable is accounted for in accordance with IFRIC 12, arising from the bulk
water contract between CMWD and MCWD whereby the facilities constructed by CMWD shall be used
for the delivery of potable and treated water to MCWD at an aggregate volume of 18,000 cubic meters
per day for the first year and 35,000 cubic meters per day for the succeeding years up to 20 years at
P
= 24.59 per cubic meter or for the total amount of P
= 161.56 million in the first year.
The breakdown of the concession financial receivable is as follow:
Current
Noncurrent
2014
P
= 76,914,317
899,069,520
P
= 975,983,837
2013
P
= 77,458,500
603,905,224
P
= 681,363,724
2014
2013
P
=–
P
=103,300,716
2,409,290
P
=2,409,290
2,409,290
P
=105,710,006
11. Available-for-Sale Financial Assets
This account consists of investments in:
Quoted investments - at fair value (Notes 27 and 28)
Debt
Unquoted investments (Note 28)
Equity - at cost
Quoted investments in debt securities consist mainly of government securities such as retail treasury bonds.
These bonds earn interest that ranged from 6.25% to 8.25% in 2013 with various maturity dates of up to five
years. All of the Group’s quoted investments matured in 2014.
Unquoted investments in equities in 2014 and 2013 include unlisted preferred shares in a public utility
company.
Changes in this account are as follows:
2014
Balance at beginning of year
Maturities during the year
Fair value adjustments
Balance at end of year
Quoted
P
= 103,300,716
(100,000,000)
(3,300,716)
P
=–
Unquoted
P
= 2,409,290
–
–
P
= 2,409,290
Total
P
= 105,710,006
(100,000,000)
(3,300,716)
P
= 2,409,290
Quoted
P
= 408,145,865
(301,343,004)
(3,502,145)
P
= 103,300,716
Unquoted
P
= 86,175,691
(83,766,401)
–
P
= 2,409,290
Total
P
= 494,321,556
(385,109,405)
(3,502,145)
P
= 105,710,006
2013
Balance at beginning of year
Maturities during the year
Fair value adjustments
Balance at end of year
*SGVFS011134*
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The rollforward analysis of unrealized gain on AFS financial assets for 2014 and 2013 follow:
Balance at beginning of year
Unrealized fair value loss recognized in OCI
Realized fair value gain transferred from OCI and
recognized in profit or loss
Balance at end of year
2014
P
= 3,300,716
(3,300,716)
–
P
=–
2013
P
= 21,868,661
(3,502,145)
(15,065,800)
P
= 3,300,716
12. Investments in Associates
This account consists of the following:
Acquisition cost
Accumulated equity in net earnings
Dividend income
Cumulative translation adjustment
2014
P
= 4,090,650,527
858,035,803
(4,699,848)
17,513,271
P
= 4,961,499,753
2013
P
= 4,090,650,527
500,737,441
(2,587,200)
119,406,097
P
= 4,708,206,865
Details of the Group’s investments in associates are shown below:
Thu Duc Water B.O.O. Corporation
On October 12, 2011, TDWH and Ho Chi Minh City Infrastructure Investment Joint Stock Company (CII)
entered into a share sale and purchase agreement whereby CII will sell to TDWH its 49.00% interest (2.45
million common shares) in TDW. On December 8, 2011, TDWH completed the acquisition of CII’s interest in
the common shares of TDW after which TDWH obtained significant influence in TDW.
The acquisition cost of the investment amounted to P
= 1.79 billion (VND858.00 billion). The investment in
associate account includes a notional goodwill amounting to P
= 1.41 billion arising from the acquisition of
shares of stock in TDW.
The financial information of TDW as of and for the years ended December 31, 2014 and 2013 follows:
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Revenue
Net income
2014
P
= 102,232,559
2,558,962,496
399,688,104
260,590,404
770,316,632
444,295,946
2013
P
= 104,450,564
2,712,849,152
352,739,145
800,601,789
655,426,694
441,448,980
The conversion rates used was P
= 0.0021 to VND1 as of December 31, 2014 and 2013.
The share of the Group in the net income of TDW for the years ended December 31, 2014 and 2013
amounted to P
= 217.71 million and P
= 216.31 million, respectively.
Kenh Dong Water Supply Joint Stock Company
On May 17, 2012, the Parent Company thru KDWH entered into a SPA with CII for the purchase of 47.35%
of CII’s interest in KDW. The payment for the shares shall be done in two tranches, with additional
contingent considerations subject to the fulfillment of certain conditions precedent for a total purchase price of
P
= 1.66 billion.
As of December 31, 2012, considerations paid by the Parent Company for its investment in KDW amounted
to P
= 1.57 billion (VND785.24 billion). Contingent consideration included in the purchase price allocation
amounted to P
= 89.02 million (VND44.49 billion) (Note 17). The share purchase transaction was completed on
July 20, 2012 and KDWH gained significant influence in KDW.
In 2013, KDW finalized its purchase price allocation which resulted in a final notional goodwill amounting to
P
= 1.38 billion. The Group also recorded an income of P
=62.90 million under the caption “Other income” in the
consolidated statements of comprehensive income as indemnification for the damages resulting from the
delay in the start of the bulk water operations of KDW.
*SGVFS011134*
- 37 -
The financial information of KDW as of and for the years ended December 31, 2014 and 2013 follows:
2014
P
= 654,566,749
2,594,522,659
346,204,390
1,510,062,513
464,795,958
236,113,628
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Revenue
Net income
2013
P
= 126,090,570
2,383,454,458
522,500,644
1,115,526,863
150,828,564
161,879,620
The conversion rate used was P
= 0.0021 to VND1 as of December 31, 2014 and 2013.
The share of the Group in the net income of KDW for the years ended December 31, 2014 and 2013
amounted to P
= 111.80 million and P
= 76.65 million, respectively.
The Group’s share in net income from its investments in TDW and KDW resulted from concession
arrangement with People’s Committee of Ho Chi Minh City (the Grantor). These concession arrangements
are accounted under the Financial Asset model of IFRIC 12 as these associates have an unconditional
contractual right to receive fixed and determinable amounts of payment for its construction services at the
direction of the Grantor.
Saigon Water Infrastructure Corporation (Saigon Water)
On October 8, 2013, the Parent Company thru MWSAH entered into an Investment Agreement for the
acquisition of 31.47% stake in Saigon Water. The acquisition cost of the investment amounted to
P
= 642.76 million (VND310.45 billion). The share subscription transaction was completed on October 8, 2013
and MWSAH gained significant influence in Saigon Water.
In 2014, MWSAH finalized the notional goodwill amounting to P
=288.84 million arising from the acquisition of
shares of stock in Saigon Water by the Group as of December 31, 2013. There were no adjustments made
to the fair values of the net assets as of acquisition date.
The financial information of Saigon Water as of and for the years ended December 31, 2014 and 2013
follows:
2014
P
= 1,089,405,192
1,084,396,628
231,758,420
231,758,420
127,870,666
88,317,587
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Revenue
Net income
2013
P
= 1,107,766,503
771,029,593
113,505,825
165,280,665
74,697,010
3,241,118
The conversion rate used was P
= 0.0021 to VND1 as of December 31, 2014 and 2013.
The share of the Group in the consolidated net income of Saigon Water for the year ended December 31,
2014 and period October to December 31, 2013 amounted to P
= 27.79 million and P
= 1.02 million, respectively.
The reconciliation of the net assets of the associates to the carrying amounts of the Investments in
associates recognized in the consolidated financial statements follows:
TDW
Net assets of associate
attributable to common
shareholders
Proportionate ownership in the
associate
Share in net identifiable assets
Notional Goodwill
Carrying values
2014
KDWH
Saigon Water
P
= 1,721,877,598
P
= 1,350,171,319
49.00%
843,720,023
1,413,891,653
P
= 2,257,611,676
47.35%
639,306,120
1,378,777,432
P
= 2,018,083,552
P
= 1,261,399,237
31.47%
396,962,340
288,842,185
P
= 685,804,525
Total
P
= 4,333,448,154
1,879,988,483
3,081,511,270
P
= 4,961,499,753
*SGVFS011134*
- 38 -
2013
KDWH
TDW
Net assets of associate
attributable to common
shareholders
Proportionate ownership in the
associate
Share in net identifiable assets
Notional Goodwill
Carrying values
P
= 1,603,324,303
P
= 1,023,351,690
49.00%
785,628,908
1,413,891,653
P
= 2,199,520,561
47.35%
484,557,025
1,378,777,432
P
= 1,863,334,457
Saigon Water
P
= 1,132,855,614
31.47%
356,509,662
288,842,185
P
= 645,351,847
Total
P
= 3,759,531,607
1,626,695,595
3,081,511,270
P
= 4,708,206,865
The rollforward of accumulated equity in net earnings follow:
Balance at beginning of year
Equity in net earnings during the year
Balance at end of year
2014
P
= 500,737,441
357,298,362
P
= 858,035,803
2013
P
= 206,762,409
293,975,032
P
= 500,737,441
2014
P
= 465,051,543
166,579,940
141,189,217
2013
P
= 431,380,407
181,006,265
55,407,245
89,124,098
35,000,000
26,781,828
P
= 923,726,626
66,072,709
35,000,000
28,381,601
P
= 797,248,227
13. Other Noncurrent Assets
This account consists of:
Receivable from BWC - net of current portion (Note 6)
Deposits
Deferred FCDA
Receivable from Ayala Multi-Purpose Cooperative
(AMPC) (Note 22)
Advances to Carmen Development Fund
Miscellaneous
Deposits pertain to Group’s advance payments for the guarantee deposits in Manila Electric Company
(MERALCO) for the electric connection, its related deferred charges, deposits to Department of Environment
and Natural Resources (DENR), deposits for land acquisitions and right of way and water banking rights.
CMWD entered into a 30-year Right of Way Agreement with certain individuals for an easement of right of
way of a portion of their lands wherein the pipelines and other appurtenances between the weir and water
treatment plant of CMWD will pass through. In 2014, this was transferred as part of Concession financial
receivable as this formed part of rehabilitation works (see Note 10).
For the water banking rights, the National Water Resources Board (NWRB) approved the assignment of
Water Permit No. 16241 from Central Equity Ventures Inc. (now Stateland Inc.) to MW Consortium. The
NWRB likewise approved the change of the purpose of Water Permit No. 16241 from Domestic to Municipal.
MW Consortium allows CMWD to use the said water permit for its project.
Deferred FCDA refers to the unrecovered amounts from (amounts for refund to) customers for realized
losses (gains) from payments of foreign loans based on the difference between the drawdown or rebased
rate versus the closing rate at payment date. This account also covers the unrealized gains/losses from loan
valuations.
Receivable from AMPC pertains to the term loan and credit line facility agreement as discussed in Note 22.
Advances to Carmen Development Fund pertain to the advance payments for the permit to extract water at
Carmen property in Cebu. This shall be recouped from the contributions due to the Municipality of Carmen
as provided in the MOA dated May 29, 2012.
*SGVFS011134*
- 39 -
14. Accounts and Other Payables
This account consists of:
Trade payables
Accrued expenses
Salaries, wages and employee benefits
Management and professional fees
Repairs and maintenance
Utilities
Collection fees
Wastewater costs
Occupancy costs
Other accrued expenses
Interest payable (Note 15)
Contracts payable
Advances from SAWACO
Others
2014
P
= 2,347,681,511
2013
P
= 2,635,741,552
324,935,018
180,703,866
173,402,270
140,858,704
109,910,311
86,108,068
22,336,280
59,990,835
321,624,639
26,034,472
719,292
52,519,230
P
= 3,846,824,496
300,974,081
227,850,213
65,533,933
146,159,674
144,045,180
29,740,325
21,058,936
70,353,048
333,188,939
216,144,886
719,292
31,258,708
P
= 4,222,768,767
Trade payables and accrued expenses are non-interest-bearing and are normally settled on 15 to 60-day
terms. Other payables are non-interest bearing and are normally settled within one year.
Other accrued expenses include accruals for advertising, insurance, transportation and travel, postage,
telephone and supplies.
Interest payable pertains to the unpaid portion of interest arising from the long-term debts of the Group.
Contracts payable pertains to the accrual of expenses which requires the Group to pay the contractor upon
project completion. Contracts payable are due and demandable and are normally settled within one year.
Advances from SAWACO pertain to the advance payments made by SAWACO to the Parent Company to
facilitate the start-up and operating expenses related to the management contract entered with SAWACO
(see Note 23). These are offset against the progress billings made by the Parent Company.
15. Long-term Debt
This account consists of:
United States Dollar (USD) loans
NEXI Loan
EIB loan
Second IFC loan
Japanese Yen (JPY) loans
LBP loan
EIB loan
First IFC loan
Philippine Peso (PHP) loans
P
= 10.00 billion notes
P
= 5.00 billion loan
P
= 0.750 billion CMWD loan
P
= 0.50 billion Laguna Water loan - 1st
P
= 0.833 billion Laguna Water loan - 2nd
P
= 0.50 billion Boracay Water loan - 1st
P
= 0.50 billion Boracay Water loan - 2nd
Less current portion
2014
2013
P
= 4,833,453,736
417,288,433
264,444,993
P
= 5,564,435,364
579,093,075
434,376,522
936,826,680
650,425,082
367,657,849
1,213,261,962
1,031,618,857
538,946,233
9,825,180,078
4,949,487,025
741,007,446
396,563,814
1,329,489,663
487,580,163
271,345,756
25,470,750,718
(2,495,629,251)
P
= 22,975,121,467
9,856,603,757
4,970,576,622
537,080,860
462,097,197
496,296,733
494,455,297
72,836,625
26,251,679,104
(1,890,774,750)
P
= 24,360,904,354
*SGVFS011134*
- 40 -
Unamortized debt discounts and issuance of the Group’s long-term debt as of December 31, 2014 and 2013
follow:
USD loans
Yen loans
Peso loans
2014
P
= 203,422,898
33,523,618
74,956,319
P
= 311,902,835
2013
P
= 275,573,164
62,767,243
88,897,927
P
= 427,238,334
The rollforward analysis of unamortized debt discounts and issuance costs of long-term debt follows:
Balance at beginning of the year
Additions
Amortization (Note 18)
Foreign exchange adjustments
Balance at end of the year
2014
P
= 427,238,334
11,119,023
(122,224,413)
(4,230,109)
P
= 311,902,835
2013
P
= 511,397,882
38,238,985
(134,167,263)
11,768,730
P
= 427,238,334
Parent Company
NEXI Loan
On October 21, 2010, the Parent Company entered into a term loan agreement (NEXI Loan) amounting to
US$150.00 million to partially finance 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 Nippon Export and
Investment Insurance. First, second and third drawdowns of the loan amounted to US$84.00 million,
US$30.00 million and US$36.00 million, respectively. The carrying value of the loan as of December 31,
2014 and 2013 amounted to US$108.08 million and US$125.34 million, respectively.
EIB Loan
On June 20, 2007, the Parent Company entered into a Finance Contract (the “EIB Loan”) with the European
Investment Bank (EIB) to partially finance the capital expenditures of the Parent Company from 2007 to
2010, as specified under Schedule 1 of the Finance Contract. The loan, in the aggregate principal amount of
EUR€60.00 million, having a term of 10 years, is subject to the Relevant Interbank Rate plus a spread to be
determined by EIB, and may be drawn in either fixed-rate or floating-rate tranches. The loan has two
tranches as described below:
·
·
Sub-Credit A: In an amount of EUR€40.00 million to be disbursed in US Dollars and Japanese Yen
payable via semi-annual installments after the 2 1/2 grace period. This loan tranche is guaranteed
against all commercial risks by a consortium of international commercial banks composed of ING Bank,
Development Bank of Singapore and Sumitomo-Mitsui Banking Corporation under a Guaranty Facility
Agreement; and
Sub-Credit B: In an amount of EUR€20.00 million to be disbursed in Japanese Yen payable via semiannual installments after the 2 1/2 grace period. This loan tranche is guaranteed against all commercial
risks by ING Bank under a Guaranty Facility Agreement.
On May 21, 2012, the Sub-Credit A Guarantee Facility Agreement was amended to extend the effectivity of
the guarantee. Two of the original guarantors, ING Bank and Sumitomo Mitsui Banking Corporation, agreed
to extend the guarantee by another five years towards the maturity of the loan.
On July 30, 2013, the Sub-Credit B Guarantee Facility Agreement was amended to extend the effectivity of
the guarantee. The original guarantor, ING Bank, agreed to extend the guarantee by another five years
towards the maturity of the loan.
The carrying value of the EIB loan amounted to JPY1,755.06 million and US$9.33 million as of December 31,
2014 and JPY2,433.64 million and US$13.04 million as of December 31, 2013. The Parent Company
decided to prepay the EIB Loan effective February 20, 2015.
IFC Loan
On March 28, 2003, the Parent Company entered into a loan agreement with IFC (the “First IFC Loan”) to
partially finance the Parent Company’s investment program from 2002-2005 to expand water supply and
sanitation services, improvement on the existing facilities of the Parent Company, and concession fee
payments. The First IFC Loan was made available in Japanese Yen in the aggregate principal amount of
*SGVFS011134*
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JP¥3,591.60 million equivalent to US$30.00 million and shall be payable in 25 semi-annual installments,
within 12 years starting on July 15, 2006. As of December 31, 2014 and 2013, the carrying value of the loan
amounted to JP¥992.06 million and JP¥1,271.40 million, respectively.
On May 31, 2004, the Parent Company entered into a loan agreement with IFC (the “Second IFC Loan”)
composed of a regular loan in the amount of up to US$20.00 million and a standby loan in the amount of up
to US$10.00 million to finance the investment program from 2004 to 2007 to expand water supply and
sanitation services, improvement of existing facilities of the Parent Company, and concession fee payments.
This loan was subsequently amended on November 22, 2006, when the Parent Company executed the
Amended and Restated Loan Agreement for the restructuring of the Second IFC Loan. The terms of the
second loan were amended to a loan in the aggregate amount of up to US$30.00 million, no part of which
shall consist of a standby loan. On December 12, 2008, the Parent Company made a full drawdown on the
said facility. As of December 31, 2014 and 2013, outstanding balance of the Second IFC loan amounted to
US$5.91 million and US$9.78 million, respectively.
On July 31, 2013, the Parent Company entered into a loan agreement with IFC (the “Fourth” Omnibus
Agreement) in the amount of up to $100.00 million for financing the Projects in accordance with the
provisions of the Agreement. The loan has a term of 18 years, payable in semi-annual installments after the
grace period. This loan facility has neither been activated nor disbursed and was consequently cancelled in
November 2014. The transaction costs related to the cancellation of the loan were included as part of Other
income (loss).
LBP Loan
On October 20, 2005, the Parent Company entered into a Subsidiary Loan Agreement with Land Bank of the
Philippines (LBP Loan) to finance the improvement of the sewerage and sanitation conditions in the East
Zone. The loan has a term of 17 years, and was made available in Japanese Yen in the aggregate principal
amount of JPY6.59 billion payable via semi-annual installments after the 5-year grace period. The Parent
Company made its last drawdown on October 26, 2012.
The total drawn amount for the loan is JPY3.99 billion. As of December 31, 2014 and 2013, the outstanding
balance of the LBP loan amounted to JP¥2,527.86 million and JPY2,862.14 million, respectively.
On September 25, 2012, the Parent Company entered into a Subsidiary Loan Agreement with Land Bank of
the Philippines under the Metro Manila Wastewater Management Project (MWMP) with the World Bank. The
MWMP aims to improve wastewater services in Metro Manila through increased wastewater collection and
treatment. The loan has a term of twenty-five (25) years, and was made available in US Dollars in the
aggregated principal amount of US$137.5 million via semi-annual installments after the seven-year grace
period. As of December 31, 2014, the Parent Company has not made any drawdown from this facility.
Fixed Rate Corporate Notes
On April 8, 2011, the Parent Company issued P
= 10.00 billion notes (“Fixed Rate Corporate Notes”)
P
= 5.00 billion having a term of 5 years (“Five-Year FXCN Note”) from the issue date and the other P
= 5.00
billion with a term of 10 years (“Ten-Year FXCN Note”) from the issue date which is both payable quarterly.
The Parent Company may repay the whole and not a part only of the Ten-Year FXCN Notes on the 7th
anniversary of the drawdown date of such FXCN Note or on any FXCN interest payment date thereafter. The
amount payable in respect to such prepayment shall be calculated as 102% of the principal amount being
prepaid and accrued interest on the prepayment date. The carrying value of the fixed rate corporate notes as
of December 31, 2014 and 2013 amounted to P
= 9.83 billion and P
= 9.86 billion, respectively.
P
= 5.00 billion Loan
On August 16, 2013, the Company entered into a Credit Facility Agreement (the "P5.00 billion loan") with
Metropolitan Bank and Trust Company (Metrobank) having a fixed nominal rate of 4.42% and with a term of 7
years from the issue date which is payable annually. The Company may repay the whole and not a part only
of the loan starting on the 3rd anniversary of the drawdown date of such loan or on any interest payment date
thereafter.
The amount payable in respect to such prepayment shall be calculated as 102% of the principal amount
being prepaid and accrued interest if such prepayment occurs on or after the 3rd anniversary but before the
4th anniversary of the drawdown date. The amount payable in respect to such prepayment shall be
calculated as 101.5% of the principal amount being prepaid and accrued interest if such prepayment occurs
on or after the 4th anniversary but before the 5th anniversary of the drawdown date. The amount payable in
respect to such prepayment shall be calculated as 101% of the principal amount being prepaid and accrued
interest if such prepayment occurs on or after the 5th anniversary but before the 6th anniversary of the
*SGVFS011134*
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drawdown date. The amount payable in respect to such prepayment shall be calculated as 100.5% of the
principal amount being prepaid and accrued interest if such prepayment occurs on or after the 6th
anniversary but before the 7th anniversary of the drawdown date. The carrying value of the notes as of
December 31, 2014 and 2013 amounted to P
=4.95 and P
= 4.97 billion, respectively.
On July 17, 2008, the Parent Company, together with all of its Lenders signed an Omnibus Amendment
Agreement and Intercreditor Agreement and these agreements became effective on September 30, 2008.
Prior to the execution of the Omnibus Amendment Agreement, the obligations of the Parent Company to pay
amounts due and owing or committed to be repaid to the lenders under the existing facility agreements were
secured by Assignments of Interests by Way of Security executed by the Parent Company in favor of a
trustee acting on behalf of the lenders. The Assignments were also subject to the provisions of the Amended
and Restated Intercreditor Agreement dated March 1, 2004 and its Amendatory Agreement dated December
15, 2005 executed by the Parent Company, the lenders and their appointed trustee.
Under the Omnibus Amendment Agreement, the lenders effectively released the Parent Company from the
assignment of its present and future fixed assets, receivables and present and future bank accounts, all the
Project Documents (except for the Agreement, Technical Corrections Agreement and the Department of
Finance Undertaking Letter), all insurance policies where the Parent Company is the beneficiary and
performance bonds posted in its favor by contractors or suppliers.
In consideration for the release of the assignment of the above-mentioned assets, the Parent Company
agreed not to create, assume, incur, permit or suffer to exist, any mortgage, lien, pledge, security interest,
charge, encumbrance or other preferential arrangement of any kind, upon or with respect to any of its
properties or assets, whether now owned or hereafter acquired, or upon or with respect to any right to receive
income, subject only to some legal exceptions. The lenders shall continue to enjoy their rights and privileges
as Concessionaire Lenders (as defined under the Agreement), which include the right to appoint a qualified
replacement operator and the right to receive payments and/or other consideration pursuant to the
Agreement in case of a default of either the Parent Company or MWSS. Currently, all lenders of the Parent
Company are considered Concessionaire Lenders and are on pari passu status with one another.
In November and December 2014, the Parent Company signed Amendment Agreements to its loan
agreements with its existing lenders. This effectively relaxed certain provisions in the loan agreements
providing the Company more operational and financial flexibility. The loan amendments include the shift to
the use of the Parent Company from consolidated financial statements for the purposes of calculating the
financial convenant ratios, the increase in maximum debt to equity ratio to 3:1 from 2:1 and the
standardization of the definition of debt service coverage ratio across all loan agreements.
CMWD
On December 19, 2013, the CMWD entered into an omnibus loan and security agreement (the Agreement)
with Development Bank of the Philippines (DBP) to partially finance the construction works in relation to its
bulk water supply project in Cebu, Philippines. The lender has agreed to extend a loan facility in the
aggregate principal amount of P
=800.00 million or up to 70% of the total project cost, whichever is lower.
The first drawdown made on December 20, 2013 amounted to P
= 541.13 million, the second drawdown made
on May 20, 2014 amounted to P
= 195.64 million and the third drawdown made on November 14, 2014
amounted to P
= 14.22 million. The carrying value of the loan as of December 31, 2014 and 2013 amounted to
P
= 741.01 million and P
= 537.08 million, respectively.
Laguna Water
On September 7, 2010, Laguna Water entered into a loan agreement with two local banks for the financing of
its construction, operation, maintenance and expansion of facilities in its servicing area. Pursuant to the loan
agreement, the lenders have agreed to provide loans to Laguna Water up to P
= 500.00 million, principal
payments of which will be made in 30 consecutive equal quarterly installments starting August 2013. The
first and second drawdowns from the loan were made in November 2010 and July 2011 amounting to
P
= 250.00 million each. The carrying value of this loan amounted to P
= 396.56 million and P
= 462.10 million as of
December 31, 2014 and 2013, respectively.
On April 29, 2013, Laguna Water entered into a loan agreement with Development Bank of the Philippines
(DBP) to partially finance the modernization and expansion of the water network system and water supply
facilities in Binan, Sta. Rosa and Cabuyao, Laguna. Under the agreement, the lender has agreed to provide
a loan to the borrower through the Philippine Water Revolving Fund (PWRF) in the aggregate principal
amount of up to P
= 500.00 million bearing an effective interest rate of 7.25%. The first and second drawdowns
*SGVFS011134*
- 43 -
were made in July 2013 and December 2013 which amounted to P
= 250.00 million each. The carrying value of
this loan as of December 31, 2014 and 2013 amounted to P
= 498.71 million and P
= 496.30 million.
On January 9, 2014, Laguna Water exercised its option to avail of the second tranche of its loan agreement
with DBP, to finance its water network and supply projects, including the development of a well-field network
in the Biñan, Sta. Rosa area of Laguna. Under the expanded facility agreement, the lender provided
additional loans to Laguna Water in the aggregate principal amount of P
= 833.00 million. The first and second
drawdowns were made in January and May 2014, respectively, amounting to P
= 416.50 million each. The
carrying value of the loans amounted to P
= 830.78 million as of December 31, 2014.
Boracay Water
On July 29, 2011, Boracay Water entered into an omnibus loan and security agreement (the Agreement) with
the DBP and Security Bank Corporation (SBC) to finance the construction, operation, maintenance and
expansion of facilities for the fulfillment of certain service targets for water supply and waste water services
for its service area under its concession agreement with TIEZA, as well as the operation and maintenance of
the completed drainage system. The loan shall not exceed the principal amount of P
= 500.00 million and is
payable in 20 years inclusive of a 3-year grace period. The loan shall be available in three sub-tranches, as
follows:
·
·
·
Sub-tranche 1A, the loan in the amount of P
= 250.00 million to be provided by DBP and funded through
Philippine Water Revolving Fund (PWRF);
Sub-tranche 1B, the loan in the amount of P
= 125.00 million to be provided by SBC and funded through
PWRF; and
Sub-tranche 1C, the loan in the amount of P
= 125.00 million to be provided by SBC and funded through its
internally-generated funds.
The first loan drawdown made on August 25, 2011 amounted to P
= 150.00 million, second drawdown on
August 25, 2012 amounted to P
= 155.00 million and final drawdown on August 23, 2013 amounted to
P
= 195.00 million. The carrying value of the loan as of December 31, 2014 and 2013 amounted to
P
= 487.58 million and P
= 494.46 million, respectively.
The Agreement provided Boracay Water the option to borrow additional loans from the lenders. On
November 14, 2012, Boracay Water entered into the second omnibus loan and security agreement with DBP
and SBC. The agreed aggregate principal of the loan amounted to P
= 500.00 million which is available in three
sub-tranches:
·
·
·
Sub-tranche 2A, the loan in the amount of P
= 250.00 million to be provided by DBP and funded through
Philippine Water Revolving Fund (PWRF);
Sub-tranche 2B, the loan in the amount of P
= 125.00 million to be provided by SBC and funded through
PWRF; and
Sub-tranche 2C, the loan in the amount of P
= 125.00 million to be provided by SBC and funded through
Boracay Water’s internally-generated funds.
The first loan drawdown made on November 23, 2012 amounted to P
=75.00 million and the second loan
drawdown on August 26, 2014 amounted to P
= 200.00 million. The carrying value of the loan as of
December 31, 2014 and 2013 amounted to P
=271.35 and 72.84 million, respectively.
On October 9, 2014, Boracay Water signed a Third Omnibus Loan and Security Agreement in the amount of
P
= 650.00 million with SBC. The loan will be used to fund the capital expenditures which will be used to
provide water and sewerage services in the concession area of Boracay Water.
Compliance with loan covenants
All these loan agreements provide for certain covenants which must be complied by the Parent Company,
Laguna Water, Boracay Water and CMWD, which include compliance with certain financial ratios such as the
debt-to-equity and debt-service-coverage ratios. As of December 31, 2014 and 2013, the Parent Company,
Laguna Water, Boracay Water and CMWD were in compliance with all the loan covenants required by the
creditors.
*SGVFS011134*
- 44 -
16. Retirement Plan
The Parent Company has a funded, noncontributory, tax-qualified defined benefit pension plan covering
substantially all of its regular employees. The benefits are based on current salaries and years of service
and compensation as of the last year of employment. The latest actuarial valuation was made on
December 31, 2014.
Under the existing regulatory framework, Republic Act 7641 requires a provision for retirement pay to
qualified private sector employees in the absence of any retirement plan in the entity, provided however that
the employee’s retirement benefits under any collective bargaining and other agreements shall not be less
than those provided under law. The law does not require minimum funding for the plan.
The Parent Company’s funding policy states that equivalent target funding ratio must always be at least 80%
and should the ratio reach 120%, the Retirement and Welfare Plan Committee may opt to declare a funding
holiday. In the event there is an extraordinary increase in defined benefit obligation, which may arise from
benefit improvement, massive hiring and the other extraordinary personnel movements, the Parent Company
has a maximum of 3 years to comply with the required minimum funded ratio of 80%.
The plan is covered by a retirement fund administered by trustee banks, which is under the supervision of the
Retirement and Welfare Plan Committee. The Committee, which is composed of six (6) members appointed
by the BOD of the Parent Company, defines the investment strategy of the fund and regularly reviews the
strategy based on market developments and changes in the plan structure. When defining the investment
strategy, the Committee takes into account the plan’s objectives, benefit obligations and risk capacity. The
Committee reviews, on a quarterly basis, the performance of the funds managed by trustee banks.
*SGVFS011134*
- 45 -
Changes in net defined benefit liability of funded funds are as follows:
2014
Net benefit cost in consolidated statement of
comprehensive income
Present value of
defined benefit
obligation
Fair value of
plan assets
At January 1
Current
service cost
Net interest
Subtotal
P
= 783,835,800
P
= 77,841,000
P
= 38,421,000
P
= 116,262,000
(402,234,900)
P
= 381,600,900
–
P
= 77,841,000
(21,866,100)
P
= 16,554,900
(21,866,100)
P
= 94,395,900
Benefits paid
(P
= 20,436,700)
20,436,700
P
=–
Settlements
Remeasurements in other comprehensive income
Return
on plan assets
Actuarial
Actuarial
(excluding changes arising changes arising
amount
from changes
from changes
Changes
included in in demographic
in financial
in the effect
net interest)
assumptions
assumptions of asset ceiling
Subtotal
Contribution
by employer
At December
31
P
=–
P
= 856,262,000
P
=–
P
= 3,018,700
P
= 13,055,200
(P
= 39,473,000)
P
=–
(P
= 23,399,100)
–
P
=–
(13,828,600)
(P
= 10,809,900)
–
P
= 13,055,200
–
(P
= 39,473,000)
–
P
=–
(13,828,600)
(400,000,000)
(P
= 37,227,700) (P
= 400,000,000)
(817,492,900)
P
= 38,769,100
2013
Net benefit cost in consolidated statement of
comprehensive income
Present value of
defined benefit
obligation
Fair value of
plan assets
At January 1
Current
service cost
Net interest
Subtotal
P
= 633,390,300
P
= 57,195,900
P
= 32,482,300
P
= 89,678,200
(251,366,000)
P
= 382,024,300
–
P
= 57,195,900
(14,233,200)
P
= 18,249,100
(14,233,200)
P
= 75,445,000
Benefits paid
Settlements
(P
= 21,370,200)
P
=–
21,306,900
(P
= 63,300)
–
P
=–
Remeasurements in other comprehensive income
Return
on plan assets
Actuarial
Actuarial
(excluding changes arising changes arising
amount
from changes
from changes
Changes
included in in demographic
in financial
in the effect
net interest)
assumptions
assumptions of asset ceiling
P
=–
(13,942,600)
(P
= 13,942,600)
Subtotal
Contribution
by employer
At December
31
P
=–
P
= 783,835,800
P
= 63,768,700
P
= 18,411,200
(P
= 42,400)
P
= 82,137,500
–
P
= 63,768,700
–
P
= 18,411,200
–
(P
= 42,400)
(13,942,600)
(144,000,000)
P
= 68,194,900 (P
= 144,000,000)
(402,234,900)
P
= 381,600,900
*SGVFS011134*
- 46 -
The fair value of net plan assets by each class is as follows:
Assets
Cash and cash equivalents
Debt investments
Equity investments
Interest receivable
Liabilities
Accrued trust fees
Unamortized tax on premium
Provision for probable losses
Fair value of plan assets
2014
2013
P
= 196,670,028
410,881,940
205,867,755
12,001,590
825,421,313
P
= 180,649,297
158,818,454
63,127,421
1,256,680
403,851,852
7,928,413
–
–
7,928,413
P
= 817,492,900
395,777
1,211,175
10,000
1,616,952
P
= 402,234,900
All equity and debt investments held have quoted prices in active markets. The remaining plan assets do not
have quoted market prices in active markets.
The plan assets have diverse investments and do not have any concentration risk.
The cost of defined benefit pension plans and other post-employment medical benefits, as well as the
present value of the pension obligation are determined using actuarial valuations. The actuarial valuations
involve making various assumptions. The principal assumptions used in determining pension and postemployment medical benefit obligations for the defined benefit plans are shown below:
Discount Rate
Salary increase rate
2014
4.50% to 5.00%
6.00% to 7.00%
2013
5.25%
7.00%
The overall expected rate of return on assets is determined based on the market expectation prevailing on
that date, applicable to the period over which the obligation is settled.
The sensitivity analysis below has been determined based on reasonably possible changes of each
significant assumption on the defined benefit obligation as of the end of the reporting period, assuming all
other assumptions were held constant:
Discount Rate
Salary increase rate
Increase
(Decrease)
1.00%
(1.00%)
Effect
on defined
benefit obligation
(P
= 74,468,769)
88,770,462
1.00%
(1.00%)
P
= 86,584,204
(74,119,832)
Shown below is the maturity analysis of the undiscounted benefit payments:
Less than 1 year
More than 1 year to 5 years
More than 5 years to 10 years
Expected benefit
payments
P
= 44,053,200
307,057,700
591,940,300
P
= 943,051,200
The average duration of the defined benefit obligation at the end of the reporting period is 21.70 years and
22.80 years as of December 31, 2014 and 2013, respectively.
The asset allocation of the plan is set and reviewed from time to time by the Committee taking into account
the membership profile and the liquidity requirements of the Plan. This also considers the expected benefit
cash flows to be matched with asset durations.
*SGVFS011134*
- 47 -
Amounts for the current and previous three periods follow:
Present value of defined benefit
obligation
Fair value of plan assets
Deficit
Experience adjustments
2014
2013
2012
P
= 856,262,000
817,492,900
P
= 38,769,100
P
= 13,055,200
P
= 783,835,800
402,234,900
P
= 381,600,900
P
= 63,768,700
P
= 633,390,300
251,366,000
P
= 382,024,300
P
= 30,855,500
2011
P
= 655,671,400
232,267,400
P
= 423,404,000
(P
= 17,687,210)
Contributions to the plan are recommended by the Retirement and Welfare Plan Committee and approved by
the Company, in consideration of the contribution advice from the actuary. The Parent Company expects to
contribute P
= 50.06 million to the defined benefit pension plan in 2015 based on the latest actuarial valuation
report.
17. Other Noncurrent Liabilities
Other noncurrent liabilities consist of:
Customers’ guaranty deposits and other deposits
(Note 27)
Deferred credits
Contingent consideration (Note 12)
2014
2013
P
= 362,064,821
363,763,649
95,983,778
P
= 821,812,248
P
= 550,678,621
338,857,711
93,835,323
P
= 983,371,655
Customers’ guaranty deposits and other deposits pertain to the deposits paid by the Group’s customers for
the set-up of new connections which will be refunded to the customers upon termination of the customers’
water service connections or at the end of the concession, whichever comes first, amounting to
P
= 362.06 million and P
= 550.68 million as of December 31, 2014 and 2013, respectively.
The deposits include amounts collected from customers to cover service connection related expenses. The
Group recognized income arising from liquidation of these service connection expenses amounting to
P
= 214.66 million and P
= 609.47 million in 2014 and 2013, respectively (see Note 18).
Deferred credits pertain to the unamortized discounts of the customers’ guaranty deposits. The rollforward
analysis of the deferred credits follows:
2014
P
= 338,857,711
32,146,892
(7,240,954)
P
= 363,763,649
Balance at beginning of year
Additions
Amortization (Note 18)
Balance at end of year
2013
P
= 306,066,398
38,958,989
(6,167,676)
P
= 338,857,711
Contingent consideration is part of the purchase price of KDW (see Note 12).
18. Other Operating Income, Operating Expenses, Interest Income and Interest Expense
Other operating income includes the following:
Connection fees
Realized income from liquidation of service
connection costs (Note 17)
Water and service connections and
pipeworks
Reconnection fee
Income from customer late payments
Sale of inventories
Septic sludge disposal and bacteriological water
analysis
Sale of scrap materials
Miscellaneous
2014
2013
2012
P
= 214,659,742
P
= 609,473,171
P
= 102,266,060
357,942,748
44,720,908
11,844,816
20,857,925
274,736,513
66,607,107
4,266,713
82,666,483
35,233,082
35,378,502
5,817,883
47,557,101
15,207,029
37,312,115
58,308,072
P
= 760,853,355
13,235,506
4,076,150
52,977,370
P
= 1,108,039,013
12,053,006
3,205,945
22,796,710
P
= 264,308,289
*SGVFS011134*
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Miscellaneous income includes income from rental of equipment, other customer related fees, consultancy
services and sale of signages.
Operating expenses consist of:
Salaries, wages and employee benefits (Notes 16,
20 and 22)
Depreciation and amortization (Notes 9 and 10)
Provision for probable losses (Notes 6 and 30)
Business meetings and representation
Taxes and licenses
Management, technical and professional fees
(Note 22)
Power, light and water
Transportation and travel
Occupancy costs (Note 25)
Donations
Advertising
Postage, telephone and supplies
Cost of inventory sold
Repairs and maintenance
Insurance
Premium on performance bond (Note 29)
Cost of new market development
Reversal of prepaid transaction costs
Other expenses
2014
2013
2012
P
= 364,968,537
308,043,544
188,034,322
149,571,570
122,256,707
P
= 298,139,404
109,826,798
171,294,230
131,402,042
110,682,255
P
= 266,678,043
180,191,425
84,761,395
165,609,806
130,263,755
66,111,403
41,670,677
39,203,693
36,558,225
30,889,230
20,321,270
27,820,073
18,987,514
10,014,173
9,124,903
5,034,285
160,001
–
83,550,057
P
= 1,522,320,184
170,462,704
39,969,853
26,051,134
22,451,751
2,127,256
19,700,378
26,928,190
75,173,746
3,234,791
3,058,258
6,568,035
7,717,258
33,053,221
17,698,288
P
= 1,275,539,592
138,963,351
62,163,824
37,740,881
33,486,080
13,690,450
17,139,772
21,162,957
44,244,890
67,107,236
5,071,693
5,568,562
1,964,988
–
16,685,568
P
= 1,292,494,676
Other expenses include expenses incurred for contracted services, bank charges and equipment rental.
Interest income consists of:
Interest income on:
Cash and cash equivalents and short-term
cash investments (Note 5)
AFS financial assets
Amortization of discount on receivable from
BWC
Finance income of concession financial
receivable
Others
2014
2013
2012
P
= 66,976,304
2,900,000
P
= 99,632,252
28,177,467
P
= 191,691,701
29,012,161
32,916,947
44,629,842
43,044,776
82,331,472
510,578
P
= 185,635,301
–
385,871
P
= 172,825,432
–
769,577
P
= 264,518,215
2014
2013
2012
P
= 578,508,902
P
= 613,142,324
P
= 418,361,612
918,848,493
967,841,819
998,078,492
122,224,413
16,554,900
P
= 1,636,136,708
134,167,263
18,249,100
P
= 1,733,400,506
122,545,450
24,971,900
P
= 1,563,957,454
Interest expense consists of:
Interest expense on:
Amortization of service concession obligations
and deposits
Long-term debt:
Coupon interest
Amortization of debt discount, issuance
costs and premium (Note 15)
Pension liabilities (Note 16)
*SGVFS011134*
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19. Income Tax
Provision for income tax consists of:
Current
Deferred
2014
P
= 1,826,790,779
9,507,232
P
= 1,836,298,011
2013
P
= 1,802,808,076
8,764,498
P
= 1,811,572,574
2012
P
= 1,665,064,048
(70,010,659)
P
= 1,595,053,389
The reconciliation of the statutory income tax rate to the effective income tax rate follows:
Statutory income tax rate
Tax effects of:
Nondeductible expense
Change in unrecognized deferred tax
Interest income subjected to final tax
Excess of 40% OSD against allowable
deductions
Income exempt from tax
Others - net
Effective income tax rate
2014
30.00%
2013
30.00%
2012
30.00%
2.35
1.33
(0.25)
0.63
5.76
(0.44)
0.61
(0.64)
(0.96)
(3.99)
(4.17)
(1.32)
23.95%
(10.71)
0.10
(1.48)
23.86%
(5.87)
(1.42)
0.75
22.47%
The net deferred tax assets of the Group pertain to the deferred income tax effects of the following:
Service concession obligations - net
Allowance for doubtful accounts (Note 6)
Provision for probable losses
Pension liabilities (Note 16)
Profit and loss
Other comprehensive income
2014
P
= 855,049,666
13,406,942
10,079,437
878,536,045
2013
P
= 814,268,740
6,230,883
–
820,499,623
2012
P
= 814,327,286
14,747,613
–
829,074,899
1,690,499
956,367
P
= 881,182,911
492,192
748,530
P
= 821,740,345
631,664
456,537
P
= 830,163,100
The components of the net deferred tax liabilities of the Group as of December 31, 2014 represent the
deferred income tax effects of the following:
Concession financial receivable
Service concession obligations - net
Rent expense differential
Accrued pension liability
Allowance for inventory losses
P
= 67,873,534
2,494,975
(704,267)
(709,544)
(4,900)
P
= 68,949,798
Parent Company
RR No. 16-2008 provided the implementing guidelines for Section 34 of RA No. 9504 on the use of the
Optional Standard Deduction (OSD) for corporations. The OSD allowed shall be an amount not exceeding
40% of the gross income. Gross income earned refers to gross sales or gross revenue derived from any
business activity, net of returns and allowances, less cost of sales or direct costs but before any deduction is
made for administrative expenses or incidental losses. This was applied by the Parent Company and for the
years ended December 31, 2014, 2013 and 2012.
The Parent Company secured income tax holiday (ITH) benefit for the Antipolo Water Supply Project in 2011
and East La Mesa Water Treatment Plant Project in 2012. These projects have been registered with the
Board of Investments (BOI).
The tax rate of 18% for the years in which OSD is projected to be utilized was used in computing the deferred
income taxes on the net service concession obligation starting 2009.
The availment of OSD affected the recognition of several deferred tax assets and liabilities, in which the
related income and expenses are not considered in determining gross income for income tax purposes. The
Parent Company forecasts that it will continue to avail of the OSD, such that the manner by which it will
*SGVFS011134*
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recover or settle the underlying assets and liabilities, for which the deferred tax assets and liabilities were
initially recognized, would not result in any future tax consequence under OSD.
Details of the accounts for which no deferred taxes were recognized as of December 31, 2014 and 2013
follow:
Allowance for doubtful accounts (Note 6)
Pension liabilities (Note 16)
Unamortized discount on receivable from BWC
Unamortized debt discounts and issuance costs of longterm debt (Note 15)
2014
P
= 606,331,445
10,850,200
–
2013
P
= 592,716,882
361,047,300
202,306,668
(287,279,413)
P
= 329,902,232
(411,160,016)
P
= 744,910,834
The net reduction in deferred tax assets from applying the 18% tax rate to the recognized deferred taxes on
net service obligation, and the derecognition of the deferred taxes relating to the accounts with temporary
differences which are not considered in determining gross income for income tax purposes by the Parent
Company amounted to P
= 329.90 million and P
= 744.91 million as of December 31, 2014 and 2013, respectively.
In addition to the deferred tax assets and liabilities that have not been recognized as a consequence of the
OSD availment, the Parent Company’s subsidiaries, MWIS and MWTS, have Net Operating Loss Carry Over
(NOLCO) amounting to P
= 8.60 million and P
= 15.78 million as of December 31, 2014 and 2013, respectively,
that are available for offset against future taxable income, for which no deferred tax assets have been
recognized. As of December 31, 2014 and 2013, the unrecognized deferred tax assets on NOLCO
amounted to P
= 2.58 and P
= 4.73 million, respectively.
Clark Water
Clark Water as a duly registered CFZ enterprise under RA No. 9400, An Act Amending RA No. 7227
otherwise known as the Bases Conversion and Development Act of 1992, is entitled to all the rights,
privileges and benefits established there under including tax and duty-free importation of capital equipment
and special income tax rate of 5% of gross income earned from sources within the CFZ.
Boracay Water
On January 25, 2011, Boracay Water filed an application for registration with the BOI under Executive Order
(EO) No. 226, as amended, as a new operator of water supply and distribution for the Boracay Island on a
non-pioneer status. The application was ratified on February 9, 2011.
On June 17, 2011, Boracay Water’s application was registered with the BOI under Book 1 of EO 226. The
ITH is for four (4) years from June 2011 or actual start of commercial operations, whichever is earlier but in
no case earlier than the date of registration. The ITH entitlement shall be limited to the water sales schedule
reflected in specific terms and condition of the registration. Further, the ITH entitlement for the wastewater or
sewerage services shall be limited only to 10% of the total revenue derived from its water supply.
Laguna Water
Laguna Water is registered with the BOI under the Omnibus Investment Code of 1987. The registration
entitles the Company to an ITH for four years until 2010. In 2011, Laguna Water applied for a one year
extension of the ITH incentive which was approved by BOI on January 19, 2012.
In 2013, Laguna Water availed of the OSD and the tax rate of 18% for the years in which OSD is projected to
be utilized was used in computing the deferred income taxes of Laguna Water. In 2014, Laguna Water
applied the Regular Corporate Income Tax (RCIT) of 30% for transactions outside of LTI.
Laguna Water’s transactions within LTI are registered with the Philippine Economic Zone Authority. Under
the registration, Laguna Water is entitled to certain tax and non-tax incentives, which includes, but are not
limited to, a special tax rate of 5% on Laguna Water’s gross income on water and used water revenues within
the premises.
Other subsidiaries
All other domestic subsidiaries are subject to RCIT of 30% while foreign subsidiaries are subject to tax rates
applicable in their respective countries.
*SGVFS011134*
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NOLCO
The movements of the Group’s NOLCO as of December 31, 2014, which are available for offset against
future taxable income for the three succeeding years and for which no deferred tax assets have been
recognized follow:
Year Incurred
2011
2012
2013
2014
Amount
P
= 4,181,647
11,564,673
35,982
2,423,834
P
= 18,206,136
Used/Expired
P
= 4,181,647
–
–
–
P
= 4,181,647
Balance
P
=–
11,564,673
35,982
2,423,834
P
= 14,024,489
Expiry Year
2014
2015
2016
2017
20. Equity
The Parent Company’s capital stock consists of:
2014
Shares
Common stock - P
= 1 per share
Authorized
Issued and subscribed
Outstanding
Preferred stock - P
= 0.10 par value, 10%
cumulative, voting, participating,
nonredeemable and nonconvertible
Authorized, issued and outstanding 4,000,000,000 shares
2013
Shares
Amount
Amount
3,100,000,000
2,047,270,452
2,016,708,607
P
= 3,100,000,000
2,047,270,452
2,016,708,607
3,100,000,000
2,047,270,452
2,015,301,474
P
= 3,100,000,000
2,047,270,452
2,015,301,474
4,000,000,000
400,000,000
4,000,000,000
400,000,000
On March 18, 2005, the Parent Company launched its Initial Public Offering where a total of 745.33 million
common shares were offered at an offering price of P
= 6.50 per share. The Parent Company has 916 and 919
existing certificated shareholders as of December 31, 2014 and 2013, respectively. The Scripless
shareholders are counted under PCD Nominee Corporation (Filipino) and PCD Nominee Corporation (NonFilipino).
The Concession Agreement, as discussed in Note 1, provides that unless waived in writing by the MWSSRO, United Utilities PLC (the International Water Operator) and Ayala (the Sponsor) shall each own (directly
or through a subsidiary which is at least 51% owned and controlled by United Utilities PLC or Ayala) at least
20% of the outstanding capital stock of the Parent Company until December 31, 2002 and at least 10% after
the first Rate Rebasing (January 1, 2003) and throughout the concession period. On July 26, 2012, MWSSRO waived the requirement for United Utilities to own at least 10% of the outstanding capital stock of the
Parent Company.
Preferred shares
The dividends for the P
= 0.10 par value and P
= 1.00 par value preferred shares are declared upon the sole
discretion of the Parent Company’s BOD, based on retained earnings availability.
On April 16, 2012, during the Parent Company’s Annual Stockholders’ Meeting, the shareholders approved
the retirement of P
= 500.00 million redeemable preferred shares that are held as treasury shares as of
December 31, 2011. These shares have a par value of P
= 1.00 per share.
Dividends
The following table shows the cash dividends declared by the Parent Company’s BOD on the outstanding
capital stock for each of the three years ended December 31, 2014:
Declaration Date
April 16, 2012
September 25, 2012
November 29, 2012
April 15, 2013
September 26, 2013
November 28, 2013
February 20, 2014
October 8, 2014
November 27, 2014
Record Date
April 30, 2012
October 9, 2012
December 1, 2012
April 29, 2013
October 10, 2013
December 1, 2013
March 6, 2014
October 21, 2014
December 1, 2014
Amount Per Share
Common
Participating
Shares Preferred Shares
P
= 0.298
P
= 0.0298
0.298
0.0298
–
0.0100
0.382
0.0382
0.382
0.0382
–
0.0100
0.4031
0.0403
0.4031
0.0403
–
0.0100
Payment Date
May 24, 2012
November 6, 2012
December 28, 2012
May 15, 2013
October 25, 2013
December 27, 2013
March 21, 2014
November 5, 2014
December 26, 2014
*SGVFS011134*
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There are no dividends in arrears for the Parent Company’s participating preferred shares as of
December 31, 2014 and 2013.
Retained earnings include the accumulated equity in undistributed net earnings of consolidated
subsidiaries, associates and jointly controlled entities accounted for under the equity method amounting to
P
= 1,484.25 million and P
= 845.29 million as of December 31, 2014 and 2013, respectively, which are not
available for dividend declaration by the Company until these are declared by the investee companies.
In accordance with SRC Rule 68, as Amended (2011), Annex 68-C, the Parent Company’s retained earnings
available for dividend declaration as of December 31, 2014 and 2013 amounted to P
= 30.79 billion and
P
= 20.10 billion, respectively.
Appropriation for capital expenditures
The Parent Company has appropriated the amount of P
= 7.00 billion from its retained earnings to carry out its
mandate under the Concession Agreement. A Business Plan was submitted to the MWSS on March 30,
2012 for Rate Rebasing charging year 2013, which included planned capital expenditures on (1) service
continuity, (2) service accessibility, (3) water security and (4) environmental sustainability. Planned
investments amount to an estimated P
= 60.00 billion to be spent over the next five years.
As of December 31, 2013, the P
= 7.00 billion appropriation was intended to fund the following major capital
expenditures of the Parent Company which were approved by the BOD on April 15, 2013 and was part of the
submitted Business Plan to the MWSS:
·
Service continuity projects are endeavored to maintain the level of service provided to its customers
even in times of calamity;
·
Service accessibility projects would enable the Parent Company to expand its service coverage,
particularly to the Municipalities of Rizal;
·
Water security projects include two components: (1) new water source development and, (2) existing
water source rehabilitation and improvement. New water source development projects include the Rizal
Province Water Supply Improvement Project, as well as the Sumag, Tayabasan and Kaliwa River
development projects. Other components include major improvement works for key raw water structures
such as Angat Dam and Ipo Dam, transmission aqueducts extending from Bulacan to La Mesa Dam
managed under the Common Purpose Facilities framework, and transmission aqueducts extending from
La Mesa Dam to the Balara Treatment Plant; and
·
Projects under the Environmental Sustainability Investment category are comprised of wastewater
projects endeavored to achieve Manila Water’s wastewater coverage targets.
In 2014, the Parent Company reversed its appropriation amounting to P
= 7.00 billion, which will still form part of
the accumulated earnings to be retained by the Parent Company for its expansion projects. The retention of
retained earnings shall be without prejudice to the dividend policy of the Parent Company.
Executive Stock Option Plan (Executive SOP), Expanded Executive SOP and ESOWN
On February 26, 2004, the Parent Company’s BOD authorized the allocation of up to 20.00 million of the
treasury shares for distribution from time to time as may be authorized by the Chairman of the Board
(Chairman) as incentive and reward to deserving officers of the Parent Company with rank of Manager 2 and
above, including senior officers seconded from any parent company, under the Executive SOP.
On October 28, 2004, the Parent Company’s BOD approved the allocation of an additional 3.60 million
shares for the Executive SOP, which will come from the Company’s unissued shares or common shares held
in treasury. Accordingly, total allocation for the Executive SOP increased to 23.60 million shares.
On the same date, the Parent Company’s BOD approved the allocation of 136.40 million common shares for
the Expanded Executive SOP covering 96.40 million common shares and the ESOWN covering 40.00 million
common shares. The common shares for the ESOWN and the Expanded Executive SOP will come from the
Parent Company’s unissued common shares or common shares held in treasury. The common shares under
the Expanded Executive SOP and ESOWN will be distributed from time to time as an incentive and reward to
deserving Parent Company’s executives (Expanded Executive SOP) and employees (ESOWN) of the Parent
Company as may be authorized by the Chairman.
*SGVFS011134*
- 53 -
In March 2005, the Parent Company granted 23.6 million options under the Executive SOP with an exercise
price of P
= 2.71 per share. To enjoy the rights provided for in the plan, the option holder should be with the
Parent Company at the time the options vest. The vesting schedule of the options is as follows:
Year
2006
2007
2008
Vesting Percentage
40%
30%
30%
On November 15, 2005, the Parent Company’s BOD approved the allocation of 25.00 million common shares,
consisting of unissued shares and/or undisposed treasury shares, for distribution from time to time as may be
authorized by the Chairman, as an incentive and reward to deserving executives of the Parent Company with
rank of Manager 1 and above, under the ESOWN.
On February 2, 2006, the Parent Company’s BOD authorized the migration of the Executive SOP covering
23.60 million common shares to ESOWN by giving Executive SOP grantees a one-time opportunity to convert
their Executive SOP allocation into an ESOWN subscription using the Executive SOP subscription price of
P
=2.71 per share. The ESOWN terms are described in the succeeding paragraphs.
The migration resulted in the recognition of the additional fair value of the replacement options amounting to
P
=26.50 million. For the exercised options, the fair value was computed using the market price at the date of
grant less the discounted strike price.
The subscribed shares are effectively treated as options exercisable within a given period which is the same
time as the grantee’s payment schedule. The fair values of these options are estimated on the date of grant
using the Binomial Tree Model. In computing for the stock option value for 2013 grant, the Parent Company
assumed 24.90%, 3.47% and 2.99% as the volatility, dividend yield and risk-free interest rate, respectively.
For the unsubscribed shares, the employee still has the option to subscribe within seven (7) years.
The fair values of stock options granted are estimated on the date of grant using the Binomial Tree Model and
Black-Scholes Merton Formula, taking into account the terms and conditions upon which the options were
granted. The expected volatility was determined based on an independent valuation.
The fair value of stock options granted under ESOWN at grant date and the assumptions used to determine
the fair value of the stock options follow:
Number of shares granted
Number of unsubscribed
Shares
Fair value of each option
Weighted average share
price
Exercise price
Expected volatility
Dividend yield
Risk-free interest rate
Expected life of option
Grant Dates
September 19,
2011 April 30, 2009 June 15, 2008
5,073,000
9,241,025
7,798,483
November 19,
2013
6,627,100
October 5,
2012
4,772,414
351,680
P
= 10.58
460,000
P
= 11.76
992,000
P
= 8.68
1,442,000
P
= 5.90
P
= 23.00
P
= 22.92
24.90%
3.47%
2.99%
4 years
P
= 26.24
P
= 24.07
30.66%
2.56%
4.57%
4 years
P
= 19.80
P
= 17.38
33.68%
2.68%
4.76%
4 years
P
= 13.50
P
= 9.63
44.66%
2.92%
8.53%
4 years
May 21, 2007
2,130,000
May 2, 2006
13,625,000
1,580,000
P
= 10.65
520,000
P
= 9.85
2,265,000
P
= 4.59
P
= 18.00
P
= 15.13
25.64%
1.96%
6.93%
4 years
P
= 12.00
P
= 8.08
27.29%
2.58%
10.55%
7 years
P
= 6.50
P
= 5.47
24.65%
3.40%
11.30%
7 years
To enjoy the rights provided for in the ESOWN, the grantee should be with the Parent Company at the time
the holding period expires. The Holding Period of the ESOWN shares follows:
Year
After one year from subscription date
After two years from subscription date
After three years from subscription date
Holding Period
40%
30%
30%
*SGVFS011134*
- 54 -
The ESOWN grantees are allowed to subscribe fully or partially to whatever allocation may have been
granted to them. In case of partial subscriptions, the employees are still allowed to subscribe to the
remaining unsubscribed shares granted to them provided that this would be made at the start of Year 5 from
grant date up to the end of Year 6. Any additional subscription made by the employee (after the initial
subscription) will be subjected to another 3-year holding period.
Movements in the number of stock options outstanding under ESOWN are as follows:
At January 1
Granted
Exercised
At December 31
2014
6,745,880
–
(2,528,708)
4,217,172
Weighted average
exercise price
P
= 22.92
–
22.92
P
= 22.92
2013
5,936,000
6,627,100
(5,817,220)
6,745,880
Weighted average
exercise price
P
= 24.07
22.92
22.92
P
= 22.92
Total expense arising from equity-settled share-based payment transactions amounted to P
= 63.05 million,
P
= 50.83 million and P
= 31.86 million in 2014, 2013 and 2012, respectively. There were no stock options
granted in 2014, hence, the related expenses represent annual compensation expenses from 2006 to 2013.
The expected life of the options is based on management’s estimate and is not necessarily indicative of
exercise patterns that may occur. The expected volatility used for the 2007 and 2006 grants was based on
the average historical price volatility of several water utility companies within the Asian region. For the grants
beginning 2008, the Parent Company’s volatility was used as input in the valuation. The expected volatility
reflects the assumption that the historical volatility is indicative of future trends, which may also not
necessarily reflect the actual outcome.
No other features of the options granted were incorporated into the measurement of fair value.
Other equity reserve
This account pertains to gain on sale of the Parent Company’s investment in MW Consortium to Vicsal
Development Corporation on May 9, 2012 amounting to P
= 7.50 million. The sale has decreased the
ownership of the Parent Company in MW Consortium by 10% without loss of control. Proceeds from the sale
amounted to P
= 15.00 million.
21. Earnings Per Share
Earnings per share amounts attributable to equity holders of the Parent Company for the years ended
December 31, 2014, 2013 and 2012 were computed as follows:
2014
Net income attributable to equity holders of the
Parent Company
P
= 5,813,088,880
Less dividends on preferred shares*
983,596,385
Net income attributable to common shareholders for
basic and diluted earnings per share
P
= 4,829,492,495
Weighted average number of shares for basic
earnings per share
2,047,270,452
Dilutive shares arising from stock options
2,787,883
Adjusted weighted average number of common
stock for diluted earnings per share
2,050,058,335
Basic earnings per share
P
= 2.36
Diluted earnings per share
P
= 2.36
*Including participating preferred shares’ participation in earnings.
2013
2012
P
= 5,752,361,946
975,524,597
P
= 5,490,442,664
934,135,212
P
= 4,776,837,349
P
= 4,556,307,452
2,042,422,769
2,763,058
2,038,218,922
2,322,628
2,045,185,827
P
= 2.34
P
= 2.34
2,040,541,550
P
= 2.24
P
= 2.23
The assumed conversion of the Group’s preferred shares has no dilutive effect. Accordingly, basic earnings
per share is equal to the dilutive earnings per share.
*SGVFS011134*
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22. Related Party Transactions
Parties are considered to be related to the Group if it has the ability, directly or indirectly, to control the Group
or exercise significant influence over the Group in making financial and operating decisions, or vice versa, or
where the Group and the party are subject to common control or common significant influence. Related
parties may be individuals (being members of key management personnel and/or their close family members)
or other entities and include entities which are under the significant influence of related parties of the Group
where those parties are individuals, and post-employment benefit plans which are for the benefit of
employees of the Group or of any entity that is a related party of the Group.
In the normal course of business, the Group has transactions with related parties. The sales and
investments made to related parties are made at normal market prices. Service agreements are based on
rates agreed upon by the parties. Outstanding balances at year-end are unsecured and interest-free. There
have been no guarantees provided or received for any related party receivables or payables. As of
December 31, 2014 and 2013, the Group has not made any provision for probable losses relating to amounts
owed by related parties. This assessment is undertaken each financial year by examining the financial
position of the related party and the market in which the related party operates.
Significant transactions with related parties follow:
a.
The Parent Company entered into management agreements with United Utilities B.V., an affiliate of
United Utilities, a stockholder of Philwater, Ayala, a principal stockholder, and Water Capital Works, Inc.
(WCWI), a joint venture Group formed by Ayala, United Utilities and BPI Capital Corporation. Under the
agreements, Ayala, United Utilities and WCWI will provide technical and other knowledge, experience
and skills as reasonably necessary for the development, administration and operation of the concession,
for which the Parent Company shall pay to each one of them an annual base fee of US$1.00 million and
adjusted for the effect of CPI, except for WCWI which has a base fee of 1% of the earned values of the
project being supervised. As a result, certain key management positions are occupied by employees of
these related parties. The agreements are for a period of 10 years until 2007 and are renewable for
successive periods of 5 years.
The BOD, in its meeting on August 16, 2007, approved the renewal of the Technical Services Agreement
(TSA) with United Utilities, Administrative and Support Services Agreement (ASSA) with Ayala and
Capital Works Agreement (CWA) with WCWI for another five years up to 2012. On July 31, 2012 the
TSA with United Utilities was terminated. The CWA with WCWI was also terminated on January 1,
2011. The ASSA, on the other hand, was renewed for another five years up to 2017. Total
management and professional fees charged to operations arising from these agreements amounted to
P
= 198.98 million and P
= 199.99 million in 2014 and 2013, respectively. Total outstanding payables
amounted to P
= 34.88 million as of December 31, 2014 and 2013.
b.
On March 11, 2013, the shareholders of MW Consortium, the Parent Company, Metropac Water
Investment Corporation (Metropac) and Vicsal Development Corporation (Vicsal), agreed to extend a
loan amounting to P
=260.00 million to MW Consortium. The loan will be used to fund CMWD’s bulk water
supply project. The loan has a fixed interest rate and applicable taxes were shouldered by CMWD.
The breakdown of the loan is as follows:
Manila Water
Metropac
Vicsal
Total
Equity in Company
51%
39
10
100%
Contributed
Amounts
(in millions)
P
= 132.60
101.40
26.00
P
= 260.00
As of December 31, 2013, MW Consortium’s advances from the Parent Company were fully paid.
*SGVFS011134*
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c.
The following tables provide the total amount of all other transactions that have been entered into with
the Parent Company’s shareholders and affiliates for the relevant financial year:
Cash in banks and cash
equivalents
2014
2013
Shareholder:
Ayala
Affiliates:
Ayala Land and
Subsidiaries
BPI and
Subsidiaries
Globe and
Subsidiaries
Azalea
Technology
LLC
P
=–
Receivables
2014
2013
P
=–
P
= 39,156
–
–
1,998,160,172
2,185,316,625
–
–
–
1,998,160,172
P
= 1,998,160,172
Advances to Contractors
2014
2013
P
=–
P
=–
4,930,789
–
24,293
228,474
–
–
–
2,185,316,625 4,955,082
P
=
4,994,238
P
= 2,185,316,625
Trade Payables
2014
2013
P
=–
P
=–
P
= 43,197
207,400
–
243,325,649
242,698,974
–
–
–
–
–
–
–
–
40,094
6,000
234,474
P
= 234,474
–
207,400
P
= 207,400
–
–
P
=–
–
243,325,649
P
= 243,325,649
–
242,739,068
P
= 242,782,265
Cash in banks and cash equivalents pertain to deposits and investments with original maturities of 3
months or less from the date of original acquisition.
Receivables are primarily composed of trade receivables for water and sewerage services rendered
by the Group. These are non-interest bearing and are collectible within 30 days from bill generation.
No allowance for doubtful accounts was provided for receivables from related parties as of
December 31, 2014 and 2013.
Advances to contractors included as part of “Other current assets” pertains to down payments related to
construction of fixed assets. These are normally applied within a year against progress billings.
Trade payables pertain to retentions deducted from contractors’ billings and are normally paid within a
year after project acceptance.
Revenue
Shareholder:
Ayala
Affiliates:
Ayala Land and Subsidiaries
BPI and Subsidiaries
Globe and Subsidiaries
Integrated Microelectronics,
Inc. and Subsidiaries
AAHC
Azalea Technology, LLC
Honda Cars Makati, Inc. (HCMI)
Purchases
2014
2013
2014
2013
P
= 7,177,859
P
= 7,515,835
P
= 198,979,421
P
= 199,992,503
137,380,568
9,739,496
2,933,077
131,663,685
9,794,019
3,616,822
1,792,850
–
10,015,352
626,910,828
–
9,328,915
838,902
403,824
–
–
151,295,867
P
= 158,473,726
–
420,950
262,349
–
145,757,825
P
= 153,273,660
–
–
–
–
11,808,202
P
= 210,787,623
–
–
–
53,954
636,293,697
P
= 836,286,200
Revenue is mainly attributable to water and sewerage services rendered by the Group to its shareholder
and affiliates. Purchases from Ayala Land and subsidiaries mainly pertain to construction of fixed assets
and acquisition of LTI in 2013 (see Note 4) while purchases from HCMI relates to acquisition and repairs
of transportation equipment. Purchases from Globe pertain to telecommunication services and
purchases from BPI relate to banking transactions and financial services to the Group.
d.
In November 2008, the Parent Company entered into a term loan and credit line facility agreement with
AMPC. Under the credit line facility agreement, the Parent Company will establish a car/multi-purpose
loan fund in the amount of P
= 205.2 million. An initial drawdown in the amount of P
= 10.00 million is
required. As soon as the drawdown has been substantially disbursed (85%) to Parent Company
employees, AMPC may request for additional drawdown for another P
= 10 million. The term of the loan is
5 years from date of drawdown and bears no interest.
As of December 31, 2014 and 2013, total loans drawn from Parent Company amounted to
P
= 160.00 million and P
= 130.00 million, respectively.
*SGVFS011134*
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e.
On June 1, 2010, MWAP and Speedy-Tech Electronics Ltd. (Speedy-Tech), a subsidiary of Integrated
Microelectronics, Inc., entered into a Tenancy Agreement wherein Speedy-Tech will lease office space
to MWAP. Total rent expense paid by MWAP to STEL amounted to P
= 0.47 million and P
= 0.45 million in
2014 and 2013, respectively.
f.
On April 9, 2002, Laguna Water entered into a concession agreement (as amended on March 31, 2004)
with PGL, one of its shareholders. Concession fees paid to PGL amounted to P
= 15.06 million and
P
= 2.65 million in 2014 and 2013, respectively (see Notes 1 and 29).
g.
On December 17, 2009, Boracay Water entered into a concession agreement with TIEZA, one of its
shareholders, for a period of 25 years, with commencement date on January 1, 2010 and renewable at
any time prior to expiration for another 25 years, without necessity of bidding.
Boracay Water made several advances to TIEZA since the start of its concession agreement including
the P
=60.00 million advance payment which was considered part of concession assets in 2010.
As of December 31, 2012, these advances were fully offset against the annual concession fee payments
(see Note 29).
h.
One of the trustee banks which manages the Group’s retirement fund is BPI, an affiliate. The Group’s
plan assets under BPI amounted to P
= 587.42 million and P
= 200.31 million as of December 31, 2014 and
2013, respectively.
i.
On November 22, 2012, the Parent Company signed as a guarantor of a credit facility entered into by
MWSAH. On August 12, 2013, the credit facility was cancelled.
j.
On December 23, 2013, Laguna Water signed an Asset Purchase Agreement with LTI with a purchase
price of P
= 625.00 million for the acquisition of the water reticulation system of LTI. As of December 31,
2014, the balance of 55%, equivalent to P
= 343.75 million, has been fully paid.
k.
Compensation of key management personnel of the Group by benefit type follows:
Short-term employee benefits
Post-employment benefits
Share-based payment
2014
P
= 283,797,080
18,971,484
30,227,909
P
= 332,996,473
2013
P
= 240,181,485
15,640,000
50,833,629
P
= 306,655,114
23. Management Contracts
Vietnam project
On July 22, 2008, the Parent Company entered into a Performance-Based Leakage Reduction and
Management Services Contract with SAWACO. The contract involves the following components:
a.
b.
c.
d.
e.
f.
General requirements;
District Metering Area establishment;
Leakage reduction and management services;
System expansion work;
Emergency and unforseen works; and
Daywork schedule
In 2014 and 2013, total revenue from the Vietnam Project amounted to P
= 25.49 million and P
= 174.94 million,
respectively. Total costs related to the Vietnam Project amounted to P
= 54.29 million and P
= 96.21 million in
2014 and 2013, respectively.
On August 19, 2014, the management contract with SAWACO expired.
*SGVFS011134*
- 58 -
24. Significant Contracts with the West Zone Concessionaire
In relation to the Agreement, the Parent Company entered into the following contracts with Maynilad:
a.
Interconnection Agreement wherein the two Concessionaires shall form an unincorporated joint venture
that will manage, operate, and maintain interconnection facilities. The terms of the agreement provide,
among others, the cost and the volume of water to be transferred between zones.
b.
Joint Venture Arrangement that will operate, maintain, renew, and as appropriate, decommission
common purpose facilities, and perform other functions pursuant to and in accordance with the
provisions of the Agreement and perform such other functions relating to the concession (and the
concession of the West Zone Concessionaire) as the Concessionaires may choose to delegate to the
joint venture, subject to the approval of MWSS.
c.
In March 2010, MWSS entered into a loan agreement with The Export-Import Bank of China to finance
the Angat Water Utilization and Aqueduct Improvement Project Phase II (the Project). Total loan facility
is US$116.60 million with maturity of 20 years including 5 years grace period. Interest rate is 3% per
annum. MWSS then entered into a MOA with the Parent Company and Maynilad for the Parent
Company and Maynilad to shoulder equally the repayment of the loan, with such repayment to be part of
the concession fees (see Notes 1 and 10).
25. Assets Held in Trust
MWSS
The Parent Company is granted the right to operate, maintain in good working order, repair, decommission
and refurbish the movable property required to provide the water and sewerage services under the
Agreement. The legal title to all movable property in existence at the Commencement Date, however, shall
be retained by MWSS and upon expiration of the useful life of any such movable property as may be
determined by the Parent Company, such movable property shall be returned to MWSS in its then-current
condition at no charge to MWSS or the Parent Company.
The Concession Agreement also provides for the Concessionaires to have equal access to MWSS facilities
involved in the provision of water supply and sewerage services in both East and West Zones including, but
not limited to, the MWSS management information system, billing system, telemetry system, central control
room and central records.
The net book value of the facilities transferred to the Parent Company on Commencement Date based on
MWSS’ closing audit report amounted to P
= 4.60 billion with a sound value of P
= 10.40 billion.
In 2011, the Parent Company engaged the services of Cuervo Appraisers, Inc. to conduct a re-appraisal of
the MWSS assets on record as of December 31, 2011. Total reproduction cost as of December 31, 2011
amounted to P
= 42.78 billion with a sound value of P
= 27.37 billion.
MWSS’ corporate headquarters is made available to the Concessionaires starting August 1, 1997, subject to
periodic renewal by mutual agreement of the parties. On October 27, 2006, the Parent Company has
renewed the lease for 5 years, with expiry of October 27, 2011. On August 28, 2012, additional office space
was leased by the Parent Company, which will expire on July 31, 2017. Rent expense amounted to
P
= 16.91 million and P
= 16.99 million in 2014 and 2013, respectively. These are included under “Occupancy
costs” in consolidated statement of comprehensive income.
PGL
Laguna Water is granted the right to manage, occupy, operate, repair, maintain, decommission and refurbish
the property required to provide water services under its concession agreement with PGL. The legal title of
all property in existence at the commencement date shall be retained by PGL. Upon expiration of the useful
life of any such property as may be determined by Laguna Water, such property shall be returned to PGL in
its then condition at no charge to PGL or Laguna Water.
*SGVFS011134*
- 59 -
In 2014, Laguna Water engaged the services of Cuervo Appraisers to conduct a re-appraisal of PGL assets
on record as of December 31, 2013. Total replacement cost as of December 31, 2013 amounted to
P
= 2,138.38 million with a sound value of P
= 1,596.19 million.
TIEZA
Boracay Water is granted the right to operate, maintain in good working order, repair, decommission and
refurbish all fixed and movable property (except retained assets) required to provide the water and sewerage
services under its concession agreement with TIEZA. The legal title to all movable property in existence at
the commencement date, however, shall be retained by TIEZA and upon expiration of the useful life of any
such movable property as may be determined by Boracay Water, such movable property shall be returned to
TIEZA in its then-current condition at no charge to TIEZA or Boracay Water.
The net book value of the facilities transferred to Boracay Water on commencement date based on TIEZA’s
closing audit report amounted to P
= 618.29 million.
CDC
Clark Water is granted the right to occupy, operate, repair, maintain, decommission and refurbish all fixed
and movable assets specifically listed in the concession agreement with CDC. Any new construction,
change, alteration, addition or improvement on the facilities is permitted to the extent allowed under the
agreement with CDC or with the prior written consent of CDC. Legal title, free of all liens and encumbrances,
to improvements made or introduced by Clark Water on the facilities as well as title to new facilities procured
by Clark Water in the performance of its obligations under the concession agreement shall automatically pass
to CDC on the date when the concession period expires or the date of receipt of a validly served termination
notice, in the latter case, subject to payment of the amount due as termination payments as defined in the
concession agreement.
The net book value of the facilities transferred to Clark Water on commencement date based on CDC’s
closing audit report amounted to P
= 1.38 billion.
26. Segment Information
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. Accordingly, the segment
information is reported based on the nature of service the Group is providing and its geographic location.
Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions
with third parties.
The amount of segment assets and liabilities are based on measurement principles that are similar with those
used in measuring assets and liabilities in the consolidated statement of financial position which is in
accordance with PFRS.
The segments where the Group operates follow:
·
·
·
East Zone - manage, operate, repair, decommission, and refurbish all fixed and movable assets (except
certain retained assets) required to provide water delivery services and sewerage services in the East
Zone. Revenue from this business segment consists of water, environmental charges, sewer, income
from septic sludge disposal and bacteriological water analysis and other miscellaneous income.
Outside East Zone - manage, operate, repair, decommission, and refurbish all fixed and movable assets
(except certain retained assets) required to provide water delivery services and sewerage services
outside the East Zone. Revenue from this segment consists of water and other miscellaneous income.
Management contracts - agreements related to improvements in the customers’ water systems.
Revenue from management contracts comprises the revenue of this business segment.
*SGVFS011134*
- 60 -
Details of the Group’s operating segments as of and for the years ended December 31, 2014, 2013 and 2012
are as follows:
2014
East Zone
Revenue
Sales to external customers
Operating expenses
Operating income
Revenue from rehabilitation works
Cost of rehabilitation works
Interest income
Interest expense
Equity share in net income of associates
Other income
Income before income tax
Provision for income tax
Net income
Other comprehensive income
Unrealized loss on AFS financial assets
Cumulative translation adjustment
Actuarial gain (loss) on pension liabilities - net
Income tax effect
Total comprehensive income
Total comprehensive income attributable to:
Equity holders of Manila Water Company, Inc.
Non-controlling interests
Other information
Segment assets, exclusive of investment in associates
and deferred tax assets
Investment in associates
Deferred tax assets
Segment liabilities, exclusive of deferred tax liabilities
Deferred tax liabilities
Segment additions to property and equipment and
SCA
Depreciation and amortization
Noncash expenses other than depreciation and
amortization*
P
= 14,882,023
6,537,113
8,344,910
2,749,201
(2,749,201)
94,485
(1,513,124)
Outside
Management
East Zone
Contracts
(In Thousands)
(84,188)
6,842,083
1,693,581
5,148,502
P
= 1,449,634
940,347
509,287
686,588
(686,588)
91,150
(123,012)
357,298
18,239
852,962
142,716
710,246
(3,301)
–
40,537
(370)
P
= 5,185,368
–
101,970
(3,309)
112
P
= 809,019
(P
= 28,798)
(3,301)
101,970
37,228
(258)
P
= 5,965,588
P
= 5,185,368
–
P
= 5,185,368
P
= 792,159
16,860
P
= 809,019
(P
= 28,798)
–
(P
= 28,798)
P
= 5,948,728
16,860
P
= 5,965,588
P
= 60,977,237
–
819,584
P
= 61,796,821
P
= 35,428,341
–
P
= 35,428,341
P
= 7,833,131
4,961,500
61,599
P
= 12,856,230
P
= 4,236,623
68,949
P
= 4,305,572
P
= 206,853
–
–
P
= 206,853
P
= 24,420
–
P
= 24,420
P
= 69,017,221
4,961,500
881,183
P
= 74,859,904
P
= 39,689,384
68,949
P
= 39,758,333
P
= 2,924,926
P
= 2,192,870
P
= 919,490
P
= 251,117
P
=–
P
=–
P
= 3,844,416
P
= 2,443,987
P
= 13,693
P
= 21,876
P
=–
P
= 35,569
Outside
Management
East Zone
Contracts
(In Thousands)
Consolidated
–
P
= 25,488
54,286
(28,798)
Consolidated
–
–
–
–
–
–
(28,798)
–
(28,798)
–
–
–
P
= 16,357,145
7,531,746
8,825,399
3,435,789
(3,435,789)
185,635
(1,636,136)
357,298
(65,949)
7,666,247
1,836,297
5,829,949
* Pertains to the amount of impairment loss recognized during the year.
2013
East Zone
Revenue
Sales to external customers
Operating expenses
Operating income
Revenue from rehabilitation works
Cost of rehabilitation works
Interest income
Interest expense
Equity share in net income of associates
Other income
Income before income tax
Provision for income tax
Net income
P
= 14,794,066
6,421,361
8,372,705
4,177,636
(4,177,636)
152,614
(1,671,312)
–
6,039
6,860,046
1,757,536
5,102,510
P
= 956,812
630,798
326,014
893,622
(893,622)
20,211
(62,088)
293,975
75,250
653,362
54,037
599,325
P
= 174,939
96,213
78,726
–
–
–
–
–
–
78,726
–
78,726
P
= 15,925,817
7,148,372
8,777,445
5,071,258
(5,071,258)
172,825
(1,733,400)
293,975
81,289
7,592,134
1,811,573
5,780,561
(Forward)
*SGVFS011134*
- 61 -
East Zone
Other comprehensive income
Unrealized gain (loss) on AFS financial assets
Cumulative translation adjustment
Actuarial gain (loss) on pension liabilities - net
Total comprehensive income
Total comprehensive income attributable to:
Equity holders of Manila Water Company, Inc.
Non-controlling interests
Other information
Segment assets, exclusive of investment in associates
and deferred tax assets
Investment in associates
Deferred tax assets
Segment liabilities, exclusive of deferred tax liabilities
Deferred tax liabilities
Segment additions to property and equipment and
SCA
Depreciation and amortization
Noncash expenses other than depreciation and
amortization*
Outside
East Zone
Management
Contracts
Consolidated
(P
= 18,568)
–
(66,233)
P
= 5,017,709
P
=–
127,109
(1,462)
P
= 724,972
P
=–
–
–
P
= 78,726
(P
= 18,568)
127,109
(67,695)
P
= 5,821,407
P
= 5,017,709
–
P
= 5,017,709
P
= 696,870
28,102
P
= 724,972
P
= 78,726
–
P
= 78,726
P
= 5,793,305
28,102
P
= 5,821,407
P
= 60,651,146
–
781,409
P
= 61,432,555
P
= 38,388,811
–
P
= 38,388,811
P
= 6,479,136
4,708,207
40,331
P
= 11,227,674
P
= 3,390,062
–
P
= 3,390,062
P
= 197,296
–
–
P
= 197,296
P
= 24,595
–
P
= 24,595
P
= 67,327,578
4,708,207
821,740
P
= 72,857,525
P
= 41,803,468
–
P
= 41,803,468
P
= 4,856,870
P
= 2,298,103
P
= 1,388,686
P
= 196,660
P
=–
P
=–
P
= 6,245,556
P
= 2,494,763
P
= 32,677
P
= 22,968
P
=–
P
= 55,645
Outside
Management
East Zone
Contracts
(In Thousands)
Consolidated
* Pertains to the amount of impairment loss recognized during the year.
2012
East Zone
Revenue
Sales to external customers
Operating expenses
Operating income
Revenue from rehabilitation works
Cost of rehabilitation works
Interest income
Interest expense
Equity share in net income of associates
Other income (expenses)
Income before income tax
Provision for income tax
Net income
Other comprehensive income
Unrealized gain (loss) on AFS financial assets
Cumulative translation adjustment
Actuarial gain (loss) on pension liabilities - net
Total comprehensive income
Total comprehensive income attributable to:
Equity holders of Manila Water Company, Inc.
Non-controlling interests
Other information
Segment assets, exclusive of investment in associates
and deferred tax assets
Investment in associates
Deferred tax assets
Segment liabilities, exclusive of deferred tax liabilities
Deferred tax liabilities
Segment additions to property and equipment and
SCA
Depreciation and amortization
Noncash expenses other than depreciation and
amortization*
P
= 13,648,127
5,920,789
7,727,338
5,621,199
(5,621,199)
256,070
(1,521,580)
–
210,284
6,672,112
1,541,557
P
= 5,130,555
P
= 735,491
503,574
231,917
256,639
(256,639)
8,448
(42,377)
206,762
(23,409)
381,341
53,496
P
= 327,845
P
= 169,450
124,558
44,892
–
–
–
–
–
–
44,892
–
P
= 44,892
P
= 14,553,068
6,548,921
8,004,147
5,877,838
(5,877,838)
264,518
(1,563,957)
206,762
186,875
7,098,345
1,595,053
P
= 5,503,292
(24,471)
–
(96,203)
P
= 5,009,881
–
1,865
(229)
P
= 329,481
–
–
–
P
= 44,892
(24,471)
1,865
(96,432)
P
= 5,384,254
P
= 5,009,881
–
P
= 5,009,881
P
= 317,951
11,530
P
= 329,481
P
= 44,892
–
P
= 44,892
P
= 5,372,724
11,530
P
= 5,384,254
P
= 57,597,275
–
762,488
P
= 58,359,763
P
= 38,015,672
–
P
= 38,015,672
P
= 4,853,217
3,644,853
67,675
P
= 8,565,745
P
= 2,328,225
158
P
= 2,328,383
P
= 201,521
–
–
P
= 201,521
P
= 28,705
–
P
= 28,705
P
= 62,652,013
3,644,853
830,163
P
= 67,127,029
P
= 40,372,602
158
P
= 40,372,760
P
= 7,328,538
P
= 2,157,119
P
= 276,701
P
= 162,957
P
=–
P
=–
P
= 7,605,239
P
= 2,320,076
P
= 49,159
P
= 35,602
P
=–
P
= 84,761
* Pertains to the amount of impairment loss recognized during the year.
*SGVFS011134*
- 62 -
Total revenue derived from Vietnam amounted to P
= 25.49 million, P
= 174.94 million and P
= 169.45 million 2014,
2013 and 2012, respectively, and are included under the management contracts segment of the Group. The
Group does not have a single customer contributing more than 10% of its total revenue.
27. Fair Value Measurement
The carrying amounts approximate fair values for the Group’s financial assets and liabilities due to its shortterm maturities except for the following other financial liabilities as of December 31, 2014 and 2013:
2014
Carrying Value
Long-term debt
Customers’ guaranty deposits and other
deposits
Service concession obligation
2013
P
= 25,470,751
Fair Value
Carrying Value
(In Thousands)
P
= 25,141,255
P
= 26,251,679
P
= 26,779,847
362,065
8,001,209
P
= 33,834,025
544,866
11,806,727
P
= 37,492,848
618,742
13,304,226
P
= 40,702,815
550,679
8,433,706
P
= 35,236,064
Fair value
The methods and assumptions used by the Group in estimating the fair value of the other financial liabilities
are:
Customers’ guaranty deposits and other deposits, long-term debt and service concession obligation - the fair
values are estimated using the discounted cash flow methodology using the Group’s current incremental
borrowing rates for similar borrowings with maturities consistent with those remaining for the liability being
valued.
The discount rates used for Peso-denominated loans was 2.54% to 5.17% in 2014 and 1.25% to 4.08% in
2013 while the discount rates used for foreign currency-denominated loans ranged from 0.02% to 2.17% in
2014 and 0.09% to 4.27% in 2013.
Fair Value Hierarchy
The Group held the following financial assets measured at fair value as of December 31, 2013:
2013
Loans and receivables
Receivable from BWC
AFS financial assets
Debt
Level 1
Level 2
Level 3
Total
P
=–
P
= 544,373,611
P
=–
P
= 544,373,611
103,300,716
P
= 103,300,716
–
P
= 544,373,611
–
P
=–
103,300,716
P
= 647,674,327
There were no financial assets measured at fair value as of December 31, 2014. During the periods ended
December 31, 2014 and 2013, there were no transfers between Level 1 and Level 2 fair value measurements
and no transfers into and out of Level 3 fair value measurement.
Embedded Derivatives
Embedded Prepayment Options
1.
P
= 10.00 Billion Notes
The Parent Company has an embedded call option on the P
= 10.00 Billion Corporate Notes issued on
April 8, 2011 (see Note 15). The embedded call option gives the Parent Company the right to redeem all
but not in part the outstanding notes starting on the 7th anniversary. The amount payable to the holder
in respect of such redemptions shall be calculated based on the principal amount of the bonds being
redeemed, as the sum of 102% of the principal amount and accrued interest on the notes on the optional
redemption date.
As of December 31, 2011, the option was assessed as not clearly and closely related to the host
contract since the amortized cost of the loan does not approximate the prepayment at each option
exercise date. However, as of inception date, the value of the option is not material.
*SGVFS011134*
- 63 -
As of December 31, 2013, the option has been reassessed. Based on the reassessment, the option was
determined to be clearly and closely related to the host contract since the amortized cost of the loan
approximates the prepayment at each option exercise date.
2.
P
= 5.00 Billion Notes
The Parent Company has an embedded call option on the P
= 5.00 Billion Corporate Notes issued on
August 16, 2013 (see Note 15). The embedded call option gives the Parent Company the right to
redeem all but not in part the outstanding notes starting on the 3rd anniversary. The amount payable to
the holder in respect of such redemptions shall be calculated based on the principal amount of the bonds
being redeemed, as the sum of 102%-100.5% of the principal amount and accrued interest on the notes,
depending on the optional redemption date.
As of December 31, 2013, the option was assessed as clearly and closely related to the host contract
since the amortized cost of the loan approximates the prepayment at each option exercise date.
However, as of inception date, the value of the option is not material.
The Group did not bifurcate any embedded derivative as of December 31, 2014 and 2013.
28. 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, long-term debt and service concession obligation. 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 interest rate risk, foreign exchange risk, equity price rate risk ,credit
risk and liquidity risk. The Group has other various financial assets such as trade receivables and payables
which arise directly from the conduct of its operations.
The Parent Company’s BOD reviews and approves the policies for managing each of these risks. The Group
monitors risks 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. As of December 31, 2014 and 2013, approximately 74% and 67%, respectively, of the
Group’s long-term debt have fixed rates of interest.
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. Debt 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 and maturity profile of the Group’s financial
instruments that are exposed to cash flow and fair value interest rate risks.
2014
Cash in banks and Cash equivalents
Interest Rates (Range)
0.50% to 3.25%
Short term cash investments
Within
1 year
1-2 years
P
= 6,050,907
400,000
P
= 6,450,907
P
=–
–
P
=–
2-3 years
3-4 years
(In Thousands)
P
=–
–
P
=–
P
=–
–
P
=–
More than
4 years
Total
P
=–
–
P
=–
P
= 6,050,907
400,000
P
= 6,450,907
*SGVFS011134*
- 64 -
2013
Cash in banks and Cash equivalents
Interest Rates (Range)
0.38% to 3.83%
Short term cash investments
AFS Financial Assets
Bonds
Government Securities
RTBN
Interest Rate
6.25%
Corporate Bonds
Interest Rates (Range)
8.25%
Within
1 year
1-2 years
More than
4 years
Total
P
= 6,778,968
94,345
P
=–
–
P
=–
–
P
=–
–
P
=–
–
P
= 6,778,968
94,345
52,018
–
–
–
–
52,018
51,283
103,301
P
= 6,976,614
–
–
P
=–
–
–
P
=–
–
–
P
=–
–
–
P
=–
51,283
103,301
P
= 6,976,614
2-3 years
3-4 years
(In Thousands)
*SGVFS011134*
- 65 -
2014
Liabilities:
Long-Term Debt
Fixed Rate (exposed to
fair value risk)
EIB Loan - JPY
Interest rate
EIB Loan - USD
Interest rate
IFC Loan - JPY
Interest rate
IFC Loan USD
Interest rate
P
= 10.00 Billion Notes
Interest rate
P
= 5.00 Billion Loan
Interest rate
P
= 0.50 Billion Laguna Water 1
Interest rate
P
= 0.83 Billion Laguna Water 2
Interest rate
P
= 0.50 Billion Boracay Water 1
Interest rate
P
= 0.50 Billion Boracay Water 2
Interest rate
P
= 0.75 Billion - CMWD
Interest rate
Floating Rate (exposed
to cash flow risk)
NEXI Loan
Interest rate
EIB Loan
Interest rate
IFC Loan – JPY
Interest rate
IFC Loan - USD
Interest rate
MTSP Loan
Interest rate
P
= 0.50 Billion Boracay Water
Interest rate
Within 1 year
¥1,114,755,023
2.10%- 2.29%
$9,330,241
5.08%
¥44,048,000
4.57%
$2,000,000
4.57%
P
= 50,000,000
6.34% - 7.33%
P
= 25,000,000
4.42%
1-2 years
2-3 years
3-4 years
4-5 years
More than
5 years
Total
(In JPY)
Total - Gross
(In USD)
Total – Gross
(In PHP)
¥–
¥–
¥–
¥–
¥–
¥1,114,755,023
–
P
= 432,621,108
$–
$–
$–
$–
$–
–
$9,330,241
P
= 419,250,000
¥44,048,000
¥44,048,000
¥22,024,000
¥–
¥–
¥154,168,000
–
P
= 57,134,661
$1,000,000
$–
$–
$–
$–
–
$3,000,000
P
= 134,160,000
P
= 50,000,000
P
= 4,925,000,000
P
= 4,825,000,000
P
=–
P
=–
–
–
P
= 9,850,000,000
P
= 25,000,000
P
= 25,000,000
P
= 25,000,000
P
= 25,000,000
P
= 4,850,000,000
–
–
P
= 4,975,000,000
P
= 66,666,667
6.73% - 7.58%
P
= 66,666,667
P
= 66,666,667
P
= 66,666,666
P
= 66,666,667
P
= 66,666,666
–
–
P
= 400,000,000
–
7.25%
P
= 7,352,941
P
= 72,286,765
P
= 78,411,765
P
= 78,411,765
P
= 1,096,536,764
–
–
P
= 1,333,000,000
P
= 22,058,824
2.25%-9.48%
P
= 22,058,824
P
= 22,058,824
P
= 22,058,824
P
= 22,058,824
P
= 259,191,176
–
–
P
= 369,485,296
P
= 4,296,875
2.25%-9.48%
–
7.32%
P
= 17,187,500
P
= 17,187,500
P
= 17,187,500
P
= 17,187,500
P
= 201,953,125
–
–
P
= 275,000,000
–
P
= 44,209,804
P
= 44,209,804
P
= 44,209,804
P
= 618,937,255
–
–
P
= 751,566,667
$18,750,000
6m Libor plus margin
¥640,625,000
6m Libor plus margin
¥243,280,000
6m Libor plus margin
$2,000,000
6m Libor plus margin
¥340,366,724
6m Libor plus margin
$18,750,000
$18,750,000
$18,750,000
$18,750,000
$18,750,000
–
$112,500,000
P
= 5,031,000,000
¥–
¥–
¥–
¥–
¥–
¥640,625,000
–
P
= 237,415,625
¥243,280,000
¥243,280,000
¥121,640,000
¥–
¥–
¥851,480,000
–
P
= 315,558,488
$1,000,000
$–
$–
$–
$–
–
$3,000,000
P
= 134,160,000
¥340,366,724
¥340,366,724
¥340,366,724
¥340,366,724
¥ 848,634,730
¥2,550,468,350
–
P
= 945,203,571
P
= 7,352,941
P
= 7,352,941
P
= 7,352,941
P
= 7,352,941
P
= 86,397,060
–
–
P
= 123,161,765
P
= 7,352,941
3m PDST-F plus margin
¥6,686,287,452
$148,464,236
P
= 25,783,717,181
Interest on financial instruments classified as floating rate is repriced on a semi-annual basis, unless otherwise stated. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument.
*SGVFS011134*
- 66 -
2013
Liabilities:
Long-Term Debt
Fixed Rate (exposed to
fair value risk)
EIB Loan - JPY
Interest rate
EIB Loan - USD
Interest rate
IFC Loan - JPY
Interest rate
IFC Loan - USD
Interest rate
P
= 10.00 Billion Notes
Interest rate
P
= 5.00 Billion Loan
Interest rate
P
= 0.50 Billion Laguna Water
Interest rate
P
= 0.50 Billion Boracay Water 1
Interest rate
P
= 0.50 Billion Boracay Water 2
Interest rate
P
= 0.80 Billion - CMWD
Interest rate
Floating Rate (exposed
to cash flow risk)
NEXI Loan
Interest rate
EIB Loan
Interest rate
IFC Loan - JPY
Interest rate
IFC Loan - USD
Int erest rate
MTSP Loan
Interest rate
P
= 0.50 Billion Boracay Water
Interest rate
Within 1 year
1-2 years
2-3 years
3-4 years
4-5 years
More than
5 years
Total
(In JPY)
Total - Gross
(In USD)
Total - Gross
(In PHP)
¥466,941,294
2.10% - 2.29%
$3,750,000
5.08%
¥44,048,000
4.57%
$2,000,000
4.57%
P
= 50,000,000
6.34% - 7.33%
P
= 25,000,000
4.42%
¥466,941,294
¥466,941,294
¥233,470,644
¥–
¥–
¥1,634,294,526
–
P
= 692,777,450
$3,750,000
$3,750,000
$1,875,000
$–
$–
–
$13,125,000
P
= 582,684,375
¥44,048,000
¥44,048,000
¥44,048,000
¥22,024,000
¥–
¥198,216,000
–
P
= 84,023,762
$2,000,000
$1,000,000
$–
$–
$–
–
$5,000,000
P
= 221,975,000
P
= 50,000,000
P
= 4,925,000,000
P
= 25,000,000
P
= 4,850,000,000
P
=–
–
–
P
= 9,900,000,000
P
= 25,000,000
P
= 25,000,000
P
= 25,000,000
P
= 25,000,000
P
= 4,850,000,000
–
–
P
= 4,975,000,000
P
= 66,666,667
6.73% - 7.58%
P
= 66,666,667
P
= 66,666,667
P
= 66,666,666
P
= 200,000,000
P
=–
–
–
P
= 466,666,667
P
= 3,363,972
P
= 13,455,882
P
= 13,455,882
P
= 13,455,882
P
= 185,018,382
P
=–
–
–
P
= 228,750,000
–
2.25%-9.48%
–
7.25%
P
= 1,171,875
P
= 4,687,500
P
= 4,687,500
P
= 64,453,125
P
=–
–
–
P
= 75,000,000
–
P
= 81,169,452
P
= 27,056,484
P
= 27,056,484
P
= 405,847,260
–
–
P
= 541,129,680
$18,750,000
6m Libor plus margin
¥256,250,000
6m Libor plus margin
¥243,280,000
6m Libor plus margin
$2,000,000
6m Libor plus margin
¥340,366,724
6m Libor plus margin
$18,750,000
$18,750,000
$18,750,000
$18,750,000
$31,589,236
–
$125,339,236
P
= 5,564,435,364
¥256,250,000
¥256,250,000
¥128,125,000
¥–
¥–
¥896,875,000
–
P
= 380,185,313
¥243,280,000
¥243,280,000
¥243,280,000
¥121,640,000
¥–
¥1,094,760,000
–
P
= 464,068,764
$2,000,000
$1,000,000
$–
$–
$–
–
$5,000,000
P
= 221,975,000
¥340,366,724
¥340,366,724
¥340,366,724
¥340,366,724
¥1,160,308,304
¥2,862,141,926
–
P
= 1,213,261,962
P
= 4,485,294
P
= 4,485,294
P
= 4,485,294
P
= 61,672,794
P
=–
–
–
P
= 76,250,000
2.25%-9.48%
P
= 1,121,324
3m PDST-F plus margin
¥6,686,287,452
$148,464,236
P
= 25,688,183,337
Interest on financial instruments classified as floating rate is repriced on a semi-annual basis, unless otherwise stated. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument.
*SGVFS011134*
- 67 The following tables demonstrate the sensitivity of the Group’s income before income tax and OCI, gross of
tax, to a reasonably possible change in interest rates on December 31, 2014 and 2013, with all variables held
constant (through the impact on floating rate borrowings and AFS debt securities).
2014
Changes in
basis points
Floating rate borrowings
100
(100)
Effect on
Income before
Income Tax
Effect on OCI
(In Thousands)
(P
= 75,550)
75,550
P
=–
–
2013
Changes in
basis points
Floating rate borrowings
100
(100)
Available-for-sale debt securities
50
(50)
Effect on
Income before
Income Tax
Effect on OCI
(In Thousands)
(P
= 86,318)
86,318
–
–
P
=–
–
(311)
312
Foreign exchange risk
The Group’s foreign exchange risk results primarily from movements of PHP against the USD and JPY.
Majority of revenues are generated in PHP, and substantially all capital expenditures are also in PHP.
Approximately 34% and 40% of debt as of December 31, 2014 and 2013, respectively, are denominated in
foreign currency. Under Amendment 1 of the Agreement, however, the Parent Company has a natural hedge
on its foreign exchange risks on its loans and concession fee payments through a recovery mechanism in the
tariff (see Notes 1 and 13).
Information on the Group’s foreign currency-denominated monetary assets and liabilities and their Philippine
Peso equivalents are as follows:
2014
Peso
Original
Currency
Equivalent
(In Thousands)
Assets
Cash and cash equivalents
USD
VND
AUD
SGD
Liabilities
Long-term debt
YEN loan
USD loan
Service concession obligations
YEN loan
USD loan
French Franc (FRF) loan
2013
Original
Peso
Currency
Equivalent
(In Thousands )
$8,176
VND23,999,786
AUD6
SGD102
P
= 365,631
50,160
217
3,437
P
= 419,445
$3,779
VND21,698,540
AUD6
SGD123
P
= 167,767
45,589
242
4,291
P
= 217,889
¥5,274,985
$123,327
P
= 1,954,909
5,515,187
¥6,567,179
$148,168
P
= 2,783,827
6,577,905
¥1,288,651
$77,950
FRF1,493
477,574
3,485,924
12,396
11,445,990
¥1,363,650
$86,462
FRF 2,009
578,051
3,838,473
18,603
13,796,859
Net foreign currency-denominated
liabilities
P
= 11,026,545
P
= 13,578,970
The spot exchange rates used were P
= 44.720 to US$1, P
= 0.3706 to JPY1, =
P8.30 to FRF1, P
= 33.6961 to SGD1,
P
= 36.2063 to AUD1 and P
= 0.0021 to VND1 in 2014; P
= 44.395 to US$1, =
P0.4239 to JPY1, P
= 9.26 to FRF1, =
P34.9992 to
SGD1,P
= 39.4581 to AUD1 and P
= 0.0021 to VND1 in 2013
*SGVFS011134*
- 68 The following table demonstrates the sensitivity to a reasonably possible change in foreign exchange rates,
with all variables held constant, of the Group’s income 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 December 31, 2014 and 2013:
2014
Increase/Decrease in
Foreign Exchange Rates
Dollar
P
= 0.51
(0.51)
Income
before income tax
(In Thousands)
(P
= 2,203)
2,203
2013
Increase/Decrease in
Foreign Exchange Rates
Dollar
P
= 0.19
(0.19)
Income
before income tax
(In Thousands)
(P
= 1,006)
1,006
The Group does not expect any movement of the VND, SGD, AUD and FRF against the Philippine Peso to
have a significant effect on the Group’s profit before tax.
Equity price risk
The Group’s equity price risk exposure at year-end relates to financial assets whose values will fluctuate as a
result of changes in market prices, principally, equity securities classified as AFS financial assets.
Such investment securities are subject to price risk due to changes in market values of instruments arising
either from factors specific to individual instruments or their issuers or factors affecting all instruments traded
in the market.
The Parent Company’s investment policy requires it to manage such risks by setting and monitoring
objectives and constraints on investments, diversification plan, limits on investment in each sector and
market.
In 2014 and 2013, there was no analysis made to determine impact in the possible movement in the PSE
index since the security as of year-end has already matured.
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 five years.
In respect of 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 including the use of postdated checks and auto-debit arrangements.
The Group has no significant concentrations of credit risk.
The maximum exposure to credit risk for the components of the consolidated statement of financial position is
equal to their carrying value.
*SGVFS011134*
- 69 As of December 31, 2014 and 2013, the credit quality per class of the Group’s financial assets are as follows:
2014
Cash and cash equivalents*
Short term cash investments
Receivables
Customers
Residential
Commercial
Semi-business
Industrial
Concession financial receivable
Employees
Interest from banks
Receivable from SAWACO
Receivable from BWC
Others
AFS financial assets
Unquoted
Total
Neither Past Due nor Impaired
High Grade
Standard
P
= 6,050,907,044
P
=–
400,000,000
–
Past Due and
Impaired
P
=–
–
Total
P
= 6,050,907,044
400,000,000
1,146,667,730
112,670,545
46,745,213
41,487,945
975,983,837
138,930
–
–
–
–
10,290,457
3,484,600
1,128,265
–
–
39,415,356
11,941,957
32,888,246
529,500,647
183,138,341
481,392,378
113,411,221
33,250,662
5,644,348
–
–
–
–
–
84,036,110
1,638,350,565
229,566,366
81,124,140
47,132,293
975,983,837
39,554,286
11,941,957
32,888,246
529,500,647
267,174,451
2,409,290
P
= 8,777,010,534
–
P
= 811,787,869
–
P
= 717,734,719
2,409,290
P
= 10,306,533,122
Neither Past Due nor Impaired
High Grade
Standard
P
= 6,778,968,451
P
=–
94,344,600
–
Past Due and
Impaired
P
=–
–
Total
P
= 6,778,968,451
94,344,600
*Excludes cash on hand.
2013
Cash and cash equivalents*
Short term cash investments
Receivables
Customers
Residential
Commercial
Semi-business
Industrial
Concession financial receivable
Employees
Interest from banks
Receivable from SAWACO
Receivable from BWC
Others
AFS financial assets
Quoted
Unquoted
Total
838,458,129
113,205,385
44,372,521
32,559,907
681,363,724
191,857
–
–
–
–
7,636,211
3,587,820
1,106,773
–
–
54,255,111
11,550,628
101,904,224
544,373,611
71,728,297
460,288,640
107,303,430
32,118,694
4,962,559
–
–
–
–
–
78,750,136
1,306,382,980
224,096,635
77,597,988
37,522,466
681,363,724
54,446,968
11,550,628
101,904,224
544,373,611
150,478,433
103,300,716
2,409,290
P
= 8,689,174,580
–
–
P
= 796,142,675
–
–
P
= 683,423,459
103,300,716
2,409,290
P
= 10,168,740,714
*Excludes cash on hand.
As of December 31, 2014 and 2013, 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 which are classified as high grade pertains to receivables that are collectible within 7 days from
bill delivery. Receivables rated as standard are collectible from 11 to 30 days from bill delivery.
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
*SGVFS011134*
- 70 Group’s policy is to maintain a level of cash that is sufficient to fund its operating cash requirements for the
next 4 to 6 months and any claim for refund of customers’ guaranty deposits. Capital expenditures are
funded through long-term debt, while operating expenses and working capital requirements are sufficiently
funded through internal cash generation.
The Group’s financial assets used for liquidity management based on their maturities are as follows:
2014
Assets:
Cash and cash equivalents
Short term cash investments
Receivables:
Customers
Employees
SAWACO
Interest from banks
Others
AFS financial assets
Within 1 Year
1-5 years
More than
5 years
Total - Gross
P
= 6,052,553,832
400,000,000
P
=–
–
P
=–
–
P
= 6,052,553,832
400,000,000
1,996,173,364
39,554,286
32,888,246
11,941,957
267,174,450
2,409,290
P
= 8,802,695,425
–
–
–
–
–
–
P
=–
–
–
–
–
–
–
P
=–
1,996,173,364
39,554,286
32,888,246
11,941,957
267,174,450
2,409,290
P
= 8,802,695,425
2013
Assets:
Cash and cash equivalents
Short term cash investments
Receivables:
Customers
Employees
SAWACO
Interest from banks
Others
AFS financial assets
Within 1 Year
1-5 years
More than
5 years
Total - Gross
P
= 6,779,780,845
94,344,600
P
=–
–
P
=–
–
P
= 6,779,780,845
94,344,600
1,645,600,069
54,446,968
101,904,224
11,550,628
150,478,433
103,300,716
P
= 8,941,406,483
–
–
–
–
–
–
P
=–
–
–
–
–
–
–
P
=–
1,645,600,069
54,446,968
101,904,224
11,550,628
150,478,433
103,300,716
P
= 8,941,406,483
The Group’s financial liabilities based on contractual undiscounted payments:
2014
Liabilities:
Accounts and other payables
Payables to related parties
Long-term debt*
Service concession obligation*
Customers’ guaranty deposits and
other deposits
Within 1 Year
1-5 years
More than
5 years
Total - Gross
P
= 3,846,824,496
11,490,133
3,961,634,952
903,512,645
P
=–
–
17,158,019,319
3,734,356,285
P
=–
–
14,198,608,704
17,571,906,659
P
= 3,846,824,496
11,490,133
35,318,262,975
22,209,775,589
–
–
362,064,821
362,064,821
P
= 8,723,462,226 P
= 20,892,375,604 P
= 32,132,580,184 P
= 61,748,418,014
*Includes contractual interest cash flows
2013
Liabilities:
Accounts and other payables
Payables to related parties
Long-term debt*
Service concession obligation*
Customers’ guaranty deposits and
other deposits
Within 1 Year
1-5 years
More than
5 years
Total - Gross
P
= 4,222,768,767
139,018,853
3,082,880,022
819,167,075
P
=–
–
14,660,989,105
2,901,469,520
P
=–
–
13,336,795,556
9,821,579,971
P
= 4,222,768,767
139,018,853
31,080,664,683
13,542,216,566
–
–
550,678,621
550,678,621
P
= 8,263,834,717 P
= 17,562,458,625 P
= 23,709,054,148 P
= 49,535,347,490
*Includes contractual interest cash flows
*SGVFS011134*
- 71 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 service concession obligation) divided by the sum of the total stockholders’ equity and total debt (less
service concession obligation). The Group’s target gearing ratio is set at 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.
Total liabilities
Less service concession obligation
Total stockholders’ equity
Total
Gearing ratio
2014
P
= 39,758,333,532
8,001,209,069
31,757,124,463
35,101,570,064
P
= 66,858,694,527
47%
2013
P
= 41,803,468,054
8,433,705,593
33,369,762,461
31,054,056,755
P
= 64,423,819,216
52%
For purposes of computing its net debt, the Group includes the outstanding balance of its long-term debt
(including current portion), accounts and other payables, less cash and cash equivalents, short-term cash
investments and AFS financial assets. To compute its total capital, the Group uses the total stockholders’
equity.
Total liabilities
Less:
Total service concession obligation
Cash and cash equivalents
Short-term cash investments
AFS financial assets
Net Debt
Total stockholders’ equity
Total net debt and stockholders’ equity
Total net debt and equity ratio
2014
P
= 39,758,333,532
2013
P
= 41,803,468,054
8,001,209,069
6,052,553,832
400,000,000
2,409,290
14,456,172,191
25,302,161,341
35,101,570,064
P
= 60,403,731,405
42%
8,433,705,593
6,779,780,845
94,344,600
105,710,006
15,413,541,044
26,389,927,010
31,054,056,755
P
= 57,443,983,765
46%
29. Commitments
Parent Company’s Concession Agreement
The significant commitments of the Parent Company under the Concession Agreement and Extension are as
follows:
a.
To pay MWSS concession fees (see Note 10);
b.
To post a performance bond, bank guarantee or other security acceptable to MWSS amounting to
US$70.00 million in favor of MWSS as a bond for the full and prompt performance of the Parent
Company’s obligations under the Agreement. The aggregate amounts drawable in one or more
installments under such performance bond during the Rate Rebasing Period to which it relates are set
out below.
Rate Rebasing Period
First (August 1, 1997 - December 31, 2002)
Second (January 1, 2003 - December 31,
2007)
Third (January 1, 2008 - December 31, 2012)
Fourth (January 1, 2013 - December 31, 2017)
Fifth (January 1, 2018 - December 31, 2022)
Sixth (January 1, 2023 - December 31, 2027)
Seventh (January 1, 2028 - December 31, 2032)
Eighth (January 1, 2033 - May 6, 2037)
Aggregate amount drawable
under performance bond
(in US$ millions)
US$70.00
70.00
60.00
60.00
50.00
50.00
50.00
50.00
*SGVFS011134*
- 72 Within 30 days from the commencement of each renewal date, the Parent Company shall cause the
performance bond to be reinstated in the full amount set forth above as applicable for that year.
Upon not less than 10-day written notice to the Parent Company, MWSS may make one or more
drawings under the performance bond relating to a Rate Rebasing Period to cover amounts due to
MWSS during that period; provided, however, that no such drawing shall be made in respect of any
claim that has been submitted to the Appeals Panel for adjudication until the Appeals Panel has handed
down its decision on the matter.
In the event that any amount payable to MWSS by the Parent Company is not paid when due, such
amount shall accrue interest at a rate equal to that of a 364-day Treasury Bill for each day it remains
unpaid;
c.
With the Extension, the Parent Company agreed to increase its annual share in MWSS operating budget
by 100% from P
= 100.00 million to P
= 395.00 million, subject to annual CPI;
d.
To meet certain specific commitments in respect of the provision of water and sewerage services in the
East Zone, unless deferred by 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 Standards and best industrial practices so that, at all times, the water and sewerage
system in the East Zone is 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 (see Note 1).
The Parent Company is committed to perform its obligations under the Concession Agreement and Extension
to safeguard its continued right to operate the Concession.
Laguna Water’s Concession Agreement
The significant commitments of Laguna Water under its concession agreement with PGL are as follows:
a.
To pay PGL concession fees (see Note 10);
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 PGL any amendment or supplement to the concession agreement to
establish, operate and maintain wastewater facilities if doing such is financially and economically
feasible.
Boracay Water’s Concession Agreement
The significant commitments of Boracay Water under its concession agreement with TIEZA 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 TIEZA Regulatory Office (TIEZA-RO) due to unforeseen
circumstances or modified as a result of rate rebasing exercise;
*SGVFS011134*
- 73 b. To pay concession fees, subject to the following provisions:
i.
Assumption of all liabilities of the 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 within Boracay Island prior to commencement date. The servicing of such liabilities shall
be applied to the concession fees;
ii.
Payment of an amount equivalent to 5% of the monthly gross revenue of Boracay Water, inclusive
of all applicable taxes. Such payments shall be subject to adjustment based on the gross revenue
of Boracay Water as reflected in its separate financial statements;
iii.
Provision of the amount of the TIEZA BOD’s approved budget in 2012, payable semi-annually and
not exceeding:
Month
January
July
iv.
Provision of the annual operating budget of the TIEZA-RO, payable in 2 equal tranches in January
and July and not exceeding:
Year
2011
2012
2013 and beyond
c.
Maximum Amount
P
= 10,000,000
10,000,000
Maximum Amount
P
= 15,000,000
20,000,000
previous year, subject to annual
CPI adjustment
To establish, at Boracay Island, a TIEZA-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 Standards 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 TIEZA-RO following consultation with Boracay Water);
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, Boracay Water has sufficient financial, material and personnel resources
available to meet its obligations under the Concession Agreement.
In addition, the Parent Company, as the main proponent of Boracay Water shall post a bank security in the
amount of US$2.50 million to secure the Parent Company’s and Boracay Water’s performance of their
respective obligations under the agreement. The amount of the performance security shall be reduced by the
Parent Company following the schedule below:
Rate Rebasing Period
First
Second
Third
Fourth
Fifth
Amount of
Performance Security
(in US$ Millions)
US$2.50
2.50
1.10
1.10
1.10
On or before the start of each year, Boracay Water shall cause the performance security to be reinstated in
the full amount set forth as applicable for that year.
*SGVFS011134*
- 74 Upon not less than 10 days written notice to Boracay Water, TIEZA may take one or more drawings under
the performance security relating to a Rate Rebasing Period to cover amounts due to TIEZA 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 TIEZA by Boracay Water 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 Boracay Water to perform any of its obligations that is deemed material by TIEZA-RO may cause
the concession agreement to be terminated.
Technical Services Agreement
Simultaneous with the execution of Boracay Water’s concession agreement, Boracay Water and the Parent
Company executed a Technical Services Agreement by which the Parent Company is being paid by Boracay
Water a technical services fee equivalent to 4% of the annual gross revenue of Boracay Water, for rendering
the following services to Boracay Water:
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.
Clark Water’s Concession Agreement
The significant commitments of Clark Water under its concession agreement with CDC are follows:
a.
To pay franchise and rental fees of CDC;
b.
Finance, design, and construct new facilities - defined as any improvement and extension works to (i) all
existing facilities - defined as all fixed and movable assets specifically listed in the concession
agreement; (ii) construction work - defined as the scope of construction work set out in the concession
agreement; and (iii) other new works that do not constitute refurbishment or repair of existing facilities
undertaken after commencement date;
c.
Manage, exclusively possess, occupy, operate, repair, maintain, decommission and refurbish the
existing facilities, except for the private deep wells set out in the concession agreement, the negotiations
for the acquisition and control of which shall be the sole responsibility and for the account of the Clark
Water; and manage, own, operate, repair, maintain, decommission and refurbish the new facilities;
d.
Treat raw water and wastewater in CSEZ;
e.
Provide and manage all water and wastewater related services like assisting locator of relocating of
pipes and assess internal leaks;
f.
Bill and collect payment from the customers for the services (with the exception of SM City Clark). SM
City Clark has been carved out by virtue of Republic Act 9400 effective 2007 even if it is located within
the franchise area; and
g.
Extract raw water exclusively from all sources of raw water including all catchment areas, watersheds,
springs, wells and reservoirs in CFZ free of charge by CDC.
MOA with Ayala Land
In April 2010, the Parent Company and Ayala Land entered into a MOA to establish a water utility services
company which will manage and operate all water systems in Nuvali, as well as adjacent Ayala Land projects
in Laguna. The Parent Company shall infuse P
= 82.00 million in cash and will be responsible for all external
water systems and the operation and management of the joint venture company. Ayala Land shall infuse
P
= 18.00 million cash and P
=59.00 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 December 31, 2014.
*SGVFS011134*
- 75 Guarantee Agreement with MWSAH
On November 22, 2012, the Parent Company signed as a guarantor of a credit facility entered into with
MWSAH (the Guarantee Agreement). The significant commitments of the Parent Company under the
Guarantee Agreement are as follows:
a. To guarantee the creditor punctual performance of MWSAH of all its obligations under the Guarantee
Agreement;
b. To pay, on demand, the amount as if it was the principal obligor in case MWSAH defaults; and
c. To indemnify the creditors on demand against any cost, loss or liability they incur as a result of MWSAH
not paying any amount which would, but for such unenforceability, invalidity or illegality, have been
payable under the Guarantee Agreement on the date when it would have been due.
On August 12, 2013, the credit facility was cancelled.
Bulk Water Supply Agreement with MCWD
On December 18, 2013, CMWD entered into a bulk water supply agreement with MCWD. The significant
provisions under the agreement with MCWD are as follows:
a.
To provide potable and treated water at an aggregate volume of 18,000 cubic meters per day for the first
year and 35,000 cubic meters per day for the succeeding years up to 20 years at P
= 24.59 per cubic
meter.
b.
CMWD shall ensure that the source shall be sustainable and 100% reliable at any day the duration of the
agreement.
c.
CMWD shall construct a facility capable of delivering a production capacity of 35,000 cubic meters per
day. Maintenance of the same shall be on the account of CMWD.
Asset Purchase Agreement with LTI
On December 23, 2013, Laguna Water entered into an asset purchase agreement with LTI to acquire and
operate its water operations division in Laguna. The significant provisions under the agreement with LTI
follow:
a.
Laguna Water shall offer water supply and sewerage services to all current or future locators in the
Laguna Technopark, including future area(s) of expansion;
b.
Laguna Water shall ensure the availability of an uninterrupted 24-hour supply of water to all current and
future locators, subject to interruptions resulting from the temporary failure of items of the Water
Facilities (where Laguna Water acts promptly to remedy such failure) or required for the repair of the
construction of the Water Facilities where such repairs or construction cannot be performed without
interruption to the supply of water;
c.
Upon request from a current or future locator in the LTI for a connection to a water main, Laguna Water
shall make such a connection as soon as reasonably practicable, upon payment of reasonable
connection fees as determined by Laguna Water;
d.
Laguna Water shall ensure at all times that the water supplied to current and future locators in LTI
complies with Philippine National Drinking Water Standards as published by the Department of Health
(or successor entity responsible for such standards) and prevailing at such time. Laguna Water shall
observe any requirement regarding sampling, record keeping or reporting as may be specified by law;
e.
Laguna Water shall make available an adequate supply of water for firefighting and other public
purposes as the municipality and/or barangay in which LTI may reasonably request. Laguna Water shall
not assess for such water used for firefighting purposes but may charge for all other water used for
public purposes; and
f.
Laguna Water shall make a supply of water available to current and future locators in LTI, including the
areas(s) of expansion in the future.
*SGVFS011134*
- 76 30. Provisions and Contingencies
Provisions
On October 13, 2005, the Municipality of Norzagaray, Bulacan assessed the Parent Company and
Maynilad Water Services, Inc. (jointly, the “Concessionaires”) real property taxes on certain common purpose
facilities registered in the name of and owned by MWSS purportedly due from 1998 to 2005 amounting to
P
= 955.27 million. On November 15, 2010, the local government of Quezon City demanded the payment of
P
= 302.71 million for deficiency real property taxes from MWSS on MWSS properties within its territorial
jurisdiction. The assessments from the municipality of Norzagaray and Quezon City have been questioned
by the Concessionaires and MWSS, and are pending resolution before the Central Board of Assessment
Appeals and Supreme Court, respectively.
Contingencies
The Group has various contingent liabilities arising in the ordinary conduct of business which are either
pending decision by the courts or being contested, the outcomes of which are not presently determinable.
In the opinion of the Group’s management and its legal counsel, the eventual liability under these lawsuits
and claims, if any, will not have a material or adverse effect on the Group’s financial position and results of
operations.
31. Notes to Cash Flow Statements
The Group’s noncash investing activities follow:
a.
b.
Contingent consideration for the purchase of KDW amounting to P
=90.22 million as of December 31,
2012 (see Note 12).
Laguna Water’s payable to LTI amounting to P
= 343.75 million representing 55% of the total purchase
price amounting to P
= 625.00 million as of December 31, 2013 (see Note 4).
32. Events After the Reporting Period
CMWD’s Delivery of First Water
On January 5, 2015, CMWD delivered its initial 18.00 million liters per day bulk water supply to MCWD.
CMWD will increase its bulk water delivery to 35.00 million liters per day in 2016.
ESOWN Grant
On January 6, 2015, the Parent Company’s Remuneration Committee approved the grant to the qualified
executives, officers and employees of stock options covering up to 7,281,647 common shares at a
subscription price of P
= 26.00 per share.
Additional Capital Infusion in MWTS
On February 20, 2015, the Parent Company’s BOD approved the additional investment of P
=492.00 million in
MWTS. The investment shall be effected at such time and frequency as may be necessary for the full
commercialization of the products and services of MWTS.
Additional Capital Infusion in MWPVI
On February 20, 2015, the Parent Company’s BOD approved the additional investment of P
=250.00 million in
MWPVI. The investment shall be used to fund the operation of MWPVI which is the vehicle intended by the
Parent Company to hold its investments in its domestic operating subsidiaries.
Cash Dividend Declaration
On February 20, 2015, the Parent Company’s BOD declared cash dividends of P
= 0.4075 per outstanding
common share and P
= 0.04075 per outstanding participating preferred share payable on March 20, 2015 to
stockholders of record as of March 6, 2015.
*SGVFS011134*
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
SUPPLEMENTARY SCHEDULE OF RETAINED EARNINGS AVAILABLE FOR
DIVIDEND DECLARATION
FOR THE YEAR ENDED DECEMBER 31, 2014
Unappropriated Retained Earnings, adjusted to available for
dividend distribution, beginning
Add: Net income actually earned/realized during the period
Net income during the period closed to Retained Earnings
Accretion of service concession obligation and deposit
Accretion of long term debt discount
Reversal of appropriation
Less: Accretion of receivable from Bonifacio Water Corporation
Deferred tax benefit during the period
Amortization of deferred credits
Total
Less: Dividend declarations during the period
Unappropriated Retained Earnings available for dividend distribution,
ending
P
= 20,096,938,850
5,238,028,831
431,284,471
119,650,505
7,000,000,000
(32,916,947)
(38,174,613)
(7,240,954)
32,807,570,143
(2,013,109,906)
P
= 30,794,460,237
*SGVFS011134*
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
SCHEDULE A - FINANCIAL ASSETS
As of December 31, 2014
Name of Issuing entity &
association of each issue
Number of shares
Principal amount of bonds &
notes
Amount shown in the balance sheet
Income received and
accrued
LOANS AND RECEIVABLES
Cash on hand and in banks
1,478,227,092
Cash equivalents
BPI
BDO
Metrobank
Security Bank
Citibank
AUB
1,625,857,237
1,078,317,111
1,645,172,163
40,000,000
31,843,576
153,136,653
Receivables
2,877,232,950
Concession financial receivable
975,983,837
9,905,770,619
AVAILABLE - FOR- SALE FINANCIAL ASSETS
Stocks:
Meralco Preferred Shares
TOTAL
2,409,290
2,409,290
9,908,179,909
66,976,304
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
SCHEDULE B - AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES, RELATED
PARTIES AND PRINCIPAL STOCKHOLDERS (OTHER THAN RELATED PARTIES)
As of December 31, 2014
Note: Receivables from related parties and principal stockholders represent receivables from water revenue which arise in the ordinary course of business.
Name and Designation of Debtor
Beginning Balance
Additions
Deductions
Collections Other
Cash Collections
than Cash
Ending Balance
(Current)
OFFICERS AND EMPLOYEES
Various
54,446,968
33,060,014
47,952,696
39,554,286
RELATED PARTIES - Affiliates
ALI and subsidiaries
BPI and subsidiaries
0.00
228,474.00
137,380,567.67
9,739,495.77
132,449,778.67
9,943,676.77
4,930,789
24,293
7,177,858.83
7,138,702.83
39,156
187,357,935.95
197,484,855
PRINCIPAL STOCKHOLDERS
Ayala Corporation
TOTAL
-
-
44,548,524
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
SCHEDULE C - AMOUNTS RECEIVABLE FROM RELATED PARTIES WHICH ARE ELIMINATED DURING THE CONSOLIDATION OF THE FINANCIAL STATEMENTS
As of December 31, 2014
CURRENT
Entity Name
(Creditor)
Relationship to the
Reporting Co. (Subsidiary or
Parent)
Deductions
Account Type
Beginning Balance
Additions
Ending Balance
Collections
Written-off
Volume
Credit Terms
Reasons for Write-off
Remarks
Description of "Other Receivables" Account
Volume
Credit Terms
Reasons for Write-off
Remarks
Description of "Other Receivables" Account
Adjustments
Trade receivable
Advances to contractors
Notes receivable
Dividends receivable
Interest Receivable
Other receivables
TOTAL
-
-
-
-
-
-
NONCURRENT
Entity Name
(Creditor)
Relationship to the
Reporting Co. (Subsidiary or
Parent)
Deductions
Account Type
Beginning Balance
Additions
Ending Balance
Collections
Clark Water
MWPVI and
Subsidiary
MWIS
MW Consortium
and Subsidiary
MWPVI and
Subsidiary
MWTS
Boracay Water
Subsidiary
Trade receivable
Advances to contractors
Notes receivable
Dividends receivable
Subsidiary
Interest Receivable
14,343,008
-
Subsidiary
Other receivables
34,284,014
23,366
Subsidiary
Other receivables
31,084,249
15,367,837
Subsidiary
Other receivables
148,957,798
80,317,535
Subsidiary
Subsidiary
Other receivables
Other receivables
14,316,775
24,267,906
Clark Water
Subsidiary
Other receivables
3,596,756
MWAP and
Subsidiaries
Subsidiary
Other receivables
TOTAL
99,950,000
-
370,800,506
30,099,009
Written-off
Adjustments
99,950,000
-
-
30,099,009
Receivable from dividends declared by Clark Water
8,664,776
-
-
5,678,232
-
-
-
34,307,380
Expenses paid by MWCI in behalf of the Company
-
-
-
46,452,085
Expenses paid by MWCI in behalf of the Company
82,416,200
-
-
146,859,133
Advances and expenses paid by MWCI in behalf of the Company
25,038,837
40,597,788
7,720,661
58,258,391
-
-
31,634,951
6,607,302
615,144,015
26,637,797
-
-
592,102,974
Expenses paid by MWCI in behalf of the Company
Expenses paid by MWCI in behalf of the Company
Expenses paid by MWCI in behalf of the Company and receivable
from capital restructuring of Clark Water
20,588,617
18,984,531
-
-
1,604,087
827,177,005
302,632,357
-
-
895,345,154
Interest on advances by MWCI
Expenses paid by MWCI in behalf of the Company
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
Schedule D - INTANGIBLE ASSETS - OTHER ASSETS
As of December 31, 2014
DESCRIPTION
Goodwill
Intangible Service Concession Assets
BEGINNING
BALANCE
130,319,465
54,582,229,395
ADDITIONS AT COST
3,439,313,041
CHARGED TO COSTS CHARGED TO OTHER
AND EXPENSES
ACCOUNTS
2,185,876,678
OTHER CHANGES
ADD/(DED)
ENDING BALANCE
130,319,465
55,835,665,758
55,965,985,223
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
SCHEDULE E - LONG-TERM DEBT
As of December 31, 2014
TITLE OF ISSUE & TYPE OF OBLIGATION
Exchange Rates
JPY
USD
Interest Rates
CURRENT PORTION OF LONGTERM DEBT
Closing Rates
0.3706
44.7200
Principal amount as of
December 31, 2014
Maturity
9,375,000
3,000,000
112,500,000
3,000,000
20-Jun-17
15-Jun-16
21-Oct-20
15-Jun-16
Php
Php
Php
Php
417,288,433
89,440,000
838,500,000
89,440,000
Php
Php
Php
Php
42,781,130
3,994,953,736
42,783,863
Php
Php
Php
Php
417,288,433
132,221,130
4,833,453,736
132,223,863
413,517,969
16,324,189
236,907,113
90,159,568
126,139,908
Php
Php
Php
Php
Php
40,332,727
220,841,365
810,686,772
Php
Php
Php
Php
Php
413,517,969
56,656,916
236,907,113
311,000,933
936,826,680
9,775,180,078 Php
4,924,487,025 Php
9,825,180,078
4,949,487,025
LONG-TERM DEBT
TOTAL
FOREIGN CURRENCY DENOMINATED LOANS
USD
EIB Loan
IFC Loan
NEXI Loan
IFC Loan
5.08%
4.570%
6m Libor plus margin
6m Libor plus margin
$
$
$
$
JPY
EIB Loan
IFC Loan
EIB Loan
IFC Loan
MTSP Loan
2.10%- 2.29%
4.570%
6m Libor plus margin
6m Libor plus margin
6m Libor plus margin
JPY
JPY
JPY
JPY
JPY
1,167,353,232
154,168,000
640,625,000
851,480,000
2,373,274,581
20-Jun-17
15-Jun-18
20-Jun-17
15-Jun-18
15-Apr-22
Php
Php
Php
Php
Php
6.34% - 7.33%
4.420%
Php
Php
9,850,000,000
4,975,000,000
09-Apr-16 and 08-Apr-21
30-Aug-20
Php
Php
6.7327%
7.5808%
199,999,999.99
199,999,999.99
11/15/2020
11/15/2020
7.2500%
7.2500%
7.2500%
7.2500%
250,000,000.00
250,000,000.00
416,500,000.00
416,500,000.00
07/15/2033
07/15/2033
07/15/2033
07/15/2033
9.000%
9.000%
1.500%
75,000,000
37,500,000
37,500,000
Aug. 25, 2031
Aug. 25, 2031
Aug. 25, 2031
9.000%
9.000%
1.500%
77,500,000
38,750,000
38,750,000
9.000%
9.000%
1.500%
PHP
Corporate Notes
Php 5 Billion Loan
Laguna Water
Php 500 million loan (1st drawdown)
Php 500 million loan (2nd drawdown)
DBP
Php 500 million loan - Tranche 1 (1st drawdown)
Php 500 million loan - Tranche 1 (2nd drawdown)
Php 500 million loan - Tranche 2 (1st drawdown)
Php 500 million loan - Tranche 2 (2nd drawdown)
BIWC
Tranche 1 - 1st Drawdown
T1A - DBP
T1B - Security Bank
T1C - Security Bank
Tranche 1 - 2nd Drawdown
T1A - DBP
T1B - Security Bank
T1C - Security Bank
Tranche 1 - 3rd Drawdown
T1A - DBP
T1B - Security Bank
T1C - Security Bank
Tranche 2 - 1st Drawdown
T2A - DBP
T2B - Security Bank
T2C - Security Bank
Tranche 2 - 2nd Drawdown
T2A - DBP
T2B - Security Bank
T2C - Security Bank
CMWD
Php 0.75 billion loan
TOTAL
50,000,000 Php
25,000,000 Php
33,333,333.34
33,333,333.34
165,024,652.52
164,872,495.02
198,357,986
198,205,828
249,361,333.29
249,350,519.60
415,399,422.06
415,378,387.78
249,361,333
249,350,520
415,399,422
415,378,388
5,514,705.90
2,205,882.36
2,205,882.36
69,485,294.10
25,800,920.05
34,742,647.05
75,000,000
28,006,802
36,948,529
Aug. 25, 2031
Aug. 25, 2031
Aug. 25, 2031
4,558,823.52
2,279,411.76
2,279,411.76
71,801,470.60
34,742,647.05
34,742,647.05
76,360,294
37,022,059
37,022,059
97,500,000
48,750,000
48,750,000
Aug. 25, 2031
Aug. 25, 2031
Aug. 25, 2031
7,169,117.65
2,867,647.04
2,867,647.04
90,330,882.35
45,165,441.20
45,165,441.20
97,500,000
48,033,088
48,033,088
9.000%
9.000%
9.000%
37,500,000
18,750,000
18,750,000
Aug. 25, 2031
Aug. 25, 2031
Aug. 25, 2031
585,937.50
292,968.75
292,968.75
36,914,062.50
18,457,031.25
18,457,031.25
37,500,000
18,750,000
18,750,000
9.000%
9.000%
9.000%
100,000,000
50,000,000
50,000,000
Aug. 25, 2021
Aug. 25, 2021
Aug. 25, 2021
1,562,500.00
781,250.00
781,250.00
98,437,500.00
49,218,750.00
49,218,750.00
100,000,000
50,000,000
50,000,000
7.320%
741,007,446
Dec. 20, 2033
741,007,445.95
741,007,446
22,975,121,467.81
25,470,750,718.80
-
2,495,629,250.99
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
SCHEDULE E - LONG-TERM DEBT
As of December 31, 2014
TITLE OF ISSUE & TYPE OF OBLIGATION
Amount authorized by
indenture
Amount shown under caption"Current
portion of long-term debt" in related
balance sheet
Amount shown under caption
"Long-term Debt" in related
balance sheet
FOREIGN CURRENCY DENOMINATED LOANS
USD
ADB 1379
ADB 1746
ADB 779
IBRD 4019
56,825,770
44,924,230
1,177,558
76,953,868
384,628,950
160,791,956
4,822,192
49,340,111
JPY
JBIC-PH110
57,792,605
134,883,361
2,549,736
7,188,149
85,959,495
2,620,484,846
1,705,207
949,701
French Loan
Treasury Loan
China Loan
Eximbank
Before turn-over(FRF)
Accrued interest payable
282,499,814
TOTAL - Service Concession Obligation
610,388,282
3,363,089,266
REGULATORY FEE
Manila Water
395,714,907
3,064,267,134
TOTAL REGULATORY FEE
395,714,907
3,064,267,134
1,006,103,189
6,427,356,400
GRAND TOTAL
Note: This pertains to payable assumed from MWSS by the Parent Company
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
SCHEDULE F - INDEBTEDNESS TO RELATED PARTIES
(LONG-TERM LOANS FROM RELATED COMPANIES)
As of December 31, 2014
Name of Related Parties
Balance at Beginning of Period
The Group has no long-term loans with related parties
Balance at End of Period
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
SCHEDULE G - GUARANTEES OF SECURITIES OF OTHER ISSUERS
As of December 31, 2014
Name of issuing entity of securities guaranteed by the
company for which this statement is filed
Title of issue of each class of securities
guaranteed
Total amount guaranteed and
outstanding
The Group has no guarantees of securities of other issuers
Amount owned by person for
which statement is filed
Nature of guaranty
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
SCHEDULE H - CAPITAL STOCK
As of December 31, 2014
TITLE OF ISSUE
NUMBER OF SHARES
AUTHORIZED
# OF SHARES ISSUED/
SUBSCRIBED
# OF SHARES RESERVED
FOR OPTIONS,
# OF SHARES HELD BY
WARRANTS, CONVERSION
AFFILIATES,
& RIGHTS
DIRECTORS, OFFICERS
& EMPLOYEES
Preferred stock - P0.10 par value, 10% cumulative, voting,
participating, nonredeemable and nonconvertible
4,000,000,000
4,000,000,000
4,000,000,000
Common Stock
3,100,000,000
2,047,270,452
836,878,559
OTHERS
-
1,210,391,893
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
SCHEDULE J - ORGANIZATIONAL CHART
As of December 31, 2014
Ayala Corporation
Manila Water Company
Manila Water
Company, Inc.
(Parent
Company)
Manila Water
International
Solutions
(MWIS)
100%
Manila Water
Total Solutions
(MWTS)
100%
Manila Water
Consortium Inc.
(MWC)
51%
Cebu Manila
Water
Development
(CMWD)
51%
Boracay Island
Water Inc.
(BIWC)
80%
Manila Water
Philippine
Ventures, Inc.**
(MWPVI)
100%
Clark Water
Corporation
(CWC)
100%
Manila Water
Asia Pacific Pte.
Ltd (MWAP)
100%
Laguna AAA
Water
Corporation
(LAWC)
70%
Manila Water
South Asia
Holdings Pte.
Ltd.
(MWSAH)
100%
Thu Duc Water
Holdings Pte.
Ltd.
(TDWH)
100%
Kenh Dong
Water Holdings
Pte. Ltd.
(KDWH)
100%
Thu Duc Water
BOO* (Thu Duc)
49%
Kenh Dong
Water Supply
Joint Stock
Company*
(WASS)
47.35%
Saigon Water
Infrastructure
Corporation*
(Saigon Water)
31.47%
*Associates
**formerly AAA Water Corporation
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
SCHEDULE K - FINANCIAL RATIOS
Liquidity Ratio
Solvency Ratio
Debt-to-Equity Ratio
Assets-to-Equity Ratio
Interest Rate Coverage Ratio
Return on Equity
Return on Assets
Ratio
Liquidity Ratio
Solvency Ratio
Debt-to-Equity Ratio
Assets- to-Equity Ratio
Interest Rate Coverage Ratio
2014
0.82
0.23
0.90
2.13
7.07
17%
8%
2013
0.85
0.21
1.07
2.35
6.72
19%
8%
Formula
Cash/ Cash equivalents + Short-term cash investments
Current Liabilities
After-Tax Net Profit + (Depreciation + Amortization)+
Allowance for Bad Debts
Long-term Liabilites + Short Term Liabilities
Total Liabilities - Service Concession Obligations
Total Stockholders' Equity
Total Assets
Total Stockholders' Equity
EBITDA
Interest Expense
Return on Equity
Net Income
Total Stockholders' Equity
Return on Assets
Net Income
Total Assets
Schedule L
(1)
Beneficial Ownership of Shares
Ayala Corporation
Ayala Corporation is a publicly listed Philippine company. The following table lists the
record of beneficial owners of more than five percent (5%) of the issued and outstanding
shares of Ayala Corporation as of December 31, 2014:
Name of Stockholder
Mermac, Inc.
PCD Nominee Corporation
(Non-Filipino)
Mitsubishi Corporation
PCD Nominee Corporation (Filipino)
(2)
Number of
Shares
303,689,196
160,040,652
Percent
age
49.03%
25.84%
Nationality
63,077,540
56,614,247
10.18%
9.14%
Japanese
Filipino
Filipino
Various
Philwater Holdings Company, Inc.
The stockholders of record of Philwater Holdings Company, Inc. as of December 31,
2014 are as follows:
Name
Ayala Corporation
Delfin L. Lazaro
Delfin C. Gonzalez, Jr.
Solomon M. Hermosura
Treasury
(4)
Number of
Shares
333,383,330
(common)
1 (common)
1 (common)
1 (common)
222,255,555
(preferred)
Percentage
Nationality
60.00%
Filipino
0.00%
0.00%
0.00%
40.00%
Filipino
Filipino
Filipino
First State Investment Management
First State Investments is a specialist asset management business, based in the United
Kingdom, focused on developing and managing innovative investment products which
seek to outperform their clients’ objectives. They manage segregated mandates for clients
globally and have pooled funds registered in the following countries: UK, Ireland,
Germany, Austria, France, Italy, Netherlands, Sweden, Switzerland, Chile, Singapore.
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
Schedule of All the Effective Standards and Interpretations
Under PFRS in compliance with SRC Rule 68, As Amended (2011)
December 31, 2014
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS
Effective as of December 31, 2014
Framework for the Preparation and Presentation of Financial Statements
Conceptual Framework Phase A: Objectives and qualitative characteristics
PFRSs Practice Statement Management Commentary
Philippine Financial Reporting Standards
PFRS 1
First-time Adoption of Philippine Financial Reporting Standards
(Revised)
Amendments to PFRS 1 and PAS 27: Cost of an Investment in a
Subsidiary, Jointly Controlled Entity or Associate
Amendments to PFRS 1: Additional Exemptions for First-time Adopters
Adopted Not Adopted Not Applicable





Amendment to PFRS 1: Limited Exemption from Comparative PFRS 7
Disclosures for First-time Adopters
Amendments to PFRS 1: Severe Hyperinflation and Removal of Fixed
Date for First-time Adopters
Amendments to PFRS 1: Government Loans




Amendments to PFRS 1: Borrowing Costs
PFRS 2
Share-based Payment
Amendments to PFRS 2: Vesting Conditions and Cancellations
PFRS 3
(Revised)
PFRS 4
Amendments to PFRS 2: Group Cash-settled Share-based Payment
Transactions
Business Combinations





Insurance Contracts
Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts
PFRS 5
Non-current Assets Held for Sale and Discontinued Operations
PFRS 6
Exploration for and Evaluation of Mineral Resources
PFRS 7
Financial Instruments: Disclosures
Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets
Amendments to PAS 39 and PFRS 7: Reclassification of Financial
Assets - Effective Date and Transition
Amendments to PFRS 7: Improving Disclosures about Financial
Instruments
Amendments to PFRS 7: Disclosures - Transfers of Financial Assets








PFRS 8
Amendments to PFRS 7: Disclosures - Offsetting Financial Assets and
Financial Liabilities
Amendments to PFRS 7: Mandatory Effective Date of PFRS 9 and
Transition Disclosures
Operating Segments
PFRS 9
Financial Instruments

Amendments to PFRS 9: Mandatory Effective Date of PFRS 9 and
Transition Disclosures
Amendments to PFRS 9: Financial Instruments

PFRS 10
Consolidated Financial Statements






Investment entities
PFRS 11
Joint Arrangements
PFRS 12
Disclosure of Interests in Other Entities
PFRS 13
Fair Value Measurement



Philippine Accounting Standards
PAS 1
(Revised)
Presentation of Financial Statements
Amendment to PAS 1: Capital Disclosures
Amendments to PAS 32 and PAS 1: Puttable Financial Instruments and



PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS
Effective as of December 31, 2014
Obligations Arising on Liquidation
Amendments to PAS 1: Presentation of Items of Other Comprehensive
Income
Amendments to PAS 1: Clarification of the Requirements for
Comparative Information
PAS 2
Inventories
PAS 7
Statement of Cash Flows
PAS 8
Accounting Policies, Changes in Accounting Estimates and Errors
PAS 10
Events after the Reporting Period
PAS 11
Construction Contracts
PAS 12
Income Taxes
Amendment to PAS 12 - Deferred Tax: Recovery of Underlying Assets
PAS 16
Property, Plant and Equipment
Adopted Not Adopted Not Applicable











Amendments to PAS 16: Classification of Servicing Equipment
PAS 17
Leases
PAS 18
Revenue
PAS 19
Employee Benefits (Revised)
PAS 20
Amendments to PAS 19: Actuarial Gains and Losses, Group Plans and
Disclosures
Accounting for Government Grants and Disclosure of Government
Assistance
The Effects of Changes in Foreign Exchange Rates
PAS 21
Amendment: Net Investment in a Foreign Operation







PAS 23
(Revised)
PAS 24
(Revised)
PAS 26
Borrowing Costs

Related Party Disclosures

Accounting and Reporting by Retirement Benefit Plans

PAS 27
(Amended)
PAS 28
(Amended)
PAS 29
Separate Financial Statements

Investments in Associates and Joint Ventures

PAS 32
Financial Instruments: Disclosure and Presentation

Financial Reporting in Hyperinflationary Economies

Amendments to PAS 32 and PAS 1: Puttable Financial Instruments and
Obligations Arising on Liquidation
Amendment to PAS 32: Classification of Rights Issues


PAS 33
Amendments to PAS 32: Offsetting Financial Assets and Financial
Liabilities
Amendments to PAS 32: Tax Effect of Distribution to Holders of Equity
Instruments
Earnings per Share
PAS 34
Interim Financial Reporting
PAS 36
Amendments to PAS 34: Interim Financial Reporting and Segment
Information for Total Assets and Liabilities
Impairment of Assets
PAS 37
Amendments to PAS 36: Recoverable Amount Disclosures for NonFinancial Assets
Provisions, Contingent Liabilities and Contingent Assets
PAS 38
Intangible Assets
PAS 39
Financial Instruments: Recognition and Measurement
Amendments to PAS 39: Transition and Initial Recognition of Financial
Assets and Financial Liabilities
Amendments to PAS 39: Cash Flow Hedge Accounting of Forecast
Intragroup Transactions
Amendments to PAS 39: The Fair Value Option
Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts














PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS
Adopted Not Adopted Not Applicable
Effective as of December 31, 2014
Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets

Amendments to PAS 39 and PFRS 7: Reclassification of Financial
Assets - Effective Date and Transition
Amendments to Philippine Interpretation IFRIC-9 and PAS 39: Embedded
Derivatives
Amendment to PAS 39: Eligible Hedged Items
PAS 40
Amendments to PAS 39: Novation of Derivatives and Continuation of
Hedge Accounting
Investment Property
PAS 41
Agriculture






Philippine Interpretations
IFRIC 1
IFRIC 2
Changes in Existing Decommissioning, Restoration and Similar
Liabilities
Members' Share in Co-operative Entities and Similar Instruments
IFRIC 4
Determining Whether an Arrangement Contains a Lease
IFRIC 5
IFRIC 8
Rights to Interests arising from Decommissioning, Restoration and
Environmental Rehabilitation Funds
Liabilities arising from Participating in a Specific Market - Waste
Electrical and Electronic Equipment
Applying the Restatement Approach under PAS 29 Financial Reporting in
Hyperinflationary Economies
Scope of PFRS 2
IFRIC 9
Reassessment of Embedded Derivatives
IFRIC 10
Amendments to Philippine Interpretation IFRIC-9 and PAS 39: Embedded
Derivatives
Interim Financial Reporting and Impairment
IFRIC 11
PFRS 2- Group and Treasury Share Transactions
IFRIC 12
Service Concession Arrangements
IFRIC 13
Customer Loyalty Programmes
IFRIC 14
IFRIC 15
The Limit on a Defined Benefit Asset, Minimum Funding Requirements
and their Interaction
Amendments to Philippine Interpretations IFRIC- 14, Prepayments of a
Minimum Funding Requirement
Agreements for the Construction of Real Estate
IFRIC 16
Hedges of a Net Investment in a Foreign Operation
IFRIC 17
Distributions of Non-cash Assets to Owners
IFRIC 18
Transfers of Assets from Customers
IFRIC 19
Extinguishing Financial Liabilities with Equity Instruments
IFRIC 20
Stripping Costs in the Production Phase of a Surface Mine
IFRIC 21
Levies
SIC-7
Introduction of the Euro
SIC-10
Government Assistance - No Specific Relation to Operating Activities
SIC-12
Consolidation - Special Purpose Entities
IFRIC 6
IFRIC 7
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Amendment to SIC - 12: Scope of SIC 12
SIC-15
Operating Leases - Incentives
SIC-25
Income Taxes - Changes in the Tax Status of an Entity or its Shareholders
SIC-27
SIC-29
Evaluating the Substance of Transactions Involving the Legal Form of a
Lease
Service Concession Arrangements: Disclosures.
SIC-31
Revenue - Barter Transactions Involving Advertising Services
SIC-32
Intangible Assets - Web Site Costs
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