CHANGING TIDES - mayniladwater.com.ph€¦ · Changing Tides 1 THE COMPANY IN BRIEF Maynilad is the...
134
Maynilad Water Services, Inc. 2012 Annual Report 1 CHANGING TIDES MAYNILAD WATER SERVICES, INC. 2012 ANNUAL REPORT CHANGING TIDES
Transcript of CHANGING TIDES - mayniladwater.com.ph€¦ · Changing Tides 1 THE COMPANY IN BRIEF Maynilad is the...
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
1
CHANGINGTIDES
MAYNILAD WATER SERVICES, INC. 2012 ANNUAL REPORT
C HA NG I NGT I DE S
Ch
an
gin
g T
ide
s
2
Changing Tides
The past five years of Maynilad after re-privatization have been
focused on transforming water and wastewater services in the
West Zone. Investments were poured into the construction of
vital infrastructure, resulting in improved service levels and giving
more people access to potable water. With this transformation
accomplished, the Company is now moving toward dynamic
expansion, as the opportunity to grow the business outside of its
concession area beckons.
The Maynilad organization is gearing itself up for this new
challenge—to successfully ride the changing tides of the industry. Its
past accomplishments now enable the Company to confidently look
forward from a position of strength and take advantage of these
growth prospects.
Maynilad W
ater Service, Inc. 2012 Annual R
eport
1
CHANGINGTIDES
MAYNILAD WATER SERVICES, INC. 2012 ANNUAL REPORT
C HA NG I NGT I DE S
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
3
3 Year 2012 at a Glance5 Milestones7 Letter from the Chairman11 President’s Report16 Key Figures16 Strategies for Growth17 Operational Highlights31 Financial Review and Analysis39 Corporate Social Responsibility50 Awards Received in 201251 The Road Ahead55 Board of Directors57 Top Management Team59 Financial Statements
Ch
an
gin
g T
ide
s
1
THE COMPANY IN BRIEF
Maynilad is the largest private water concessionaire in the
Philippines in terms of customer base. It is a concessionaire of the
Metropolitan Waterworks and Sewerage System (MWSS) given
exclusive right to manage water and wastewater operations in the
West Zone of the Greater Manila Area.
The West Zone concession covers 540 square kilometers and is
composed of the cities of Manila (all but portions of San Andres
and Sta. Ana), Quezon City (west of San Juan River, West Avenue,
EDSA, Congressional, Mindanao Avenue, the northern part starting
from the Districts of the Holy Spirit and Batasan Hills), Makati (west
of South Super Highway), Caloocan, Pasay, Parañaque, Las Piñas,
Muntinlupa, Valenzuela, Navotas and Malabon—all in Metro Manila;
the cities of Cavite, Bacoor and Imus, and the towns of Kawit,
Noveleta and Rosario—all in Cavite Province.
Maynilad is managed by DMCI-MPIC Water Company, Inc.—a joint
venture between Metro Pacific Investments Corporation (MPIC) and
DMCI Holdings, Inc. (DMCI). The MPIC-DMCI consortium officially
took control of Maynilad on January 19, 2007, with the completion
date under the MWSS Selection Process taking place in a ceremony
held at Malacañan Palace on January 24, 2007.
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
2
Our VisionWe are the leading water solutions company in the Philippines with a
strong presence across Asia.
Our MissionWe provide safe, affordable, and sustainable water solutions that
enable those we serve to lead healthier, more comfortable lives.
Our Corporate Values
Honesty and Integrity
We deal with our stakeholders with honesty and integrity. We will always
do what is right and fair for the sake of our customers, shareholders and
the environment.
Customer Service
We consider our customers as our growth partners. Only by providing
them with affordable, high-quality water solutions can we continue
generating value for our company and shareholders.
Entrepreneurship
We encourage creative thinking and deliberate execution. We expect
our people to manage our company’s resources with a strong sense of
initiative, ownership, and accountability in order to balance the needs of
our customers with those of our other stakeholders.
Commitment to Excellence
We view excellence as a means and not an end. To maintain our
operational efficiency and industry leadership, we push our people to
excel by being diligent and innovative in their work.
Teamwork
We value our people and consider their success as our own. This is why
we provide them with the support, responsibilities, and opportunities
that will allow them to develop individually and with the company.
Love for Country
We actively partner with the public sector so that we can provide even
more Filipinos with water solutions that will spur national development
and secure the environment.
Ch
an
gin
g T
ide
s
3
year 2012 at a glance
Net Income in billion pesos
9% Change
6% Change
7% Change
Billed Volume in million cubic meters
Number of Billed Services
2011
2011
2011
5.86
404.73
1,005,350
6.39
428.42
1,073,508
2012
2012
2012
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
4
Average Non-Revenue Water (%)
24-hour water availability (%)
Water pressure over 7 psi (%)
10% Change
14% Change
4% Change
2011
2011
2011
47.8
84
96
43.4
96
100
2012
2012
2012
Ch
an
gin
g T
ide
s
5
milestones
JANUARYMaynilad marks its 5th year of re-privatization•The combined sewerage interceptor project in Paco, Manila, is •completed.
The primary line along Marcos Alvarez in Las Piñas is energized •after gaps are filled in the network.
FEBRUARYMaynilad wins five Anvil Awards for its communications tools •and programs implemented in 2011.
The NRW management programs of Maynilad are presented •during the Water Loss 2012 Conference.
MAYMaynilad and the LLDA sign an agreement to implement •watershed restoration activities in Muntinlupa.
The Patindig Araw Pumping Station in Imus, Cavite, is •energized.
Construction of Baesa Sewage Treatment Plant (STP) and •interceptor system is completed.
JUNEThe laying of the combined sewerage interceptor system for •Paltok STP is completed.
A new Samahang Tubig Maynilad (STM) community is •inaugurated at Sitio Bakal, Quezon City.
North Caloocan Business Area passes the first surveillance •audit of its ISO 9001, ISO 14001 and OHSAS 18001.
SEPTEMBERMaynilad starts rehabilitation of Ipo Dam facility.•
OCTOBERMaynilad’s Water Service Transformation program is conferred •the Global Honour Award.
Land Bank of the Philippines, MWCI and Maynilad sign a •subsidiary loan agreement for the Metro Manila Wastewater
Management Project.
Maynilad formally takes over the operations of Philippine •Hydro, Inc. (PhilHydro).
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
6
JULYMaynilad’s Water Service Transformation Program wins in the •Project Innovation Awards (Asia Pacific).
The construction of an STP at A. Samson in Quezon City is •completed.
Maynilad launches its new Corporate Vision, Mission, and •Values statements.
DECEMBERMaynilad’s first Sustainability Report for year 2011 receives a •GRI check level B.
The Human Resources Division passes the certification audit •for ISO 9001.
DOLE confers three “Secretary’s Awards of Distinction” to •Maynilad during the 8th GKK Awards.
MARCHMaynilad and the DENR lead the World Water Day celebration •at the Quirino Grandstand, Manila.
DDSSTP passes the recertification audit of its OHSAS 18001 and •surveillance audit of ISO 9001 and ISO 14001.
The Pagcor Pumping Station discharge line is energized, •improving service levels in the south.
APRILMaynilad wins as overall champion of the MVP Olympics for the •second straight year.
The installation of a primary line along Tirona Highway •increases coverage in Bacoor, Cavite.
AUGUSTThe water distribution system of Maynilad is awarded ISO •9001, ISO 14001 and OHSAS 18001 certifications.
Due to heavy rainfall, turbidity of raw water supply from Angat •Dam increases to 1,200 NTU.
Construction of wash-and-drink stations for 40 public schools •in the West Zone is completed.
NOVEMBERTwo Maynilad communications initiatives are declared Finalists •at the 11th Philippine Quill Awards.
MWIC and Manila Water Consortium sign a Share Purchase •Agreement to implement the Carmen Bulk Water Supply
Project.
Maynilad is hailed as Overall Winner in the Drinking Water •Safety Awards.
Ch
an
gin
g T
ide
s
7
LETTERFROM THECHAIRMAN
LETTERFROM THECHAIRMANManuel V. Pangilinan
Chairman
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
8
The year 2012 marks the end of
our transformation phase.
In a span of five years, we
implemented an aggressive
water service rehabilitation
program that is now delivering
unprecedented improvements
to our customers. We also
engineered a dramatic corporate
turnaround that has resulted in
our strong financial position.
Whilst we take great pride in
what we have accomplished,
we must also acknowledge the
immense challenges that lie
ahead of us.
The rate of growth in new
connections and billed volume
are starting to slow down, as we
approach the saturation point of
our coverage and begin to service
the lower income segments of our
market. In that light, we need to
identify new opportunities that
will drive the value and social
impact of our Company, and ride
the changing tides, so we can
continue delivering world-class
water services to those who need
it most.
Against Organizational Inertia
Successful companies have a
natural tendency to preserve
gains by holding on to current
routines. Having exclusive rights
over a service area could drive
this tendency towards corporate
inertia. But Maynilad is an
exception to this orthodoxy.
This year, we challenged our
people to go beyond their
comfort zones by redefining who
and what we are as a Company.
We believe that a change in
our motivation and mindset
will enable us to resist such
organizational inertia. From being
a basic service provider, we now
envision ourselves as the leading
water solutions company in the
Philippines, with a strong presence
To all our Stakeholders,
Ch
an
gin
g T
ide
s
9
in the Philippines and eventually,
in certain parts of Asia.
We want our people to capitalize
on their newfound expertise in
non-revenue water management,
water supply operations and
wastewater management,
so that Maynilad can deliver
safe, sustainable water to even
more areas. And to create
lasting shared value among our
stakeholders, we urge our people
to embody the values of Honesty
and Integrity, Customer Service,
Entrepreneurship, Commitment to
Excellence, Teamwork and Love
for Country.
Beyond our Zone
In the fourth quarter of 2012, we
expanded our business coverage
beyond the West Zone of Metro
Manila.
We took over the operations of
Philippine Hydro, Inc. (PhilHydro),
a private water company that
directly and indirectly serves
around 30,000 water service
accounts in various areas in
Luzon.
This early, we are studying how
the operations of PhilHydro can
be improved and expanded so
that more communities in Bulacan,
Legazpi City, Nueva Vizcaya and
Nueva Ecija can have access
to piped-in water supply. We
recognize the strategic value of
this company and look forward to
unlocking its full potential.
Maynilad will also serve as the
technical partner of Metropac
Water Investments Corp. (MWIC)
in all Visayas-based water
ventures that are currently under
consideration.
MWIC acquired a 39% stake in
the Manila Water Consortium
that will develop and manage the
Cebu Bulk Water Supply Project.
As technical partner, Maynilad
will jointly supervise, with Manila
Water, the Cebu bulk water
operations which will last for a
period of 30 years, and renewable
for another 25 years.
We believe that this will be just
one of many other technical
partnerships between Maynilad
and MWIC.
let
ter
fr
om
th
e c
ha
irm
an
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
10
Board Movements
Mr. Augusto Palisoc Jr. stepped
down as Board Director effective
December 21, 2012. He leaves after
serving Maynilad for more than
a year. I would like to extend the
Board’s gratitude to Mr. Palisoc
for his many contributions to our
Company.
Taking over the position of Mr.
Palisoc is Atty. Marilyn Victorio-
Aquino. She brings with her
considerable experience
in matters of law, banking,
infrastructure, finance and
investments. Atty. Aquino
will definitely be an asset to
the Board, especially at this
time when Maynilad is facing
regulatory challenges and
pursuing investment opportunities
outside the West Zone.
Changing Tides
The men and women of Maynilad
have done a tremendous job
of fortifying the foundation
of our Company. I would like
to thank them for their hard
work, dedication and personal
sacrifices.
More than our modernized water
infrastructure, it is really our
human capital which remains our
most valuable investment. In the
same way that the Board relied on
our people to transform Maynilad
in the past, we will continue to
rely on our people to take us
forward in the face of formidable
challenges ahead.
Though the coming years will
be more difficult than the past,
I am confident that our people
will enable Maynilad to ride
successfully the changing tides of
the future.
Manuel V. Pangilinan
Chairman
Ch
an
gin
g T
ide
s
11 PRESIDENT’SREPORT
PRESIDENT’SREPORT
Victorico P. Vargas
President & CEO
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
12
Despite the challenges that
marked 2012, we delivered
positive financial results to our
shareholders and sustainable
service improvements to our
customers.
Aside from delivering high
quality, 24-hour water supply at
an average pressure of 7 pounds
per square inch (psi), we were
able to expand our water service
coverage to 94.6% compared to
92.5% in 2011.
Growth Drivers
Maynilad focused its pipe-laying
activities to expand water
services to Las Piñas, Muntinlupa
and parts of Cavite. This, along
with network of Cavite. This,
along with network calibration
and water recovery efforts,
enabled us to increase our billed
services by 68,158 to 1,073,508
and improve water supply to the
rest of our concession area, such
as in Malabon and several areas
in Quezon City.
With improved water availability,
the number of people who
receive their water at the
average pressure of 7 psi likewise
increased from 96% last year to
99.8% in 2012.
As a result of these service level
improvements, our billed volume
for the year rose by 5.8% to
428.42 million cubic meters. This
growth was sustained despite an
effective 2.3% reduction in our
water supply. The improved billed
volume, together with a 9.2%
increase in average effective
tariff in spite of its delayed
application, pushed our revenues
to P15.40 billion.
Network Improvements
A total of two new reservoirs
and three pumping/booster
stations were completed in 2012,
which facilitated our service
expansion and supply reliability
efforts. We also laid a total
of 234 kilometers of pipelines
despite challenges in obtaining
Dear Stakeholders,
Ch
an
gin
g T
ide
s
13
rights-of-way and construction
permits. While these challenges
resulted in considerable delays
in our project execution, we were
still able to implement these
infrastructure projects for our
customers.
Meanwhile, our non-revenue
water (NRW) level maintained
its downward trend as we
relentlessly implemented our
water recovery strategies. We
completed 100% District Metered
Areas (DMA) coverage in the
West Zone, a milestone that
will enable us to better monitor
and control supply distribution.
Simultaneous with this initiative,
we repaired over 46,300 leaks
in the system and replaced more
than 107,000 old meters and
160.5-kilometer pipe segments.
These accomplishments enabled
us to reduce our average NRW to
43% compared to last year’s 48%.
In effect, we were able to recover
around 120 million liters per day
(MLD) of potable water, which
served as additional supply for
our expansion areas.
Wastewater Management
In line with our commitment
to reduce the pollution load
in the major water systems in
the West Zone, we completed
the construction of six Sewage
Treatment Plants (STPs) in
Quezon City. These wastewater
facilities have a combined
wastewater treatment capacity
of 23.8 MLD.
We also laid 15 kilometers of
sewer lines within the Tandang
Sora, Bahay Toro, San Antonio
and Paltok catchments in Quezon
City. With these additional
wastewater infrastructure, we will
enhance our capacity to collect
and treat wastewater in our
concession area.
In the Pipeline
In 2013, we aim to bring down
NRW levels to an average of 38%,
and grow 24/7 availability of
water with average 7 psi pressure
to 100%. We will continue to
improve our network to be more
efficient and connect 60,000
new customers.
With the completion of our
DMAs, our next step is to
automate these DMAs so data
pres
iden
t’s
rep
ort
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
14
acquisition becomes faster
and more accurate. This is
part of Maynilad’s “automation
masterplan,” which will cover all
vital facilities, starting with the
local automation of 14 pumping
stations.
Financially, we will look to
refinancing our existing P22
billion debt, and raise P5 billion
in long-term loans to fund our
CAPEX. We will also work closely
with World Bank to buttress
our investments, specifically in
building STPs.
Challenges Ahead
The rate rebasing process has
been delayed and is foreseen to
extend until the third quarter of
2013. This would mean delayed
tariff adjustments. We are
focused on ensuring a favorable
result from the exercise, as
the attainment of our service
targets will depend on the
implementation of the new tariff.
Suffice to say, these are exciting
times. And despite our regulatory
challenges, we remain optimistic
of the opportunities ahead.
As we face the challenges
ahead of us of being more
efficient in light of the
regulatory and operational
risks, we will continue to rely
on our employees who have
courageously and passionately
served our customers through
the years.
More than gratitude, our people
have the admiration and
support of the Board and the
Top Management Team. We
commit to providing them with
the opportunities and resources
they need to continue providing
world-class water services to
our customers.
Victorico P. Vargas
President and Chief Executive Officer
Ch
an
gin
g T
ide
s
15
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
16
key figures
StrategieS for growthIn the first five years of Maynilad after re-privatization, Management implemented a
five-pronged strategy that successfully lifted the Company from rehabilitation mode and
transformed it into a viable enterprise. Year 2012 was a period of transition as Maynilad
focused on putting in place long-term programs and strategies that are expected to
preserve our momentum, based on an evaluation of indicators for the previous five-year
period.
For 2013 onwards, we intend to continue investing in the following key growth areas to
sustain our string of successes, secure the Company’s future, and make high-value services
available to more people.
2007 2008 2009 2010 2011 2012*
Financial Performance (in Billion Pesos)
Revenue 7.38 8.24 10.62 12.05 13.77 15.88
Net Income 1.67 1.99 2.82 4.78 5.86 6.39
Core Net Income 1.68 2.32 3.46 4.84 6.01 6.81
Core EBITDA 4.16 4.98 6.97 7.91 9.39 10.87
Core EBITDA Margin (%) 56 60 66 66 68 69
Assets 24.46 34.75 38.18 42.59 55.21 61.30
Liability 27.70 33.81 34.42 34.65 42.88 44.58
Equity -3.24 0.94 3.76 7.94 12.33 16.73
Operating Highlights
Billed Volume (mcm) 286.86 315.19 350.23 373.84 404.73 428.42
No. of Billed Water Services 703,519 762,319 814,645 903,682 1,005,350 1,073,508
Water Service Coverage (%) 80.5 82.0 85.6 87.7 92.5 94.6
Non-Revenue Water (% ave.) 66 64 60 53 48 43
Volume of Water Recovered, EO (mld) 7 (28) 86 268 155 120
Pipes laid to date (km.) 4,894 5,579 6,020 6,476 6,851 7,085
CAPEX spent (in Million Pesos) 3,085 6,629 4,504 7,873 9,035 6,698
Employees per ‘000 connections 3.3 2.4 2.5 2.4 2.2 2.1
Customer Service Improvements
24-hour water service (%) 46 58 65 71 84 96
Min. water pressure of 7 psi (%) 53 67 79 86 96 99.8
Expansion Continue extending water pipes to the south where West Zone residents are still not connected to Maynilad’s network
Convert large accounts from deep well to Maynilad surface water
Look for business opportunities in provinces adjacent to PhilHydro’s coverage area.
Facilitate negotiations for Share Purchase Agreement with Olongapo City on Subic Water
Leverage on Non-Revenue Water management expertise to establish partnerships with other Asian countries
Operational Efficiencies Use of energy-efficient technologies in vital facilities such as pumping stations
Automation of District Metered Areas for speedier acquisition of field data
Maximize Information Technology for more streamlined business processes, faster access to vital data, and easier collaboration among operating units
Tap technologies that will enhance Call Center response to incoming calls from customers
Establish Integrated Management System in other Maynilad facilities
Wastewater Management Commission all Sewage Treatment Plants in the San Juan River Basin Area
Construct septage treatment plant in the south
Implement wastewater plan in the West Zone to reach 27% sewerage coverage by 2016
People Continue enhancing technical competencies of employees, which will be vital for securing water contracts or consultancy services in areas outside the West Zone
*The 2012 numbers on the Key Figures table refer to consolidated numbers.
Ch
an
gin
g T
ide
s
17
New Facilities Built
Some P6.7 billion was spent this
year for CAPEX. Among the water
infrastructure improvements
done in 2012 were the laying of
234 kilometers of new primary,
secondary and tertiary pipelines.
Substantial progress was made
in the laying of the 5.47-kilometer
line along Daang Hari in
Muntinlupa. Meanwhile, 3.87
kilometers of the 7.04-kilometer
primary distribution system at
Mambog, Molino and Bayanan in
Bacoor was done.
The portion of the pipeline that
extends to Imus, particularly in
OperatiOnalHiGHliGHtS
The positive transformation of the West Zone continued in 2012 as Maynilad implemented the capital expenditure (CAPEX) projects that will extend water services to the south, reduce water losses, and enhance operational efficiencies.
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
18
Buhay na Tubig and Malagasang,
could not be completed due
to some right-of-way and
permitting issues. These delays
notwithstanding, Maynilad still
managed to add 68,158 to its
billed services, as well as increase
its billed volume by 23.68 million
cubic meters (MCM) from the
previous year.
The Company has been looking
to increase its water-holding
capacity to improve supply
reliability. Towards this end, two
reservoirs were built in Caloocan
this year. These new facilities
combined can hold 7 million liters
of water, giving Maynilad the
flexibility to store water during
off-peak hours so it has supply to
release during peak demand.
Maynilad also commissioned
this year three pumping/booster
stations (North C, Patindig Araw
and Marcos Alvarez) to support
service expansion efforts.
Besides the construction of new
facilities, the Company also
applied measures to maximize
the use of existing ones. The
Bagbag Reservoir is a major
impounding facility for potable
water that serves the Central A,
Central B and South Districts.
Ch
an
gin
g T
ide
s
19
An operation tool was developed
to anticipate the behavior of
this facility based on projected
demand in the distribution
system and the dictated
production pattern.
This allowed the Company to
fill up the reservoir to its full
capacity. In effect, Maynilad’s
storage capacity was increased
by 140 million liters, and service
level to Bagbag Reservoir’s
influence area also improved.
Sustained Downtrend of NRW
Water losses in the West Zone
continued to go down as
Maynilad relentlessly pursued
its Non-Revenue Water (NRW)
reduction program.
ope
ra
tio
na
l h
igh
lig
ht
s
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
20
A total of 441 District Metered
Areas (DMA) were established
this year, bringing total DMAs to
1,271. This provides 100% DMA
coverage in the entire concession
area. With all DMAs established,
the Company can better monitor
and control supply distribution,
as well as measure NRW in each
hydraulic area.
Simultaneous with this initiative,
Maynilad replaced more than 160
kilometers of primary, secondary
and tertiary lines. Most of these
pipe replacement activities were
done in Malabon and Parañaque.
Also, over 46,000 pipe leaks were
repaired in different areas to
curb physical losses. Addressing
commercial losses, meanwhile,
is the continued replacement of
defective meters and installation
of new ones, including the
metering of fire hydrants for
enhanced supply measurement
capabilities.
Owing to these efforts, average
NRW in the West Zone was at
43.4% by 2012—down from 48%
in the prior year. This reduction
in water loss represents about
120 million liters per day (MLD)
of recovered supply, which
was thereafter reallocated for
expansion areas.
2006
6866
6460
53
48
43
201220112010200920082007
Average NRW %
NRW Reduction Highlights in 2012
DMA Establishment
100% DMA coverage by third •
quarter of 2012
603 of 1,271 have been •
automated
Leak Detection
231 underground leaks on •
primary lines detected
6,679 underground leaks on •
secondary and tertiary lines
detected
Leak Repair
320 primary line leaks •
repaired
45,988 leaks in secondary, •
tertiary, service pipes and
verticals repaired.
Selective Pipe Replacement
Over 160.5 km. of primary, •
secondary and tertiary lines
replaced
Meter Management
106,000 small meters replaced•
1,007 large meters replaced•
464 electromagnetic meters •
installed
312 fire hydrants metered•
Over 175,000 meters tested•
Pressure Management
195 pressure-regulating valves •
installed
468 pressure monitoring •
points constructed
Ch
an
gin
g T
ide
s
21
Wastewater Management
The construction of six Sewage
Treatment Plants (STP) under
the San Juan River Basin Project
was completed this year, further
enhancing Maynilad’s capacity to
treat wastewater generated by
customers. The STPs completed
in 2012 are in Legal, Grant, San
Antonio, Bahay Toro, Paltok, and
Tandang Sora.
These newly built STPs—along
with those in Baesa and
Congressional completed in the
previous years—constitute eight
of the 15 STPs being constructed
for the San Juan River Basin
System under the Quezon
City catchment. Maynilad is
prioritizing this area because its
tributaries empty directly into
the Pasig River and Manila Bay.
Along with the construction of
these facilities is the laying of
their accompanying conveyance
systems, as well as the
installation of new sewer service
connections (NSSC). A total of
1,506 accounts were connected
to Maynilad’s sewer network this
year. Most of these NSSCs are
located in Central Manila and
Ayala Alabang.
ope
ra
tio
na
l h
igh
lig
ht
s
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
22
*Ayala STP is not operated by Maynilad**Population served inside Magallanes Village
Meanwhile, after nearly three
years of preparation, Maynilad
finally closed the US$137.5-
million World Bank-funded loan,
which will be used to support
investments in wastewater
collection and treatment, and
septage management.
Of the 15 STPs under Maynilad’s
San Juan River Basin Project,
the one to be constructed at
Talayan will be funded by this
loan, as the rest are funded by
the Company’s CAPEX funds.
Other projects that would
benefit from the World Bank loan
include the construction of new
STPs in Valenzuela, Muntinlupa,
and Pasay; rehabilitation of the
Alabang STP; and construction of
a Septage Treatment Plant in the
south.
The four new STPs that will be
funded by this loan will have a
treatment capacity of about 197.5
MLD, and will serve a population
of more than one million in
Quezon City, Pasay, Valenzuela
and Muntinlupa.
Sewerage System Treatment Facility Capacity(cu.m./day)
Treatment Type Population Served Sewer Line Length(liner meter)
Central Manila Tondo Sewage Pumping Plant
432,000 Primary Treatment 587,000 342,563
Dagat-dagatan
Dagat-dagatan STP 26,000 Conventional Lagoon 18,700 72,479
Dagat-dagatan Septage Treatment
Plant
450 Dewatering (Screw Press)
- -
Makati Isolated System
Ayala STP* 40,000* Activated Sludge* 7,700** 10,413
Alabang Alabang STP 10,000 Conventional Activated Sludge
28,500 55,597
San Juan River Basin
Congressional STP 570 Sequencing Batch Reactor
4,451 3,306
Baesa STP 390 STM Aerotor 3,334 419
Legal STP 410 Sequencing Batch Reactor
5,359 4,648
Existing Wastewater Facilities by 2012
Maynilad finally closed the US$137.5-million World Bank-funded loan, which will be used to support investments in wastewater collection and treatment, and septage management.
Ch
an
gin
g T
ide
s
23
Improved Efficiency
through Automation
With most of the vital infrastructure
in place, Maynilad’s next step is to
enhance operational efficiencies
to further manage costs and
streamline processes. Automation
played a key role in this initiative.
Year 2012 saw the initial
implementation of a six-year
program involving the adoption of
SCADA (Supervisory Control and
Data Acquisition) to monitor and
control Maynilad facilities. SCADA is
a computer control system that will
be used for the central supervision
of supply operation.
The SCADA system was piloted in
the Putatan Water Treatment Plant
and Pasay Pumping Station this
year, with the goal of eventually
adopting the technology to
automate operations in all
treatment plants and pumping
stations. At its initial phase of
application, the system is being
utilized for remote monitoring and
data acquisition. It will later be
used to control facilities remotely.
Using SCADA is expected to
reduce operational costs, enhance
efficiency, and prepare facilities for
future expansion.
Complementing the SCADA system
is the Telemetry system, which
centralizes data acquisition and
monitoring of the different field
facilities throughout Maynilad’s
distribution system. Telemetry’s
innovative architecture allows
for the gathering of data from
different sources—of varying
locations and file formats—and its
storage in a centralized database.
Reports are generated in standard
templates for concerned personnel.
By providing Maynilad employees
with reliable information, better
services can be given to customers
through more efficient and
effective operations.
ope
ra
tio
na
l h
igh
lig
ht
s
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
24
At the front end of the Telemetry
system is the “FieldMOUS” (Field
Monitoring User System) program,
which is the main technology for
monitoring vital field data in a
compact manner. It is envisioned
to provide up-to-date operations
data, such as production levels
and daily supply averages
for each Business Area, thus
improving response time in case
of emergencies. This innovation
likewise provides employees a
macro-level picture of company
operations, which enhances their
understanding and appreciation of
the business.
All pumping stations will also
have their own FieldMOUS site
page showing pump operations
and reservoir levels. The Pasay
Pumping Station served as pilot
facility for this program. Likewise,
other facilities such as treatment
plants, hydraulic system gauging
points, pressure points, and deep
wells will have dedicated site pages
for monitoring operations data.
Large LED monitors for viewing the
FieldMOUS web site pages will be
deployed in the different offices
of Maynilad, for the benefit of
employees engaged in operations.
In the coming years, all vital
information regarding operations
in Maynilad will be integrated with
the Telemetry system and made
viewable through FieldMOUS.
Meanwhile, Maynilad equipped
its new pumping stations—such
as North C inside the La Mesa
Compound and Pagcor Pumping
Station in Parañaque—with
Variable Frequency Drives (VFD)
and high-efficiency electric motors.
VFDs are electronic controllers
that adjust the speed of an electric
motor, allowing the modulation
of pump speed and flow rate
according to actual demand. Aside
from cutting power consumption,
VFDs lessen mechanical and
electrical stress, which reduces
maintenance and repair costs.
Ch
an
gin
g T
ide
s
25
Technology
In the latter half of 2012,
Maynilad began operating a
meter laboratory for the regular
testing of residential, commercial
and industrial water meters.
The facility is the first of its
kind in Southeast Asia capable
of testing large meters up to
300 mm in size. It is equipped
with a cutting-edge meter test
bench, which determines meter
accuracy by comparing the
volume of water flowing into
the meter with the registered
reading. The investment enabled
the Company to save on meter
testing costs while providing
personnel the opportunity to
build highly advanced skills in
meter management.
Resources were also channelled
toward improving the functions
of the Geographic Information
System (GIS) department,
which manages a database of
all geographically referenced
information such as pipe locations.
The department deployed
personnel to the different
Business Areas, devolving some
of its functions on the ground
ope
ra
tio
na
l h
igh
lig
ht
s
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
26
for better service efficiency. To
support this devolution, the data
repository—which used to allow
only one access at a time—was
opened to multiple users with
multiple access levels. Now, there
are over 40 authorized users who
can access and edit the data in
real time.
In the same year, Maynilad
also acquired 12 units of
Global Navigation Satellite
System (GNSS) and 10 units
of Electronic Total Station
(ETS). GNSS technology, more
commonly known as GPS or
Global Positioning System,
connects and receives signals
from satellite systems that
are currently in operation and
assigns coordinates to any
point on the earth’s surface. The
ETS, on the other hand, is the
more traditional method of land
surveying. ETS complements the
GNSS, especially for urban areas
like the West Zone where GPS
technology has its limitations.
Maynilad’s ETS units use laser
technology to measure distance,
as well as to observe and record
the location of a particular asset.
These two sets of new technology
work together to make field
surveying, data gathering,
project management, NRW
management, right-of-way
and facilities mapping, and the
mapping of all other Maynilad
assets more accurate and
efficient for field personnel.
In the area of information
system improvements, Maynilad
contracted the services of
Fujitsu to perform a gap analysis
between best industry practices
and the Company’s current
SAP business processes. This
analysis will form the basis for
the next reconfigurations of
SAP for the next five years. The
first set of configurations was
applied to Finance and Materials
Management during the last
quarter of 2012, and the resulting
design will streamline many of
Maynilad’s finance and logistics
processes.
The investment enabled the Company to save on meter testing costs while providing personnel the opportunity to build highly advanced skills in meter management.
Ch
an
gin
g T
ide
s
27
Business Expansion and
Development
Within the West Zone, the
Company is able to pursue
expansion through the laying of
pipelines in still-unserved areas
and the conversion of deep
well-using subdivisions and
establishments from groundwater
to Maynilad piped-in surface
water. A total of 128 deepwells
operated by establishments was
closed in 2012, contributing some
2 million cubic meters (MCM) to
the year’s billed volume.
These expansion efforts resulted
in the increase of Maynilad’s billed
services by 6.8%, from 1,005,350
in the prior year to 1,073,508.
Maynilad also began setting
its sights on the possible
establishment of businesses
outside the West Zone. Year 2012
marked the Company’s first such
move when it signed the Share
Purchase Agreement for 100% of
outstanding shares of the private
water company Philippine Hydro,
Inc. (PhilHydro) in August 2012,
effectively taking over operation
and management of four water
treatment plants in several areas
of Luzon.
ope
ra
tio
na
l h
igh
lig
ht
s
1,073,508
2012
1,005,350
2011
903.682
2010
814,645
2009
762,319
2008
703,519
2007
Increase in Maynilad billed services
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
28
PhilHydro holds 25-year bulk
water supply contracts with
Legazpi City Water District in
Albay, Norzagaray Water District
and Santa Maria Water District
in Bulacan, and the municipality
of Bambang, Nueva Vizcaya. It
is also the water supplier and
distributor for the municipality
of Rizal, Nueva Ecija. At the time
of the acquisition, PhilHydro
was servicing—directly and
indirectly—over 30,000
customers in these areas,
supplying 29,000 cubic meters of
potable water daily.
The year also saw Maynilad
entering the Visayas and
Mindanao areas through a Share
Purchase Agreement between
Metropac Water Investments
Corp. (MWIC)—a subsidiary of
Metro Pacific Investments Corp.—
and the Manila Water Consortium
to implement the Carmen Bulk
Water Supply Project. Maynilad is
MWIC’s technical partner in this
venture, which will deliver 35 MLD
of water to Metro Cebu Water
District. Among the localities that
will benefit from the project are
the cities of Mandaue and Lapu-
Lapu, and the municipalities of
Compostela, Liloan and Cordova.
Ch
an
gin
g T
ide
s
29
Human Resources
Maynilad officially adopted a new
set of Vision, Mission and Values
statements in 2012 to support
the shift in corporate direction
from “basic service provider” to
“total water solutions company”—
one that addresses the water
requirements of people who need
it, whether in the form of technical
consultancy services, operations
expertise or strategic partnerships.
To get everyone in the
organization on board, the
Human Resources (HR) Division
launched the HR+ Program. It
sought to inform employees
about the Company’s goals,
investments, financials and
performance measures,
consequently enhancing
awareness of their individual
impact to business growth.
The program also involved the
holding of training sessions on
values, job performance, technical
proficiency, and leadership
qualities, all meant to encourage
employees to lead the Company
toward growth and innovation.
Meanwhile, HR facilitated the
development of scorecards
that ensure each division’s key
result areas support corporate
objectives. In this way, employee
performance and evaluation are
aligned with the business strategy.
HR continued this year the
review of the organization and
made realignments to promote
efficiencies and enhance
accountability. Under the Program
Management (PM) Group, the
roles responsible for project
planning and monitoring were
consolidated. The functions of
Telemetry were also rationalized,
improving data traffic from water
source to network. Likewise, the
materials testing function was
transferred from PM to Corporate
Quality, Environment, Safety and
Health to enhance accountability
on quality control of materials for
infrastructure projects.
ope
ra
tio
na
l h
igh
lig
ht
s
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
30
Service for Customers
In the past years, Maynilad has
been developing several channels
by which it can communicate
with customers besides its 24/7
Hotline 1626. Among those already
available are the infoboard
service “Text Tubig” (initially for
Smart subscribers only) and
the Customer Service Helpdesk
email. Through these means,
customers can receive water
service advisories and pull other
useful information such as service
application requirements. They
can also directly send feedback
and requests to Maynilad.
The Company is now also
into its second year of full
implementation of the “Read
and Bill” project, which involves
the use of technology for the
immediate printing and issuance
of water bills after the meter is
read. This project effectively
reduced complaints on delayed
bill deliveries.
Customer Classification
Number
Residential 971,431
Semi-Business 41,490
Commercial 51,343
Industrial 9,244
TOTAL 1,073,508
To further make the receiving of
bills more convenient, Maynilad
initiated in 2011 the issuance of
Electronic Statement of Accounts
(E-SOA) to requesting customers.
Sending out E-SOAs eliminates
the need for printing, thus saving
on paper cost. Hence, should
these customers eventually opt
for E-SOAs in lieu of printed bills,
Maynilad will issue them only the
electronic copies.
These initiatives, along with the
inclusion of more accredited
payment facilities, helped boost
Maynilad’s collection efficiency
from 94% last year to 96% in 2012.
These initiatives, along with the inclusion of more accredited payment facilities, helped boost Maynilad’s collection efficiency from 94% last year to 96% in 2012
Ch
an
gin
g T
ide
s
31
Financial Review and analysis
Revenues
Combined revenues from water
and sewer services for 2012 grew
15.6% to P15.40 billion from P13.32
billion last year. The increase in
revenues was due to the combined
effect of the 5.8% increase in
billed volume coupled with a 9.2%
increase in average effective tariff.
At the start of the year, the
approved basic tariff increase
for 2012 was approximately 9.6%
composed of an inflationary
increase of 4.6% and a
temporarily reduced rebasing
increase of 1.3%, combined with
a hike in environmental charges
from 16% to 20% of the basic
water tariff. The temporary
reduction in the rebasing
increase was meant to mitigate
the impact of tariff increases to
the general public. In August, the
full rebasing increase was finally
implemented, effectively raising
the total approved increase for
the year to around 13.3%.
The effective rate increase for
the year was dampened, not only
by the deferred implementation
of the higher rate until August,
but also by the higher proportion
of billed volume growth coming
from domestic consumption
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
32
whose rates are subsidized by
non-domestic or commercial
and industrial accounts. As a
percentage of volume, domestic
customers accounted for 79.07%
of total compared to 78.49%
in the same period last year.
Furthermore, due to Maynilad’s
volumetric tariff table, even
within the same customer
categories, the lower the average
consumption of each customer,
the lower the average tariff per
cubic meter consumed.
Total revenues from operations,
including other fees and services
such as installation fees,
amounted to P15.83 billion, a
15.0% increase from P13.77 billion
last year.
Operating Expenses (OPEX)
A. Cash OPEX
Total cash OPEX increased by
16.5% to P4.63 billion versus
P3.98 billion last year. The four
largest cost elements accounting
for almost 73% of total cash
expenditures continue to be
personnel cost, light and power,
outside services, and repairs and
maintenance.
Ch
an
gin
g T
ide
s
33
The largest cost element,
personnel costs, increased 15.4%
to P1.78 billion. This growth rate
was partially dampened by the
impact of last year’s Special
Opportunity Program (SOP)
amounting to P100 million that
reduced headcount by 169
employees. Excluding the impact
of last year’s SOP, personnel
costs would have grown by
a 23.0%. Although headcount
grew by a marginal 2.2% to 2,251
employees by the end of the year,
an average salary increase of
approximately 10%, leveling of
benefits to industry standards,
and provisions for long-term
incentives contributed to the
higher growth.
Light and power grew 16.7%
to P691 million caused by the
combined effect of a higher
average power rate of 8.6% and a
7.5% increase in kilowatt-hour use
as a result of increased network
pumping activities in order to
deliver water to new customers
in the south, particularly the
operation of a new 23-million liter
pumping station and reservoir
located in Pagcor city that only
began operation this year.
Outside services increased 29.9%
to P482 million mainly due to
the outsourcing of Information
Technology (IT) services to Indra
beginning July 2011 and the full
implementation of “read-and-bill”
services across all the Business
Areas starting this year. Repairs
and maintenance grew 49.4%
to P421 million due to increased
leak repairs as the Company
improved service levels, and
increased water availability and
pressure throughout the network.
Excluding these four main
items, all other cost elements
accounting for 27% of total cash
operating expenses increased
by only 6.3% compared to the
same period last year. Driving the
growth in these other expenses
were primarily real estate and
business taxes which grew 17.5%
to P104 million as a result of the
growth in concession assets, and
professional fees related to new
business development activities
which increased by 92.4% to
P102 million. Excluding these
two additional cost elements,
all other expenses showed flat
growth versus last year.
fin
an
cia
l r
evie
w a
nd
an
aly
sis
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
34
B. Non-Cash OPEX
Under IFRIC 12, all property plant
and equipment (PP&E) defined
as parts of the network are
considered intangible assets.
These are no longer depreciated
but are instead amortized over
the life of the concession similar
to concession fees. Service
concession assets (composed
of concession fees and network
PP&E) are considered intangible
assets and are amortized using
the straight-line method instead
of projected volume as previously
practiced.
Total non-cash operating
expenses increased by P271
million or 14.6% to P2.13 billion
from P1.86 billion last year. Due
to the Company’s continuing
capital expenditure program,
amortization of service
concession assets increased
27.3% to P1.82 billion from
P1.43 billion in the prior year.
Dampening the increase was
the lower provision for doubtful
accounts due to the assessed
sufficiency of existing reserves
compared to actual collection
efficiency.
At the end of the year, the
Company determined that the
unit-of-production (UOP) method
of amortizing service concession
assets is now the more
appropriate method instead of
using the straight-line basis given
that the economic benefit of the
service concession assets are
more closely aligned with billed
volume, which the Company
can already estimate reliably.
Beginning 2013, the Company
would thus apply the UOP
method of amortizing its service
concession assets. This resulted
in a non-recurring write-down of
deferred tax assets as discussed
in the next section.
C. Non-Recurring Income
and Charges
Due to the adoption of the
UOP method of amortization
discussed above, approximately
P469.5 million of deferred tax
assets would have to be written
off as these would no longer
be realized due to the lower
amortization expense within
the income tax holiday than
previously projected.
Ch
an
gin
g T
ide
s
35
fin
an
cia
l r
evie
w a
nd
an
aly
sis
Another one-time charge taken
during the period is the write-
down of approximately P328.5
million in capitalized debt issue
costs related to the Company’s
existing P22 billion debts that
it plans to refinance on a clean
basis during the first quarter of
2013. This amount is included in
the year’s interest expense.
Partially offsetting these one-
time charges is other income
representing the reversal of
accrued interest related to
the disputed claims that the
Company believes will no longer
materialize. The net result of all
these one-time charges is a
reduction to reported net income
amounting to P419.8 million,
which will be added back to
reported net income to get the
core net income, as shown in the
next section.
Net Income
Income from operations for 2012
improved by 14.3% to P9.07 billion
from P7.94 billion last year. Net
income grew at a lower rate of
9.0% to P6.39 billion from P5.86
billion in the prior year, due to
higher interest expense as a
result of the higher loan levels
for the year compared to 2011
when a new P7-billion loan had
been drawn in two tranches, as
well as the non-recurring charges
mentioned in the previous
section.
Core net income for the period
amounted to P6.81 billion, a
growth of 13.3% from last year’s
core net income of P6.01 billion,
roughly in line with operating
income growth.
EBITDA
Earnings before Interest, Taxes,
and Depreciation (EBITDA) grew
17.0% to P10.83 billion versus
P9.25 billion last year, or a margin
of 68.4%. Core EBITDA growth is
lower at 11.2% due to the impact
of the reversal of provisions for
disputed claims.
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
36
Ch
an
gin
g T
ide
s
37
Balance Sheet
The major movement in
Maynilad’s asset accounts for
2012 compared to the end of
year 2011 was the P5.79 billion
net increase in concession assets
due to the Company’s continuing
capital expenditure program, and
the P517 million increase in other
non-current assets representing
the Company’s purchase of
Philippine Hydro, Inc. (PhilHydro),
a bulk water supply company
that currently sells bulk water
to the local water districts of
Legazpi in Albay, and Norzagaray
and Sta. Maria in Bulacan (see
next section for further details.)
Total liabilities increased by
P1.52 billion due to increases in
accounts payable related to the
increase in concession assets and
the acquisition of PhilHydro, offset
by payments of concession fees
and interest-bearing loans.
A cash dividend of P2.0 billion,
representing roughly 33% of last
year’s core net income of P6.0
billion, was paid in June. Despite
this reduction in the equity
account, total debt-to-equity
continued to improve from 78:22
at the end of 2011 to 73:27 at the
end of 2012.
Total assets at year-end
amounted to P61.13 billion, an
increase of 10.7% from the P55.21
billion recorded at the end of 2011.
Acquisition of PhilHydro
On August 3, 2012, Maynilad
and PhilHydro signed the Share
Purchase Agreement (SPA) for
the acquisition of 100% of the
outstanding shares of PhilHydro
by Maynilad. PhilHydro owns
and operates three plants that
supply treated bulk water to
the Legazpi City Water District
in Albay, Norzagaray Water
District and Santa Maria Water
District in Bulacan, and municipal
waterworks of Bambang, Nueva
Vizcaya. The company also owns
fin
an
cia
l r
evie
w a
nd
an
aly
sis
Total assets at year-end amounted to P61.13 billion, an increase of 10.7% from the P55.21 billion recorded at the end of 2011.
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
38
and operates the treated water
supply and distribution system of
Rizal, Nueva Ecija.
In 2011, PhilHydro’s year-end
gross sales totaled P107 million
and net income was at P24.3
million. The company has a total
plant capacity of 53 MLD and is
currently operating at around 26
MLD as shown in the table below:
Maynilad acquired PhilHydro for
P526.9 million. As of December
31, 2012, P213 million has been
paid. The balance is payable
contingent on the delivery of
certain conditions precedents
such as the delivery of specified
titles, permits, and government
rulings.
With the acquisition of PhilHydro,
Maynilad consolidated the
financial performance of its
wholly owned subsidiary
Production Capacity (mld)
Plant/Site Full 2011 2012
Legazpi,Albay
25.0 15.2 17.3
Norzagaray, Bulacan
24.0 5.7 7.3
Bambang, Nueva Vizcaya
2.5 07 0.8
Rizal,Nueva Ecija
1.5 0.4 0.4
53.0 21.9 25.8
beginning August 2012. During
the five-month period covered
under review, PhilHydro
generated revenues of P49
million and net income of P7.41
million. Compared to its stand-
alone performance, Maynilad’s
consolidated financials increased
marginally, with consolidated
revenues amounting to P15.88
billion. PhilHydro’s impact on
Maynilad’s consolidated net
income was marginal due to
eliminating entries, but increased
EBITDA by P14 million.
Similarly, accounting for
PhilHydro’s assets on a line-
by-line basis also resulted in
marginally higher total assets,
with consolidated assets
amounting to P61.30 billion.
Ch
an
gin
g T
ide
s
39
Residents of STM communities now have improved livelihood opportunities after being provided access to potable water from Maynilad.
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
40
Corporate SoCial
reSponSibility
As a company that provides a basic need,
the very nature of Maynilad’s business lends
itself toward the enhancement of living
conditions. The Company brings this public
service to a higher level through Corporate
Social Responsibility (CSR) programs that
not only improve accessibility to water and
sanitation services but also create livelihood
opportunities and enhance environmental
awareness.
Also in line with its effort to make a positive
impact in the country, Maynilad ensures
that sustainability is an integral part of
its operations. It constantly ensures that
vital facilities run efficiently so less power
is consumed and, consequently, carbon
emissions are minimized. The Company
likewise actively partners with government
agencies and other private companies in
watershed conservation activities, tapping
employee-volunteers to lend their assistance
to the effort.
These CSR programs and sustainability
initiatives embody the Company’s resolve
to contribute to social development and
economic progress.
Ch
an
gin
g T
ide
s
41
Improving Access
to Water Services
Every household should have
access to Maynilad services,
especially those that belong
to marginalized communities.
Several CSR programs give special
attention to the needs of certain
sectors of the populace, and adopt
schemes and methodologies
designed to facilitate the provision
of water and sanitation services.
Samahang Tubig Maynilad (STM).
This CSR program was developed
to address the problems of water
inaccessibility and irresponsible
water use in Maynilad’s concession
area. Under STM, residents of
urban poor communities are
organized and given competency
trainings to enable them to
manage the water supply delivery
system in their area.
Initially implemented in year
2009 at Barangay 123 in Tondo,
Manila, STM has since seen
implementation in other areas of
the West concession. As of 2012,
there are now 12 STMs servicing
2,683 low-income families.
Lingkod Eskwela. The problems
of poor and inadequate water
supply in public schools were
directly addressed by this
program, which provided
drink-and-wash stations for 126
beneficiary schools in the West
Zone since its inception in 2008.
Under the program, Maynilad
also provides septic tank cleaning
services and technical assistance
in the maintenance of campuses’
internal plumbing system. In
2012 alone, drink-wash stations
in 40 public schools were built,
each with an upgraded design
featuring child-friendly facts on
water and the environment.
An offshoot of this program
is Maynilad’s donation of
refurbished computers to
beneficiary schools. Ten
computer units were turned
over to Doña Juana Elementary
School, and six were given to
Payatas B Elementary School—
both in Quezon City. Prior to this
donation, the students of both
schools made do with only six
computer terminals shared by 50
students at a time.
co
rpo
ra
te
soc
ial
res
pon
sib
ilit
y
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
42
Also in line with Lingkod Eskwela
is Maynilad’s active involvement in
the Brigada Eskwela initiative of the
Department of Education, which
seeks to prepare public schools
for the start of school season. In
2012, Maynilad volunteers helped
to refurbish A. Mabini Elementary
School in Manila.
Maynilad sa Komunidad helpdesk
program. This is a customer
outreach program that aims
to make the Company more
accessible and responsive to the
needs of the poor. It involves the
establishment of helpdesks in
nearby barangay halls to provide
Maynilad customers in low-income
areas with “branch office” services
in a convenient, effective and cost-
efficient manner.
The program was piloted in six
Business Area offices (South
Manila/Pasay-Makati, Tondo,
Sampaloc, North Caloocan,
Parañaque and Novaliches-
Valenzuela), which set up 142
helpdesks inside the barangay
halls of selected communities.
With the Maynilad sa Komunidad
helpdesks, customers can just
go to their barangay halls
to transact in-person with
a Maynilad Zone Specialist.
They no longer have to travel
to the Company’s Business
Area offices for their water
service inquiries, complaints
and other concerns. As a result,
low-income customers save
on transportation costs, time
and effort, thus, lessening their
financial and physical burdens.
Poverty Alleviation
Through its services, livelihood
assistance, and participation in a
housing project, Maynilad offers
people in poor communities
the means and opportunities to
move out of their destitution and
improve their lives.
Every household should have access to Maynilad services, especially those that belong to marginalized communities.
Ch
an
gin
g T
ide
s
43
Kapwa. After generating savings
from operating their own water
system, the Maynilad STM pilot
community in Tondo was able
to develop livelihood projects
for its members. One of these is
the manufacture of the Kapwa
product line, which includes hand
soaps and sanitizers.
This year, STM-Tondo developed
five new Kapwa homecare items.
Maynilad continued to support
the community by facilitating
their training in this livelihood
activity, as well as by providing
the packaging designs and
promoting the products.
Rotary Homes. This housing
project of Rotary Homes
Parañaque Foundation, Inc.—
done in partnership with the
Parañaque City Government,
Save the Parañaque River
Foundation Inc., and Couples
for Christ ANCOP—aims to
provide informal settlers along
the Parañaque River with more
decent living conditions, as well
as to reduce pollution at the
Parañaque River.
Maynilad’s participation involves
a donation of P1.82 million that
will go into the building of the
project’s first 14 housing units,
as well as the assistance of
its employee-volunteers who
painted the newly built houses. A
total of 1,500 homes will be built
under this initiative.
The Company also pledged to
implement pipe-laying works in
the area to ensure that the new
co
rpo
ra
te
soc
ial
res
pon
sib
ilit
y
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
44
community will have access to
potable water supply.
Bacoor Shellfish Farmers
Cooperative. The Mamamayan
Para sa Lambat at Dagat
Cooperative of Bacoor, Cavite,
is a recipient of a P1-million
donation from Maynilad in 2011.
Maynilad guided the cooperative
in projects such as micro-
financing, a fishing supplies store,
a four-hectare shellfish culture,
and training for mussel and
oyster farmers.
Youth Advocacy
Maynilad developed programs
that promote public awareness
on the importance of water to
health and the environment.
Particular focus is given to the
youth, whose understanding of
vital issues such as watershed
management and responsible
use of water will have great
impact on the country’s future.
Daloy Dunong. This is an
education program that
seeks to engage the youth on
the importance of water to
health and of caring for the
environment. It involves visiting
schools in the West Zone so
students can participate in fun
audio-visual lectures, puppet
shows and water-themed games
that tackle responsible use of
water, health benefits of water,
and the environmental ills that
affect water supply.
The program also encourages
students to become “Water
Warriors” for their respective
The Company also pledged to implement pipe-laying works in the area to ensure that the new community will have access to potable water supply.
Ch
an
gin
g T
ide
s
45
communities—advocates who
promote the importance of clean
and safe water to health and the
environment.
Since its soft launch in October
15, 2012 (coinciding with the
5th Global Handwashing Day),
Maynilad’s Daloy Dunong
program has benefited over
10,000 students from 40 public
schools in 2012.
Sports clinics. To promote the
health and well-being of students,
as well as develop character-
building traits such as discipline
and teamwork, Maynilad
organized volleyball clinics in
five different public elementary
schools within its concession
area. Participants were also
taught the value of proper
hydration and hygiene to health.
Sustainable Water Management
Maynilad integrates sustainability
into the way it does business. It
adopts practices that ensure the
wise use of water resources, from
the moment water is collected at
watershed areas to the point it is
used and discharged back into
nature.
Integrated Management System.
The Company conforms to
international standards in its
processes and procedures, as
attested by the maintenance
and attainment of Integrated
Management Systems (IMS) for
its vital facilities. In all, Maynilad
has 47 ISO certifications by 2012.
co
rpo
ra
te
soc
ial
res
pon
sib
ilit
y
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
46
Facility ISO Standards Certifying Body
(1) North Caloocan Business Area
(2) Dagat-Dagatan Sewage and Septage Treatment Plant
ISO 9001:2008 Quality Management System
TÜV RheinlandISO 14001:2004 Environmental
Management System
OHSAS 18001:2007Occupational Safety
and Health Management System
(3) La Mesa Treatment Plant 1
(4) La Mesa Treatment Plant 2
(5) Tondo Sewage Pumping Plant
ISO 9001:2008Quality Management
System
TÜV SÜDISO 14001:2004
Environmental Management System
OHSAS 18001:2007Occupational Safety
and Health Management System
(6) Carbon footprint
ISO 14064-1:2006Greenhouse Gases Quantification and
Reporting TÜV Rheinland
ISO 14064-3:2006Greenhouse Gases
Validation and Verification
(7) Corporate Quality, Environment, Safety and Health
(8) Human Resources Division
ISO 9001:2008Quality Management
System TÜV Rheinland
(9) Central Laboratory
ISO 14001:2004 Environmental Management System
TÜV Rheinland
OHSAS 18001:2007Occupational Safety
and Health Management System
(10) Water Network(covers the division’s Head Office, maintenance shop and seven pumping stations, namely: La Mesa, Commonwealth, D. Tuazon, Algeciras, Villamor, Caloocan and Noveleta)
ISO 9001:2008Quality Management
System
TÜV RheinlandISO 14001:2004Environmental
Management System
OHSAS 18001:2007Occupational Safety
and Health Management System
Ch
an
gin
g T
ide
s
47
Water Safety Plan. Maynilad
developed the first Water
Safety Plan (WSP) in the
Philippines, which was used by
the Department of Health (DOH)
as reference for the WSPs of
other water providers and water
districts in the country. It was
likewise adopted by the World
Health Organization (WHO) as
a model in other countries in the
Western Pacific Region.
The Maynilad WSP contains the
programs and procedures to be
undertaken—from production
to distribution—in case there is
an emergency or impairment in
the quality of water supply. By
ensuring that the quality of water
still meets the Philippine National
Standards for Drinking Water
(PNSDW), the Company ensures
the protection of consumers even
in the face of emergencies and
calamities. This year, Maynilad
updated its WSP to reflect the
new WSP Guidelines of the WHO-
DOH initiative, and to include the
Putatan Water Treatment Plant.
Watershed Management. Under
the “Plant for Life” program,
Maynilad conducts several tree-
planting activities in watershed
areas to protect the country’s
water resources, as well as
prevent calamities such as land
erosion and flooding that result
from illegal logging.
Maynilad, along with 16 other
partner government agencies
and private entities, planted
a total of 70,700 tree saplings
within 60 hectares of the Ipo
watershed in 2012. Prior to this,
164,000 saplings have already
been planted in the heavily
denuded watershed over a period
of five years.
Similar efforts are also being
done for the Laguna Lake
watershed. Maynilad and the
Laguna Lake Development
Authority (LLDA) signed an
agreement to implement
watershed restoration activities
that will help stabilize riverbanks
and lakeshores in the Muntinlupa
area. Dubbed “Ibalik ang Putat
sa Putatan,” the activity seeks
to minimize sedimentation and
siltation at the Laguna Lake
and its tributary rivers through
co
rpo
ra
te
soc
ial
res
pon
sib
ilit
y
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
48
the planting of Putat trees in
several areas of the watershed.
Putat is a type of tree that
used to be endemic in this
area of Muntinlupa. Employee-
volunteers of Maynilad and
LLDA participated in the first
tree-planting activity under this
initiative, with 200 saplings being
planted near the intake of the
Putatan Water Treatment Plant.
Another related initiative is the
“Ibalik ang Bakawan/ Save Manila
Bay”, which is Maynilad’s ongoing
initiative to plant mangrove
propagules in the Manila Bay
coastal areas of Las Piñas,
Parañaque, Cavite City, Bacoor
City, and the municipalities of
Rosario and Noveleta in Cavite
Province. In cooperation with
the Cavite City Office of the
Mayor, Department of Natural
Resources–Cavite, and chairman
of Barangay Cinco in Cavite City,
some 5,000 propagules were
planted in 2012.
Maynilad also participated in
tree-planting activities held in
other areas of the country. The
Company donated saplings and
tools and sent volunteers to assist
at the Kadawayan Festival Tree
Planting Activity in Davao City,
the Bulacan Water District Tree
Planting held at Biak-na-Bato
National Park, and the DENR
and Philippine Disaster Recovery
Foundation (PDRF) Tree Planting
held at the Marikina Watershed.
All these watershed management
initiatives are done in support
of the government’s National
Greening Program. Maynilad
likewise continued to actively
participate in government-led
environmental activities such as
the Manila Bay Clean-up, and also
took the lead in the holding of the
annual World Water Day along
with DENR.
Disaster Relief
Maynilad is an organization
of concerned individuals who
are responsive to the needs of
others. This responsiveness was
tested a number of times in
2012, when Maynilad heeded the
call for disaster relief following
destructive natural calamities.
Ch
an
gin
g T
ide
s
49
In August 2012, the typhoon
season brought days of flooding
to north and south Luzon,
including some parts of Metro
Manila. Maynilad deployed
employee-volunteers to deliver
hot meals, portalets and grocery
packs to affected areas, even
those outside the West Zone. A
total of 71,122 liters of drinking
water was also delivered to badly
hit municipalities in Bulacan,
Pampanga, Pasig, Rizal and
Laguna.
In September, an earthquake
rocked Cagayan de Oro, bringing
with it a series of flash floods.
In response, Maynilad sent its
mobile water treatment plant to
Negros Oriental, which provided
some 12,000 liters of clean water
every day.
Meanwhile, Maynilad and its
employees were able to help
out families that were affected
by Typhoon Pablo. A cash
donation of over P2 million,
which was taken jointly from
the Company’s Christmas
party budget and Employee
Fund, went straight to typhoon
victims, along with 43,200 liters
of potable water and groceries.
The Maynilad mobile treatment
plant was also deployed to
Surigao del Sur, Agusan,
Compostela Valley and Davao
Oriental.
A cash donation of over P2 million, which was taken jointly from the Company’s Christmas party budget and Employee Fund, went straight to typhoon victims.
co
rpo
ra
te
soc
ial
res
pon
sib
ilit
y
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
50
AwArds received in 2012
Award-Giving Body Program/Awardee Recognition Category
Global Project Innovation Awards
Water Service Transformation Program
Global Honour Award
Operations/ ManagementProject Innovation Awards
(Asia Pacific)Honour Award
Drinking Water Safety Awards
Maynilad Water Safety Plan Overall WinnerLow and middle-income
countries (LAMIC)
8th Gawad Kaligtasan at Kalusugan Awards
La Mesa Treatment Plant 1
Tondo SewagePumping Plant
Secretary’s Award of Distinction
Institutional Category
Engr. Conrado Soriano Individual Category
47th Anvil Awards
“To the Beat of 6B” Customer Service Rally
Merit Award
Communications Tools
Changing for the Better: The 2011 Maynilad Calendar
Publications: External Publications
Maynilad Water Journey Audio CD
Multimedia – Others
Unfolding the Benefits of Sewer Connections: The
Maynilad Sewerage System Flyer
Publications: External Publications
“Laying the Road to Sustainability” Greenhouse
Gas and Air Pollutant Emissions Inventory
Program
FinalistPublic Relations Programs
on a Sustained Basis
11th Philippine Quill Awards
“Maynilad sa Komunidad” Helpdesk Program
Finalist
Customer Relations
Ripples, The Official Maynilad Newsletter
Publication Design
Ch
an
gin
g T
ide
s
51
The Roadahead
Of the 9.6 million people living
in the West Zone, Maynilad has
already connected 8.2 million to its
network. The remaining 1.4 million
people still to be connected are
proving difficult to reach, what
with the need to extend pipes to
southern areas where population is
less dense and where work permits
are harder to secure.
With investments in water
services already in place, the
Company is now turning its focus
on the increase of sewerage
coverage. A major portion of
its planned CAPEX for 2013 and
beyond has been allocated for
wastewater projects. These
include the construction of new
STPs in several areas within the
West concession, installation
of new conveyance systems,
rehabilitation of lift stations,
enhancement of existing
treatment plants, acquisition of
land for additional facilities, and
construction of a new septage
treatment plant.
In 2012, Marubeni expressed its
interest to acquire a stake in
Maynilad from both MPIC and
DMCI. Marubeni has considerable
expertise in sewage treatment.
Its entry will reinforce the
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
52
technical capability of Maynilad
as it implements its accelerated
sewerage and sanitation
program, which aims to provide
100% sewerage coverage of the
West Zone by 2037.
Meanwhile, to sustain
improvements in water services
and further reduce water
loss, Maynilad will continue to
implement its NRW Management
Program. Efforts to this end
include automating and allowing
for the remote operability of all
DMAs. Technologies acquired in
the past will still be utilized to
accurately detect leaky pipes so
the necessary interventions can
be promptly implemented.
More pumping stations and
reservoirs will be constructed at
strategic points of the network.
These facilities are essential for
supply delivery and storage,
enhancing Maynilad’s capability
to bring water to elevated areas.
Also among mid-term plans is
the construction of pre-treatment
facilities in La Mesa and Putatan
Water Treatment Plants to address
high turbidity in raw water, which
was experienced during the series
of typhoons that hit the country
last year.
To sustain improvements in water services and further reduce water loss, Maynilad will continue to implement its NRW Management Program.
Ch
an
gin
g T
ide
s
53
Creating efficiencies is important
to Maynilad. Hence, it will keep
investing in enabling technology
that will automate processes,
remove redundancies and
inaccuracies, and provide access to
real-time data for decision makers.
The Company also intends to
work toward further enhancing
customer services. It will deploy
in 2013 an Interactive Voice
Response System (IVRS), which
will serve as the first line of
contact with customers who call
the Maynilad hotline. This system
prompts callers to press keys on
the phone that correspond to
functions such as bill inquiries and
new application requirements.
Through this technology, customer
experience will be enhanced, as
quick answers are provided to
simple questions even outside of
regular businesses hours.
Growth opportunities outside the
West Zone will be pursued. With
Maynilad presence established in
provinces through the acquisition
of PhilHydro, expansion to adjacent
areas can be facilitated. The
Company is banking on its in-
house expertise to support its
bid for other businesses. In the
meantime, managing PhilHydro will
th
e r
oa
d a
hea
d
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
54
allow Maynilad to gain experience
on operating in a new environment
and under a different regulatory
framework.
Employees will continue to undergo
various training programs to
ensure that they are aligned with
Maynilad’s business goals. All these
initiatives are meant to prepare
the organization to perform well
despite the changing tides of the
water industry. With the Company’s
expansion beyond the West
concession offering tremendous
potential for growth, it must learn
to adjust and adapt so this growth
can be attained.
Ch
an
gin
g T
ide
s
55
BOARD OF DIRECTORS
Fom top-left:
Manuel V. Pangilinan, Isidro A. Consunji,
Jose Ma. K. Lim, Victorico P. Vargas, Herbert M. Consunji,
Randolph T. Estrellado, Jorge A. Consunji, Augusto P. Palisoc Jr.
Atty. Marilyn A. Victorio-Aquino
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
56
Manuel V. PangilinanChairman
Manuel V. Pangilinan, 66 years old, has been Chairman of Maynilad since January 2007. He was appointed as Chairman of the Board of Philippine Long Distance Telephone Company (PLDT) after serving as its President and Chief Executive Officer from November 1998 to February 2004 and became Chairman of PLDT Communications and Energy Ventures Inc. (PCEV, formerly Piltel) on November 3, 2004. He also holds chairmanship in Metro Pacific Investments Corp., Smart Communications, Inc., ePLDT, Inc., Landco Pacific Corp., Philex Mining Corp., Metro Pacific Tollways Corp., Manila North Tollways Corp., Medical Doctors, Inc. (Makati Medical Center), Colinas Verdes, Inc. (Cardinal Santos Medical Center) and Davao Doctors, Inc. He is also a Director and the President and Chief Executive Officer of Manila Electric Company. Mr. Pangilinan founded First Pacific Company, Ltd. in 1981 and served as its Managing Director until 1999. He was appointed as Executive Chairman until June 2003, when he was named CEO and Managing Director. He also holds the position of President Commissioner of P.T. Indofood Sukses Makmur Tbk.
Outside the First Pacific Group, Mr. Pangilinan was a member of the Board of Overseers of the Wharton School of Finance & Commerce, University of Pennsylvania. He is Chairman of the Board of Trustees of San Beda College. He also serves as Chairman of PLDT-Smart Foundation, Inc. and the Philippine Business for Social Progress. He also serves as Vice Chairman of the Foundation for Crime Prevention, and a member of the Board of Trustees of Caritas Manila and Radio Veritas Global Broadcasting Systems, Inc. In February 2007, he was named President of the Samahang Basketball ng Pilipinas, and effective January 2009, he assumed the chairmanship of the Amateur Boxing Association of the Philippines.
Isidro A. ConsunjiVice Chairman
Mr. Isidro A. Consunji, 64 years old, has been Vice Chairman of Maynilad since January 2007. He is a Member of the Board of Directors of D.M. Consunji, Inc. (DMCI), Semirara Mining Corp., DMCI-MPIC Water Company, Crown Equities, Inc., Atlas Consolidated Mining and Dev. Corp., Carmen Copper Corp., and Sem-Calaca Power Corp. He holds chairmanship in DMCI Project Developers Inc., DMCI Mining Corp., DMCI Homes, and Beta Electric Corp. He is President of DMCI Holdings, Inc., Dacon Corp., and Asia Industries, Inc.
Mr. Consunji graduated from the University of the Philippines where he earned a degree in Bachelor of Science in Engineering. He also took up Master of Business Economics from the Center for Research & Communication, and Master of Business Management from the Asian Institute of Management. He took up Advanced Management Program at IESE School in Barcelona, Spain.
He became President of the Philippine Constructors Association from 1999 to 2000, and the Philippine Chamber of Coal Mines, Inc. from May 1999 to January 2002. At present, he is Chairman of the Philippine Overseas Construction Board (POCB), and a Board Member of the Construction Industry Authority of the Philippines.
Mr. Consunji is an active member of the U.P. Beta Epsilon Fraternity, Asian Institute of Management Alumni Association, U. P. Alumni Engineers, and U.P. Aces Alumni Association.
Jose Ma. K. LimDirector
Mr. Lim has been a Director of Maynilad since January 2007. He is President & CEO of Metro Pacific Investments Corp., and is also currently a Director in the following MPIC subsidiary and/or affiliate companies: Beacon Electric Asset Holdings Inc.; Manila Electric Company, Metro Pacific Tollways Corp.; Manila North Tollways Corp., Tollways Management Corp., Medical Doctors, Inc. (owner and operator of Makati Medical Center), Cardinal Santos Medical Center (Colinas Verdes Hospital Managers Corp.), Our Lady of Lourdes Hospital, and Asian Hospital. He serves as Chairman of Davao Doctors Hospital (Clinica Hilario) Inc., and Riverside Medical Center in Bacolod. Mr. Lim is also President of the Metro Strategic Infrastructure Holdings, Inc. (MSIHI), which holds a minority ownership in Citra Metro Manila Tollways Corp. (Skyway).
Victorico P. VargasDirector
Mr. Vargas is concurrently the President and CEO of Maynilad. He formally took over the position last August 2010. He is also a Director for Metro Pacific Investments Corp. and the PLDT Global Corp., member of the Executive Committee of the First Pacific Leadership Academy, and trustee of the MVP Sports Foundation, Inc. and the IdeaSpace Foundation, Inc. In the field of sports, he currently holds the position of President for the Amateur Boxing Association of the Philippines (ABAP). He has been elected Vice Chairman for the Samahang Basketbol ng Pilipinas, Inc., the national sports association for Philippine Basketball, and is a member of the Philippine Olympic Commission (POC) and International Basketball Federation (FIBA). He holds the position of Alternate Governor of the Philippine Basketball Association (PBA), the nation’s professional basketball league. The Philippine Sportswriters Association (PSA) conferred Mr. Vargas with the title “Executive of the Year” for 2011.
Herbert M. ConsunjiDirector
Mr. Consunji has been a Director of Maynilad since January 2007 and is concurrently the Company’s Chief Operating Officer. He is also the Chairman of Subic Water and Sewerage Corp., and Philippine Hydro Inc.; Director of DMCI Holdings, Inc., Semirara Mining Corp., DMCI Power Corp., DMCI Mining Corp., Subic Water & Sewerage Corp., Sem-Calaca Power Corp., Sem-Cal Industrial Park Development, Inc., Sem Calaca Res Corp., Southwest Luzon Power Generation Corp., and Philippine Hydro, Inc.; Vice President and Chief Finance Officer of DMCI Holdings, Inc.; Vice President and Treasurer of DMCI Mining Corp.; and Treasurer of Sem-Calaca Res Corp.
Randolph T. EstrelladoDirector
Mr. Estrellado has been a Director of Maynilad since January 2007 and is concurrently the Company’s Chief Finance Officer. He was Director and Chief Finance Officer of Metro Pacific Investments Corp. Prior to joining Metro Pacific, Mr. Estrellado was Vice President and Chief Finance Officer for ABS-CBN Broadcasting Corporation. While at ABS-CBN, he managed all aspects of the network’s financial operations, including financial planning, controllership, treasury, budget, and investor relations. Mr. Estrellado had served in various positions of senior responsibility with the Lopez Group of Companies since 1996. He had formerly also served in financial positions at Phinma and P.T. Dwi Satrya Utama in Indonesia.
Jorge A. ConsunjiDirector
Mr. Consunji has been a Director of Maynilad since January 2007. He is also presently the President and Chief Operating Officer of D.M. Consunji, Inc. He also serves as a member of the Board of Directors of DMCI Holdings Inc., DMCI Power Corp., DMCI Mining Corp., DMCI-PDI, Dacon Corp., M&S Company Inc., Semirara Mining Corp., Sem-Calaca Power Corp., Sirawai Plywood & Lumber Co., Manila Herbal Corp., and Beta Electric Corp. He also serves as Chairman of the Board of Wire Rope Corp. and DMCI Masbate Power Corp.; Director of Private Infrastructure Development Corp.; and past Chairman of Asean Constructors Federation.
Augusto P. Palisoc Jr.Director
Mr. Palisoc has assumed a board position in Maynilad beginning August 12, 2011 until December 21, 2012. He has been with the First Pacific group of companies for over 29 years. He is currently an Executive Director of Metro Pacific Investments Corp, and is the President and Chief Executive Officer of the MPIC Hospital Group. He is a Director of Medical Doctors, Inc. (owner and operator of the Makati Medical Center), Makati Medical Center College of Nursing Inc., Colinas Verdes Hospital Managers Corp. (operator of the Cardinal Santos Medical Center), East Manila Hospital Managers Corp. (operator of the Our Lady of Lourdes Hospital), Asian Hospital Inc., Riverside Medical Center Inc. and Riverside College Inc. in Bacolod, Davao Doctors Hospital (Clinica Hilario) Inc., and Davao Doctors College, Inc.
Atty. Marilyn A. Victorio-AquinoDirector
Atty. Aquino joined the Maynilad Board on December 21, 2012. She is also Assistant Director at First Pacific Company Limited (FPC). She joined FPC on July 1, 2012 following her 31-year practice at SyCipLaw. She graduated cum laude (class salutatorian) from the University of the Philippines, College of Law in 1980 and placed second in the Philippine Bar Examination in the same year. Currently, Atty. Aquino is advising MPIC in various infrastructure projects in the Philippines, including in the exercise of the expansion right of Metro Rail for the LRT III Project. She is also a Director of Metro Rail, representing Metro Pacific Investments Corp.
Ch
an
gin
g T
ide
s
57
TOP MANAGEMENT TEAM
8Victorico P. VargasPresident and Chief Executive Officer
5Eric H. DumancasHead, Corporate Logistics
2Francisco A. ArellanoHead, Corporate Quality, Environment,
Safety and Health Management
7Herbert M. ConsunjiChief Operating Officer
6Christopher J. LichaucoHead, Business Area Operations
4Yolanda C. LucasHead, Program Management
3John Patrick C. GregorioHead, Commercial and Marketing
1Marcos D. de JesusHead, Technical Services
1 2 3 4 5 6 7 8
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
58
12Irineo L. DimaanoHead, Central Non-Revenue Water
9 Randolph T. EstrelladoChief Finance Officer
13Francisco C. CastilloHead, Information Technology Services
14Ronaldo C. PaduaHead, Water Supply Operations
11Atty. Lourdes Marivic P. EspirituHead, Legal and Regulatory Affairs
10Antonio F. GarciaHead, Wastewater Management
15Levi F. DiestroHead, Human Resources
9 10 11 12 13 14 15
Ch
an
gin
g T
ide
s
59
Financial StatementS
INDEPENDENT AUDITORS’ REPORT
The Stockholders and the Board of Directors
Maynilad Water Services, Inc.
We have audited the accompanying consolidated financial statements of Maynilad Water Services, Inc. and
Subsidiaries (a subsidiary of DMCI-MPIC Water Company, Inc.), which comprise the consolidated statements
of financial position as at December 31, 2012 and 2011, and the consolidated statements of income, 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, 2012, 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 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.
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
60
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Maynilad Water Services, Inc. and Subsidiaries as at December 31, 2012 and 2011, and their financial
performance and their cash flows for each of the three years in the period ended December 31, 2012 in
accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Johnny F. Ang
Partner
CPA Certificate No. 0108257
SEC Accreditation No. 1284-A (Group A),
February 14, 2013, valid until February 13, 2016
Tax Identification No. 221-717-423
BIR Accreditation No. 08-001998-101-2013,
January 28, 2013, valid until January 27, 2016
PTR No. 3669659, January 2, 2013, Makati City
February 25, 2013
Ch
an
gin
g T
ide
s
61
Fin
an
cia
l St
at
emen
tS
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(AMOuNTS IN ThOuSANDS)
MAYNILAD WATER SERVICES, INC. AND SUBSIDIARIES(A SUBSIDIARY of DMCI-MPIC WATER CoMPANY, INC.)
December 31
2012 2011
ASSETS
Current Assets
Cash and cash equivalents (Notes 5, 24 and 25) P3,906,336 P4,175,437
Short-term investments (Notes 5, 24 and 25) 14,085 –
Trade and other receivables (Notes 6, 24 and 25) 2,532,914 2,034,815
Other current assets (Notes 7, 10, 22, 24 and 25) 1,631,976 2,120,529
Total Current Assets 8,085,311 8,330,781
Noncurrent Assets
Service concession assets (Notes 9, 12, 14 and 22) 51,015,751 44,587,539
Deferred tax assets - net (Notes 15 and 20) 1,632,705 1,861,273
Property and equipment (Note 8) 367,332 335,202
Goodwill (Note 4) 107,745 –
Other noncurrent assets 92,246 98,089
Total Noncurrent Assets 53,215,779 46,882,103
P61,301,090 P55,212,884
LIABILITIES AND EQUITY
Current Liabilities
Current portion of interest-bearing loans (Notes 10, 24 and 25) P1,031,600 P985,971
Trade and other payables (Notes 11, 14, 23, 24 and 25) 11,166,531 9,477,049
Current portion of service concession obligation payable to MWSS (Notes 9, 12, 24 and 25) 1,012,526 1,656,413
Deposits for future stock subscription (Note 13) 33,506 –
Total Current Liabilities 13,244,163 12,119,433
Noncurrent Liabilities
Interest-bearing loans - net of current portion (Notes 10, 24 and 25) 20,623,579 21,551,777
Service concession obligation payable to MWSS - net of current portion (Notes 9, 12, 24 and 25) 7,974,985 7,739,593
Pension liability (Note 16) 230,434 139,742
Deferred credits (Notes 1, 2, 24 and 25) 2,129,354 1,115,185
Customers’ deposits (Notes 2, 24 and 25) 206,278 139,040
Other noncurrent liabilities (Note 16) 166,926 79,521
Total Noncurrent Liabilities 31,331,556 30,764,858
Total Liabilities 44,575,719 42,884,291
Equity
Capital stock (Notes 1, 10 and 13) 4,010,893 4,010,893
Additional paid-in capital (Note 13) 101,815 101,815
Treasury shares (Note 13) (9,730) (6,572)
Other equity adjustments (Note 13) (308,695) (322,369)
Retained earnings (Note 13)
Unappropriated 731,088 6,544,826
Appropriated for cash dividend 10,200,000 –
Appropriated for capital expenditures 2,000,000 2,000,000
Total Equity 16,725,371 12,328,593
P61,301,090 P55,212,884
See accompanying Notes to Consolidated Financial Statements.
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
62
CONSOLIDATED STATEMENTS OF INCOME(AMOuNTS IN ThOuSANDS, ExCEpT EArNINgS pEr ShArE VALuE)
MAYNILAD WATER SERVICES, INC. AND SUBSIDIARIES(A SUBSIDIARY of DMCI-MPIC WATER CoMPANY, INC.)
See accompanying Notes to Consolidated Financial Statements.
Years Ended December 31
2012 2011 2010
OPERATING REVENUE
Water services:
West zone P12,489,702 P11,152,074 P9,904,395
Outside west zone 48,507 – –
Sewer services -
West zone 2,906,462 2,171,743 1,738,898
Others 438,093 445,663 406,231
15,882,764 13,769,480 12,049,524
COSTS AND EXPENSES
Amortization of service concession assets (Note 9) 1,831,441 1,428,501 1,059,235
Salaries, wages and benefits (Notes 13, 14 and 16) 1,801,096 1,549,963 1,284,093
Utilities 745,363 621,830 565,153
Contracted services 694,670 539,072 598,617
Repairs and maintenance 421,060 281,537 320,547
Materials and supplies 196,589 245,331 367,240
Rental (Notes 21 and 22) 175,171 208,203 160,382
Depreciation and amortization (Note 8) 158,351 217,518 135,276
Transportation and travel 152,019 139,200 80,660
Taxes and licenses 134,129 117,895 82,529
Provision for doubtful accounts (Note 6) 134,000 154,917 –
Collection charges 101,831 91,474 103,217
Business meetings and representations 86,245 77,034 30,537
Regulatory costs 48,915 28,543 13,025
Insurance 40,147 28,309 28,087
Advertising and promotion 22,074 42,401 18,122
Others 61,131 61,001 85,157
6,804,232 5,832,729 4,931,877
INCOME BEFORE OTHER INCOME (EXPENSES) 9,078,532 7,936,751 7,117,647
OTHER INCOME (EXPENSES)
Revenue from rehabilitation works (Note 9) 6,505,856 8,770,141 7,678,858
Cost of rehabilitation works (6,383,121) (8,605,052) (7,605,554)
Interest expense (Note 17) (2,494,413) (2,051,722) (2,162,845)
Interest income (Notes 4 and 17) 154,900 121,751 70,294
Foreign exchange gains - net (Note 1) 960,075 1,295,188 1,216,711
Foreign currency differential adjustments (FCDA) (Note 1) (960,656) (1,337,601) (1,271,411)
Others - net (Note 10) (345,890) (453,193) (478,670)
(2,563,249) (2,260,488) (2,552,617)
INCOME BEFORE INCOME TAX 6,515,283 5,676,263 4,565,030
PROVISION FOR (BENEFIT FROM) INCOME TAX (Notes 15 and 20)
Current 8,198 13,339 17,771
Deferred 120,823 (201,926) (232,717)
129,021 (188,587) (214,946)
NET INCOME P6,386,262 P5,864,850 P4,779,976
Basic/Diluted Earnings Per Share (Note 18) P1,594.96 P1,463.43 P1,191.75
Ch
an
gin
g T
ide
s
63
Fin
an
cia
l St
at
emen
tS
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(AMOuNTS IN THOuSANDS)
MAYNILAD WATER SERVICES, INC. AND SUBSIDIARIES(A SUBSIDIARY of DMCI-MPIC WATER CoMPANY, INC.)
Years Ended December 31
2012 2011 2010
Net income for the year P6,386,262 P5,864,850 P4,779,976
Other comprehensive income – – –
Total comprehensive income for the year P6,386,262 P5,864,850 P4,779,976
See accompanying Notes to Consolidated Financial Statements.
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
64
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010(AMOUNTS IN THOUSANDS)
MAYNILAD WATER SERVICES, INC. AND SUBSIDIARIES(A SUBSIDIARY of DMCI-MPIC WATER CoMPANY, INC.)
Common Stock(Notes 1 and 13)
AdditionalPaid-in Capital
(Note 13)
Treasury Shares
(Note 13)
Other Equity Adjustments
(Note 13)Retained Earnings (Note 13)
Unappropriated Appropriated Total
At December 31, 2011 P4,010,893 P101,815 (P6,572) (P322,369) P6,544,826 P2,000,000 P12,328,593
Total comprehensive income for the year
– – – – 6,386,262 – 6,386,262
Appropriation for cash dividends (Note 13)
– – – – (10,200,000) 10,200,000 –
Cost of share-based payments (Note 13)
– – – 13,674 – – 13,674
Treasury shares – – (3,158) – – – (3,158)
Dividends declared (Note 13)
– – – – (2,000,000) – (2,000,000)
At December 31, 2012 P4,010,893 P101,815 (P9,730) (P308,695) P731,088 P12,200,000 P16,725,371
At December 31, 2010 P4,010,893 P101,815 P– (P348,946) P4,179,976 P– P7,943,738
Total comprehensive income for the year
– – – – 5,864,850 – 5,864,850
Appropriation for capital expenditures (Note 13)
– – – – (2,000,000) 2,000,000 –
Cost of share-based payments (Note 13)
– – – 26,577 – – 26,577
Treasury shares – – (6,572) – – – (6,572)
Dividends declared (Note 13)
– – – – (1,500,000) – (1,500,000)
At December 31, 2011 P4,010,893 P101,815 (P6,572) (P322,369) P6,544,826 P2,000,000 P12,328,593
At December 31, 2009 P4,010,893 P775,796 P– (P351,014) (P673,981) P– P3,761,694
Effect of equity restructuring (Note 13)
– (673,981) – – 673,981 – –
Total comprehensive income for the year
– – – – 4,779,976 – 4,779,976
Cost of share-based payments (Note 13)
– – – 2,068 – – 2,068
Dividends declared – – – – (600,000) – (600,000)
At December 31, 2010 P4,010,893 P101,815 P– (P348,946) P4,179,976 P– P7,943,738
See accompanying Notes to Consolidated Financial Statements.
Ch
an
gin
g T
ide
s
65
Fin
an
cia
l St
at
emen
tS
CONSOLIDATED STATEMENTS OF CASH FLOWS(AMOuNTS IN THOuSANDS)
MAYNILAD WATER SERVICES, INC. AND SUBSIDIARIES(A SUBSIDIARY of DMCI-MPIC WATER CoMPANY, INC.)
Years Ended December 31
2012 2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax P6,515,283 P5,676,263 P4,565,030
Adjustments for:
Interest expense (Note 17) 2,494,413 2,051,722 2,162,845
Amortization of service concession assets (Note 9) 1,831,441 1,428,501 1,059,235
Reversal of accrued interest payable to MWSS (Note 12) (378,075) – –
Depreciation and amortization (Note 8) 158,351 217,518 135,276
Interest income (Note 17) (154,900) (121,751) (70,294)
Pension cost (income) (Note 16) 90,692 (74,899) 10,347
Cost of share-based payments (Note 13) 13,674 26,577 2,068
Gain on sale of property and equipment (475) (35,049) (1,920)
Unrealized foreign exchange losses (gains) - net (86) (1,136) 19,815
Operating income before working capital changes 10,570,318 9,167,746 7,882,402
Decrease (increase) in:
Short-term investments (13,999) 7,274 2,407,465
Trade and other receivables (503,692) (469,297) (1,024,155)
Other current assets 488,553 (585,496) (92,956)
Additions to service concession assets (Note 9) (6,819,700) (8,793,388) (7,844,436)
Increase in trade and other payables 1,396,251 2,132,014 1,934,038
Cash generated from operations 5,117,731 1,458,853 3,262,358
Interest received 160,493 112,005 77,528
Income taxes paid (4,891) (13,339) (17,771)
Net cash provided by operating activities 5,273,333 1,557,519 3,322,115
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property and equipment (Note 8) (192,557) (264,729) (193,764)
Proceeds from sale of property and equipment 2,551 37,923 7,223
Decrease (increase) in other noncurrent assets 5,843 (50,761) 15,942
Acquisition of intangible asset (42,201) – –
Benefits paid from operating funds (Note 16) – (3,771) –
Net contributions to pension fund (Note 16) – – (30,000)
Net cash used in investing activities (226,364) (281,338) (200,599)
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
66
Years Ended December 31
2012 2011 2010
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from availment of interest-bearing loans (Note 10) – 6,881,172 –
Payments of:
Dividends (Note 12) (2,000,000) (1,500,000) (600,000)
Interest-bearing loans (980,946) (492,378) –
Service concession obligation payable to MWSS (1,116,019) (2,220,515) (1,968,380)
Increase in:
Customers’ deposits 117,766 78,777 55,167
Other noncurrent liabilities 87,405 18,349 31,855
Proceeds from deposits for future stock subscription 33,506 – –
Interest paid (1,454,624) (1,166,512) (1,220,146)
Acquisition of treasury shares (Note 13) (3,158) (6,572) –
Net cash provided by (used in) financing activities (5,316,070) 1,592,321 (3,701,504)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (269,101) 2,868,502 (579,988)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,175,437 1,306,935 1,886,923
CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 5) P3,906,336 P4,175,437 P1,306,935
See accompanying Notes to Consolidated Financial Statements.
Ch
an
gin
g T
ide
s
67
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(AMOuNTS IN ThOuSANDS, ExCEpT NuMbEr OF ShArES, EArNINgS pEr ShArE VALuE AND uNLESS OThErwISE SpECIFIED)
MAYNILAD WATER SERVICES, INC. AND SUBSIDIARIES(A SUBSIDIARY of DMCI-MPIC WATER CoMPANY, INC.)
Corporate Information and Status of Operations
General
Maynilad Water Services, Inc. (Maynilad or Parent Company) was incorporated on January 22, 1997
in the Philippines primarily to bid for the operation of the privatized system of waterworks and
sewerage services of the Metropolitan Waterworks and Sewerage System (MWSS) for Metropolitan
Manila.
On July 26, 2011, the Board of Directors (BOD) approved the amendment of the Articles of
Incorporation to amend its primary purpose to include the provision of allied and ancillary services
and undertaking such other activities incidental to its secondary purpose. The amendment was
approved by the stockholders and the Securities and Exchange Commission on August 12, 2011 and
October 26, 2011, respectively.
The Parent Company is a 91.90% owned subsidiary of DMCI-MPIC Water Company, Inc. (DMCI-
MPIC), a company incorporated in the Philippines. DMCI-MPIC is a 55.41% owned subsidiary of
Metro Pacific Investments Corporation (MPIC). In addition, MPIC directly owns 5.88% of the Parent
Company. MPIC effectively owns 56.80% of the Parent Company in 2012 and 2011. On December
28, 2012, a Subscription Agreement between MCNK JV Corporation (MCNK) and DMCI-MPIC was
executed, wherein MCNK subscribed to 169,617,682 common shares of DMCI-MPIC. On February 13,
2013, MCNK and DMWC entered into another Subscription Agreement for the subscription by MCNK
to an additional 508,853,045 common shares of DMCI-MPIC. On the same date, MPIC purchased
154,992,852 common shares of stock of DMCI-MPIC from DMCI Holdings, Inc. (DMCI). Henceforth,
MCNK will have an effective ownership interest of 20.0% in the Parent Company while MPIC and
DMCI will have a 52.80% and 25.24% equity interests, respectively, as at February 13, 2013.
As at December 31, 2012, MPIC is 59.0% owned by Metro Pacific Holdings, Inc. (MPHI). As a result
of equity placing on January 22, 2013, MPHI’s ownership in MPIC was reduced to 55.9% interest.
MPHI is a Philippine corporation whose stockholders are Enterprise Investment Holdings, Inc. (EIH)
(60.0%), Intalink B.V. (26.7%) and First Pacific International Limited (13.3%). First Pacific Company
Limited (FPC), a company incorporated in Bermuda and listed in Hong Kong, through its subsidiaries,
holds 40.0% equity interest in EIH and an investment financing which under Hong Kong Generally
Accepted Accounting Principles require FPC to account for the results and assets and liabilities of EIH
and its subsidiaries as FPC group companies in Hong Kong.
The registered office address of the Parent Company is MWSS Compound, Katipunan Road, Balara,
Quezon City.
The accompanying consolidated financial statements were approved and authorized for issue by the
BOD on February 25, 2013.
1.
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
68
Concession Agreement
On February 21, 1997, the Parent Company entered into a Concession Agreement with the MWSS, a
government-owned and controlled corporation organized and existing pursuant to Republic Act (RA)
No. 6234 (the Charter), as clarified and amended, with respect to the MWSS West Service Area. The
Concession Agreement sets forth the rights and obligations of the Parent Company throughout the
concession period. The MWSS Regulatory Office acts as the regulatory body of the Concessionaires
[the Parent Company and the East Concessionaire - Manila Water Company, Inc. (Manila Water)].
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 the Charter),
the sole right to manage, operate, repair, decommission and refurbish all fixed and movable
assets required (except certain retained assets of MWSS) to provide water and sewerage services
in the West Service Area for an extended period of 40 years commencing on August 1, 1997 (the
Commencement Date) to May 6, 2037 or the early termination date as the case may be.
The Parent Company is also tasked to manage, operate, repair, decommission and refurbish certain
specified MWSS facilities in the West Service Area. Legal title to these assets remains with MWSS.
The legal title to all property, plant and equipment contributed to the existing MWSS system by the
Parent Company during the concession period remains with the Parent Company until the Expiration
Date (or on early termination date) at which time, all rights, titles and interest in such assets will
automatically vest to MWSS.
Application for the Fourth Rate Rebasing Period
In compliance with the provisions specified under Section 9.4.1 of the Concession Agreement, the
Parent Company submitted the Business Plan for the determination of the Rates Adjustment Limit to
be applied to the standard rates for the period 2013 to 2017 or the Fourth Rate Rebasing Period.
As at February 25, 2013, the Regulatory Office is still reviewing the Parent Company’s business plan.
Summary of Significant Accounting and Financial Reporting Policies
Basis of Preparation
The consolidated financial statements of the Company have been prepared on a historical cost
basis, except for available-for-sale (AFS) investments, which are measured at fair value. The
consolidated financial statements are presented in Philippine peso, which is the Parent Company’s
functional and presentation currency, and all amounts are rounded to the nearest thousand (P000),
except when otherwise indicated.
Statement of Compliance
The Company’s consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the Philippines as set forth in PFRS. PFRS include
statements named PFRS and Philippine Accounting Standards (PAS), including Interpretations issued
by the Financial Reporting Standards Council (FRSC).
2.
Ch
an
gin
g T
ide
s
69
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Consolidation
The consolidated financial statements comprise of the financial statements of Maynilad and the
following subsidiaries (collectively referred to as the “Company”) that it controls:
All subsidiaries are wholly-owned and incorporated in the Philippines.
Phil Hydro. Phil Hydro is engaged in waterworks construction, engineering and engineering
consulting services. Phil Hydro is currently undertaking water supply projects outside Metro Manila
in line with the thrusts of the government under Presidential Decree No. 198, also known as the
Provincial Water Utilities Act of 1973, which mandates the local government units to create and
operate local water utilities and provide potable water to the public.
Phil Hydro has existing 25-year Bulk Water Supply Agreements with various provincial municipalities
outside the West Service Area and a Memorandum of Agreement with certain provincial municipality
for the construction and operation of water treatment facilities for water distribution services.
Amayi. Amayi is incorporated for the purpose of operating, managing, maintaining and rehabilitating
waterworks, sewerage and sanitation system and services outside the Concession Area.
The subsidiaries are consolidated from the date of acquisition, being the date on which the Parent
Company obtains control, and continue to be consolidated until the date that such control ceases.
The financial statements of the subsidiaries are prepared for the same reporting year as the Parent
Company using consistent accounting policies. All significant intercompany balances, transactions,
income and expense and profits and losses from intercompany transactions are eliminated in full in
the consolidation.
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 year, except for the adoption of the following amended
Philippine Accounting Standards (PAS) and PFRS which were adopted effective beginning January
1, 2012. The adoption of the following amendments did not have material effect on the accounting
policies, financial position or performance of the Company, except for additional disclosures.
PFRS 7, Financial Instruments: Disclosures - Enhanced Derecognition Disclosure Requirements
(effective for annual periods beginning on or after July 1, 2011)
The amendment requires additional disclosure about financial assets that have been
transferred but not derecognized to enable the user of the Company’s consolidated financial
statements to understand the relationship with those assets that have not been derecognized
and their associated liabilities. In addition, the amendment requires disclosures about
continuing involvement in derecognized assets to enable the user to evaluate the nature of,
and risks associated with, the entity’s continuing involvement in those derecognized assets.
Subsidiaries Nature of Business
Philippine Hydro, Inc, (Phil Hydro) * Bulk water supply and water distribution (outside the West Service Area)
Amayi Water Solutions, Inc. (Amayi)** Water distribution (outside the West Service Area)
* Acquired on August 3, 2012** Incorporated on July 18, 2012
•
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
70
PAS 12, Income Taxes - Recovery of Underlying Assets
(effective for annual periods beginning on or after January 1, 2012)
The amendment clarified the determination of deferred tax on investment property measured
at fair value. The amendment introduces a rebuttable presumption that deferred tax on
investment property measured using the fair value model in PAS 40, Investment Property,
should be determined on the basis that its carrying amount will be recovered through sale.
Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that
are measured using the revaluation model in PAS 16, Property, Plant and Equipment, always be
measured on a sale basis of the asset.
Annual Improvements to PFRS (2009-2011 cycle)
Improvements to PFRSs, an omnibus of amendments to standards, deal primarily with a view to
removing inconsistencies and clarifying wording. There are separate transitional provisions for each
standard. The adoption of the following amendments did not have any significant impact on the
accounting policies, financial position or performance of the Company.
PFRS 1, First-time Adoption of PFRS – Borrowing Costs
PAS 1, Presentation of Financial Statements – Clarification of the requirements for
comparative information
PAS 16, Property, Plant and Equipment – Classification of servicing equipment
PAS 32, Financial Instruments: Presentation – Tax effect of distribution to holders of equity instruments
PAS 34, Interim Financial Reporting – Interim financial reporting and segment information for total
assets and liabilities
Standards, Interpretations and Amendments to Existing Standards Not Yet Effective
The Company did not early adopt the following amendments to existing standards and
interpretations that have been approved but are not yet effective as at December 31, 2012. Except
as otherwise indicated, the Company does not expect the adoption of these amendments and
interpretations to have an impact on its consolidated financial statements.
Effective 2013
PAS 1, Presentation of Financial Statement - Presentation of Items of Other Comprehensive Income
(effective for annual periods beginning on or after July 1, 2012)
The amendments to PAS 1 change the grouping of items presented in other comprehensive
income. Items that could be reclassified (or ”recycled”) to profit or loss at a future point in
time (for example, upon derecognition or settlement) would be presented separately from
items that will never be reclassified. The amendment affects presentation only and has
therefore no impact on the Company’s financial position or performance. The amendments
will be applied retrospectively upon its effectivity.
•
•
•
•
•
•
•
Ch
an
gin
g T
ide
s
71
PAS 19, Employee Benefits (Amendment) (effective for annual periods beginning on or after
January 1, 2013)
Amendments to PAS 19 range from fundamental changes such as removing the corridor
mechanism and the concept of expected returns on plan assets to simple clarifications and
re-wording. The Company reviewed its existing employee benefits and determined that the
amended standard has significant impact on its accounting for employee benefits.
The Company obtained the services of an external actuary to compute the impact to the
consolidated financial statements upon adoption of the standard. The net effect of all
transition adjustments are closed to retained earnings on the transition date. This is based
on paragraph 122 of PAS 19R, which allows transfers of remeasurements recognized in other
comprehensive income within equity. The effects are detailed below:
PAS 27, Separate Financial Statements (as revised in 2011)
(effective for annual periods beginning on or after January 1, 2013)
As a consequence of the new PFRS 10, Consolidated Financial Statements, and PFRS 12,
Disclosure of Interests in Other Entities, what remains of PAS 27 is limited to accounting for
subsidiaries, jointly controlled entities, and associates in separate financial statements.
PAS 28, Investments in Associates and Joint Ventures (as revised in 2011)
(effective for annual periods beginning on or after January 1, 2013)
As a consequence of the new PFRS 11, Joint Arrangements, and PFRS 12, PAS 28 has been
renamed PAS 28, Investments in Associates and Joint Ventures, and describes the application
of the equity method to investments in joint ventures in addition to associates.
PFRS 7, Financial instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities
(effective for annual periods beginning on or after January 1, 2013, with retrospective application)
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
•
As at December 31, 2012
As at December 31, 2011
As at January 1, 2011
Increase (decrease) in consolidated statements of financial position:
Accrued retirement cost P9,870 P25,713 (P163,188)
Retained earnings 42,288 55,231 114,231
Deferred tax asset 2,961 7,714 (48,956)
Other comprehensive income (49,197) (73,230) –
2012 2011
Increase (decrease) in consolidated statements of income and consolidated statements of comprehensive income:
Other comprehensive income (P49,197) (P73,230)
Pension cost 9,956 –
Pension income – (45,385)
Provision for deferred income tax 2,987 –
Benefit from deferred income tax – (13,616)
•
•
•
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
72
These amendments require an entity to disclose information about rights of set-off and
related arrangements (such as collateral agreements). The new disclosures are required
for all recognized financial instruments that are set off in accordance with PAS 32. These
disclosures also apply to recognized financial instruments that are subject to an enforceable
master netting arrangement or “similar agreement”, irrespective of whether they are set-off
in accordance with PAS 32. The amendments require entities to disclose, in a tabular format
unless another format is more appropriate, the following minimum quantitative information.
This is presented separately for financial assets and financial liabilities recognized at the end
of the reporting period:
a) The gross amounts of those recognized financial assets and recognized financial liabilities
b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the
net amounts presented in the consolidated statement of financial position
c) The net amounts presented in the consolidated statement of financial position
d) The amounts subject to an enforceable master netting arrangement or similar agreement
that are not otherwise included in (b) above, including:
i. Amounts related to recognized financial instruments that do not meet some or all of the
offsetting criteria in PAS 32
ii. Amounts related to financial collateral (including cash collateral)
e) The net amount after deducting the amounts in (d) from the amounts in (c) above
The amendment affects disclosures only and has no impact on the Company’s financial
position or performance.
PFRS 10, Consolidated Financial Statements
(effective for annual periods beginning on or after January 1, 2013)
PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements, that
addresses the accounting for consolidated financial statements. It also includes the issues
raised in SIC-12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single control
model that applies to all entities including special purpose entities. The changes introduced
by PFRS 10 will require management to exercise significant judgment to determine which
entities are controlled, and therefore, are required to be consolidated by a parent, compared
with the requirements that were in PAS 27.
PFRS 11, Joint Arrangements (effective for annual periods beginning on or after January 1, 2013)
PFRS 11 replaces PAS 31, Interests in Joint Ventures, and SIC-13, Jointly-controlled Entities -
Non-monetary Contributions by Venturers. PFRS 11 removes the option to account for jointly
controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the
definition of a joint venture must be accounted for using the equity method.
•
•
Ch
an
gin
g T
ide
s
73
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PFRS 12, Disclosure of Involvement with Other Entities
(effective for annual periods beginning on or after January 1, 2013)
PFRS 12 includes all of the disclosures that were previously in PAS 27 related to consolidated
financial statements, as well as all of the disclosures that were previously included in
PAS 31 and PAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint
arrangements, associates and structured entities. A number of new disclosures are also
required.
PFRS 13, Fair Value Measurement
(effective for annual periods beginning on or after January 1, 2013)
PFRS 13 establishes a single source of guidance under PFRS for all fair value measurements.
PFRS 13 does not change when an entity is required to use fair value, but rather provides
guidance on how to measure fair value under PFRS when fair value is required or permitted.
The Company does not anticipate that the adoption of this standard will have a significant
impact on the financial position and performance.
Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine
(effective for annual periods beginning on or after January 1, 2013)
This interpretation applies to waste removal costs that are incurred in surface mining activity
during the production phase of the mine (“production stripping costs”) and provides guidance
on the recognition of production stripping costs as an asset and measurement of the stripping
activity asset.
Effective 2014
PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial
Liabilities (effective for annual periods beginning on or after January 1, 2014, with
retrospective application)
These amendments to PAS 32 clarify the meaning of “currently has a legally enforceable
right to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement
systems (such as central clearing house systems) which apply gross settlement mechanisms
that are not simultaneous. While the amendment is expected not to have any impact on the
net assets of the Company, any changes in offsetting is expected to impact leverage ratios
and regulatory capital requirements. The Company is currently assessing impact of the
amendments to PAS 32.
Effective 2015
PFRS 9, Financial Instruments: Classification and Measurement
(effective for annual periods beginning on or after January 1, 2015)
PFRS 9, as issued, reflects the first phase on the replacement of PAS 39, Financial Instruments:
Recognition and Measurement and applies to the classification and measurement of financial
assets and liabilities as defined in PAS 39. Work on impairment of financial instruments
and hedge accounting is still ongoing, with a view to replacing PAS 39 in its entirety. PFRS
9 requires all financial assets to be measured at fair value at initial recognition. A debt
•
•
•
•
•
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
74
financial asset may, if the fair value option (FVO) is not invoked, be subsequently measured
at amortized cost if it is held within a business model that has the objective to hold the assets
to collect the contractual cash flows and its contractual terms give rise, on specified dates,
to cash flows that are solely payments of principal and interest on the principal outstanding.
All other debt instruments are subsequently measured at fair value through profit or loss. All
equity financial assets are measured at fair value either through OCI or profit or loss. Equity
financial assets held for trading must be measured at fair value through profit or loss. For
FVO liabilities, the amount of change in the fair value of a liability that is attributable to
changes in credit risk must be presented in OCI. The remainder of the change in fair value
is presented in profit or loss, unless presentation of the fair value change in respect of the
liability’s credit risk in OCI would create or enlarge an accounting mismatch in profit or loss.
All other PAS 39 classification and measurement requirements for financial liabilities have
been carried forward into PFRS 9, including the embedded derivative separation rules and
the criteria for using the FVO. The impact of the adoption of the first phase of PFRS 9 has not
been determined by the Company as evaluation of which has not been undertaken.
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
interpretation requires that revenue on construction of real estate be recognized only upon
completion, except when such contract qualifies as construction contract to be accounted for
under PAS 11, Construction Contracts, or involves rendering of services in which case revenue
is recognized based on stage of completion. Contracts involving provision of services with
the construction materials and where the risks and reward of ownership are transferred to
the buyer on a continuous basis will also be accounted for based on stage of completion.
The Philippine SEC and the 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.
The Company continues to assess the impact of the above new, amended and improved accounting
standards and interpretations effective subsequent to December 31, 2012 on their consolidated financial
statements in the period of initial application. Additional disclosures required by these amendments will
be included in the consolidated financial statements when these amendments are adopted.
Business Combinations and Goodwill
Business combinations are accounted for using the acquisition method of accounting. 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 incurred are
expensed and included in costs and expenses.
When the Company 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.
•
Ch
an
gin
g T
ide
s
75
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at
the acquisition date. Subsequent changes to the fair value of the contingent consideration which
is deemed to be an asset or liability, will be recognized in accordance with PAS 39 either in profit or
loss or as a change to other comprehensive income. If the contingent consideration is classified as
equity, it is not remeasured until it is finally settled within equity.
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 the consolidated statement of income.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Company’s cash-generating units that are expected to
benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are
assigned to those units.
Where goodwill forms part of a cash-generating unit 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 this circumstance is measured based on the relative values of the operation disposed
of and the portion of the cash-generating unit retained.
If the initial accounting for business combination can be determined only provisionally by the end
of the period by which the combination is effected because the fair values to be assigned to the
acquiree’s identifiable assets, liabilities can be determined only provisionally, the Company accounts
the combination using provisional fair values. Adjustments to those provisional fair values as a result
of completing the initial accounting shall be made within 12 months from the acquisition date. The
carrying amount of an identifiable asset, liability or contingent liability that is recognized 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 and goodwill or any gain recognized shall be adjusted from the
acquisition date 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.
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 acquisition date and that are subject to an insignificant risk of change in value.
Short-term Investments
Short-term investments are investments with maturities of more than three months to one year.
Financial Assets and Financial Liabilities
Date of Recognition. The Company recognizes a financial asset or a financial liability in the
consolidated statement of financial position when it becomes a party to the contractual provisions
of the instrument. In the case of a regular way purchase or sale of financial assets, recognition and
derecognition, as applicable, are done using trade date accounting.
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
76
Initial Recognition. Financial assets and financial liabilities are recognized initially at fair value.
Transaction costs are included in the initial measurement of all financial assets and liabilities, except
for financial instruments measured at fair value through profit or loss (FVPL).
Financial assets are classified into the following categories: financial assets at FVPL, loans and
receivables, held-to-maturity (HTM) investments, and AFS investments. Financial liabilities are
classified as financial liabilities at FVPL or other financial liabilities. The Company determines the
classification at initial recognition and, where allowed and appropriate, re-evaluates this designation
at each reporting date.
Determination of Fair Value. The fair value of financial instruments that are actively traded in
organized financial markets is determined by reference to quoted market bid prices at the close
of business at the reporting date. When current bid and asking prices are not available, the price
of the most recent transaction provides evidence of the current fair value as long as there has not
been a significant change in economic circumstances since the time of the transaction. For financial
instruments where there is no active market, fair value is determined using valuation techniques.
Such techniques include using reference to a similar instrument for which market observable prices
exist, discounted cash flow analysis and other relevant valuation models.
‘Day 1’ difference. Where the transaction price in a non-active market is different from the fair value
of other observable current market transactions in the same instrument or based on a valuation
technique whose variables include only data from observable market, the Company recognizes
the difference between the transaction price and fair value (a ‘Day 1’ difference) in the consolidated
statement of income unless it qualifies for recognition as some other type of asset. In cases where
use is made of data which is not observable, the difference between the transaction price and
model value is only recognized in the consolidated statement of income when the inputs become
observable or when the instrument is derecognized. For each transaction, the Company determines
the appropriate method of recognizing the ‘Day 1’ difference amount.
Financial Assets and Financial Liabilities at FVPL. A financial asset or a financial liability is classified
in this category if acquired principally for the purpose of selling or repurchasing in the near term or
upon initial recognition, it is designated by the management as at FVPL. Financial assets or financial
liabilities at FVPL are designated by management on initial recognition when any of the following
criteria are met:
The designation eliminates or significantly reduces the inconsistent treatment that would
otherwise arise from measuring the assets or liabilities or recognizing gains or losses on them
on a different basis;
The assets and liabilities are part of a group of financial assets, financial liabilities or both
which are managed and their performance evaluated on a fair value basis, in accordance with
a documented risk management or investment strategy; or
The financial instrument contains an embedded derivative, unless the embedded derivative
does not significantly modify the cash flows or it is clear, with little or no analysis, that it
would not be separately recorded.
Derivatives are also categorized as at FVPL, except those derivatives designated as effective
hedging instruments or a financial guarantee contract.
•
•
•
Ch
an
gin
g T
ide
s
77
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial assets and financial liabilities at FVPL are recorded in the consolidated statement of
financial position at fair value and are classified as current assets. Changes in fair value of such
assets are accounted for in the consolidated statement of income. Interest earned is recorded in
interest income, while dividend income is recorded in other operating income when the right to
receive payment has been established.
The Company has no financial assets or liabilities at FVPL as at December 31, 2012 and 2011.
Loans and Receivables. Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market. They are not entered into
with the intention of immediate or short-term resale and are not classified or designated as AFS
financial assets or financial assets at FVPL. After initial recognition, loans and receivables are
carried at amortized cost in the consolidated statement of financial position using the effective
interest method, less allowance for impairment. Amortization is calculated by taking into account
any discount or premium on acquisition and fees that are an integral part of the effective interest
rate. Gains and losses are recognized in the consolidated statement of income when loans and
receivables are derecognized and impaired, as well as through the amortization process. Loans
and receivables are included in current assets if maturity is within twelve months from the reporting
date. Otherwise, these are classified as noncurrent assets.
This category includes the Company’s cash and cash equivalents, short-term investments, trade
and other receivables, sinking fund, deposits and miscellaneous deposits shown as part of “Other
noncurrent assets” account in the consolidated statements of financial position (see Notes 5, 6 and 7).
HTM Investments. HTM investments are quoted non-derivative financial assets with fixed or
determinable payments and fixed maturities wherein the Company has the positive intention
and ability to hold to maturity. HTM investments are carried at cost or amortized cost in the
consolidated statement of financial position. Amortization is determined by using the effective
interest method. The losses arising from impairment are recognized in the consolidated statement
of income. Assets under this category are classified as current assets if maturity is within twelve
months from reporting date and as noncurrent assets if maturity date is more than a year from
reporting date.
The Company has no HTM investments as at December 31, 2012 and 2011.
AFS Investments. Available-for-sale financial assets are non-derivative financial assets that are designated
as available-for-sale or are not classified in any of the three preceding categories. These are purchased
and held indefinitely, and may be sold in response to liquidity requirements or changes in market
conditions. After initial recognition, available-for-sale financial assets are measured at fair value with
unrealized gains or losses being recognized in the consolidated statement of comprehensive income
and presented as a separate component of equity until the investment is derecognized or until the
investment is determined to be impaired at which time the cumulative gain or loss previously reported
in equity is included in the consolidated statement of income. Investments in equity instruments that do
not have a quoted market price in an active market and whose fair values cannot be reliably measured
are carried at cost, net of impairment, if any. Assets under this category are classified as current assets if
the Company intends to hold the assets within 12 months from financial reporting date and as noncurrent
assets if it is more than a year from financial reporting date.
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
78
The Company has an unquoted AFS investment as at December 31, 2012 and 2011, shown as part
of “Other noncurrent assets” account in the consolidated statements of financial position. As at
December 31, 2012 and 2011, the Company has fully impaired its AFS investment with total cost and
corresponding allowance for impairment of P10.5 million.
Other Financial Liabilities at Amortized Cost. Financial liabilities are classified in this category if
these are not held for trading or not designated as at FVPL upon the inception of the liability. These
include liabilities arising from operations or borrowings.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at
amortized cost using the effective interest method.
Gains or losses are recognized in consolidated statement of income when the liabilities are
derecognized as well as through the amortization process.
Debt issuance costs are amortized using the effective interest method. The unamortized debt
issuance costs are netted against the related carrying value of the debt instrument.
This category includes trade and other payables, interest-bearing loans, service concession
obligation payable to MWSS and customers’ deposits (see Notes 10, 11 and 12).
Impairment of Financial Assets
The Company assesses at each reporting date whether a financial asset or group of financial
assets is impaired. A financial asset or 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 assets that can be
reliably measured. Evidence of impairment may include indications that the debtors or a group of
debtors 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 when
observable date indicate that there is a measureable decrease in the estimated future cash flows,
such as changes in arrears or economic conditions that correlate with defaults.
Assets Carried at Amortized Cost. If there is objective evidence that an impairment loss on loans
and receivables carried at amortized cost has been incurred, the amount of the loss is measured
as the difference between the asset’s carrying amount and the present value of estimated future
cash flows (excluding future credit losses that have not been incurred) discounted at the financial
asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition).
The carrying amount of the asset shall be reduced either directly or through use of an allowance
account. The amount of the loss shall be recognized in the consolidated statement of income.
The Company first assesses whether objective evidence of impairment exists individually for financial
assets that are individually significant, and individually or collectively for financial assets that are
not individually significant. If it is determined that no objective evidence of impairment exists for an
individually assessed financial asset, whether significant or not, the asset is included in a group of financial
assets with similar credit risk characteristics and that group of financial assets is collectively assessed for
impairment. 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 of impairment.
Ch
an
gin
g T
ide
s
79
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to 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 the consolidated statement of income, to the extent that the carrying value of the
asset does not exceed its amortized cost at the reversal date.
Assets Carried at Cost. If there is objective evidence that an impairment loss on an unquoted equity
instrument that is not carried at fair value because its fair value cannot be reliably measured, or
on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity
instrument has been incurred, the amount of the loss is measured as the difference between the
asset’s carrying amount and the present value of estimated future cash flows discounted at the
current market rate of return for a similar financial asset.
AFS Investments. If an AFS investment is impaired, an amount comprising the difference between
its cost (net of any principal payment and amortization) and its current fair value, less any
impairment loss previously recognized in the consolidated statement of comprehensive income,
is transferred from other comprehensive income to the consolidated statement of income.
Reversals of impairment losses on AFS investments are reversed through consolidated statement
of comprehensive income, if the increase in fair value of the instrument can be objectively related
to an event occurring after the impairment loss was recognized in the consolidated statement of
comprehensive income.
Derecognition of Financial Assets and Financial Liabilities
Financial Assets. A financial asset (or, where applicable, a part of a financial asset or part of a group
of similar financial assets) is derecognized when:
the right to receive cash flows from the asset has expired; or
the Company has transferred its right to receive cash flows from the asset or has assumed an
obligation to pay the received cash flows in full without material delay to a third party under a
“pass-through” arrangement; and either (a) the Company has transferred substantially all the
risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the
risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its right to receive cash flows from an asset 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 Company’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 original carrying amount of the asset and the maximum amount of consideration that
the Company could be required to repay.
Financial Liabilities. A financial liability is derecognized when the obligation under the liability is
discharged, cancelled or has expired.
When an existing financial liability is replaced by another 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 the consolidated statement of income.
•
•
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
80
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount is 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 (shown as part of others under “Other current assets” account) are valued
at the lower of cost and net realizable value. Cost is determined using the weighted average
method. Net realizable value is the current replacement cost.
Service Concession Assets
Parent Company. The Parent Company accounts for its concession arrangement with MWSS in
accordance with IFRIC 12, Service Concession Arrangement under the Intangible Asset model as it
receives the right (license) to charge users of public service. Under the Concession Agreement,
the Parent Company 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 at the end of the concession period.
Phil Hydro. Phil Hydro accounts for its Bulk Water Supply Agreements in accordance with
IFRIC 12 under the Intangible Asset model as it receives the right (license) to charge users of
public service.
Service concession assets are recognized to the extent that the Company receives a license or
right to charge the users of the public service. The “Service Concession Assets” (SCA) pertain
to the fair value of the service concession obligations at drawdown date and construction costs
related to the rehabilitation works performed by the Company. The SCA are amortized using the
straight-line method over the terms of the concession arrangements.
The Company recognizes and measures revenue from rehabilitation works using the percentage-of-
completion method. Under this method, revenue is recognized as the related obligations are fulfilled,
measured principally on the basis of the estimated physical completion of the contract work.
Cost of rehabilitation works, which includes all direct materials, labor costs, and those indirect
costs related to contract performance, is recognized consistent with the revenue recognition
method applied. Expected losses on contracts are recognized immediately when it is probable
that the total contract costs will exceed total contract revenue. Changes in contract performance,
contract conditions and estimated profitability including those arising from contract penalty
provisions and final contract settlements which may result in revisions to estimated costs and
gross margins are recognized in the year in which the revisions are determined.
Subsequent costs and expenditures related to the concession agreement are recognized as
additions to service concession assets at fair value of obligations at drawdown date and cost of
rehabilitation works.
Ch
an
gin
g T
ide
s
81
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment
Property and equipment, except land, are stated at cost less accumulated depreciation and any
impairment in value (see policy on “Impairment of Nonfinancial Assets”). Land is stated at cost.
The initial cost of property and equipment comprises its purchase price, including import duties,
taxes and any directly attributable costs in bringing the asset to its working condition and location
for its intended use. Expenditures incurred after the property and equipment have been put into
operation, such as repairs and maintenance, are normally charged to income in the period such
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 costs of property and equipment.
Depreciation is calculated for each significant item or part of an item of property and equipment on
a straight-line basis over the following estimated useful lives:
The Company computes for depreciation charges based on the significant component of the asset.
The useful lives and depreciation method are reviewed periodically to ensure that the periods and
method of depreciation are consistent with the expected pattern of economic benefits from items of
property and equipment.
Fully depreciated property and equipment are retained in the accounts until they are no longer in
use and no further depreciation is charged to current operations.
An item of property and equipment is derecognized upon disposal or when no future economic
benefits are expected to arise from the continued use of the asset. Any gain or loss arising on
derecognition of the asset (calculated as the difference between the net disposal proceeds and the
carrying amount of the items) is included in the consolidated statement of income in the year the
item is derecognized.
Impairment of Nonfinancial Assets (Property and Equipment and Service Concession Assets)
An assessment is made at each reporting date to determine whether there is any indication of
impairment of any nonfinancial assets, or whether there is any indication that an impairment loss
previously recognized for an asset in prior years may no longer exist or may have decreased. If any
such indication exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount
is calculated as the higher of the asset’s value in use or its fair value less cost to sell. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset. In determining fair value less costs to sell, recent market transactions are taken
into account, if available. If no such transactions can be identified, an appropriate valuation model
is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly
traded subsidiaries or other available fair value indicators.
Land improvements 5 years
Instrumentation, tools and other equipment 5 years
Office furniture, fixtures and equipment 5 years
Transportation equipment 5 years
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
82
An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable
amount. An impairment loss is charged to operations in the year in which it arises.
A previously recognized impairment loss is reversed only if there has been a change in the estimates
used to determine the recoverable amount of an asset, however, not to an amount higher than the
carrying amount that would have been determined (net of any depreciation and amortization) had
no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is
credited to current operations.
Foreign Currency-Denominated Transactions
Foreign exchange differentials arising from foreign currency transactions are credited or charged
to operations. As approved by the MWSS Board of Trustees (BoT) under Amendment No. 1 of the
Concession Agreement, the following will be recovered through billings to customers:
Restatement of foreign currency-denominated loans;
Excess of actual Concession Fee payments over the amounts of Concession Fees translated
using the base exchange rate assumed in the business plan approved every rate rebasing
exercise;
Excess of actual interest payments translated at exchange spot rates on settlement dates over
the amounts of interest translated at drawdown date rates; and
Excess of actual payments of other financing charges relating to foreign currency-
denominated loans translated at exchange spot rates on settlement dates over the amount of
other financing charges translated at drawdown date rates.
In view of the automatic reimbursement mechanism, the Parent Company recognized a deferred
FCDA (included as part of “Other noncurrent assets” or “Deferred credits” accounts in the
consolidated statements of financial position) with a corresponding credit (debit) to FCDA revenues
for the unrealized foreign exchange losses (foreign exchange gains) which have not been billed or
which will be refunded to the customers. The write-off of the deferred FCDA or reversal of deferred
credits pertaining to concession fees will be made upon determination of the new base foreign
exchange rate, which is assumed in the business plan approved by the Regulatory Office during
the latest Rate Rebasing exercise, unless indication of impairment of the deferred FCDA would be
evident at an earlier date.
Deferred credits are calculated as the difference between the drawdown or rebased rate versus
the closing rate. These were presented as part of “Deferred credits” account in the consolidated
statements of financial position.
Customers’ Deposits
Customers’ deposits are initially measured at fair value. After initial recognition, these deposits
are subsequently measured at amortized cost using the effective interest method. Amortization
of customers’ deposits is included under “Interest expense” account in the consolidated statement
of income. The discount is recognized as deferred credits and amortized over the remaining
concession period using the effective interest method. Amortization of deferred credits is included
as part of “Other income” account in the consolidated statement of income.
•
•
•
•
Ch
an
gin
g T
ide
s
83
As at December 31, 2012 and 2011, the discount, shown as part of “Deferred credits” account in
the consolidated statements of financial position, amounted to P453.5 million and P403.0 million,
respectively.
Goodwill
Goodwill is initially measured at cost being the excess of the aggregate of the consideration
transferred and the amount recognized for 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 the consolidated statement of income.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Parent Company’s cash-generating units that are expected
to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are
assigned to those units. Each unit or group of units to which the goodwill is so allocated:
represents the lowest level within the Group at which the goodwill is monitored for internal
management purposes; and
not larger than an operating segment determined in accordance with PFRS 8, Operating
Segments.
Where goodwill forms part of a cash-generating unit 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 this circumstance is measured based on the relative values of the operation disposed
of and the portion of the cash-generating unit retained.
Goodwill is reviewed for impairment, annually or more frequently, if events or changes in
circumstances indicate that the carrying value may be impaired.
Impairment is determined by assessing the recoverable amount of the cash-generating unit, to which
the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the
carrying amount, an impairment loss is recognized. Where goodwill forms part of a cash-generating
unit and part of the operation within that unit is disposed, 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 this circumstance is measured based on the relative
values of the operation disposed and the portion of the cash-generating unit retained.
Excess of the fair values of acquired identifiable assets and liabilities of subsidiaries over the
acquisition cost of that interest, is credited directly to income. Transfers of assets between
commonly controlled entities are accounted for under historical cost accounting.
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.
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
•
•
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
84
When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative
translation adjustments and goodwill is recognized in the consolidated statement of income.
Assets Held in Trust
Assets which are owned by MWSS but are used in the operations of the Parent Company under
the Concession Agreement are not reflected in the consolidated statement of financial position
but carried as Assets Held in Trust, except for certain assets transferred to the Parent Company as
mentioned in Note 23.
Deposits for Future Stock Subscription
Deposits for future stock subscription represent cash received by the Parent Company from its
stockholder for subscription to additional shares. Cash received is presented as part of liabilities until
such time that sufficient authorized capital stock becomes available to cover the amount of shares.
Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to
the Company and the revenue can be reliably measured. Revenue is measured at the fair value
of consideration received, excluding discounts, rebates and value-added tax (VAT). 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.
Revenue from water and sewerage services are recognized upon supply of water to the customers
and when the related services are rendered. Billings to customers consist of the following:
Water charges
Basic charges represent the basic tariff charged to consumers for the provision of water
services. Currency exchange rate adjustment is one peso charged per cubic meter of
water consumed.
FCDA is the tariff mechanism that allows the Parent Company to recover foreign exchange
losses or to compensate foreign exchange gains on a current basis beginning January 1,
2002 until the Expiration Date.
Maintenance service charge represents a fixed monthly charge per connection. The
charge varies depending on the meter size.
Environmental charge (included as part of revenue from sewer/sanitation services) represents
20% in 2012, 16% in 2011 and 14% in 2010 of the water charges, except for maintenance charge.
Sewerage charge represents 20% of the water charges, excluding maintenance service
charge, for all consumers connected to the Company’s sewer lines. Effective January 1, 2012
pursuant to RO Resolution No. 11-007-CA, sewerage charge applies only to commercial and
industrial customers connected to sewer lines.
Interest income is recognized as the interest accrues using the effective interest method.
a.
b.
c.
•
•
•
Ch
an
gin
g T
ide
s
85
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
When the Company provides construction or upgrade services, the consideration received or
receivable is recognized at its fair value. The Company accounts for revenue and costs relating to
operation services based on the percentage of completion (shows as “Revenue from rehabilitation
works” and “Cost of rehabilitation works” accounts in the consolidated statement of income).
Cost and Expense Recognition
Expenses are decreases in economic benefits during the accounting period in the form of outflows
or decrease of assets or incurrence of liabilities that result in decrease in equity, other than those
relating to distributions to equity participants. Expenses are recognized in the consolidated
statement of income as these are incurred.
Leases
The determination of whether an arrangement is, or contains a lease, is based on the substance of
the arrangement at inception date, whether the fulfillment of the arrangement is dependent on the
use of a specific asset or assets or the arrangement conveys a right to use the asset. A reassessment
is made after the inception of the lease only if one of the following applies:
There is a change in contractual terms, other than a renewal of or extension of the arrangement;
A renewal option is exercised or extension granted, unless the term of the renewal or
extension was initially included in the lease term;
There is a change in the determination of whether fulfillment is dependent on a specified asset; or
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.
Operating lease payments are recognized as expense in the consolidated statement of income on a
straight-line basis over the lease term.
Borrowing Costs
Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are
directly attributable to the acquisition or construction of a qualifying asset. To the extent that
funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of
borrowing costs eligible for capitalization on that asset shall be determined as the actual borrowing
costs incurred on that borrowing during the period less any investment income on the temporary
investment of those borrowings. To the extent that funds are borrowed generally and used for the
purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization shall
be determined by applying a capitalization rate to the expenditures on that asset. The capitalization
rate shall be the weighted average of the borrowing costs applicable to the borrowings of the
Company that are outstanding during the period, other than borrowings made specifically for the
purpose of obtaining a qualifying asset. The amount of borrowing costs capitalized during a period
shall not exceed the amount of borrowing costs incurred during that period.
(a)
(b)
(c)
(d)
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
86
Capitalization of 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 all the activities necessary to prepare the asset for its intended use or sale are
substantially complete. If the resulting carrying amount of the asset exceeds its recoverable amount,
an impairment loss is recognized.
Equity
Capital stock is measured at par value for all shares issued. Incremental costs incurred directly
attributable to the issuance of new shares are shown in equity as a deduction from proceeds, net
of tax. Proceeds and fair value of consideration received in excess of par value are recognized as
additional paid-in capital.
Treasury shares representing own equity instruments that are reacquired are recognised at cost and
deducted from equity. No gain or loss is recognized in the consolidated statement of income on the
purchase, sale, issuance or the cancellation of the Parent Company’s own equity instruments.
Retained earnings represent the Company’s accumulated earnings, net of dividends declared.
Value-Added Tax (VAT)
Revenues, expenses and assets are recognized net of the amount of VAT except: where the VAT
incurred on a purchase of assets or services is not recoverable from the tax authority, in which case
the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense
item as applicable; and receivables and payables that are stated with the amount of VAT included.
The net amount of VAT recoverable from and payable to the tax authority is included as part of
“Other current assets” and “Trade and other payables” accounts in the consolidated statement of
financial position.
Income Taxes
Current Income 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 authority. The tax rates and
tax laws used to compute the amount are those that are enacted or substantively enacted as at the
financial reporting date.
Deferred Income Tax. Deferred income tax is provided, using the liability method, on all temporary
differences 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. Deferred tax assets are
recognized for all deductible temporary differences to the extent that it is probable that taxable
profit will be available against which the deductible temporary differences can be utilized. Deferred
income tax, however, is not recognized when the deductible and taxable temporary differences arise
from the initial recognition of asset or liability in a transaction that is not a business combination
and, at the time of transaction, affects neither the accounting profit nor taxable profit or loss.
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 profit 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
profit will allow all or part of the deferred tax assets to be recovered.
Ch
an
gin
g T
ide
s
87
Deferred tax assets and deferred tax liabilities are measured at the tax rate that is expected to
apply to the period when the assets are realized or the liabilities are settled, based on the tax rates
(and tax laws) that have been enacted or substantively enacted as at the reporting date.
Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists
to offset current tax assets against current tax liabilities and the deferred taxes relate to the same
taxable entity and the same taxation authority.
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as
a result of a past event, it is probable that an outflow of resources embodying economic benefits
will be required to settle the obligations and a reliable estimate can be made of the amount of the
obligation. When the Company expects a provision to be reimbursed, such as under an insurance
contract, the reimbursement is recognized as a separate asset but only when the reimbursement is
virtually certain. The expense relating to any provision is presented in the consolidated statement
of income, net of any reimbursement. 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 assessments 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.
Pension Cost
The Company has a funded, noncontributory defined benefit plan. The cost of providing benefits under
the defined benefit plan is determined using the projected unit credit method. Actuarial gains and
losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and
losses for the plan at the end of the previous reporting year exceeded 10% of the higher of the defined
benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized
over the expected average remaining working lives of the employees participating in the plan.
Past service cost is recognized as an expense on a straight-line basis over the average period
until the benefits become vested. If the benefits are already vested immediately following the
introduction of, or changes to, a pension plan, past service cost is recognized immediately.
The defined benefit liability is the aggregate of the present value of the defined benefit obligation and
actuarial gains and losses not recognized, reduced by past service cost not yet recognized and the fair
value of plan assets out of which the obligations are to be settled directly. If such aggregate is negative,
the asset is measured at the lower of such aggregate or the aggregate of cumulative unrecognized net
actuarial losses and past service cost and the present value of any economic benefits available in the
form of refunds from the plan or reductions in the future contributions to the plan.
Share-based Payment
MPIC has an Executive Stock Option Plan (ESOP) for eligible executives to receive remuneration in
the form of share-based payment transactions, whereby executives render services in exchange for
the share option.
Employees of the Parent Company are granted rights to equity instruments of MPIC as consideration
for the services provided to the Parent Company.
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
88
The Parent Company measures the services received from its employees in accordance with the
requirements applicable to equity-settled share-based payment transactions, with a corresponding
increase recognized in equity as a contribution from MPIC, provided that the share-based
arrangement is accounted for as equity-settled in the consolidated financial statements of MPIC.
A parent grants rights to its equity instruments to the employees of its subsidiaries, conditional
upon the completion of continuing service with the group for a specified period. An employee of
one subsidiary may transfer employment to another subsidiary during the specified vesting period
without the employee’s rights to equity instruments of the parent under the original share-based
payment arrangement being affected. Each subsidiary shall measure the services received from the
employee by reference to the fair value of the equity instruments at the date those rights to equity
instruments were originally granted by the parent, and the proportion of the vesting period served
by the employee with each subsidiary.
Such an employee may fail to satisfy a vesting condition other than a market condition after
transferring between group entities. In this case, each subsidiary shall adjust the amount previously
recognized in respect of the services received from the employee. Hence, no amount is recognized
on a cumulative basis for the services received from that employee in the financial statements of
any subsidiary if the rights to the equity instruments granted by the parent do not vest because of
an employee’s failure to meet a vesting condition other than a market condition.
Long-term Employee Benefits
MPIC’s Long Term Incentive Plan (LTIP) grants cash incentives to eligible key executives of the MPIC
and certain subsidiaries. Liability under the LTIP is determined using the projected unit credit method.
Employee benefit costs include current service costs, interest cost, actuarial gains and losses, and past
service costs. Past service costs and actuarial gains and losses are recognized immediately.
The long-term employee benefit liability comprise the present value of the defined benefit obligation
(using discount rate based on government bonds) vested at the end of the reporting period.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed
in the notes to consolidated financial statements unless the possibility of an outflow of resources
embodying economic benefits is remote. Contingent assets are not recognized in the consolidated
financial statements but are disclosed in the notes to consolidated financial statements when an inflow
of economic benefits is probable. Contingent assets are not recognized unless virtually certain.
Events After the Reporting Period
Post year-end events that provide additional information about the Company’s position at the
financial reporting date (adjusting events) are reflected in the consolidated financial statements.
Post year-end events that are not adjusting events are disclosed in the notes to the consolidated
financial statements when material.
Earnings per share (EPS)
Basic EPS is computed based on the weighted average number of outstanding shares and adjusted
to give retroactive effect to any stock split during the year. There are no dilutive potential
common shares outstanding that would require disclosure of diluted EPS in the consolidated
statements of income.
Ch
an
gin
g T
ide
s
89
Significant Accounting Judgments, Estimates and Assumptions
The preparation of the consolidated financial statements in accordance with PFRS requires the
Company to make estimates and assumptions that affect the reported amounts of assets, liabilities,
income and expenses and disclosure of contingent liabilities at the reporting date. In preparing
the Company’s consolidated financial statements, management has made its best estimates
and judgments of certain amounts, giving due consideration to materiality. The estimates and
assumptions used in the accompanying consolidated financial statements are based upon
management’s evaluation of relevant facts and circumstances as at the date of the consolidated
financial statements. Future events may occur which will cause the assumptions used in arriving at
the estimates to change. The effects of any change in estimates are reflected in the consolidated
financial statements as they become reasonably determinable.
Estimates and judgments are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under the
circumstances.
Judgments
In the process of applying the Company’s accounting policies, management has made the following
judgments, apart from those involving estimations, which have the most significant effect on the
amounts recognized in the consolidated financial statements:
Service Concession Assets. The Parent Company and Phil Hydro accounts for its concession
arrangement with MWSS and Bulk water Supply Agreements, respectively, in accordance with
IFRIC 12 under the Intangible Asset model as it receives the right (license) to charge users of public
service. The Service Concession Asset (SCA) is amortized using the straight-line method over the
life of the concession.
In 2013, the Company determined that the unit of production (UOP) method of amortizing service
concession assets is now the more appropriate method instead of using the straight-line basis
given that the economic benefit of these assets are more closely aligned with billed volume, which
the Company can already estimate reliably. On February 13, 2013, the BOD approved the change
in amortization method. Beginning 2013, the Company would thus apply the UOP method of
amortizing its concession assets.
Service concession assets, net of accumulated amortization of P13.3 billion and P11.5 billion, amounted
to P51.0 billion and P44.6 billion as at December 31, 2012 and 2011, respectively
(see Note 9).
Transitional and Clarificatory Agreement (TCA). Pending resolution of the dispute between the Parent
Company and MWSS on certain claims of MWSS, the disputed amount of P4.5 billion and P4.3 billion
as at December 31, 2012 and 2011, respectively, is considered as contingent liability. Prior to 2012, no
reversal of accrued interest payable was made pending resolution of the matter in accordance with
the dispute requirements of the TCA. However, in light of the Parent Company’s current negotiation
and outstanding offer of US$14.0 million to fully settle the claim of MWSS, the Company reversed
the amount of accrued interest in excess of the US$14.0 million settlement offer amounting to P378.1
million and charged to other income in 2012 (see Notes 9, 12 and 19).
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3.
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
90
Operating Lease Commitments - Company as Lessee. The Company 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 lease contracts as operating leases.
Total rental expense amounted to P175.2 million, P208.2 million and P160.4 million in 2012, 2011 and
2010, respectively (see Note 22).
Contingencies. The Company is currently involved in various legal and administrative proceedings.
The Company’s estimate of the probable costs for the resolution of these claims has been developed
in consultation with outside legal counsel handling defense in these matters and is based upon an
analysis of potential results. The Company currently does not believe these proceedings will have
a material adverse effect on the Company’s financial position. It is possible, however, that future
results of operations could be materially affected by changes in the estimates or in the effectiveness
of strategies relating to these proceedings (see Notes 11 and 19).
Estimates and Assumptions
The key assumptions concerning the future and other key 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 within the next financial year are discussed below.
Fair Value of Service Concession Payable. The determination of the cost of service concession
payable requires management to make estimates and assumptions to determine the extent to which
the Company receives a right or license to charge users of the public service. In making those
estimates, management is required to determine a suitable discount rate to calculate the present
value of these cash flows. While the Company believes that the assumptions used are reasonable
and appropriate, these estimates and assumptions can materially affect the consolidated financial
statements.
Fair Values of Financial Assets and Liabilities. PFRS requires that certain financial assets and
liabilities be carried at fair value, which requires the use of accounting estimates and judgments.
While significant components of fair value measurement are determined using verifiable objective
evidence (i.e., foreign exchange rates, interest rates, volatility rates), the timing and amount of
changes in fair value would differ with the valuation methodology used. Any change in the fair value
of these financial assets and liabilities would directly affect income and equity.
The fair values of financial assets and liabilities are set out in Note 25.
Purchase Price Allocation in Business Combinations and Goodwill. The Company’s consolidated
financial statements reflect acquired businesses after the completion of the respective acquisition.
The Company accounts for the acquired businesses using the acquisition method which requires
extensive use of accounting judgments and estimates to allocate the purchase price to the fair
market values of the acquiree’s identifiable assets and liabilities and contingent liabilities, if any,
at the acquisition date. Any excess in the purchase price over the fair market values of the net
assets acquired is recorded as goodwill in the consolidated statement of financial position. Thus,
the numerous judgments made in estimating the fair market value to be assigned to the acquiree’s
assets and liabilities can materially affect the Company’s financial position and performance.
Ch
an
gin
g T
ide
s
91
The Company’s acquisitions have resulted in recognition of goodwill. The carrying value of goodwill
as at December 31, 2012 amounting to P107.7 million was provisionally determined as allowed by
PFRS 3 (see Note 4).
Fair Value Measurement of Contingent Consideration. Contingent consideration, resulting from
business combinations, is valued at fair value at acquisition date as part of the business
combination. Where the contingent consideration meets the definition of a derivative and,
thus, a financial liability, it is subsequently remeasured to fair value at each reporting date. The
determination of the fair value is based on discounted cash flows. The key assumptions take into
consideration the probability of meeting each performance target and the discount factor.
Recognition of Revenue and Cost. The Company’s revenue recognition policies require management
to make use of estimates and assumptions that may affect the reported amount of revenue. The
Company 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. Given that the Company has subcontracted
the rehabilitation works to outside contractors (excluding the cost of some materials for some
contractors), the recognized revenue from rehabilitation works substantially approximates the
related cost.
Allowance for Doubtful Accounts. The Company estimates the allowance for doubtful accounts
related to the trade receivables based on two methods. The amounts calculated using each of
these methods are combined to determine the total amount of allowance. First, the Company
evaluates specific accounts that are considered individually significant for any objective evidence
that certain customers are unable to meet their financial obligations. In these cases, the Company
uses judgment, based on the best available facts and circumstances, including but not limited to, the
length of its relationship with the customer and the customer’s current credit status based on third
party credit reports and known market factors. The allowance provided is based on the difference
between the present value of the receivables that the Company expects to collect, discounted at
the receivables’ original effective interest rate and the carrying amount of the receivable. These
specific allowance are re-evaluated and adjusted as additional information received affects the
amounts estimated. Second, if it is determined that no objective evidence of impairment exists for
an individually assessed receivable, the receivable is included in a group of receivables with similar
credit risk characteristics and is collectively assessed for impairment. The provision under collective
assessment is based on historical collection, write-off, experience and change in customer payment
terms. Impairment assessment is performed on a continuous basis throughout the year.
The amount and timing of recorded expenses for any period would therefore differ based on the
judgments or estimates made. Provision for doubtful accounts amounted to P134.0 million,
P154.9 million and nil in 2012, 2011 and 2010, respectively. An increase in allowance for doubtful
accounts would increase the Company’s recorded expenses and decrease trade and other
receivables. Trade and other receivables, net of allowance for doubtful accounts, amounted to
P2.5 billion and P2.0 billion as at December 31, 2012 and 2011, respectively (see Note 6).
Estimated Useful Lives of Property and Equipment. The useful life of each item of the Company’s
property and equipment is estimated based on the period over which the asset is expected to
be available for use. Such estimation is based on a collective assessment of practices of similar
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
92
businesses, internal technical evaluation and experience with similar assets. The estimated useful
life of each asset is reviewed periodically and updated if expectations differ from previous estimates
due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the
use of the asset. It is possible, however, that future results of operations could be materially affected
by changes in the amounts and timing of recorded expenses brought about by changes in the factors
mentioned above. A reduction in the estimated useful life of any item of property and equipment
would increase the recorded depreciation expense and decrease property and equipment.
There was no change in estimated useful lives of property and equipment in 2012 and 2011.
Property and equipment, net of accumulated depreciation and amortization, amounted to
P367.3 million and P335.2 million as at December 31, 2012 and 2011, respectively (see Note 8).
Deferred Tax Assets. 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 profit will be available
to allow all or part of the deferred tax assets to be utilized. However, there is no assurance that
sufficient taxable profit will be generated to allow all or part of the deferred tax assets to be utilized.
The Company recognized deferred tax assets on deductible temporary differences expected to
reverse after the income tax holiday until 2015. The Company did not recognize deferred tax assets
on deductible temporary differences that are expected to reverse during the income tax holiday
period and to items where doubt exists as to the tax benefits they will bring in the future. Net
deferred tax assets recognized amounted to P1.6 billion and P1.9 billion as at December 31, 2012 and
2011, respectively. Unrecognized deferred tax assets amounted to P2.5 billion and P2.3 billion as at
December 31, 2012 and 2011, respectively (see Note 15).
The change in amortization method of the Parent Company’s service concession assets starting 2013
from straight-line to UOP resulted in deferred tax asset write-off amounting to P469.5 million in 2012
as these would no longer be realized due to the lower amortization expense within the income tax
holiday than previously projected (see Note 15).
Deferred FCDA and Deferred Credits. Under Amendment No.1 of the Concession Agreement, the
Company is entitled to recover (refund) foreign exchange losses (gains) arising from MWSS loans
and any concessionaire loans. For the unrealized foreign exchange losses, the Company recognized
deferred FCDA as an asset since this is a resource controlled by the Company as a result of past events
and from which future economic benefits are expected to flow to the Company. Unrealized foreign
exchange gains, however, which will be refunded to the customers, are presented as deferred credits.
In accordance with MWSS-RO Resolution No. 2009-069, the new base foreign exchange rate was
changed from P51.86 to P48.04 effective May 4, 2009.
Deferred credits representing the net effect of unrealized foreign exchange gains on service
concession obligation payable to MWSS, and restatement of foreign currency-denominated interest-
bearing loans and related interest that are still refundable to the customers amounted to
P1,675.8 million and P712.2 million as at December 31, 2012 and 2011, respectively.
Ch
an
gin
g T
ide
s
93
Asset Impairment. The Company assesses impairment on assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. The factors
that the Company 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 use of the acquired assets or the strategy for overall
business; and
significant negative industry or economic trends.
The Company recognizes an impairment loss whenever the carrying amount of an asset exceeds
its recoverable amount. The recoverable amount is computed using the value in use approach.
Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-
generating unit to which the asset belongs. Determining the recoverable amount of assets requires
the estimation of cash flows expected to be generated from the continued use and ultimate
disposition of such assets. While it is believed that the assumptions used in the estimation of fair
values reflected in the consolidated financial statements are appropriate and reasonable, significant
changes in these assumptions may materially affect the assessment of recoverable amounts and
any resulting impairment loss could have a material adverse impact on the results of operations.
Noncurrent nonfinancial assets subject to impairment test when certain impairment indicators are
present follow:
No impairment of goodwill was recognized in 2012. Provisional goodwill related to the acquisition of
Phil Hydro of P107.7 million was not tested for impairment as there were no identified indicators of
impairment (see Note 4).
Computation of Pension Cost. The determination of the obligation and cost for pension are
dependent on the selection of certain assumptions used by actuaries in calculating such amounts.
Those assumptions are described in Note 16 and include, among others, discount rate, salary
increase rate and expected rate of return on plan assets. In accordance with PFRS, actual results
that differ from the Company’s assumptions are accumulated and amortized over future periods and
therefore, generally affect the recognized expense and recorded obligation in such future periods.
While it is believed that the Company’s assumptions are reasonable and appropriate, significant
differences in actual experience or significant changes in assumptions may materially affect the
Company’s pension liability.
Pension liability amounted to P230.4 million and P139.7 million as at December 31, 2012 and 2011,
respectively. Unrecognized actuarial loss amounted to P9.9 million and P25.7 million as at December
31, 2012 and 2011, respectively (see Note 16).
•
•
•
2012 2011
Service concession assets (see Note 9) P51,015,751 P44,587,539
Property and equipment (see Note 8) 367,332 335,202
Goodwill 107,745 –
Total P51,490,828 P44,922,741
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
94
Computation of Share-based Payment Transactions. The Company measures the cost of equity-
settled transactions with employees by reference to the fair value of the equity instruments at
the date at which they are granted. Estimating fair value for share-based payments requires
determining the most appropriate valuation model for a grant of equity instruments, which is
dependent on the terms and conditions of the grant. This estimate also requires determining the
most appropriate inputs to the valuation model including the expected life of the option, volatility
and dividend yield and making assumptions about them. The assumptions and models used for
estimating fair value for share-based payments are disclosed in Note 13.
Equity based compensation expense presented as part of “Salaries, wages and benefits” account in
the 2012, 2011 and 2010 consolidated statements of income amounted to P7.5 million,
P15.7 million and P2.1 million, respectively (see Note 13).
Determination of Other Long Term Incentives Benefits. The LTIP for key executives of MPIC and certain
subsidiaries, including the Company, was approved by the Executive Compensation Committee and
the BOD of MPIC which is based on profit targets for the covered Performance Cycle. The cost of
LTIP is determined using the projected unit credit method based on prevailing discount rates and
profit targets. While management’s assumptions are believed to be reasonable and appropriate,
significant differences in actual results or changes in assumptions may materially affect the
Company’s other long-term incentive benefits.
The total cost of the LTIP recognized by the Company in 2012 and 2011 presented as part of “Salaries,
wages and benefits” amounted to P22.8 million and P54.1 million, respectively, of which, P5.7 million
and P10.8 million, respectively, was recognized under “Other equity adjustments” in the equity
section of the consolidated statements of financial position representing MPIC’s share in the LTIP
cost of the Company as per LTIP Plan and the balance of P17.1 million was presented as part of “Other
accrued expenses” under “Trade and other payables” account and P43.3 million was presented as
part of “Other noncurrent liabilities” account in the consolidated statements of financial position as
at December 31, 2012 and 2011, respectively (see Note 16)
Amortization of Debt Issuance Cost. As of December 31, 2012, the Parent Company has on-going
negotiation for the refinancing on a clean basis of its outstanding Corporate Notes. Management
had assessed that it is probable that the refinancing will be approved during the first quarter of
2013. Consequently, the amortization of capitalized debt issuance cost was accelerated in 2012
based on the revised expected cash flows. Related amortization of debt issuance costs amounted to
P328.5 million (see Note 10).
Business Combination and Goodwill
The Company’s intention is to maintain and continue to develop a diverse set of infrastructure assets
through its investments in water utilities. The Company is therefore committed to investing through
acquisitions and strategic partnerships in prime infrastructure assets with the potential to provide
synergies with its existing operations.
Acquisition of Phil Hydro. On August 3, 2012, the Parent Company, through a Share Purchase
Agreement with a third party, acquired 100% ownership interest in Phil Hydro for a consideration of
P595.0 million payable in tranches upon fulfillment and completion of certain conditions precedent.
The Parent Company paid a portion of the consideration amounting to P210.0 million on August 8,
4.
Ch
an
gin
g T
ide
s
95
2012. On February 5, 2013, the Parent Company was able to negotiate a discount on the purchase
price amounting of P68.1 million to cover for Phil Hydro’s failure to deliver certain documents and
fulfill certain conditions precedent.
Details of the adjusted total consideration follow:
The provisional fair value of the identifiable assets and liabilities of Phil Hydro as at the date of
acquisition were as follows:
The purchase price consideration had been allocated to the identifiable assets and liabilities of
Phil Hydro on the basis of provisional fair values pending completion of valuation of intangible assets
and goodwill arising from the acquisition.
The goodwill of P107.7 million, which was determined provisionally, represents the fair value of
expected economic benefits that the Parent Company will obtain arising from the acquisition of
Phil Hydro.
From the date of acquisition to December 31, 2012, Phil Hydro contributed P7.4 million to the
consolidated net income of the Company from continuing operations. If the combination had taken
place at the beginning of the year, Phil Hydro’s contribution to the Company’s consolidated net
income from continuing operations in 2012 would have been P10.7 million and its contribution to the
Company’s consolidated revenues from continuing operations would have been P48.5 million.
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amount
Cash payment P210,000
Contingent consideration liability 316,950
Total consideration P526,950
Carrying ValueProvisional Fair Values
Recognized on Acquisition
Assets
Cash and cash equivalents P2,552 P2,552
Receivables 34,655 34,655
Other current assets 5,739 5,739
Service concession assets 292,616 651,767
Other noncurrent assets 2,908 2,908
338,470 697,621
Liabilities
Accounts payable and other current liabilities 12,041 12,041
Other current liabilities 92,358 92,358
Notes payable 66,272 66,272
Deferred tax liability – 107,745
170,671 278,416
Total net identifiable assets at provisional fair value 167,799 419,205
Provisional goodwill 107,745
Purchase consideration transferred P526,950
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
96
Net cash outflow on acquisition is as follows:
Transaction costs of P1.3 million have been expensed and are included in “Cost and expenses” in the
2012 consolidated statement of income.
Cash and Cash Equivalents
Cash and cash equivalents consist of:
Cash in banks earn interest at the respective bank deposit rates. Cash equivalents are made for
varying periods between one day and three months depending on the immediate cash requirements
of the Company and earn interest at the respective short-term investment rates.
Short-term investments amounting to P14.1 million with original maturities of more than three months
to one year are shown separately in the consolidated statements of financial position.
Interest income earned from cash in banks and short-term investments amounted to P154.9 million,
P118.6 million and P68.1 million in 2012, 2011 and 2010, respectively (see Note 17).
Trade and Other Receivables
This account consists of receivables from:
Amount
Total cash paid on acquisition P210,000
Transaction costs of the acquisition 1,333
Net cash acquired with the subsidiary (2,552)
Net cash outflow on acquisition P208,781
5.
6.
2012 2011
Cash on hand and in banks P604,125 P551,341
Cash equivalents 3,302,211 3,624,096
P3,906,336 P4,175,437
2012 2011
Customers:
Residential P1,916,169 P1,776,173
Semi-business 182,639 186,241
Commercial 659,711 570,293
Industrial 128,606 104,860
Bulk water supply 28,035 –
2,915,160 2,637,567
Employees 43,134 22,852
Others 699,281 377,611
3,657,575 3,038,030
Less allowance for doubtful accounts 1,124,661 1,003,215
P2,532,914 P2,034,815
Ch
an
gin
g T
ide
s
97
The classes of the Company’s receivables from customers are as follows:
Residential - pertains to receivables arising from water and sewer service use for domestic
sanitary purposes only.
Semi-business - pertains to receivables arising from water and sewer service use for small
businesses.
Commercial - pertains to receivables arising from water and sewer service use for
commercial purposes.
Industrial - pertains to receivables arising from water and sewer service use for industrial
purposes, including services for manufacturing.
Receivables from customers and bulk water supply are non-interest bearing and generally have
60-days term.
Philippine Hydro entered into guarantee contracts with LGU Guarantee Corporation (LGUGC), a
private credit guarantee institution, to secure 85% of the monthly billing obligations of Legazpi City
Water District (LCWD) and Norzagaray Water District (NWD). The secured amount shall not exceed
the outstanding amount of loans obtained by Phil Hydro for the respective projects
(see Notes 7 and 10).
The movements in the Company’s allowance for doubtful accounts follow:
•
•
•
•
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2011
Receivables from Customers Other
Residential Semi-business Commercial Industrial Receivables Total
At January 1 P347,680 P79,799 P252,953 P94,822 P75,593 P850,847
Provision during the year 102,103 34,966 11,419 6,429 – 154,917
Write-off during the year (2,549) – – – – (2,549)
At December 31 P447,234 P114,765 P264,372 P101,251 P75,593 P1,003,215
2012
Receivables from Customers Other
Residential Semi-business Commercial Industrial Receivables Total
At January 1 P447,234 P114,765 P264,372 P101,251 P75,593 P1,003,215
Provision during the year 63,653 16,806 38,714 14,827 – 134,000
Write-off during the year (12,554) – – – – (12,554)
At December 31 P498,333 P131,571 P303,086 P116,078 P75,593 P1,124,661
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
98
Other Current Assets
This account consists of:
Sinking fund represents the amount set aside to cover semi-annual principal and interest payment of
loans (see Note 10).
Advances to contractors are normally applied within a year against progress billings.
Prepayments mainly pertain to insurance, premium bond, taxes and licenses and prepaid loan
transaction cost related to World Bank loan to be drawn in 2013.
Deposits mainly consist of refundable rental deposits.
Property and Equipment
The rollforward analysis of this account follows:
7.
8.
2012 2011
Sinking fund (see Note 10) P1,130,191 P1,707,044
Advances to contractors 219,365 220,923
Prepayments (see Note 10) 124,970 79,061
Deposits 92,166 67,549
Others 65,284 44,552
P1,631,976 P2,120,529
December 31, 2012
Land and Land Improvements
Instrumentation, Tools and Other
Equipment
Office Furniture, Fixtures and Equipment
Transportation Equipment
Total
Cost
At January 1 P9,237 P547,887 P507,125 P170,106 P1,234,355
Additions 614 116,549 48,063 27,331 192,557
Reclassification – (23,228) 23,228 – –
Disposals – (737) (17,033) (4,409) (22,179)
At December 31 9,851 640,471 561,383 193,028 1,404,733
Accumulated Depreciation and Amortization
At January 1 738 363,205 408,462 126,748 899,153
Depreciation and amortization
150 83,342 53,532 21,327 158,351
Disposals – (737) (17,033) (2,333) (20,103)
At December 31 888 445,810 444,961 145,742 1,037,401
Net Book Value at December 31
P8,963 P194,661 P116,422 P47,286 P367,332
Ch
an
gin
g T
ide
s
99
As at December 31, 2012 and 2011, there were no capitalized borrowing costs.
Service Concession Assets
The movements in this account are as follows:
Service concession assets consist of the present value of total estimated concession fee payments
pursuant to the Concession Agreement and the costs of rehabilitation works incurred.
The aggregate Concession fee pursuant to the Concession Agreement is equal to the sum of the
following:
90% 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 raw
water conveyance component of the Umiray-Angat Transbasin Project (UATP), on the relevant
payment date set forth on the pertinent schedule of the Concession Agreement;
90% 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 relevant payment
date set forth on the pertinent schedule of the Concession Agreement;
December 31, 2011
Land and Land Improvements
Instrumentation, Tools and Other
Equipment
Office Furniture, Fixtures and Equipment
Transportation Equipment
Total
Cost
At January 1 P8,721 P386,404 P435,639 P191,783 P1,022,547
Additions 516 174,950 75,061 14,202 264,729
Disposals – (13,467) (3,575) (35,879) (52,921)
At December 31 9,237 547,887 507,125 170,106 1,234,355
Accumulated Depreciation and Amortization
At January 1 594 243,621 355,083 132,384 731,682
Depreciation and amortization
144 133,031 56,524 27,819 217,518
Disposals – (13,447) (3,145) (33,455) (50,047)
At December 31 738 363,205 408,462 126,748 899,153
Net Book Value at December 31
P8,499 P184,682 P98,663 P43,358 P335,202
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9.
2012 2011
Cost:
Balance at beginning of year P56,093,099 P46,265,823
Additions 7,606,886 9,827,276
Business combination (see Note 4) 651,767 –
Balance at end of year 64,352,752 56,093,099
Accumulated amortization:
Balance at beginning of year 11,505,560 10,077,059
Amortization 1,831,441 1,428,501
Balance at end of year 13,337,001 11,505,560
P51,015,751 P44,587,539
a.
b.
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
100
90% of the local component costs and cost overruns related to the UATP in accordance with
the pertinent schedule of the Concession Agreement;
100% of the aggregate peso equivalent due under any MWSS loan designated for existing
projects, which have not been disbursed prior to the Commencement Date and have
been either awarded to third party bidders or been elected by the Parent Company for
continuation in accordance with the pertinent sections of the Concession Agreement;
100% of the local component costs and cost overruns related to the existing projects in
accordance with relevant schedule of the Concession Agreement; and
Maintenance and operating expenditure (MOE) representing one-half of the annual budget for
MWSS for that year, provided that such annual budget shall not exceed P200.0 million
(as at 1997), subject to annual CPI adjustment.
Tranche B Concession Fees are additional concession fees being charged by MWSS to the Parent
Company representing the cost of borrowings by MWSS as at December 2004. As at December 31,
2012 and 2011, the Parent Company has recognized Tranche B Concession Fees of US$36.9 million.
On January 16, 2008, the recognized Tranche B Concession Fees and related accrued interest
thereon were fully settled by the Parent Company pursuant to the Prepayment and Settlement
Agreement (PSA) (see Note 12).
Pursuant to the recommendation of the Receiver, the disputed amount being claimed by MWSS of
additional Tranche B Concession Fees of US$18.1 million is considered a contingent liability of the
Parent Company, as discussed in Note 19.
The Parent Company recognized additional concession fees recognized as part of “Service
concession assets” account in the consolidated statements of financial position amounting to
P1,101.3 million and P1,057.1 million in 2012 and 2011, respectively (see Note 12). These additional
concession fees mainly pertain to the drawn portion of MWSS loans relating to new projects.
Certain items of service concession assets with a carrying value of P152.6 million and
P160.4 million as at December 31, 2012 and 2011, respectively, are used as collaterals for
Phil Hydro’s interest-bearing loans (see Note 10).
Interest-Bearing Loans
This account consists of:
c.
d.
e.
f.
10.
2012 2011
US$365.0 million Corporate Notes:
Peso-denominated loan (Series 1) P9,640,081 P10,516,452
Dollar-denominated loan (Series 2) 4,977,313 5,425,200
P7.0 billion Corporate Notes 7,000,000 7,000,000
Peso-denominated loan 52,604 –
21,669,998 22,941,652
Less unamortized debt issuance costs 14,819 403,904
21,655,179 22,537,748
Less current portion 1,031,600 985,971
P20,623,579 P21,551,777
Ch
an
gin
g T
ide
s
101
US$365.0 Million Corporate Notes
On June 30, 2008, the Parent Company entered into an Omnibus Notes Facility and Security
Agreement (the Omnibus Agreement) with Banco de Oro Unibank, Inc. and Development Bank of the
Philippines (Noteholders) for US$365.0 million notes (“the Notes”) for the purpose of financing the
capital expenditures and payment of advances from shareholders. The Notes comprise of Series 1
amounting to US$240.0 million (P11.0 billion) and Series 2 amounting to US$125.0 million. Series 1 is
a peso-denominated loan which consists of a fixed peso equivalent of US$120.0 million (P5.5 billion)
fixed rate note and US$120.0 million (P5.5 billion) floating rate note. Series 2 is a US$125.0 million
floating rate dollar-denominated note.
Series 1 Fixed and Floating Rate Note. Bears interest of fixed and floating rate and is payable within
ten years to commence at the end of the 36th month after the initial issue date.
In 2011, the Parent Company and the Noteholders agreed to reduce the interest rates of Series 1
Corporate Notes. The interest rate on Series 1 Fixed Rate Notes was reduced from 11.8173% per
annum to 8.8173% per annum subject to review and renegotiation should the 10-Y PDST-F be
equivalent to or higher than 8.2852% per annum. For the Series 1 Floater Rate Notes, the interest
was changed from floating benchmark rate plus 2.0% spread per annum to the higher of 4.75% per
annum or 6-month PDSTF plus 2% spread. The change in the terms of the loan contract did not
result to substantial modification of the Notes thus, did not result to derecognition.
Series 2 Floating Rate Note. Bears interest of LIBOR and CDS rate plus 2.0% spread per annum and is
payable within ten years to commence at the end of the 36th month after the initial issue date.
Debt Issuance Costs. All legal, professional and registration fees incurred in relation to the availment
of the US$365.0 million Corporate Notes, totaling P451.8 million, were capitalized starting July
2008. Debt issuance costs are amortized using the effective interest method. Amortization of debt
issuance costs amounted to P378.5 million, P51.1 million and P80.8 million in 2012, 2011 and 2010,
respectively, are presented as part of “Interest expense” account in the consolidated statements of
income (see Note 17).
P7.0 Billion Corporate Notes
On March 23, 2011, the Parent Company entered into a P7.0 billion Omnibus Notes Facility and
Security Agreement from various financing institutions for the purpose of capital expenditure
financing. The loan was made available in two equal drawdowns, on March 30, 2011 and on
September 30, 2011. The loan shall be payable in semi-annual installments within ten years to
commence at the end of the 36th month after the initial issue date and bears an interest rate per
annum equal to the higher of (i) the applicable benchmark rate plus 0.75% per annum, or (ii) 6.5%
per annum. The benchmark rate shall be determined by reference to the PDST-F rate.
Debt Issuance costs. All legal and professional fees incurred in relation to the debt, totaling
P118.8 million, were capitalized in 2011. Debt issuance costs are amortized using the effective interest
method. Amortization of debt issue costs attributed to this loan, amounting to P10.6 million and
P7.5 million in 2012 and 2011, respectively, is presented as part of “Interest expense” account in the
consolidated statements of income (see Note 17).
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
102
As of December 31, 2012, the Parent Company has on-going negotiation for the refinancing on a
clean basis of its outstanding Corporate Notes. Management had assessed that it is probable that
the refinancing will be approved during the first quarter of 2013. Consequently, the amortization of
capitalized debt issuance cost was accelerated in 2012 based on the revised expected cash flows.
Related amortization of debt issuance costs amounted to P328.5 million (see Note 3).
The movements in the balance of unamortized debt issuance costs are as follows:
The Parent Company’s existing Noteholders are secured by a first ranking mortgage over all of the
Parent Company’s mortgageable assets and an assignment of all rights, title and interest of the
Parent Company to its assigned accounts, accounts receivable, project documents and performance
guarantee with Banco De Oro Unibank, Inc. as collateral agent. The Noteholders are secured further
by a third party mortgage of the Parent Company shares representing 40.9% of the outstanding
shares of the Parent Company and a voting trust over 31.0% of the outstanding shares of the Parent
Company. The third party mortgage and voting trust over the Parent Company shares shall cease,
terminate, and become void at such time that the Parent Company’s nonrevenue water or NRW
is reduced to 45%. As at December 31, 2011, the Parent Company had already breached the 45%
threshold, and therefore, the condition for the release, cancellation and discharge of the mortgage
lien over the mortgaged shares has been fulfilled to the satisfaction of the secured parties.
Covenants. The Omnibus Agreements for both the US$365.0 million and P7.0 billion Corporate
Notes contain, among others, covenants regarding the maintenance of certain financial ratios such
as debt-to-equity ratio and debt service coverage ratio, and maintenance of debt service reserve
account (see Note 7). As at December 31, 2012 and 2011, the Parent Company has complied with
these covenants.
Under the terms of the Omnibus Agreements, the Parent Company may, at its option and without
premium and penalty, redeem the Corporate Notes in whole or in part, subject to the conditions
stipulated in the agreements. The embedded early redemption and prepayment options are clearly
and closely related to the host debt contract, thus, do not require to be bifurcated and accounted or
separately in the host contract.
The repayments of loans based on existing terms are scheduled as follows:
2012 2011
Balance at beginning of year P403,904 P343,722
Amortization during the year (see Note 17) (389,085) (58,646)
Additions during the year – 118,828
P14,819 P403,904
In Original Currency
Year US Dollar-denominated* (In Millions) Peso Loans Total Peso Equivalent*
2013 $2.50 P876.37 P979.00
2014 6.25 981.37 1,237.93
2015 10.00 1,016.37 1,426.87
2016 10.00 1,016.37 1,426.87
2017 onwards 92.50 12,749.60 16,546.72
$121.25 P16,640.08 P21,617.39
* Translated using the December 31, 2012 exchange rate of P41.05:US$1.
Ch
an
gin
g T
ide
s
103
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Peso-denominated Loan of Phil Hydro
Phil Hydro obtained loans from local banks amounting to P70.0 million and P105.0 million in 2009 and
2007, respectively, to finance its capital expenditures in Legazpi City and Norzagaray, Bulacan.
Both loans are payable in quarterly installments over seven years from the respective dates of
availment. The loan obtained in 2009 is subject to interest rate based on Philippine Dealing System
Treasury - Fixing (PDST-F) rates plus a certain spread. On the other hand, the loan obtained in 2007
is subject to repricing every quarter.
Covenants. Among the significant covenants are as follows: (1) the prohibition against declaration
or payment of dividends to Phil Hydro’s stockholders (other than dividends payable solely in shares
of its capital stock) if payment of any sum due to the lenders is in arrears or it if would affect
negatively the Phil Hydro’s financial condition. As at December 31, 2012 and 2011, Phil Hydro has no
payments in arrears due to its lenders; (2) maintenance of current ratio of at least 1:1 and debt-to-
equity ratio not greater than 2.5:1; and (3) non-granting of loans or advances to any of its directors,
officers, and/or stockholders which, in the aggregate, would exceed 10% of its net worth at any time.
As at December 31, 2012 and 2011, Phil Hydro was able to comply with the covenants, except for the
current ratio. As a result, the noncurrent portion of the loan obtained in 2009 amounting to
P40.8 million was presented as part of current liabilities in the 2012 consolidated statement of
financial position.
The loans are secured by the assigned guarantee coverage of the Company at 85% of the customers’
monthly billing obligation but not to exceed P75.0 million and P150.0 million for the loans obtained
in 2009 and 2007, respectively. In addition to the above guarantee, the loan obtained in 2007 is
secured by certain property and equipment located in Legazpi City (see Note 8). On the other hand,
the loan obtained in 2009 is secured by a continuing surety made by Phil Hydro’s major stockholders
in favor of Phil Hydro (see Note 7).
Trade and Other Payables
This account consists of:
Trade and other payables are non-interest bearing and are normally settled within one year.
Trade payables include liabilities relating to assets held in trust (see Note 23) used in the Company’s
operations amounting to P97.3 million as at December 31, 2012 and 2011.
Other accrued expenses mainly consist of provisions, salaries, wages and benefits, contracted
services and interest payable to the banks. Details of provisions required by PAS 37 are not disclosed
as these may prejudice the Company’s positions in relation to the cases pending before the courts or
quasi-judicial bodies.
11.
2012 2011
Trade payables P2,025,738 P1,769,898
Accrued construction costs (see Note 14) 4,996,260 3,693,936
Due to related party (see Note 14) 115,251 763,393
Other accrued expenses 4,029,282 3,249,822
P11,166,531 P9,477,049
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
104
Service Concession Obligation Payable to MWSS
This account consists of:
Disputes with MWSS
In prior years, the Parent Company has been contesting certain charges billed by MWSS relating
to: (a) the basis of the computation of interest; (b) MWSS cost of borrowings; and (c) additional
penalties. Consequently, the Parent Company has not provided for these additional charges. These
disputed charges have been reflected by virtue of the Debt and Capital Restructuring Agreement
(DCRA) entered into in 2005. Accordingly, the Parent Company has recognized these additional
charges, referred to as Tranche B Concession Fees in the DCRA, amounting to US$30.1 million. As
discussed in Note 9, the Receiver has determined an additional amount of Tranche B Concession
Fees of US$6.8 million. As at December 31, 2012 and 2011, the Parent Company has recognized
Tranche B Concession Fees of US$36.9 million (see Note 9).
The Parent Company reconciled its liability to MWSS with the confirmation and billings of MWSS.
The difference between the amount confirmed by MWSS and the amount recognized by the Parent
Company amounted to P4.5 billion and P4.3 billion as at December 31, 2012 and 2011, respectively. The
difference mainly pertains to disputed claims of MWSS consisting of additional Tranche B Concession
Fees (see Note 9), borrowing cost and interest penalty under the Concession Agreement (prior to the
DCRA) (see Note 19). The Parent Company’s position on these charges is consistent with the Receiver’s
recommendation which was upheld by the Rehabilitation Court (see Notes 9 and 19).
Following the issuance of the Rehabilitation Court’s Order on December 19, 2007 disallowing the
MWSS’ disputed claims and the termination of the Company’s rehabilitation proceedings, the
Company and MWSS are seeking to resolve the matter in accordance with the dispute resolution
requirements of the TCA.
Prior to the DCRA, the Parent Company has accrued interest on its payable to MWSS based on
the terms of the Concession Agreement, which was disputed by the Parent Company before the
Rehabilitation Court. These already amounted to P985.3 million as at December 31, 2011 and have
been charged to interest expense in prior years. The Parent Company maintains that the accrued
interest on its payable to MWSS has been adequately replaced by the Tranche B Concession Fees
discussed above. The Parent Company’s position is consistent with the Receiver’s recommendation
which was upheld by the Rehabilitation Court (see Notes 9 and 19). In light of the Parent Company’s
current negotiation and outstanding offer of US$14.0 million to fully settle the claim of MWSS, the
Company reversed the amount of accrued interest in excess of the US$14.0 million settlement offer
amounting to P378.1 million and charged to other income in 2012.
12.
2012 2011
Concession fees payable (see Note 9) P8,380,294 P8,410,714
Accrued interest 607,217 985,292
8,987,511 9,396,006
Less current portion 1,012,526 1,656,413
P7,974,985 P7,739,593
Ch
an
gin
g T
ide
s
105
PSA
In compliance with the PSA, the Parent Company and MWSS sought the Rehabilitation Court’s
ruling on MWSS’ disputed claims. As stated in a report dated September 14, 2007, the Receiver
stated that she followed the principle of “No Gain, No Loss” in her recommendation on MWSS’ cost
of borrowings. The Rehabilitation Court upheld the recommendations of the Receiver and ruled in
favor of the Parent Company in its Order dated December 19, 2007, denying or disallowing the said
disputed claims of MWSS.
The Parent Company and MWSS agreed that any remaining dispute on MWSS’ disputed claims after
the issuance of the Rehabilitation Court’s ruling on the same, shall be resolved by MWSS and the
Parent Company through mutual consultation and negotiation, as mandated under Clause 12.1 of the
Concession Agreement, taking into account of, and with due regard to, the application of the “No
Gain, No Loss” principle.
On January 16, 2008, Tranche A2 and recognized Tranche B Concession Fees and the related
accrued interest thereon have been paid by virtue of the PSA. The remaining balance of
P607.2 million as at December 31, 2012, which pertains to the disputed interest penalty under
the Concession Agreement prior to DCRA, has remained in the books pending resolution of the
remaining disputed claims of MWSS.
The schedule of undiscounted estimated future concession fee payments, based on the term of the
Concession Agreement, is as follows:
Additional concession fee liability relating to the extension of the Concession Agreement
(see Note 1) is only determinable upon loan drawdown of MWSS and the actual construction of the
related concession projects.
Equity
The composition of the Parent Company’s capital Stock (amounts in thousands, except par
value per share and number of shares) as at December 31, 2012 and 2011:
In Original Currency
Year Foreign Currency Loans (Translated to US$)*
Peso Loans/Project Local Support
Total Peso Equivalent*
(In Millions)
2013 $18.6 P645.2 P1,408.7
2014 18.1 445.6 1,188.6
2015 15.7 445.4 1,089.9
2016 16.5 445.5 1,122.8
2017-2037 96.5 9,336.6 13,297.9
$165.4 P11,318.3 P18,107.9
* Translated using the December 31, 2012 exchange rate of P41.05:US$1.
12.
Number of Shares Amount
Authorized and issued - P1,000 par value
Common:
Class A 3,686,393 P3,686,393
Class B 236,000 236,000
ESOP 88,500 88,500
4,010,893 P4,010,893
a.
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
106
Class A shares, comprising sixty percent (60%) of the authorized common shares, may only be
subscribed by Filipino citizens or corporations or associations organized under the laws of the
Philippines with at least sixty percent (60%) of the capital owned by Filipino citizens.
Class B shares, comprising forty percent (40%) of the authorized common shares, may be
subscribed by, transferred to and owned by either Filipino citizens or by aliens.
ESOP
The employees of the Parent Company are allowed equity participation of up to six percent
(6%) of the issued and outstanding capital stock of the Parent Company upon the effective
date of the increase in authorized capital stock of the Parent Company pursuant to and
in accordance with the provisions of Clause 2.6 of the DCRA. For this purpose, a series of
88,500,000 nonvoting convertible redeemable shares (ESOP Shares) was created from
common Class A shares as reflected in the Parent Company’s amended Articles of Incorporation.
In 2008, the ESOP shares were effectively reduced to 88,500 shares due to change in par value
from P1 to P1,000. The ESOP shares have no voting rights, except for those provided under
Section 6 of the Corporation Code and have no pre-emptive rights to purchase or subscribe to
future or additional issuances or disposition of shares of the Parent Company.
Within thirty (30) days after the earlier of (i) the end of the fifth year from the creation of
the ESOP Shares, and (ii) the listing date for common shares in a recognized Philippine Stock
Exchange, the Parent Company may redeem the ESOP shares at a redemption ratio equal to
one common share for every ESOP share held and such common shares so exchanged shall
have the same rights and privileges as all other common shares.
Each ESOP Share will be convertible, at the option of the holder thereof, at any time during the
period commencing the earlier of (i) the end of the fifth year from the creation of the ESOP
Shares; or (ii) the listing date for common shares in a recognized Philippine Stock Exchange
into one fully-paid and nonassessable common share. Such common share shall have the
same rights and privileges as all other common shares. Conversion of the ESOP Share may be
effected by surrendering the certificates representing such shares to be converted to the Parent
Company at the Parent Company’s principal office or at such other office or offices as the BOD
may designate, and a duly signed and completed notice of conversion in such form as may
from time to time be specified by the Parent Company (a “Conversion Notice”), together with
such evidence as the Parent Company may reasonably require to prove the title of the person
exercising such right. A Conversion Notice once given may not be withdrawn without the
consent in writing of the Parent Company.
By virtue of the DCRA, the ESOP shares were fixed at 88,500 shares or P88.5 million and have
vested. As at that date, the Parent Company’s accrued annual stock purchase bonus has
exceeded P88.5 million and such excess has been fully settled in cash in 2008. In April 2010, the
BOD approved the issuance of the 88,500 shares of DMCI-MPIC to the employees. Said shares
were subsequently issued on December 30, 2010.
In 2011, the buyback of ESOP shares included in the separation package paid by the Parent
Company to the employees who availed the Redundancy and Right-Sizing Program amounting
to P6.6 million, equivalent to 6,572,000 shares, was presented as “Treasury shares” in the
consolidated statement of financial position (see Note 16). In 2012, ESOP shares reacquired by
the Parent Company from its resigned employees amounting to P3.2 million were presented as
treasury shares.
b.
Ch
an
gin
g T
ide
s
107
In 2012, the Board and shareholders of the Parent Company approved the amendment of its
Articles of Incorporation to allow for the reissuance of ESOP shares that have been bought back
by the Parent Company from separated employees. Upon approval by the SEC of the amendment
on January 31, 2013, said ESOP shares were subsequently reissued to all qualified employees of
the Parent Company.
Equity Restructuring
On September 6, 2010, the SEC approved the Parent Company’s equity restructuring to wipe
out the deficit as at December 31, 2009 amounting to P674.0 million against the Additional
Paid-in Capital amounting to P775.8 million.
Deposits for Future Stock Subscription
Pursuant to the Subscription Agreement between DMWC and the Parent Company, DMWC
subscribed to additional 134,022 common shares of the Parent Company with par value of
P1,000 on December 28, 2012. However, pending Parent Company’s application for the
increase in authorized capital stock with the SEC as at December 31, 2012, the subscription
payment amounting to P33.5 million was presented as “Deposits for future stock subscription”
under current liabilities in the 2012 consolidated statement of financial position.
On January 31, 2013, the SEC approved the Parent Company’s application for the increase in
its authorized capital from P4.01 billion to P5.31 billion. Consequently, the deposits for future
subscription were reclassified to equity. On February 13, 2013, DMWC paid for the balance of
P100.5 million and subscribed to additional 402,067 common shares at a subscription price of
P25,533 per share, resulting in additional paid-in capital of P9.9 billion.
Dividends
On June 25, 2012 and August 24, 2011, during the regular meeting, the Parent Company’s BOD
set and approved the declaration of cash dividends of P499.5 and P374.6 per common share
amounting to P2.0 billion and P1.5 billion, respectively. Payments were made on
June 29, 2012 and September 23, 2011, respectively.
On February 13, 2013, Parent Company’s BOD set and approved the declaration of
P2,841.32 per common share amounting to P11.4 billion to all shareholders of record as at
February 4, 2013. Payments were made in tranches beginning February 13, 2013, and expected
to be fully paid on February 27, 2013.
Appropriation of Retained Earnings
On November 26, 2012, the Parent Company’s BOD approved the appropriation of
P10.2 billion for distribution of cash dividends to its stockholders. On February 13, 2013, the
BOD reversed the P2.0 billion previously appropriated for capital expenditures and declared
cash dividends amounting to P11.4 billon.
On August 24, 2011, the Parent Company’s BOD approved the appropriation of its retained
earnings amounting to P2.0 billion for its capital expenditures.
Equity Adjustments
As discussed in item (a), the Parent Company has issued and redeemed preferred shares in
2008. Foreign exchange fluctuation from date of issuance of the preferred shares to the date of
notice of redemption is issued, amounting to P351.0 million, is recognized as part of “Other equity
adjustments” account shown as part of equity in the consolidated statements of financial position.
c.
d.
e.
f.
g.
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
108
Share-based Payment
On June 24, 2007, the shareholders of MPIC approved a share option scheme (the Plan)
under which MPIC’s directors may, at their discretion, invite executives of MPIC upon the
regularization of employment of eligible executives, to take up share option of MPIC to obtain
an ownership interest in MPIC and for the purpose of long-term employment motivation. The
scheme became effective on June 14, 2007 and is valid for 10 years. An amended plan was
approved by the stockholders on February 20, 2009.
As amended, the overall limit on the number of shares that may be issued upon exercise of
all options to be granted and yet to be exercised under the Plan must not exceed 5.0% of the
shares in issue from time to time.
The exercise price in relation to each option shall be determined by the Parent Company’s
Compensation Committee, but shall not be lower than the highest of: (i) the closing price of
the shares for one or more board lots of such shares on the PSE on the option offer date; (ii)
the average closing price of the shares for one or more board lots of such shares on the PSE
for the five business days on which dealings in the shares are made immediately preceding
the option offer date; and (iii) the par value of the shares.
MPIC allocated and set aside stock options relating to an additional 145,000,000 common
shares, of which, (a) 94,300,000 common shares were granted to its new directors and senior
management officers, as well as members of the management committee of certain MPIC
subsidiaries (includes 15,200,000 common shares granted to officers of the Parent Company)
at the exercise price of P2.73 per common share on July 2, 2010 and (b) another 10,000,000
common shares were granted at the exercise price of P3.50 on December 21, 2010 to officers
of the Parent Company.
On March 8, 2011, 1,000,000 common shares were granted at the exercise price of P3.53 to
senior management of the Parent Company.
No stock option activity was received from MPIC in 2009.
The weighted average remaining contractual life for the share options outstanding as at
December 31, 2011 for the second and third grants is 4.6 years and 5.0 years, respectively.
The fair value of the options granted is estimated at the date of grant using Black-Scholes-
Merton formula, taking into account the terms and conditions upon which the options were
granted. The following tables list the inputs to the model used for the ESOP in 2012 and 2011:
Grant dated July 2, 2010
30.0% vesting on July 2, 2011
35.0% vesting on July 2, 2012
35.0% vesting on July 2, 2013
Grant date July 2, 2010
Spot price P2.65 P2.65 P2.65
Exercise price P2.73 P2.73 P2.73
Risk-free rate 4.61% 5.21% 5.67%
Expected volatility* 69.27% 67.52% 76.60%
Term to vesting (in days) 365 731 1,096
Ch
an
gin
g T
ide
s
109
Grant dated December 21, 2010
Grant dated March 8, 2011
In 2012, no additional stock option activity was received from MPIC.
Stock options expense recognized by the Company under “Salaries, wages and benefits”
account amounted to P7.5 million, P15.7 million and P2.1 million in 2012, 2011 and 2010,
respectively.
Carrying value of the ESOP recognized under “Other equity adjustments” in the equity section
of the consolidated statements of financial position amounted to P25.3 million and
P15.7 million as at December 31, 2012 and 2011, respectively.
Related Party Transactions
Parties are considered to be related if one party has the ability to control, directly or indirectly, the
other party or exercise influence over the other party in making financial and operating decisions.
Parties are considered to be related if they are subject to common control or common significant
influence.
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30.0% vesting on August 1, 2011
35.0% vesting on August 1, 2012
35.0% vesting on August 1, 2013
Grant date December 21, 2010
Spot price P3.47 P3.47 P3.47
Exercise price P3.50 P3.50 P3.50
Risk-free rate 1.62% 2.83% 3.73%
Expected volatility* 46.62% 68.23% 72.82%
Term to vesting (in days) 223 589 954
* The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily the actual outcome.
* The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily the actual outcome.
30.0% vesting on March 8, 2012
35.0% vesting on March 8, 2013
35.0% vesting on March 8, 2014
Grant date March 8, 2011
Spot price P3.53 P3.53 P3.53
Exercise price P3.53 P3.53 P3.53
Risk-free rate 2.56% 4.38% 5.01%
Expected volatility* 39.32% 61.39% 64.42%
Term to vesting (in days) 366 731 1,096
Call price P0.58 P1.28 P1.62
14.
Category Year Amount/Volume of Transactions Outstanding Balance Terms Conditions
DM Consunji, Inc.
Construction costs (see Note 11)
2012 P1.1 billion P115.3 million Non-interest bearing, settlement in cash and
payable on demand
Unsecured
2011 1.1 billion 763.0 million
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
110
Terms and Conditions of Transactions with Related Parties
The outstanding transactions with related parties are made at normal market prices. Outstanding
balances at year-end are unsecured, interest-free, settlement occurs in cash and payable on
demand.
Total compensation and benefits of key management personnel of the Company consist of:
Income Taxes
The Company recognized deferred taxes on deductible temporary differences expected to reverse
after the income tax holiday (ITH) period (see Note 20). The components of the net deferred tax
assets of the Company as at December 31, 2012 and 2011 shown in the consolidated statements of
financial position are as follows:
Deferred tax asset written off due to the Company’s change in method of amortization of service
concession assets amounted to P469.5 million in 2012 (see Note 3).
The Company has the following temporary differences for which no deferred tax assets (liability)
have been recognized since these are expected to reverse during the ITH period or management
believes that it is not probable that these will be realized in the near future.
For tax purposes, concession fees, presented as part of “Service concession assets” account in the
consolidated statements of financial position, are amortized using UOP method as approved by the
Bureau of Internal Revenue.
On December 16, 2009, the BOI released the Certificate of Registration certifying 6-year income tax
holiday incentive up to 2015 (see Note 20).
Provision for current income tax in 2012 and 2011 represents the regular corporate income tax on
miscellaneous income not covered by the ITH (see Note 20).
2012 2011 2010
Compensation P125,203 P110,822 P75,940
Pension costs 7,444 6,908 5,002
Short-term benefits 6,922 7,329 6,712
P139,569 P125,059 P87,654
15.
2012 2011
Service concession assets - net P1,211,540 P1,645,128
Accrued expenses 371,650 178,015
Pension liability and unamortized past service cost 49,515 38,130
P1,632,705 P1,861,273
2012 2011
Service concession assets - net P4,228,143 P3,314,798
Accretion of financial liabilities 1,562,239 2,173,152
Accrued expenses 1,176,856 1,257,754
Allowance for doubtful accounts 1,124,661 1,003,215
Unamortized past service costs 123,867 55,436
Unrealized foreign exchange loss (gain) - net (86) 4,300
P8,215,680 P7,808,655
Ch
an
gin
g T
ide
s
111
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The reconciliation of provision for income tax computed at the statutory income tax rate to provision
for income (benefit from) tax as shown in the consolidated statements of income is summarized as
follows:
Employee Benefits
LTIP
On December 16, 2010, MPIC’s BOD approved, in principle, the broad outline of MPIC’s strategic
plans for 2010 to 2012 focusing on the development of new revenue streams to drive future growth
while protecting the existing core business. To ensure the proper execution of the three-year
plan, particularly with respect to the manpower resources being committed to such plans, the
2010 to 2012 LTIP, upon endorsement of the Compensation Committee, was approved by the BOD
to cover the period from January 1, 2010 to December 31, 2012, or the 2010 to 2012 Performance
Cycle. The payment under the 2010 to 2012 LTIP is intended to be made at the end of the 2010 to
2012 Performance Cycle (without interim payments) and contingent upon the achievement of an
approved target core income of the Parent Company by the end of the 2010 to 2012 Performance
Cycle.
Total amount of LTIP under this plan is fixed upon achievement of the target Core Income and is
not affected by changes in future salaries of the employees covered. The liability of the 2010 to
2012 LTIP was determined using the projected unit credit method. The long term employee benefit
liability comprises the present value of the defined benefit obligation (using discount rate based on
government bonds) at the end of the reporting period.
The total cost of the LTIP recognized by the Parent Company in 2012 and 2011 presented as part of
“Salaries, wages and benefits” amounted to P22.8 million and P54.1 million, respectively, of which,
P5.7 million and P10.8 million was recognized under “Other equity adjustments” in the equity section
of the consolidated statements of financial position representing MPIC’s share in the LTIP cost of the
Parent Company as per LTIP Plan and the balance of P17.1 million and P43.3 million was presented
as part of “Other noncurrent liabilities” in the consolidated statements of financial position as at
December 31, 2012 and 2011, respectively.
Pension Plan
The Company has a funded, noncontributory and actuarially computed pension plan covering
substantially all of its employees. The benefits are based on years of service and compensation
during the last year of employment.
In line with its strategic goal to improve operational efficiency, the Company offered a Redundancy
and Right-Sizing Program in 2010 and 2011. The redundancy program offered a separation package
2012 2011 2010
Income tax at statutory tax rate of 30% P1,954,585 P1,702,879 P1,369,509
Add (deduct) the tax effects of:
Net income under ITH (see Note 20) (1,889,863) (1,569,419) (1,341,629)
Change in unrecognized deferred income tax (122,110) (239,825) (492,101)
Interest income already subjected to final tax (46,470) (35,588) (21,088)
Other nondeductible items - net 232,879 (46,634) 270,363
Provision for (benefit from) income tax P129,021 (P188,587) (P214,946)
14.
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
112
based on the number of years, or fractions thereof, on a pro rated basis, of service with the Company
plus monetary equivalent of some benefits. This resulted to a curtailment gain of P100.2 million and
P33.1 million in 2011 and 2010, respectively. No curtailment gain was recognized in 2012.
The components of pension cost, included under “Salaries, wages and benefits” account in the
consolidated statements of income are as follows:
The funded status and amounts recognized in the consolidated statements of financial position for
the pension plan as at December 31, 2012 and 2011 are as follows:
Changes in the present value of the defined benefit obligation as at December 31, 2012 and 2011 are
as follows:
Changes in the fair value of plan assets as at December 31, 2012 and 2011 are as follows:
The plan assets are maintained in a trust account with local banks that were set up by the Company
in 2007.
2012 2011 2010
Current service cost P89,894 P69,614 P49,433
Interest cost 53,897 54,703 46,264
Expected return on plan assets (53,099) (93,774) (39,662)
Curtailment gain – (100,156) (33,083)
Net actuarial gain recognized during the year – (5,286) (12,605)
Net pension cost (income) P90,692 (P74,899) P10,347
2012 2011
Present value of defined benefit obligation P1,008,747 P829,180
Fair value of plan assets (768,443) (663,725)
Unfunded present value of defined benefit obligation 240,304 165,455
Unrecognized actuarial loss (9,870) (25,713)
Pension liability P230,434 P139,742
2012 2011
Defined benefit obligation at beginning of year P829,180 P680,381
Current service cost 89,894 69,614
Interest cost 53,897 54,703
Actuarial loss due to:
Change in assumptions 44,832 123,793
Experience adjustments 2,035 18,795
Curtailment gain – (110,024)
Benefits paid* (11,091) (8,082)
Defined benefit obligation at end of year P1,008,747 P829,180
* In 2011, benefits paid exclude payments for involuntary separation amounting to P3.8 million.
2012 2011
Balance at beginning of year P663,725 P625,157
Actuarial gain (loss) on plan assets 62,710 (44,438)
Expected return on plan assets 53,099 93,774
Benefits paid (11,091) (10,768)
Balance at end of year P768,443 P663,725
Ch
an
gin
g T
ide
s
113
As at December 31, 2012, the carrying values and fair values of the plan assets of the Company are
as follows:
The allocation of the fair value of plan assets as at December 31, 2012 and 2011 is as follows:
The plan asset’s carrying amount approximates its fair value since these are short-term in nature or
marked-to-market.
As at December 31, 2012, the plan assets consist of the following:
Investments in government securities consist primarily of fixed-rate treasury notes and retail
treasury bonds that bear interest ranging from 4.00% to 8.13% per annum and have maturities
from 2013 to 2037.
Investments in equity securities are composed of investment in shares of various listed
entities. The carrying amounts of investments in equity securities also approximate their fair
values since they are marked-to-market.
Unit trust funds include mutual funds invested in quoted shares.
Loans and notes receivables include unsecured fixed-rate notes of a related party, unsecured
notes of unaffiliated companies, dividend, interest and other receivables. The notes bear
interest ranging from 6.17% to 6.73%.
Cash and cash equivalents include regular savings and time deposits, which bear interest
ranging from 2.00% to 5.50% per annum.
Receivables and others include certificate of deposit with a term of 7 years and bear interest
at 5.25%.
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Carrying Value Fair Value
Investments in:
Government securities P366,831 P366,831
Equity securities 356,151 356,151
Unit trust funds 20,294 20,294
Loans/notes receivable 17,525 17,525
Cash and cash equivalents 5,642 5,642
Receivables and others 2,000 2,000
P768,443 P768,443
2012 2011
Investments in:
Government securities 47.74% 69.25%
Investment in stocks 46.35% 20.78%
Unit trust funds 2.64% 4.56%
Loans and notes receivables 2.28% 3.44%
Bank deposits 0.73% 1.42%
Others 0.26% 0.55%
100.00% 100.00%
•
•
•
•
•
•
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
114
The overall expected rate of return on assets is determined based on the market prices prevailing on
that date, applicable to the period over which the obligation is to be settled.
Movements in unrecognized actuarial loss are as follows:
The principal assumptions used to determine pension benefit obligations for the Company’s plan as
at December 31, 2012 and 2011 are as follows:
Amounts for the current and the previous periods are as follows:
Interest Income and Interest Expense
2012 2011
Net cumulative unrecognized actuarial gain (loss)
at beginning of year (P25,713) P163,188
Actuarial loss due to:
Experience adjustments (2,035) (18,795)
Change in assumptions (44,832) (123,793)
Actuarial gain (loss) on plan assets 62,710 (44,438)
Net actuarial loss recognized – (5,286)
Effect of curtailment – 3,411
Net cumulative unrecognized actuarial loss at end of year (P9,870) (P25,713)
2012 2011
Discount rate 6.07% 8.04%
Salary increase rate 7.00% 7.00%
Expected rate of return on plan assets 9.00% 15.00%
2012 2011 2010 2009 2008
Defined benefit obligation P1,008,747 P829,180 P680,381 P481,414 P490,485
Fair value of plan assets (768,443) (663,725) (625,157) (508,479) (254,897)
Deficiency (excess) P240,304 P165,455 P55,224 (P27,065) P235,588
Experience adjustment on plan assets P2,035 P18,795 P57,855 P53,597 P10,350
17.
2012 2011 2010
Interest income:
Cash in banks and short-term investments (see Note 5) P154,900 P118,625 P68,084
Accretion on miscellaneous deposits – 3,126 2,210
P154,900 P121,751 P70,294
Interest expense:
Bank loans (see Note 10) P1,385,240 P1,240,407 P1,258,753
Accretion on service concession obligation payable to MWSS (see Note 12)
707,524 749,834 763,262
Amortization of debt issuance costs (see Note 10) 389,085 58,646 80,840
Accretion on financial liabilities 12,564 2,835 59,990
P2,494,413 P2,051,722 P2,162,845
Ch
an
gin
g T
ide
s
115
Basic/Diluted Earnings Per Share
The Company’s basic and diluted earnings per share are the same as the dilutive effect of potential
common shares from share-based payments have no impact.
Contingent Liabilities
Following are the significant contingent liabilities of the Company as at December 31, 2012 and 2011:
Additional Tranche B Concession Fees and interest penalty are being claimed by MWSS in excess
of the amount recommended by the Receiver. Such additional charges being claimed by MWSS
(in addition to other miscellaneous claims) amounted to P4.5 billion as at December 31, 2012 and
P4.3 billion as at December 31, 2011. The Rehabilitation Court has resolved to deny and disallow the
said disputed claims of MWSS in its December 19, 2007 Order, upholding the recommendations
of the Receiver on the matter. Following the termination of the Parent Company’s rehabilitation
proceedings (see Note 12), the Parent Company and MWSS are seeking to resolve this matter in
accordance with the dispute requirements of the TCA.
On October 13, 2005, the Municipality of Norzagaray, Bulacan jointly assessed the Parent
Company and Manila Water Company, Inc. (the “Concessionaires”) for real property taxes on
certain common purpose facilities purportedly due from 1998 to 2005 amounting to P357.1
million. It is the position of the Concessionaires that it is the Republic of the Philippines that
owns these properties, and are therefore exempt from taxation.
On February 2, 2007, the Concessionaires received an updated assessment of real property
tax, which included real property tax purportedly due for 2006 of P35.7 million and interest
of 2% per month of P93.6 million. The supposed joint liability of the Concessionaires for real
property tax, including interests, as at June 30, 2007 amounted to P554.2 million.
The Local Board of Assessment Appeals (“LBAA”) ruled in favor of the Municipality of
Norzagaray, Bulacan. The Concessionaires elevated the ruling of the LBAA to the Central
Board of Assessment Appeals (“CBAA”) by filing separate appeals.
The CBAA has given due course to the Parent Company’s appeal and an ocular inspection of
the common purpose facilities was conducted by the CBAA on December 14, 2010.
On February 29, 2012, Manila Water concluded the presentation of its evidence and formally
offered its evidence. Maynilad has concluded the presentation of its first witness on October
11, 2012. Maynilad finished the presentation of its second witness, Dr. Angel Lazaro, on January
16, 2013. Formal offer of Maynilad’s evidence has been filed. Next setting is on March 13, 2013
for the reception of MWSS’ evidence.
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18.
19.
2012 2011 2010
Net income (a) P6,386,262 P5,864,850 P4,779,976
Weighted average number of shares at beginning of year 4,010,893 4,010,893 4,010,893
Less weighted average number of treasury shares (see Note 13)* 6,861 3,286 –
Weighted average number of shares at end of year (b) 4,004,032 4,007,607 4,010,893
Basic/Diluted Earnings per share (a/b) P1,594.96 P1,463.43 P1,191.75
* Substantially acquired by fourth quarter in 2012 and middle of the year in 2011.
a.
b.
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
116
On November 24, 2006, the Labor Arbiter issued a decision in favor of the Maynilad Water
Supervisors Association (“MWSA”), ordering the payment of COLA to the Parent Company’s
supervisor-employees, retroactive to the date when they were hired by the Parent Company
in 1997, with legal interest from the date of promulgation of the decision until full payment of
the award or P249.5 million as computed and claimed by MWSA. This decision was reversed
and set aside by the National Labor Relations Commission (“NLRC”) in 2007, but reinstated
by the Court of Appeals in 2010. After the issuance of the Labor Arbiter’s decision in 2007,
the Company executed a compromise agreement with MWSA, wherein the Company agreed
to pay MWSA residual benefits equivalent to its claim for COLA for 23 months, from August
1997 to June 1999. Thus, the Company’s dispute with MWSA was limited to the supervisor-
employees claim for COLA from July 1999 up to the present time. In 2011, the Court of Appeals
granted the motion for reconsideration filed by the Company by issuing an amended decision
reinstating and affirming the resolutions of the NLRC. The Court of Appeals thereafter issued
a resolution denying the motion for reconsideration filed by MWSA. On November 16, 2011,
MWSA filed a Petition for Review on Certiorari before the Supreme Court, seeking to annul the
said amended decision and the resolution of the Court of Appeals. As at February 25, 2013,
the case is still pending before the Supreme Court.
The DENR charged MWSS and the Concessionaires with violation of the Clean Water
Act (“CWA”) for having failed to comply with the mandatory connection of houses and
establishments to the existing sewerage line, as prescribed by Section 8 of the CWA.
The Parent Company refuted DENR’s charges and reiterated its position that its compliance with
the CWA should be viewed in the context of petitioner’s Concession Agreement with the MWSS.
On October 3, 2009, the Pollution Adjudication Board (“PAB”) and the Secretary of the DENR
issued an Order finding the MWSS and the Concessionaires in violation of Section 8 of the
CWA and imposing a joint and solidary fine of P29.4 million and a daily penalty of
P200,000 (the fine imposed by the PAB is reckoned from May 6, 2009, the date of effectivity
of the CWA).
The MWSS and each of the Concessionaires filed separate Petitions for Review before the
Court of Appeals.
In a decision dated October 26, 2011, the Court of Appeals dismissed the Parent Company’s
Petition for Review. The Parent Company filed a motion for reconsideration from the decision.
On July 27, 2012, we received a Resolution from the Court of Appeals denying our motion for
reconsideration.
On August 24, 2012, Maynilad filed a Petition for Review on Certiorari before the Supreme
Court. The Petition remains pending with the Supreme Court.
The Company is a party to various civil and labor cases relating to breach of contracts
with damages, illegal dismissal of employees, and nonpayment of backwages, benefits and
performance bonus, among others.
c.
d.
e.
Ch
an
gin
g T
ide
s
117
Registration with the Board of Investments (BOI)
The Parent Company is registered with the BOI under Executive Order No. 226, as amended, as a
new operator of water supply and sewerage system for the West Service Area on a pioneer status.
The registration entitles the Parent Company to incentives which include, among others, an ITH
for a period of six years beginning on Commencement Date or from actual start of commercial
operations, whichever comes first.
On April 16, 2008, the BOI granted the request of the Parent Company for the extension of the period
for the ITH availment from August 2001 - July 2007 to January 2003 - December 2008.
On October 20, 2008, the Parent Company filed an application for an ITH bonus year. The
application was for the extension of the availment of the ITH incentive by the Parent Company for
one (1) year or for the period January 1, 2009 to December 31, 2009. The BOI approved the Parent
Company’s application on December 22, 2008.
On December 16, 2009, the Parent Company was issued with BOI Registration Certificate
Nos. 2009-188 and 2009-189 as a new operator of the 1500 million liters per day (MLD) and 900
MLD Bulk Water Supply and Distribution Projects pertaining to the La Mesa Treatment Plants 1 and
2, respectively. The registrations entitle the Parent Company to incentives which include an ITH
for six years from January 2010 or actual start of commercial operations, whichever is earlier,
but in no case earlier than the date of registration. Registration as new operator of 200 MLD Bulk
Water Supply and Distribution Project (Putatan, Muntinlupa) was likewise approved by the BOI. The
Certificates of Registration were issued in December 2009. This also entitles the Project to a six year
ITH commencing on January 2011 or actual start of commercial operations. Commercial operations
of the Project started on January 1, 2011. The ITH incentives shall be limited to the sales/revenue
generated from the operation of the three plants which substantially cover the total capacity of the
Parent Company. ITH incentive enjoyed by the Company amounted to P1,889.9 million, P1,569.4
million and P1,341.6 million in 2012, 2011 and 2010, respectively (see Note 15).
Significant Contracts with Manila Water (East Concessionaire)
In relation to the Concession Agreement, the Parent Company entered into the following contracts
with the East Concessionaire:
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; and,
Common Purpose Facilities Agreement that provides for the operation, maintenance, renewal,
and, as appropriate, decommissioning of the Common Purpose Facilities, and performance
of other functions pursuant to and in accordance with the provisions of the Concession
Agreement and performance of such other functions relating to the Concession (and the
Concession of the East Concessionaire) as the Parent Company and the East Concessionaire
may choose to delegate to the Joint Venture, subject to the approval of MWSS.
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20.
21.
a.
b.
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
118
Commitments
Concession Agreement
Significant commitments under the Concession Agreement follow:
Payment of Concession Fees (see Note 9)
Posting of performance bond (see Note 7)
Under Section 6.9 of the Concession Agreement, the Parent Company is required to post a
performance bond to secure the performance of its obligations under certain provisions of the
Concession Agreement. The aggregate amount drawable in one or more installments under
such performance bond during the Rate Rebasing Period to which it relates is set out below.
Within 30 days from the commencement of each renewal date, the Parent Company shall
cause the performance bond to be reinstated to the full amount set forth above applicable for
the year.
In connection with the implementation of the Selection Process by MWSS, the
Parent Company and MWSS executed the Agreement on the performance bond on
December 15, 2006, incorporating the terms and conditions of MWSS BoT Resolution
No. 2006-249 dated November 17, 2006 which approved certain adjustments to the obligation
of the Parent Company to post the performance bond under Section 6.9 of the Concession
Agreement. These adjustments are summarized as follows:
The aggregate amount drawable in one or more installments under each performance
bond during the Rate Rebasing Period to which it relates has been adjusted to US$30.0
million until the Expiration Date;
Based on the Letter of Consent and Undertaking signed by the DoF in connection with the
extension of the Concession Agreement, the extension of the government’s Undertaking
from May 7, 2022 to May 6, 2037 shall only be effective upon the increase in the present
minimum level of the Performance Bond from the present level of US$30.0 million to
US$90.0 million for the Third Rate Rebasing Period (see Note 1). The Performance Bond
will be required to be posted within six (6) months from the date of the issuance of the
letter. The amount of the Performance Bond for the period covering 2013 to 2037 shall be
mutually agreed upon in writing by the MWSS and the Parent Company consistent with
the provisions of the Concession Agreement.
22.
Rate Rebasing Period Aggregate Amount Drawable Under Performance Bond
(In Millions)
First (August 1, 1997–December 31, 2002) US$120.0
Second (January 1, 2003–December 31, 2007) 120.0
Third (January 1, 2008–December 31, 2012) 90.0
Fourth (January 1, 2013–December 31, 2017) 80.0
Fifth (January 1, 2018–May 6, 2037) 60.0
•
a.
b.
Ch
an
gin
g T
ide
s
119
On April 22, 2010, the Parent Company and MWSS entered into a Memorandum of
Agreement and Confirmation (MOA) confirming the extension of the term of the
Concession Agreement for another 15 years. On May 25, 2010, in connection with the
MOA, the Parent Company posted the Surety Bond for the amount of US$90.0 million
issued by Prudential Guarantee and Assurance, Inc. (the Surety) in favor of MWSS, as
security for the Parent Company’s proper and timely performance of its obligations
under the Concession Agreement. On December 6, 2012, in connection with the MOA,
the Parent Company renewed the Surety Bond for the amount of US$80.0 million issued
by the Surety in favor of MWSS. The liability of the Surety under this bond will expire on
December 31, 2016.
Payment of half of MWSS and MWSS-RO’s budgeted expenditures for the subsequent years,
provided the aggregate annual budgeted expenditures do not exceed P200.0 million, subject
to CPI adjustments. As a result of the extension of the life of the Concession Agreement, the
annual budgeted expenditures shall increase by 100%, subject to CPI adjustments, effective
January 2010 (see Notes 1 and 9).
To meet certain specific commitments in respect to the provision of water and sewerage
services in the West Service Area, unless modified by the MWSS-RO due to unforeseen
circumstances.
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 West Service Area 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).
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.
To ensure that at all times the Parent Company has sufficient financial, material and personnel
resources available to meet its obligations under the Concession Agreement.
Non-incurrence of debt or liability that would mature beyond the term of the Concession
Agreement, without the prior notice of MWSS.
Failure of the Parent Company to perform any of its obligations under the Concession
Agreement of a kind or to a degree which, in a reasonable opinion of the MWSS-RO, amounts
to an effective abandonment of the Concession Agreement and which failure continues for at
least 30 days after written notice from the MWSS-RO, may cause the Concession Agreement
terminated.
Operating Lease Commitments
The Company leases the office space and branches where service outlets are located, equipments
and service vehicles, renewable under certain terms and conditions to be agreed upon by the
parties. Total rent expense for the above operating leases amounted to P175.2 million, P208.2 million
and P160.4 million in 2012, 2011 and 2010, respectively.
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
c.
d.
e.
f.
g.
h.
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
120
Future minimum operating lease payments as at December 31, 2012 and 2011 are as follows:
Assets Held in Trust
Materials and Supplies
The Parent Company has the right to use any items of inventory owned by MWSS in carrying out its
responsibility under the Concession Agreement, subject to the obligation to return the same at the
end of the concession period, in kind or in value at its current rate, subject to CPI adjustments.
Facilities
The Parent Company has been 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 Concession Agreement. MWSS shall retain legal title to all movable property
in existence at the Commencement Date. However, 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 (see
Note 9).
The Concession Agreement also provides the Parent Company and the East Concessionaire to have
equal access to MWSS facilities involved in the provision of water supply and sewerage services in
both West and East Service Areas 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 P7.3 billion with a sound value of
P13.8 billion.
MWSS’ corporate headquarters are made available to the Parent Company and the East
Concessionaire for a one-year period beginning on the Commencement Date, subject to yearly
renewal with the consent of the parties concerned. As at December 31, 2012, the lease has been
renewed for another year. Rent expense amounted to P33.1 million and P35.7 million in 2012 and 2011,
respectively.
Financial Risk Management Objectives and Policies
The Company’s principal financial instruments are its debts to the local banks per Omnibus Notes
Facility and Security Agreements, as well as concession fees owing to MWSS per Concession
Agreement. Other financial instruments of the Company are purchase contracts, cash and cash
equivalents and short-term investments. The main purpose of those financial instruments is to
finance the Company’s operations.
The main risks arising from the Company’s principal financial instruments are interest rate risk,
foreign currency risk, credit risk and liquidity risk.
Period Covered 2012 2011
(In Millions) (In Millions)
Not later than one year P114.74 P166.04
More than one year and not later than five years 184.77 374.90
23.
24.
Ch
an
gin
g T
ide
s
121
The BOD reviews and approves the policies for managing the Company’s financial risks. The
Company monitors risks arising from all financial instruments and regularly reports financial
management activities and the results of these activities to the BOD.
Interest Rate Risk
Interest rate risk is the risk that the future cash flows of financial instruments will fluctuate because
of the changes in market interest rates. The Company’s exposure to market risk for changes in
interest rates relates primarily to the Company’s interest-bearing loans.
The Company maintains a mix of floating and fixed rate interest-bearing loans, currently at a ratio of
47% floating and 53% fixed per abovementioned Omnibus Notes Facility and Security
Agreement. The floating rate interest-bearing loans will increase to a higher portion over time as a
greater portion of the fixed rate interest-bearing loan will mature earlier than the floating portion.
The following table wshows the Company’s significant financial instruments that are exposed to cash
flow interest rate risk:
Interest on financial liabilities classified as floating rate is repriced semi-annually. Interest on
financial liabilities classified as fixed rate is fixed until the maturity of the instrument.
The following tables show information about the Company’s financial instruments that are exposed
to cash flow and fair value interest rate risks.
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Series 1 Floating Rate Notes Facility P5.5 billionFloating rate benchmark
(4.75%, July 11, 2012 to January 10, 2013)
Series 2 Floating Notes Facility US$125.0 millionLIBOR+CDS+2% spread
(2.81%, November 12, 2012 to March 25, 2013)
P7.0 Billion Fixed Rate Notes Facility P7.0 billionFixed rate benchmark+0.75%
(6.63%, September 30, 2012 to March 25, 2013)
2012
Within 1 Year Total
Short-term cash investments -
Cash and cash equivalents (1-90 days)* P3,884,146 P3,884,146
* Excludes cash on hand amounting to P22,190.
2012
Within 1 Year More than 1 Year Total - Gross (In US$) Total -Gross (In P)
Liabilities:
Interest-bearing loans:
Interest rate 5.97% –
Current - foreign $2,500 – $2,500 P102,625
Current - local P893,975 – – 893,975
Noncurrent - foreign – $118,750 $118,750 4,871,187
Noncurrent - local – P15,787,392 – 15,787,392
P21,655,179
Service concession obligation payable to MWSS:
Interest rate 3.00% –
Current - foreign $11,514 – $11,514 472,647
Current - local P539,879 – – 539,879
Noncurrent - foreign – $110,565 $110,565 4,538,713
Noncurrent - local – P3,436,272 – 3,436,272
P8,987,511
P30,642,690
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
122
The following table demonstrates the sensitivity of the Company’s profit before tax to a reasonably
possible change in interest rates for the years ended December 31, 2012 and 2011, with all variables
held constant (through the impact on floating rate borrowings). The estimates are based on the
management’s annual financial forecast. There is no impact on the Company’s equity other than
those already affecting income.
Foreign Currency Risk
Foreign currency risk is the risk that the fair value or future value of financial instruments will
fluctuate because of changes in foreign exchange rates.
The Company’s foreign currency risk results primarily from movements of the Philippine Peso against
the United States Dollar, European Euro and the Japanese Yen. The servicing of foreign currency
denominated loans of MWSS is among the requirements of the Concession Agreement. Revenues
are generated in Philippine Peso. However, there is a mechanism in place as part of the Concession
Agreement wherein the Company (or the end consumers) can recover currency fluctuations through
the FCDA that is approved by the Regulatory Office.
2011
Within 1 Year Total
Short-term cash investments -
Cash and cash equivalents (1-90 days)* P4,164,991 P4,164,991
* * Excludes cash on hand amounting to P10,446.
2011
Within 1 Year More than 1 Year Total - Gross (In US$) Total -Gross (In P)
Liabilities:
Interest-bearing loans:
Interest rate 6.09% –
Current - foreign $2,500 – $2,500 P109,600
Current - local P876,371 – – 876,371
Noncurrent - foreign – $121,250 $121,250 5,315,600
Noncurrent - local – P16,236,177 – 16,236,177
P22,537,748
Service concession obligation payable to MWSS:
Interest rate 4.30% –
Current - foreign $15,319 – $15,319 671,585
Current - local P984,828 – – 984,828
Noncurrent - foreign – $100,856 – 4,421,507
Noncurrent - local – P3,318,086 – 3,318,086
9,396,006
P31,933,754
2012
Increase/Decrease in Basis Points Effect on Income Before Tax
Floating rate borrowings +50 P48,987
-50 (48,987)
2011
Increase/Decrease in Basis Points Effect on Income Before Tax
Floating rate borrowings +50 P53,417
-50 (53,417)
Ch
an
gin
g T
ide
s
123
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information on the Company’s foreign currency-denominated monetary assets and liabilities and the
Philippine Peso equivalent of each as at December 31, 2012 and 2011 is presented as follows:
The following table demonstrates the sensitivity to a reasonably possible change in foreign
exchange rates, with all variables held constant, of the Company’s profit before tax (due to changes
in the fair value of monetary assets and liabilities) and equity as at December 31, 2012 and 2011. The
estimates in the movement of the foreign exchange rates were based on the management’s annual
financial forecast.
2012
US Dollar Euro JPY
(In Thousands)
Asset
Cash and cash equivalents and
short-term investments $380 €– ¥–
Liabilities
Interest-bearing loans ($121,250) €– ¥–
Service concession obligation payable to MWSS (97,146) (990) (2,027,420)
(218,396) (990) (2,027,420)
Net foreign currency
denominated liabilities ($218,016) (€990) (¥2,027,420)
2012
US Dollar Euro JPY
(In Thousands)
Asset
Cash and cash equivalents and
short-term investments $403 €– ¥–
Liabilities
Interest-bearing loans ($123,750) €– ¥–
Service concession obligation payable to MWSS (78,790) (1,256) (2,779,180)
(202,540) (1,256) (2,779,180)
Net foreign currency
denominated liabilities ($202,137) (€1,256) (¥2,779,180)
The spot exchange rates used were P41.05:US$1, P54.53:EUR1, and P0.48:JPY as at December 31, 2012.
The spot exchange rates used wereP43.84:US$1, P56.84:EUR1, and P0.56:JPY1as at December 31 2011.
Increase/Decrease in Peso and U.S Dollar, Euro and JPY
Exchange RatesForeign Exchange Rate
Effect on Income Before Income Tax
2012
U.S Dollar +1% 41.05 (39,869)
Euro +1% 54.53 (540)
JPY +1% 0.48 (9,705)
U.S Dollar -1% 41.05 39,869
Euro -1% 54.53 540
JPY -1% 0.48 9,705
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
124
The Company recognized net foreign exchange gain of P1.0 billion, P1.3 billion, and P1.2 billion in
2012, 2011, and 2010, respectively, mainly arising from the translation of the Company’s cash and
cash equivalents, short-term investments, deposits, interest-bearing loans and service concession
obligation payable to MWSS. However, the net foreign exchange loss on interest-bearing loans and
service concession obligation payable to MWSS is subject to foreign exchange recovery mechanisms
under the Concession Agreement.
Credit Risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or
customer contract, leading to a financial loss.
The Company trades only with recognized, creditworthy third parties. It is the Company’s policy
that except for connection fees and other highly meritorious cases, it does not offer credit terms to
its customers. Being a basic need service, historical collections of the Company are relatively high.
Credit exposure is widely dispersed. Receivable balances are monitored on an ongoing basis with
the result that the Company’s exposure to bad debts is not significant.
With respect to credit risk arising from the other financial assets of the Company, consisting of cash
and cash equivalents, short-term cash investments, deposits and sinking fund and miscellaneous
deposits, the Company’s exposure to credit risk arises from default of the counterparty, with a
maximum exposure equal to the carrying amount of these instruments. The Company transacts only
with institutions or banks which have demonstrated financial soundness for the past 5 years.
The Company has no significant concentrations of credit risk.
The table below shows the maximum exposure to credit risk for the components of the consolidated
statements of financial position as at December 31, 2012 and 2011:
Increase/Decrease in Peso and U.S Dollar, Euro and JPY
Exchange RatesForeign Exchange Rate
Effect on Income Before Income Tax
2011
U.S Dollar +1% 43.84 (88,617)
Euro +1% 56.84 (714)
JPY +1% 0.56 (15,675)
U.S Dollar -1% 43.84 88,617
Euro -1% 56.84 714
JPY -1% 0.56 15,675
2012 2011
Cash and cash equivalents* (see Note 5) P3,884,146 P4,164,991
Short-term investments 14,085 –
Trade and other receivables - net (see Note 6) 2,532,914 2,034,815
Deposits and sinking fund (see Note 7) 1,222,357 1,774,993
Miscellaneous deposits** 92,247 98,089
Total credit risk exposure P7,745,749 P8,072,888
*Excludes cash on hand amounting to P22,190 and P10,446 as at December 31, 2012 and 2011, respectively.** Included as part of noncurrent assets in the consolidated statements of financial position.
Ch
an
gin
g T
ide
s
125
As at December 31, 2012 and 2011, the credit quality per class of financial assets that were neither
past due nor impaired are as follows:
Past due accounts amounting to P0.7 billion as at December 31, 2012 and 2011 are not impaired since
based on the Company’s experience, these receivables are normally collected the following year.
The credit quality of the financial assets was determined as follows:
Cash and cash equivalents, short-term investments, and deposits and sinking fund are placed in
various banks. These are held by large prime financial institutions that have good reputation and low
probability of insolvency. Management assesses the quality of these financial assets as high grade.
For trade and other receivables, high grade relate to those which are consistently collected before
the maturity date, normally 7 days from bill delivery. Standard grade include receivables from
customers that are collectible beyond 7 days from bill delivery even without an effort from the
Company to follow them up, or those advances from officers and employees that are collected
through salary deduction. For miscellaneous deposits, standard grade consists of meter and security
deposits that are normally refundable upon termination of service.
Liquidity Risk
Liquidity risk is the potential for not meeting the obligations as they become due because of an
inability to liquidate assets or obtain adequate funding.
The Company monitors its risk to a shortage of funds using a recurring liquidity planning. Cash
planning considers the maturity of both its financial investments and financial assets (e.g. trade and
other receivables, other financial assets) and projected cash flows from operations.
The Company’s objective is to maintain a balance between continuity of funding and flexibility
through the use of bank drafts, bank loans, debentures, preference shares, finance leases and hire
purchase contracts.
2011
Neither Past Due nor Impaired Past Due butnot Impaired
Impaired TotalHigh Grade Standard
Cash and cash equivalents P4,164,991 P– P– P– P4,164,991
Short term investment – – – – –
Trade and other receivables 1,054,090 327,419 653,306 1,003,215 3,038,030
Deposits and sinking fund 1,774,993 – – – 1,774,993
Miscellaneous deposits – 98,089 – – 98,089
P6,994,074 P425,508 P653,306 P1,003,215 P9,076,103
2012
Neither Past Due nor Impaired Past Due butnot Impaired
Impaired TotalHigh Grade Standard
Cash and cash equivalents P3,906,336 P– P– P– P3,906,336
Short term investments 14,085 – – – 14,085
Trade and other receivables 1,182,764 674,864 675,286 1,124,661 3,657,575
Deposits and sinking fund 1,222,357 – – – 1,222,357
Miscellaneous deposits – t92,247 – – 92,247
P6,325,542 P767,111 P675,286 P1,124,661 P8,892,600
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
126
The tables below summarize the maturity profile of the Company’s financial liabilities as at
December 31, 2012 and 2011 based on contractual undiscounted payments.
The table below shows the maturity profile of the Company’s financial assets based on contractual
undiscounted cash flows as at December 31, 2012 and 2011:
2012
On Demand Due Within 3 MonthsDue Between
3 and 12 MonthsDue after 12 Months
Total
Interest-bearing loans*P– P868,576 P558,415 P20,658,579 P22,085,570
Trade and other payables** 564,096 1,233,446 5,892,802 2,800,601 10,490,945
Service concession obligation payable to MWSS
– – 1,012,526 7,974,985 8,987,511
Customers’ deposits – – – 617,712 617,712
P564,096 P2,102,022 P7,463,743 P32,051,877 P42,181,738
**Principal plus interest payment**Excludes taxes payable
**Principal plus interest payment**Excludes taxes payable
2011
On Demand Due Within 3 MonthsDue Between 3 and 12 Months
Due after 12 Months
Total
Interest-bearing loans* P– P794,140 P691,060 P21,551,777 P23,036,977
Trade and other payables** 874,098 1,776,178 4,231,013 1,958,797 8,840,086
Service concession obliga-tion payable to MWSS
– – 1,656,413 7,739,593 9,396,006
Customers’ deposits – – – 542,055 542,055
P874,098 P2,570,318 P6,578,486 P31,792,222 P41,815,124
2012
On DemandDue Within 3
MonthsDue Between
3 and 12 MonthsDue after 12 Months
Total
Cash and cash equivalents P3,906,336 P– P– P– P3,906,336
Short term investment – – 14,085 – 14,085
Trade and other receiv-ables
1,150,216 707,412 675,286 – 2,532,914
Deposits and sinking fund 1,222,357 – – – 1,222,357
Miscellaneous deposits – 92,247 – – 92,247
P6,278,909 P799,659 P689,371 P– P7,767,939
2011
On DemandDue Within 3
MonthsDue Between 3 and 12 Months
Due after 12 Months
Total
Cash and cash equivalents P4,164,991 P– P– P– P4,164,991
Short term investment – – – – –
Trade and other receiv-ables
1,707,397 327,418 – – 2,034,815
Deposits and sinking fund 1,774,993 – – – 1,774,993
Miscellaneous deposits – 98,089 – – 98,089
P7,647,381 P425,507 P– P– P8,072,888
Ch
an
gin
g T
ide
s
127
Capital Management
The primary objective of the Company’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 Company closely manages its capital structure vis-a-vis a certain target gearing ratio, which
is net debt divided by total capital plus net debt. The Company’s target gearing ratio is 75%. This
target is to be maintained over the next 5 years by managing the Company’s level of borrowings and
dividend payments to shareholders.
For purposes of computing its net debt, the Company includes the outstanding balance of its long-
term interest-bearing loans, service concession obligation payable to MWSS and trade and other
payables, less the outstanding cash and cash equivalents, short-term investments, deposits and
sinking fund. To compute its capital, the Company uses net equity.
For purposes of monitoring debt ratio covenants, the Company computes using both interest-
bearing debt and total liabilities. The Company closely monitors its debt covenants and maintains
a capital expenditure program and dividend declaration policy that keeps the compliance of these
covenants into consideration.
Financial Assets and Financial Liabilities
The following table summarizes the carrying values and fair values of the Company’s financial assets
and financial liabilities as at December 31, 2012 and 2011:
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2012 2011
Interest-bearing loans and service concession obligation payable to MWSS(see Notes 10 and 12) P30,642,690 P31,933,754
Trade and other payables(see Note 11) 11,166,531 9,477,049
Less cash and cash equivalents, short-term investments, deposits and sinking fund(see Notes 5 and 7) (5,142,778) (5,950,430)
Net debt (a) 36,666,443 35,520,373
Net equity 16,725,371 12,328,593
Net equity and debt (b) P53,391,814 P47,848,966
Gearing ratio (a/b) 69% 74%
25.
2012 2011
Carrying Value Fair Value Carrying Value Fair Value
Financial Assets
Loans and receivables:
Cash and cash equivalents P3,906,336 P3,906,336 P4,175,437 P4,175,437
Short-term investments 14,085 14,085 – –
Trade and other receivables 2,532,914 2,532,914 2,034,815 2,034,815
Deposits and sinking fund(included under “Other current assets” account)
1,222,357 1,222,357 1,774,993 1,774,993
Miscellaneous deposits(included under “Other noncurrent assets” ac-count)
92,247 82,253 98,089 97,326
Total Financial Assets P7,767,939 P7,757,945 P8,083,334 P8,085,271
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
128
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument for which it is practicable to estimate such value:
Cash and Cash Equivalents, Short-term Investments, Trade and Other Receivables, Deposits and Sinking
Fund, and Trade and Other Payables. Due to the short-term nature of these transactions, the carrying
values approximate the fair values as at the reporting date.
Interest-bearing Loans. For floating rate loans, the carrying value approximates the estimated fair
value as at the reporting date due to quarterly repricing of interest rates. For fixed rate loans, the
estimated fair value is based on the discounted value of future cash flows using the applicable rates
for similar types of financial instruments.
Miscellaneous Deposits, Service Concession Obligation Payable to MWSS and Customers’ Deposits.
Estimated fair value is based on the discounted value of future cash flows using the applicable rates
for similar types of financial instruments.
Fair Value Hierarchy
The Company 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.
As at December 31, 2012 and 2011, the Company’s AFS investment is measured at fair value. There
are no other financial assets and liabilities recognized at fair value as at December 31, 2012 and 2011.
Supplemental Disclosure of Cash Flow Information
2012 2011
Carrying Value Fair Value Carrying Value Fair Value
Financial Liabilities
Other financial liabilities:
Interest-bearing loans P21,655,179 P22,085,570 P22,537,748 P23,359,871
Trade and other payables* 10,921,335 10,921,335 9,339,315 9,339,315
Service concession obligation payable to MWSS 8,987,511 12,605,537 9,396,006 7,099,620
Customers’ deposits 206,278 574,022 139,040 539,704
Total Financial Liabilities P41,770,303 P46,186,464 P41,412,109 P40,338,510
* Trade and other payables exclude taxes payable to government agencies amounting to P245,196 and P137,734 as at December 31, 2012 and 2011, respectively.
2012 2011 2011
Noncash operating activity -
Unpaid concession fees (see Notes 9 and 12) P1,080,802 P1,033,888 P270,145
Noncash investing activity -
Unpaid consideration related to the acquisition of Phil Hydro
(see Note 4) 316,950 – –
26.
Ch
an
gin
g T
ide
s
129
Event after the Reporting Period
On January 18, 2013, the Parent Company was declared as the winning bidder for the sale of
Olongapo City’s 915,580 common “A” shares representing 10% of the outstanding capital stock
of Subic Water and Sewerage Co., Inc. (Subic Water) for a bid price of P230 per share, or a total
purchase price of P210.6 million. The award and sale of Olongapo City’s shares in Subic Water to the
Parent Company is subject to the right of first refusal of the existing shareholders of Subic Water.
26.
Fin
an
cia
l St
at
emen
tS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ma
yn
ilad
Wa
ter S
erv
ices, In
c. 2
012
An
nu
al R
ep
ort
130
MWSS Compound, Katipunan Avenue,Balara, Quezon City, Philippines
www.mayniladwater.com.phTel. No.: 981 3333
