MERALCO

Submitted to:

Mr. Dean Dela Paz

113304-001106

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Table of Contents

I. Recommendation

II. Brief History

III. Awards and Citations

IV. Mission and Vision

a. Company’s original version.

b. My version.

V. External Factor Evaluation (EFE) Matrix

VI. Porter’s Five Forces Model

VII. Internal Factor Evaluation (IFE) Matrix

VIII. Financial Ratios

IX. Strengths-Weaknesses-Opportunities-Threats (SWOT)

Matrix

X. Strategic Position and Action Evaluation (SPACE) Matrix

XI. References

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I. Recommendation

Meralco has already established itself as among the oldest and biggest

companies to have survived in the Philippines. The company has more than a

hundred years of experience to show it and they are sure to remain for even

longer. My recommendation is solely based on my own personal opinion that I

based on everything I have researched, learned and analysed about the

company.

I recommend that Meralco should start to regain market share in power

generation. The company is very vulnerable to its suppliers. The company is very

dependent on the Independent Power Producer’s that supply them electricity.

Without these suppliers Meralco is sure to have closed down a long time ago.

Before Meralco became a distribution company it also owned generating

plants. These plants, under state policy, had to be given up to the government.

As times and laws have changed I think that it is high time Meralco started to

bring back their old business tandem, generating and distributing electricity. This

will be very costly but even more so will benefit the company. Having their own

generating plants would mean that they would not depend a lot on suppliers that

at any time can raise their prices and Meralco would not have any choice but to

pay. This backward integration strategy could possibly bring Meralco to even

greater heights. Meralco’s customers could also very much benefit from this.

Imagine if Meralco did not have to pay so much for their supply of electricity?

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This means lesser costs because everything would be under the same company.

Having shared costs would mean lesser generating charges for its customers.

Meralco doesn’t have to acquire everything all at once. Although it is given

that they have a lot money to work with it wouldn’t be wise for them to spend all

at once. They could just set a goal to buy or build at least 2 generating plants

every 5 years and in time they would have enough to sustain their own power

distribution. They could start little by little to become the best in the electricity

industry. Given, however, that they are first and foremost known as the best in

distributing energy it is their duty to be able to maintain that name and rank. They

can spend on investing on power plants but they must also continue to invest in

continuously enhancing their distribution system.

A lot should be taken into consideration but I believe that with the proper

investment team that can manage their investments it will work out well. They

should also make their risk management programs better. Money is not the only

deciding factor in taking big steps as starting to generate their own electricity.

The employees of Meralco should be also very willing to accept big changes and

share their own efforts to support the company’s endeavour to be better.

The company could start by buying shares from Independent Power

Producers and little buy little buy their way up to become majority stock holders.

This means that they don’t have to shell out a huge amount of money at one time

but instead they’ll still be able to earn little by little from their investment as well.

Another step that I think they could take would be to build their own generating

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plants. It will be a very demanding feat but very rewarding in the end. Still, they

don’t need to give out a big amount of money right away for this. They could just

spend whatever the company has to spend that is extra until it is fully functioning.

By extra I mean the money that will be in excess of their money having payed

everything that needs to be payed for first. Either way they will spend and it might

become stressful as well but more than likely to be very rewarding for Meralco in

the future.

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II. Brief History

MERALCO is an investor-owned utility serving roughly a quarter of the

estimated 94 million population of the Republic of the Philippines. It is by far the

largest distributor of electrical power in the country.

It started as a provider of electric light and power and an electric street

railway system to Manila and its suburbs 109 years ago in 1903. It was then

named Manila Electric Railroad and Light Company. The facilities that Meralco

built to provide these two services represented for many years the largest single

investment of American capital in the whole of East Asia.

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In 1904 the company acquired a firm that operated public transportation and

ran Manila’s horse-drawn and steam-operated tramways. For a little more than

four decades, Meralco provided Manila with its first modern mass public

transportation system with these electric streetcars. It was a fleet of 170

streetcars before they switched to buses. The tram line was 52 miles long. World

War II destroyed the railway system beyond rehabilitation which then caused the

company to shut it down and began to concentrate on power generation and

distribution instead.

Meralco also opened a retail store that sold electric home appliances but they

decided to give it up. As time passed the company decided to sell their

transportation business to Halili Transport before it became Filipino owned in

1961. Eugenio Lopez Sr. bought Meralco from its American owners and thus it

became the first major American enterprise to be “Filipinized.” During the decade

that followed, the new management built electric generating and distributing

facilities in a pace that had never happened before to be able to cater efficiently

to their franchised area; this was made possible by earning the confidence of

international credit institutions, and other banks, insurance companies, and major

American, German, and Japanese suppliers.

During Martial Law, Meralco was taken away from Don Eugenio Lopez and

was renamed Meralco Foundation Inc. and was controlled by government owned

NAPOCOR. When Cory Aquino assumed the position as President of the

Republic of the Philippines she returned Meralco to the Don and it competed with

NAPOCOR.

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Meralco was the first to issue mortgage trust indenture bonds successfully in

the US financial market on Wall Street. In 1969, Meralco became the first billion-

peso company in the Philippines. This was all the more remarkable because they

did not get any government guarantees.

In the 1970’s the Philippine Government issued a state policy for the

government to own all major generating facilities. Meralco sold its generating

plants to the National Power Corporation, and electric distribution became its

core business. In the first half of the 1980’s, Meralco’s franchise tripled in size,

mainly because consumers preferred their rates and service.

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Upon the request of the government Meralco organized, started and operated

the country’s first elevated light rail transit which we now are more familiar with

as the LRT in the 1980’s. The system ran from Baclaran to Caloocan and was

very much like that of the city’s old streetcar system. At the end of the decade

Meralco turned over the efficiently functioning system to the government. Since

the same year state policy on private investments in electric generation also

changed.

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Meralco continued its status in being one of the oldest and biggest Philippine

company’s. It has gone through so many changes as to names and slogans but

they made sure to retain the company’s core values. This effort was greatly

recognized by others and the company earned numerous awards.

Major stock transactions in 2009 allowed Meralco to form synergistic

partnerships with two other giant Philippine companies such as the PLDT and the

San Miguel groups. These partnerships led not only to increased business

opportunities and cost reductions, but also to new, expanded and more

affordable service to the public.

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Based on what I have research the ownership of the Manila Electric

Company is as follows: 43% belong to the San Miguel Corporation, 34.8% to

Beacon Electric Asset Holding Inc., 6.7% to the First Philippine Holding

Corporation after selling its 26.6% share to Manny Pangilinan’s MPIC and Piltel,

6.1% belongs to the PLDT Communications and Energy Ventures, Inc. which is

also owned by Pangilinan, and the remaining 8.9% are public stocks.

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III. Awards and Citations

2012

Awards/Citations

Asia's Best CFO (Investor Relations) - Rafael Andrada

Best Investor Relations Company (Philippines)

Anvil Award of Excellence for:

The Meralco Twitter Experience - Using Social Media to Address and

Engage Customers on a Personal Level

Anvil Award of Merit for:

Bio Intensive Gardening (environment/science and technology/sustainable

development)

Lighting Up Lives through the Isang Litrong Liwanag (social responsibility)

Meralco's Water Lily for LIFE Project: Community Building for Wealth

Creation (entrepreneurship/ job generation)

One Meralco Foundation, Inc. Launch (special events)

"Two Days of Ultimate Basketball, One Magical Experience: A Fan's

Upclose and Personal Account of the Ultimate All-Star Weekend"

Powering Up to Success: Shaping the New Meralco through Corporate

Values and Employee Engagement

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2011

Awards/Citations

Nominee for Best Investor Relations for Philippine Company in Singapore

Market IR Magazine

Best in Asia on Corporate Governance

Best Investor Relation by Corporate Governance Asia

Philippine Quill Awards

Award of Excellence ("Maliwanag ang Pasko" Christmas Campaign)

Special Events Finalist (The Lighter Side of Meralco: Bringing Energy

Efficiency Tips Closer to the Customer)

Brand Communication Finalist (New Meralco Brand Architecture - Gearing

towards the Future)

Employee/Member Communication Award of Merit (Powering up to

Success: Shaping the New Meralco Through Corporate Values and

Employee Engagement)

Media Relations Finalist (Empowering Partnerships: The Advantages

gained by Meralco's Corporate Business Group through a Strategic Media

Campaign)

Social Media Award of Merit (The Meralco Twitter Typhoon Response

Experience - Managing customer concerns during typhoon crisis

situations)

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Media Relations Finalist (Pailaw Naman! How Meralco's Proactive

Dissemination of Information on the Generation Charge is Helping

influence Media Reportage)

Community Relations Award of Merit (Meralco Community Electrification

Program/MCEP)

Special Events, Internal or External (One Meralco Foundation, Inc.

Launch)

Community Relations Finalist (Bio Intensive Gardening)

Employee/Member Communication (Makabayan Employee Volunteerism)

Economic, Social and Environmental Development (Meralco's Water Lily

for Life)

Community Relations (Meralco Sibol School Project: Providing Access to

Education)

Press Releases

Meralco romps off with 13 Quill awards (Philippine Daily Inquirer)

Meralco's communication flair soaring higher (Manila Bulletin)

Meralco grabs 13 Quill awards (Business Mirror)

Business Communication Excellence (The Philippine Star)

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2010

Awards/Citations

Nominee for Best Investor Relations IR Magazine South East Asia

Conference and Awards 2010

Recognized in Platts Top 250 Global Energy Company Rankings

2009

Press Releases

Meralco clinches Three Quills

Meralco hailed the best Corporate/Financial Institution in Southeast Asia

Meralco cited as one of the Philippine's Best Performing Companies

Awards/Citations

Oct. 22 - Awards of Excellence in the Philippine Quill Awards

Sept. 4 - Gold Award in the Regional Quality Circles Project Competition

Sept. 1 - Recognized as Top Employer by the Social Security System

Aug. 14 - Best Corporate/Financial Institution of the Year 2008-2009

Jul. 23 - Recognition as one of the country's Best Companies

Safety Awards

Oct. 29 - Perfect Safety Record

Oct. 29 - Award of Honor

Oct. 29 - Award of Distinction

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ISO Certifications

ISO 9001

Sub-transmission Services (Mar. 2, 2009 ' Nov. 2010)

Distribution Services (Mar. 2, 2009 ' Nov. 14, 2010)

ISO 14001 & OHSAS 18001

South Distribution Services (Mar. 2, 2009 ' Mar. 1, 2012)

2008

Press Releases

Meralco execs named top UP Eng'g alumni

Meralco recognized for good Corporate Governance

Awards/Citations

Mar. 3 - CEO EXCEL Award for 2008

Recognition for Best Investor Relations

Award for Corporate Governance

Safety Awards

Nov. 5-7 - Safety Recognition Awards

Oct. 4 - Winner in the 18th National Industrial & Commercial First Aid &

CPR Team Competition

Apr. 15 - 5S Best Solid Waste Management Implementation - 5S Sector

Category

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Apr. 15 - 2008 5S Best Solid Waste Management Implementation -

Business Center Category

Apr. 15 - 2008 5S Best File Management System

Apr. 15 - 2008 5S Best File Management System

Apr. 15 - 2008 Most 5S Compliant Canteen Business Center Category

Apr. 15 - 2008 Most 5S Compliant Canteen Office Category

Apr. 15 - 2008 Most Improved in 5S Implementation Sector Category

Apr. 15 - 2008 Most Improved in 5S Implementation Business Center

Category

Apr. 15 - Special Safety Awards Award of Merit

Apr. 15 - Award of Honor

Apr. 15 - Award of Distinction

Apr. 15 - Perfect Safety Record

ISO Certifications

ISO 9001

HRD - Training & Development Administration (Jan. 2008 - Jan. 2011,

Recertification)

Metering Services (Mar. 11, 2008 - 2011, Certified)

ISO / IEC 17025:2005

Corporate Meter - Meter Testing (Aug. 13, 2008 - Aug. 13, 2013, Re-

accreditation)

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2007

Press Releases

Meralco bags 2 Philippine Quill Honors

Awards/Citations

Nov. 23 - Plaque of Appreciation from Ateneo de Manila

Nov. 23 - Plaque of Appreciation from Ateneo de Manila

Mar. 16 - Gold Quill Award of Merit

Safety Awards

Oct. 18 - Award of Honor - Sta. Rosa Sector, given by SOPI, DOLE &

BWC

Oct. 18 - Award of Merit - Central Branches, given by SOPI, DOLE & BWC

Oct. 18 - Award of Distinction - South Branches, given by SOPI, DOLE &

BWC

Oct. 18 - Award of Commendation

Sep. 3 - Gawad Kalikasan ng Pasig

Aug. 25 - Safety Recognition Awards

May 21-22 - Outstanding Road Safety Program for the Private Sector

ISO Certifications

ISO 9001

System Control Center (Feb. 16, 2007 - Feb. 15, 2010, Certified)

Call Center (Feb. 23, 2007 - Feb. 19, 2010, Certified)

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Corporate Information Office (Jan. 26, 2007 ' Jan. 25, 2010, Certified)

2006

Safety Awards

Nov. 8-10 - National Industrial Convention Perfect Safety Record

Nov. 8-10 - National Industrial Convention Award of Merit

Jun. 6-7 - The MARS Level 2B audit Founders Award

Feb. 7 - Perfect Safety Record Award - For achieving no lost time accident

for the year 2006

ISO Certifications

ISO / IEC 17025:2005

Corporate Meter - Meter Testing (Aug. 13, 2006 - Aug. 13, 2008, Re-

accreditation)

Testing - Calibration & Repair (Dec. 2006 - Dec. 2009, Re-accreditation)

Testing - Mechanical (Nov. 20, 2006 - Nov. 19, 2009)

2005

Press Releases

National agency cites Meralco civic programs

ECOP names Meralco the 2005 Grand Kapatid winner

Asiamoney acclaims Meralco among the best managed in the region

Meralco sets example of Good Corporate Citizenship

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Awards/Citations

December - Gawad Kalinga, Bayani Nation Builder Award

May 18 - Grand KAPATID Award

Safety Awards

Oct. 27 - 38th National Industrial Convention Perfect Safety Record

Oct. 27 - 38th National Industrial Convention Award of Honor - Valenzuela

Sector, awarded by SOPI

ISO Certifications

Telecommunications (Feb. 23, 2005 - Feb. 17, 2008, Recertification)

HRD - Training & Development Administration (Jan. 16, 2005 - Jan. 9,

2008, Recertification)

Corporate Information Office (Jan. 26, 2007 - Jan. 25, 2010, Certified)

IV. Mission and Vision

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a. The company’s original Mission and Vision statement.

Mission

is to provide our customers the best value in energy, products and services.

Vision

is to be a world-class company and the service provider of choice.

Meralco’s Corporate Values

Our Corporate Values move us to respond more effectively to the requirements

of our dynamic business environment, and propel us to create a bright future for our

Company and its stakeholders. Our Corporate Values manifest in the following

attributes:

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Objective

is to protect and enhance the interests of its stakeholders by committing itself to the

following principles:

1. The Customers are its reason for being, and therefore, they should always be

treated with dignity. The Company must be fully responsive to their needs. The

Company has the responsibility to:

Provide the customers with the highest quality products and services,

consistent with their requirements and with international standards;

Treat the customers fairly, courteously and with integrity in all of its

business transactions;

Act promptly on their immediate concerns and be receptive to their long-

term needs and interests; and

Make every effort to ensure that the health, safety and general well-being

of its customers are enhanced by its products and services.

2. The Employees are its most valued asset, and therefore, they should always be

treated with dignity and with full consideration of their interest. The Company has

the responsibility to:

Provide its employees with incentives and opportunities for professional

growth and advancement;

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Provide its employees with just and competitive compensation, and

benefits that improve their living conditions and incentives

Guarantee fairness, equal treatment and opportunity, and avoid

discriminatory practices; and

Provide suitable and safe working conditions to protect employees from

avoidable injury and illness in the workplace.

3. Its Investors are its principals, and therefore, the trust they have placed in the

company must be honored. The Company has the responsibility to:

Apply professional and diligent management to ensure the financial

viability of the company and maintain a fair and competitive return for its

investors; and

Conserve and enhance its investors' assets, and fulfill and safeguard their

interest.

4. The Suppliers and Creditors are its business partners and, therefore, the

relationship with them must be based on mutual respect and benefit. The

Company has the responsibility to:

Foster long-term stability, direct relation and continuous development with

suppliers to attain quality, competitiveness, process efficiency and

performance reliability;

Seek fairness, truthfulness, integrity and transparency in all of its business

dealings with them; and

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Seek, encourage and prefer suppliers whose business practices respect

human dignity and the environment.

5. The Competitors are its catalyst toward continuing service excellence and,

therefore, the competition with them should be fair and honest, a basic

requirement for national development in the distribution of products and services

to the community. The Company has the responsibility to:

Promote behavior that demonstrates mutual respect among competitors;

and

Maintain the highest level of business ethics and integrity.

6. The Community is its business environment and the society it serves. The

Company has the responsibility to:

Uphold and maintain at all times the highest standards of business ethics;

Fulfill with dedication and commitment its social responsibilities;

Undertake activities that support and contribute to the economic and

social development of the country;

Undertake activities that support and contribute to the economic and

social development of the country;

Employ proactive measures and cooperate with the government and non-

government institutions in activities to serve society towards a collective

benefit.

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7. Employ proactive measures and cooperate with the government and non-

government institutions in activities to serve society towards a collective benefit.

Help the government in its efforts and programs towards raising investor

confidence, developing the capital market, and ensuring high sustained

economic growth through good corporate governance.

Observe and comply at all times with the orders, rules and regulations of

the government, its agencies and instrumentalities, in the pursuit of its

utility objectives and other corporate endeavors;

Institutionalize sound environmental practices in collaboration with the

concerned government agencies and encourage other

corporations/organizations to support all programs for an effective

environmental management system.

b. My own version of what the Mission and Vision should be.

Mission

1. Customers

We are where we are because of who we serve. MERALCO’s customers are the

energy that drives us to do our job efficiently and effectively. We will increasingly gain

our customers loyalty through giving them a good value for their money.

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2. Products or Services

As part of the MERALCO family, each and every one of us is accountable for our

promise to supply uninterrupted and stable power to their homes and to all others that

require it. We shall keep to this promise the best way we can.

3. Markets

It is MERALCO’s calling to provide a service incomparable to any other in Metro

Manila, the entire provinces of Bulacan, Rizal and Cavite; parts of the provinces of

Laguna, Quezon, Batangas and Pampanga.

4. Technology

It is our duty to make sure that MERALCO’s facilities are apt and continually

enhanced. These facilities should always be capable of producing what is expected and

more but never less.

5. Concern for Survival, Growth, and Profitability

It is our responsibility to ensure that we are able to take care of each and every

one of MERALCO’s customers. As MERALCO provides its customers with light, they in

return enlighten its future. In this respect, MERALCO will conduct its operations

deliberately and will provide the profits and growth that will benefit our customers,

employees, other investors and our society.

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6. Philosophy

We willingly commit to MERALCO’s corporate values of: Customer Service,

Performance, Accountability/Empowerment, Integrity/Transparency,

Teamwork/Collegiality, Malasakit and Makabayan.

7. Self-concept

We strive to maintain an electrification level in the franchise area of MERALCO at

99%. Maintain good relationships with our customers through exceptional customer

service.

8. Concern for Public Image

MERALCO is more than honoured to also take part in good corporate social

responsibility by which we take part of through Sports and Youth Advocacies, Disaster

Relief and Emergency Preparedness, Grassroots Partnership, and Rural and

Missionary Electrification.

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9. Concern for Employees

MERALCO ultimately has high regards for all of those that make this mission

possible. These are the loyal employees that make up the MERALCO FAMILY.

Vision

To be the first to provide innovative solutions in the line of electric distribution that

will benefit our customers, employees and the environment, and become the first and

only choice of every Filipino family to provide electricity.

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V. External Factor Evaluation (EFE) Matrix

Key External Factors Weight Rating Weighted Score

Opportunities:

1. Sole provider of electricity to franchised area of 9,337 sq. km.

0.19 4 0.76

2. Serves a little more than a quarter of the country’s population.

0.11 3 0.33

3. Increasing demand for electricity. 0.13 3 0.39

4. El Nino caused temperature to rise and resulted to higher electric consumption.

0.12 4 0.48

5. Customer loyalty. 0.08 3 0.24

Threats:

1. Equipment failure 0.10 3 0.30

2. Improvement of on-line services 0.05 2 0.10

3. Narrow bargaining power with suppliers 0.15 2 0.30

4. Development of substitute products 0.04 1 0.04

5. Damages caused by adverse acts of nature 0.03 3 0.09

TOTAL 1.00 3.03

I gave the first opportunity I cited a weight of 0.19, highest of all, because I believe

that it encompasses Meralco’s purpose. I then gave it a rating of 4 because given that

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Meralco solely provides to such a huge area they have been doing a good job and us

such their response to this opportunity is superior.

Of all places in the Philippines the City of Manila is the most crowded. This is

brought about by it being our country’s national capital. With a population of a little over

20,000,000, Manila is the fifth-most populous city in the world. The city’s electricity is

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solely being provided by Meralco along with the places surrounding the metro. The

Philippines has an estimated population of a little over 90,000,000 which means that

more or less a quarter of the entire country is dependent on Meralco for electricity. I

placed 0.11 as this opportunities weight in the matrix. I ranked it lower than compared to

the first opportunity because I think that it is less important than the first but still more

important than the others. I gave it a weight of 3 because I think that Meralco could do a

better job in providing a better customer relations programs.

My third opportunity is about the increasing demand for electricity. This is highly

influenced by our weather. With the rising of temperature energy consumption also goes

up. This is an advantageous opportunity for Meralco that’s why I gave a weight of 0.13. I

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gave it a rating of 3 because I think Meralco has only responded to this opportunity

averagely.

The fourth opportunity I stated is in relation to the third. It is just that my fourth

opportunity is very much supported by the charts of Meralco. It is because of the El Nino

phenomena that Meralco was able to earn a record breaking amount of sales through

energy consumption. I gave this opportunity a weight of 0.12 because of how this

opportunity benefitted the company. It may not be a stable basis of yearly sales

increase but even normal Philippine weather nowadays are getting to the people. I gave

it a weight of four because Meralco took every ounce of advantage from the situation. It

even might have been a surprise to Meralco but nevertheless they were able to provide

their service effectively and efficiently.

The last opportunity I cited is of Meralco’s customer’s loyalty. I see this as an

opportunity because given the quality of service they provide it is highly unlikely that if

ever there would be new players in the market will Meralco’s customers risk taking a

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chance to try them out. I gave this opportunity a weight of 0.08 and a rank of 3. I gave it

a 0.08 because of the fact that it’s not like Meralco’s customers have a choice in the first

place but nevertheless it still is an important aspect. I ranked it at 3 because I think

Meralco can develop more customer oriented programs that will maintain their

customers’ loyalty.

The first threat I cited is how sometimes Meralco’s equipment become faulty. I see

this as a threat because being focused mainly on power distribution any malfunctions

may cause them a great deal. The weight I gave this threat is 0.10 and I gave it a rank

of 3. I gave it a 0.10 because of how the company depends on its equipment to be able

to deliver their service effectively. I gave it a rank of three because I think that the

company has been doing a good job but they should still continue to improve their

equipment.

The second threat I cited in the improving of their on-line facilities. It has been a

trend now for most people and businesses to settle bills through the internet. It saves

customers from going out of their way to settle their bills where they would still have to

fall in line. With on-line services paying bill can now be easily done at the most

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convenient time and even wherever you are. I gave this threat a weight of 0.05 and a

rank of 2. I gave it a 0.05 because although it will prove to be a big help in terms of

collection and customer satisfaction it is not that important as the others. I gave it a rank

of 2 because there have been efforts already of improving this threat although I think

that Meralco can be more aggressive about it.

The third threat I cited is how Meralco has a narrow bargaining power with its

suppliers. I see this as a threat because having to depend entirely on Independent

Power Producer’s is very risky. Being privately owned Meralco has no control over them

and there would also be circumstances that these suppliers may not be able to provide

the electricity Meralco requires. A lot of things can happen like a probable mishap in a

certain plant that would then mean no electricity for Meralco to distribute. Also, at any

point in time these suppliers may also deny Meralco of their electric supply and this will

greatly affect the company. I gave this threat a weight of 0.15 and a rank of 2. I gave it a

0.15 because it is a very important threat that may affect Meralco gravely if worse

comes to worst. I ranked it 2 because Meralco could take more precautions with this

threat. They could and they should have contacts with their major suppliers so that they

can be secured.

The fourth threat I cited is of the development of substitute products. As we are in

a third-world country the effects of the world’s economy is greatly felt here. As the cost

of living continues to soar some people have started to look for less costly alternatives.

A perfect example would be the recycling of used plastic soda bottles and making them

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a make-shift light bulb to light people’s homes. It may be a small threat to Meralco but

eventually it will cost them because regardless if people are using electricity or not

Meralco cannot shut down their services. I gave this threat a weight of 0.04 and a rank

of 1. I only gave 0.04 because it is not big of a threat yet for Meralco. I ranked it as one

because although it is not that big of a deal yet it in time I believe it will be something

that the company would most likely be facing.

The last threat I cited is the damage caused by the adverse acts of nature. I see

this as a threat for Meralco because of how the company’s facilities are exposed to

nature. All of their cables are in the open as well as their main plants which are also not

covered. Nature is very unpredictable given Meralco’s product it is best that they take

every precaution in dealing with this threat. I gave this threat a weight of 0.03 and a rank

of 3. I only gave it a 0.03 because it is a threat that is not in anyone’s hands. I ranked it

three because Meralco has done a great job in reacting to this threat. A perfect example

would be when most of Manila was flooded by Ondoy. Meralco was able to react to the

situation by switching off their power in certain locations so as to not cause any more

damage.

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VI. Porter’s Five Forces

1. Rivalry Among Competing Firms

Meralco is by law the sole distributor of electricity in its franchised area.

Moreover, 54% of the total electricity usage in the entire country is being consumed

within the Meralco service area. Electricity is indispensable and as such consumers

that are within the franchised area of Meralco are left with no choice. This is a very

big advantage for Meralco that is even made even greater by the fact that the

demand for electricity is still on the rise as proven by Meralco’s rate of increase in

customers as well as increase in energy consumption. Having no competitor

Meralco need not be burdened with having to constantly develop strategies that aid

in gaining competitive advantage. This in turn gives Meralco more time and a much

more flexible budget to enhance its facilities.

2. Potential Entry of New Competitors

With Meralco having legal hold of its franchised area it would be near

impossible for new competitors to share in its market. Although, I also think that

given certain circumstances there might come a time when this might change. A law

might be passed that would promote and require competition among businesses in a

certain industry. This is most likely to happen when the costs of living have probably

gone too high. Given such an opportunity there are probably a lot of hopefuls out

there that have thought and hungered to have a piece of the market that Meralco

solely caters to. When this happens I think that those that dare compete with

Meralco will eventually fail. It’s hard to beat a company that has been providing this

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service for a little over a hundred years already. And with their continuous

investment in improving their facilities by the time that such an opportunity could

arise Meralco is most probably going to be a lot farther from where they are now.

Even if new firms would offer a lower price than that of Meralco it will still be very

hard for them to gain advantage. They may be able to gain customers because of

their low price but it would be impossible for them to compete with Meralco’s

facilities that have been, are still and will still be enhanced through time.

3. Potential Development of Substitute Products

Electromagnetic induction is the most common process used by Power

Plants to generate electricity. It may be done through burning of fossil fuels as well

as from power that can be taken from the natural forces of water or wind. This

process makes use of generators that are driven by heat engines fuelled by

chemical combustion or through turbines driven by the force of falling water or the

wind. After electricity has been produced it is then transmitted to distribution

companies like Meralco which is the one that retails it to consumers.

Ours is a finite earth. This means that there is an end to everything that is

here. The depletion of our natural resources is a well-known fact all around the

globe. Through the years that we have been inhabiting this world and discovered

how to generate electricity we have unrelentingly and carelessly abused our role as

stewards of this planet. We have taken advantage of resources to the point that

maybe sooner than later will take its toll on our existence. Not only have we been

40

depleting these natural resources but with how we make use of it we have also

affected our atmosphere.

Coal-Fired Power Plant

Hydroelectric Power Plant

Wind-Powered Turbines

41

Because of the posing environmental threats that we face with the

continuous depletion of our natural resources other alternatives have been

developed. An example of which would be solar panels. Solar panels are designed

to capture energy from the heat of the sun and transform it to electricity that is ready

to use. These panels, although seen rarely, are already available here in the

Philippines. They are a little expensive and have limited capacity as to power output

compared to the stability and capacity of electricity from power plants. Given the

rate, however, at which costs of living have gone so high, only time will tell when

which proves to be the best option that one should spend on.

Solar Panel

42

4. Bargaining Power of Suppliers

Meralco is mainly an electric distribution company that purchase electricity

from IPP’s or Independent Power Producers that operate generating plants. It is safe

then to say that Meralco is at the mercy of its suppliers. If by any cruel chance that

the suppliers refuse to sell their electricity to Meralco it would automatically put the

company out of business.

Since Meralco’s distribution business has been consistently earning higher

and higher profit I think it is high time that they start investing on a new but related

product. Acquiring a substantial amount of electric generating plants is highly

plausible. It does not have to be a huge number that can support all of Meralco’s

franchised area but enough to ensure that if ever a minor glitch might happen it will

not affect their customers. It is also possible for Meralco to form strategic

partnerships with its suppliers so as to ensure that the flow of supply is stable.

Meralco Facility

43

5. Bargaining Power of Consumers

Again, since Meralco is the sole provider of electricity to a wide franchised

area this force does not greatly affect the company. Meralco being deregulated

from government control also aids to not being affected by this force. Although,

given that the company’s customers are the ones that provide their business it

would be wise for Meralco to exhibit the sense of value towards them.

Happy Customer

Sample of Meralco Bill

44

VII. Internal Factor Evaluation (IFE) Matrix

Key Internal Factors Weight Rating Weighted Score

Strengths:

1. Frequent employee development programs.

0.08 3 0.24

2. Revenue increased by 25%. 0.15 4 0.60

3. Outstanding company operational performance.

0.10 3 0.30

4. Continued investment in distribution system.

0.12 4 0.48

5. Long-term bilateral power purchase contracts.

0.13 4 0.52

Weaknesses:

1. Customer service facilities. 0.10 1 0.10

2. Re-entry into power generation. 0.09 2 0.18

3. Risk management program. 0.07 3 0.21

4. Initiative to reduce generation charge on customers’ bills.

0.06 1 0.06

5. System reliability. 0.10 3 0.30

TOTAL 1.0 2.99

45

The first strength I cited is about how Meralco puts its employees through

continuous developmental programs. These are programs that help the company’s

employees to enhance their skills needed for them to perform their job efficiently. I

see this as a strength because nothing is permanent in this world except for change.

As changes occur it is wise for Meralco to invest in aiding its employees to cope up

with everything around them. I gave this strength a weight 0.08 and a rank of 3. I

weighted it at 0.08 because I think that it is near as important to the other strengths I

listed down. I ranked it at 3 because Merlaco has been and still continues its efforts

to sustain this strength.

46

The second strength I cited is on the 25% increase in Meralco’s revenue. I

see this as a strength because not only are they proving to be very efficient in what

they are doing but they are also showing that they have enough to finance improving

their efficiency even more. I gave this strength a weight of 0.15 and a rank of 4. I

gave it a high weighted score because I think that the revenue they earned is a

guarantee that they are able to become more and more better in the service they

provide. I gave it a rank of 4 because it shows in their annual report that they have

used their earnings wisely through major investments in improving their facilities.

The third strength I cited is of Meralco’s operational performance. Aside

from favourable circumstances as when El Nino hit our country which caused

customers of Meralco to increase their power consumption, none of their successes

in the past year would have been possible without the participation of the people

behind the business. I gave this strength a weight of 0.10 and a rank of 3. I gave it a

weight of 0.10 because this is a very critical aspect in any business. I gave it a rank

of 3 because of issues within the company about “power struggle”. They are

currently going through an adjustment period that is the result of Mr. Manny

Pangilinan’s buying of the majority of the company’s stocks. He has now gained

controlling power over Meralco.

The fourth strength I cited is about how Meralco’s continuous efforts in

improving their distribution system. I see this as a strength because it means that

they will continue to provide quality service regardless of how times change. I gave

this strength a weight of 0.12 and a rank of 4. I gave it a rank of 0.12 because

although it is very important it is not as important as the company’s high revenues

47

that fund this strength. I gave it a rank of 4 because of the company’s strong efforts

towards this aspect of their business.

The fifth and final strength I cited is of Meralco’s efforts in closing bilateral

power purchase contracts. I think that this is a strength because of the nature of the

company’s business. Given that they are only concentrated is distributing electricity

they rely very much on their suppliers. Having legal contracts with these suppliers

lessen the risk of Meralco having to face risks such as price hikes within the contract

period as well as it provides the company a reliable source of power for a certain

period of time. I gave this strength a weight of 0.13, the highest of all, and a rank of

4. I gave it the highest weight because of why I see this aspect as a strength. I gave

it a ranking of 4 because Meralco has superb efforts to keep this strength.

The first weakness I cited is about Meralco’s customer service facilities. I

think that this is a weakness because of personal experience. Since being held

responsible by parents to take of the bills at home I have noticed that the company

only has a few establishments that their customers may go to. This means that

customers at some vicinities would have to go to those places that do have Meralco

establishments. I gave this weakness a weight of 0.10 and a rank of 1. I gave it a

weight of 0.10 because I believe that Meralco should make themselves available

and easy to reach by their customers. I also think that this is essential in maintaining

customer satisfaction. I gave it a rank of 1 because the company has been

improving on this but they should put more effort in it.

48

The second weakness I cited is how Meralco has begun its efforts in re-

entering power generation. Meralco did not start as a distribution company only.

They were also in to power generation. In the 1970’s a state policy was issued that

required all generating plants be owned by the government. This event led Meralco

in concentrating solely on power distribution. Since the downfall of NAPOCOR,

Meralco has now taken efforts in rebuilding their generating business. I see this as a

weakness because they could have taken steps in gaining this a long time ago. I

gave this weakness a weight of 0.09 and a rank of 2. I gave it a weight of 0.09

because this could have helped them in major ways had they taken it into

consideration. I gave it a rank of 2 because efforts are already being done by the

company towards this weakness.

49

The third weakness I cited is how the company has now given importance

to their risk management programs. I see this as a weakness because this should

have been a major aspect in running their business. They have too many risks at

hand that are due to the nature of their business. I gave this weakness a weight of

0.07 and a rank of 3. I gave it a weight of 0.07 because I think that this is essential to

the operation of the company. I gave it a rank of 3 because of the efforts that they

have made towards this weakness. They have started to develop programs that will

help them in lessening the risk involved in their operation. This is also discussed in

their annual report and they have already seen improvements towards it.

50

The fourth weakness that I cited is how Meralco has been taking efforts to

reduce the generating charges on their customers’ bills. They have observed how

much their customrs’ bills were high because of their generating charges. This is

primarily due to the price at which Meralco buys their supply of energy from their

suppliers. I see this as a weakness because in their more than 100 years of service

it is very impossible that they only saw this now. I gave this weakness a weight of

0.06 and a rank of 1. I gave it a weight of 0.06 because although it is of importance

to maintaining customer satisfaction it is also where most of the company’s revenues

come from. I gave it a rank of 1 because they have only showed efforts of intending

to take action regarding this weakness. There have been talks and planning on how

to do it but no action has been done yet.

The fifth and last weakness I cited is of Meralco’s system reliability.

Nothing is and will never be perfect, a statement which is true for everything as well

as everyone. At some point something or someone is bound to fail from delivering

what is expected from it or him/her. Meralco’s facilities are very reliable as a result of

how they are putting major investments for its betterment. Regardless of this

however, they cannot be assured that it will work as expected all of the time. I gave

this weakness a weight of 0.10 and a rank of 3. I gave it a weight of 0.10 because I

think that is a very important issue for the company. I gave it a rank of 3 because

Meralco has been taking efforts in improving their systems regularly and as often as

needed.

51

VIII. Financial Ratios (based on 2011 Year End Financial Statement)

A. Liquidity Ratios

Current Ratio_84,043,000,000_108,331,000,000

= 0.78

Quick Ratio_70,250,278,643.53_

108,331,000,000

= 0.65

B. Leverage Ratios

Debt-to-Total-Assets Ratio_24,400,000,000_210,388,000,000

= 0.12

Debt-to-Equity Ratio_24,400,000,000_

68,501,000,000

= 0.36

Long-Term

Debt-to-Equity Ratio

_20,650,000,000_68,501,000,000

= 0.30

Times-Interest-Earned

Ratio

18,699,000,0003,093,000,000

= 6.05

52

C. Activity Ratios

Inventory Turnover_256,808,000,000_

205,674,000,000

= 1.25

Fixed Assets Turnover_256,808,000,000_

105,510,000,000

= 2.43

Total Assets Turnover_256,808,000,000_

210,388,000,000

= 1.22

Accounts Receivable Turnover_3,499,000,000_29,108,000,000

= 0.12

Average Collection Period

53

D. Profitability Ratios

Gross Profit Margin18,699,000,000256,808,000,000

= 0.07

Operating Profit Margin24,602,000,000256,808,000,000

= 0.10

Net Profit Margin13,227,000,000256,808,000,000

= 0.05

Return on Total Assets

(ROA)

13,227,000,000210,388,000,000

= 0.06

Return on Stockholders’ Equity

(ROE)

13,227,000,00068,501,000,0000

= 0.19

Earnings Per Share

(EPS)

13,227,000,0001,127,119,432

= 11.74

54

Price-Earnings Ratio4.10

11.73

= 0.35

E. Growth Ratios

Sales 1.1%

Net Income 37%

Earnings Per Share 37%

Dividends Per Share 12%

55

IX. Strengths-Weaknesses-Opportunities-Threats (SWOT)

Matrix

Strengths Weaknesses1. Frequent employee

development programs.2. Revenue increased by

25%.3. Outstanding company

operational performance4. Continued investment in

distribution system.5. Long-term bilateral

power purchase contracts.

1. Customer service facilities.

2. Re-entry into power generation.

3. Risk management program.

4. Initiative to reduce generation charge to customers’ bills.

5. System reliability.

Opportunities SO Strategies WO Strategies1. Sole provider of

electricity to franchised area of 9,337 sq. km.

2. Serves a little more than a quarter of the country’s population.

3. Increasing demand for electricity.

4. El Nino caused temperature to rise and resulted to higher electric consumption.

5. Customer loyalty.

1. Expand franchised area to cover the whole of Laguna.

2. Frequently develop promotions that will entice customers.

3. Add more programs to enhance the skills of employees.

1. Opening of multiple business centers around the franchised area.

2. Gain ownership of 2 generating plants that will help lessen customers’ generating charges on their bill.

3. Stronger efforts in making Meralco a customer-centric company.

Threats ST Strategies WT Strategies1. Equipment failure.2. Improvement of on-line

services.3. Narrow bargaining power

with suppliers.4. Development of

1. Continued enhancement of facilities.

2. Establish long-term contracts with suppliers.

1. Improve on-line services for customers.

2. Venture out and invest on new products related to the core line of the business.

56

substitute products.5. Damages caused by

adverse acts of nature.

3. Continue investment on distribution service.

4. Develop further risk management programs.

X. Strategic Position and Action Evaluation (SPACE) Matrix

Internal Strategic Position External Strategic Position

Financial Strength (FS) Environmental Stability (ES)

Cash Flow

Earnings Per Share

Price Earnings Ratio

Year End Revenue

Working Capital

5

4

3

6

5

Technological Changes

Demand Variability

Barriers to Entry into

Market

Competitive Pressure

Risk Involved in business

-1

-1

-1

-1

-5

23 -9

Competitive Advantage (CA) Industry Strength (IS)

57

Market Share

Product Quality

Customer Loyalty

Technological Know-

How

Control Over

Distributors

-1

-3

-3

-2

-4

Growth potential

Profit Potential

Financial Stability

Resource Utilization

Productivity and Capacity

5

6

5

3

4

-13 23Conclusion:

Environmental Stability (ES)

Average is -9 / 5 = -1.8

Industry Strength (IS)

Average is 23 / 5 = 4.6

Competitive Advantage (CA)

Average is -13 / 5 = -2.6

Financial Strength (FS)

Average is 23 / 5 = 4.6

Directional Vector Coordinates:

x-axis: -2.6 + (4.6) = 2

y-axis: -1.8 + (4.6) = 2.8

58

0

0.5

1

1.5

2

2.5

3

Meralco should continue their efforts of pursuing Competitive Strategies.

XI. References

a. Title of Article: Meralco

Name of Site: Wikipedia

Date Accessed: March 17, 2012

Online URL: http://en.wikipedia.org/wiki/Meralco

b. Title of Article: Electricity Generation

Name of Site: Wikipedia

Date Accessed: March 17, 2012

Online URL: http://en.wikipedia.org/wiki/Electricity_generation

c. Title of Article: Meralco Main Site

Name of Site: Meralco, Ang Liwanag ng Buhay

59

Date Accessed: March 17, 2012

Online URL: http://www.meralco.com.ph/index.html

d. Title of Article: The Company

Name of Site: Meralco, Ang Liwanag ng Buhay

Date Accessed: March 17, 2012

Online URL: http://www.meralco.com.ph/company-index.html

e. Title of Article: Corporate Profile

Name of Site: Meralco, Ang Liwanag ng Buhay

Date Accessed: March, Ang Liwanag ng Buhay

Online URL: http://www.meralco.com.ph/company/page-about-

corporateinfo-corpprofile.html

f. Title of Article: Corporate Mission, Vision, Values and Principles

Name of Site: Meralco, Ang Liwanag ng Buhay

Date Accessed: March 17, 2012

Online URL: http://www.meralco.com.ph/company/page-about-

corporateinfo-misvis.html

g. Author of Article: Roberto M. Paterno

Title of Article: At the Threshold of Fresh Synergies: Meralco in

2010

Name of Site: Meralco, Ang Liwanag ng Buhay

Date Accessed: March 17, 2012

60

Online URL: http://www.meralco.com.ph/company/page-about-

corporateinfo-history.html

h. Title of Article: Awards and Citations

Name of Site: Meralco, Ang Liwanag ng Buhay

Date Accessed: March 17, 2012

Online URL: http://www.meralco.com.ph/company/page-about-

corporateinfo-awards.html

i. Title of Article: Quarterly Report

Name of Site: Meralco, Ang Liwanag ng Buhay

Date Accessed: March 18, 2012

Online URL: http://www.meralco.com.ph/company/page-about-

investor-quarterlyreport.html

j. Title of Article: INVESTORS’ BRIEFING & TELECONFERENCE -

Yearend 2011 FINANCIAL & OPERATING RESULTS

Name of Site: Meralco, Ang Liwanag ng Buhay

Date Accessed: March 18, 2012

Online URL:

http://www.meralco.com.ph/pdf/aboutmeralco/YE_2011_Meralco_R

eports.pdf

k. Title of Article: Re-Energized – Meralco 2010 Annual Report

Name of Site: Meralco, Ang Liwanag ng Buhay

Date Accessed: March 18, 2012

61

Online URL: http://www.meralco.com.ph/resources/pdf/Meralco

%2010%20Annual%20Report.pdf

l. Title of Article: The Corporate Social Responsibility Arm of Meralco

Name of Site: Meralco, Ang Liwanag ng Buhay

Date Accessed: March 18, 2012

Online URL: http://www.meralco.com.ph/company/page-csr-

sports.html, http://www.meralco.com.ph/company/page-csr-

disaster.html, http://www.meralco.com.ph/company/page-csr-

grassroot.html, http://www.meralco.com.ph/company/page-csr-

rural.html

m. Title of Article: The Consumer

Name of Site: Meralco, Ang Liwanag ng Buhay

Date Accessed: March 19, 2012

Online URL: http://www.meralco.com.ph/consumer-index.html

n. Title of Article: Meralco Bill Components

Name of Site: Meralco, Ang Liwanag ng Buhay

Date Accessed: March 19, 2012

Online URL: http://www.meralco.com.ph/customer/page-cusCare-

billcomponents.html

o. Title of Article: Electric Tips

Name of Site: Meralco, Ang Liwanag ng Buhay

62

Date Accessed: March 19, 2012

Online URL: http://www.meralco.com.ph/customer/page-cusCare-

tipsElectrical.html

p. Title of Article: Causes of Electrical Accidents

Name of Site: Meralco, Ang Liwanag ng Buhay

Date accessed: March 20, 2012

Online URL: http://www.meralco.com.ph/customer/page-cusCare-

tipsCEA.html

q. Title of Article: Meralco Appliance Calculator

Name of Site: Meralco, Ang Liwanag ng Buhay

Date Accessed: March 20, 2012

Online URL: http://www.meralco.com.ph/customer/page-cusCare-

toolsCalculator.html

r. Title of Article: Meter Deposit Refund

Name of Site: Meralco, Ang Liwanag ng Buhay

Date Accessed: March 20, 2012

Online URL: http://www.meralco.com.ph/customer/page-

cusProduct-MDR.html

s. Name of Site: Flickr

63

Date Accessed: March 20, 2012

Online URL:

http://www.flickr.com/photos/15693951@N00/878260084/sizes/z/in/

photostream/