“Like how a small drop creates a ripple effect, our service commitment creates ripples of care and growth in the markets we hope to expand to...”
Mr. Chairman, Members of the Board, fellow shareholders and stakeholders of Manila Water.
The year 2020 has been an unprecedented year for all of us on many levels. I can best describe it as the year when Manila Water was hit with a “Perfect Storm” where multiple challenges converged, further complicating their individual impact. The “Perfect Storm” of the raw water supply challenges, natural disasters including the eruption of Taal, the political storm of the Concession Agreement challenge, and the final blow of the COVID-19 pandemic, all compounded and enhanced each other’s adverse impacts, exacerbating the situation. I am happy to report, your Company persevered and continued to fulfill its service mission. Not only did we cope, we adapted, and even improved our capacities and capabilities.
Manila Water’s 2020 net income declined 18% from the previous year to Php4.5 Billion. This decline was driven by the lower contribution of our domestic subsidiaries due to the impact of COVID-19 on the business, as well as the recognition of additional expenses for estimated probable losses across the group.
For our East Zone operations housed under the Parent Company, the slowdown of business activity brought about by the imposed Enhanced Community Quarantine (ECQ) resulted in lower billed volume from our commercial and industrial segments. This was, however, offset by an increase in the residential segment as more people were confined to their homes. While this shift caused revenues to remain relatively flat versus last year, our resilient service performance even under the imposed quarantine bolstered a 3% improvement in total billed volume.
On the other hand, the onset of the COVID-19 resulted in higher receivables, with the suspension of disconnection activities and the government-mandated extension for customer payments. Collection efficiency dropped to 63% in the middle of the year, but we focused and pushed recovery to a year-end level of 92% through the efforts of our Business Areas and Territory Teams.
Furthermore, cost and expenses decreased 18% to Php5.4 Billion, driven by our aggressive cost management initiatives despite the challenges posed by the pandemic. Finally, taking into account the recognized impairment loss for our investment in Manila Water Total Solutions, 2020 net income of the Parent Company stood at Php4.7 billion for the year, a 7% decline from 2019.
For our domestic subsidiaries under Manila Water Philippine Ventures, the pandemic significantly impacted our businesses in Boracay and Clark, with travel restrictions causing an 84% decline in tourist arrivals in Boracay and the imposed quarantines in Clark contributing to a 7% drop in billed volume. For our Estate Water business, the 70% decline in supervision fees was driven largely by the deferment of projects due to quarantine restrictions, and in part by the change in accounting treatment of supervision fees. This impact was partially offset by the notable performance of our other subsidiaries such as Laguna Water, as well as the start of operations in several expansion areas even under the prevailing challenges posed by COVID-19.
For our international businesses under Manila Water Asia Pacific, our equity share in net income of associates declined by 67% to Php214 Mn, with the lower contribution from East Water and Saigon Water. This was partially offset by the increase in contribution from Thu Duc and Kenh Dong Water.
Despite the global difficulties presented by the pandemic, in December 2020 we successfully closed a Management, Operations and Maintenance Contract with Saudi Arabia’s state-run water agency, the National Water Company. This operations and maintenance contract is in partnership with the French water distributor Saur Group and Saudi’s Miahona Company. The seven-year agreement covers the implementation of enabling projects and the management of the water and wastewater facilities and systems of the North West Cluster served by National Water Company. The cluster includes the cities of Madinah and Tabuk, comprised of 300,000 square kilometers of land area, with a population of more than three million. In all, Manila Water Asia Pacific ended the year at a net loss of Php371 Mn. Excluding one-offs which was mainly the recognition of additional estimates for probable losses in our investment in Cu Chi, core income stood at Php163 Mn, 12% higher than last year.
Lastly, for Manila Water Total Solutions we announced the closure of our Healthy Family business division effective October 31 last year due to the unit’s inability to financially sustain business operations. Manila Water Total Solutions will continue to exist and operate in line with its primary purpose of providing water, wastewater and environmental services and solutions.
Growth in East Zone Billed Volume
Water Availability for East Zone maintained at
With the onset of the community quarantine in March, we implemented business contingency measures like never before, to ensure that critical facilities and business centers remain operational to provide reliable service to our customers. Particularly, in view of health and safety concerns, we suspended meter reading activities for the duration of the ECQ. When community quarantine restrictions were eased, we immediately focused on customer concerns regarding billing and payment. Furthermore, customers were provided concessions on bill payments by way of extended payment periods and installment plans when applicable. Equally important, we pushed for the development and adoption of various electronic/online platforms to promote added convenience and safety for customers in their settlement of bills. We launched our one-stop customer portal, my.manilawater.app. This new platform provides our customers not only with a more convenient alternative to view and pay for their water bills online, but an easier, and more effective way to interact with Manila Water.
For our employees, we quickly deployed five (5) key initiatives focused on their personal well-being, workplace health and safety, mental wellness, personalized employee communications and undisrupted training through digital and virtual channels. In all these we saw the commitment of our team members to continue serving our customers despite the pandemic risk. Mindful of their passion, we only deployed essential technical and business operations teams at the facilities while the rest remained on a split work from home deployment protocol. Re-entering team members were initially required rapid testing to ensure workplace safety. What kept me up at night was the thought of over 500 team members out there servicing our customers during the initial, most challenging phase of the lockdowns. I worried about anyone of them getting infected, but am very happy to report we have not lost anyone to COVID-19 due to work assignment exposure.
Our efforts to remain resilient and deliver on our service commitments in the face of challenges has yielded benefits for our customers and stakeholders. Reliable water availability for the East Zone was consistent throughout the year. In all, our total CAPEX implementation for the Company reached a historical all-time high of Php12 billion. This was achieved despite the difficulties caused by quarantine restrictions, strict safety and health re-entry guidelines, contactor limitations, and supply chain challenges.
In Manila Water, our service commitment inspires us to forge ahead in the face of adversity and find ways to become more innovative and resilient. The difficult challenges we faced in 2019 during the raw water supply shortage helped us prepare for the challenges brought about by the pandemic. The lessons we learned during the crisis resulted in a more agile and responsive water network that enables us to maintain a reliable and even more efficient water distribution system. These intricate and real-time network adjustments are now executed and monitored centrally via our newly enhanced Operations Management Center, using state-of-the-art technologies across the network. This more “techy” operating environment is the big reason why we were successful in maintaining 24/7 water service even during the strict lockdowns.
Our journey to a more digitized environment was significantly accelerated out of necessity due to the new normal caused by the pandemic. Aligned to Manila Water’s core value of innovation, the transformation was happening in every aspect of the company. The teams developed sixty (60) automation and workflows apps, using standard and secured tools, half of which were fully user or citizen-initiated and developed. This highlights the excellent drive to not just cope with the new realities, but to become even better at what we do despite these challenges.
Our quest for excellence to go beyond present resilience was validated by the World Bank’s recent recognition of Manila Water as being a Utility of the Future. Cited particularly by the World Bank was our being world-class in several categories, including commercial operations, technical operations, organization and strategy, human resource management, and financial management.
Sewage Treatment Plant at Ilugin, Pasig City
Water treatment plant at Balara, Quezon City
In the middle of the storms, our finance team led by our CFO surprised many by successfully completing the debut issuance of the US$500 million 4.375% 10 non-call 5-year Senior Unsecured Fixed Rate Sustainability Notes. This was our first ever bond issuance in the international capital markets. The offering is the single largest sustainability bond issued by a listed private water utility in Asia, and the first ASEAN sustainability bond by a corporate issuer out of the Philippines.
One by one we dealt with each storm and recently, we finally signed a Revised Concession Agreement. We believe that there are revisions that will be very helpful towards the sustainability of our Company well into the future. The resolution of the Concession Agreement will now allow us to focus on the urgent need to ensure sustainable water supply and wastewater services to the East Zone of Metro Manila. There are many who helped make this happen even from outside the organization and I would like to take this opportunity to say thank you to all of you.
From the innovations in operation and efficiency which we have realized, we have set the stage for better ways of serving our customers and growing our business. The already proven world-class operating competency and capacity will now be enhanced with the entry of our new partner, as already announced. The entry of the Razon Group brings a new set of opportunities for Manila Water, as they bring their expansive global reach and business development expertise – with operations in Asia Pacific, Latin America, the Middle East, and Africa. Together with our new partner, we definitely see new and clear opportunities for growth and expansion. Like how a small drop creates a ripple effect, our service commitment creates ripples of care and growth in the markets we hope to expand to, domestically and internationally.
JOSE RENE GREGORY D. ALMENDRAS
President and CEO