I am happy to report to you that Manila Water continued to perform well despite the regulatory obstacles we have encountered. 2015 was marked with the strengthening of our company’s operating efficiencies across its numerous business units and subsidiaries.
THE YEAR THAT WAS
Manila Water’s 18th year was blessed with healthy results following the settlement of a longstanding dispute with our East Zone regulator. Our consolidated revenues grew to ₱16.94 billion in 2015, 4 percent higher than the previous year. This was driven by the excellent operating performance of the East Zone and the strong contribution of our domestic and international subsidiaries. In the East Zone, billed volume grew by 3 percent. Our domestic subsidiaries contributed revenues of ₱2.03 billion, 40 percent higher than the previous year.
Meanwhile, our cost of services and operating expenses increased by 15 percent to ₱5.85 billion. We generated an EBITDA of ₱11.67 billion and an EBITDA margin of 69 percent. Manila Water reported a consolidated net income of ₱5.96 billion which was 2 percent higher than the prior year, setting a new record for Manila Water. Return on average equity was at 16 percent.
The 3 percent billed volume growth of the East Zone to 461.4 million cubic meters has been the best billed volume growth since 2008. Operational efficiencies were sustained at excellent levels: non-revenue water (NRW) at 11.2 percent, collection efficiency at 100 percent, and customer service index at 99.96 percent. Efficiency gains translated to operating expense savings that were ahead of our target. These factors contributed to the strong performance of the East Zone.
We maximized the market impact and earnings contribution of the new businesses. We reorganized in 2015 to align our organizational structure with our growth strategy of horizontal and vertical expansion, thus giving birth to Manila Water Philippine Ventures (MWPV), Manila Water Asia Pacific (MWAP) and Manila Water Total Solutions (MWTS).
The businesses under the MWPV and MWAP umbrella now serve a population of four million, and has equity resources of ₱9 billion. The total capital expenditures of the domestic businesses under MWPV reached ₱1.39 billion in 2015, 31 percent higher than the previous year. Consolidated net income of the new businesses grew by 46% over the prior year, and contributing 16% to Manila Water’s total earnings.
We secured landmark financing deals to support both the capital expenditure commitments of the East Zone business and the growth initiatives of our subsidiaries. We were able to negotiate very competitive terms for a Y40 billion loan to fund the East Zone capital expenditure program. We also secured a P1.1 billion loan for Clark Water and P2.5 billion loan for Laguna Water, the latter of which is the biggest fund-raising activity for a Manila Water subsidiary thus far. We have strengthened our subsidiaries such that they can borrow on their own without any guarantees from the parent company.
Beyond good financial results, it is equally important to note a number of significant developments that further strengthen our business and operating platforms.
In the East Zone, we built and launched major used water systems that will form key pillars in the expansion of used water coverage. We finished in 2015 the construction of the Marikina North Sewerage Treatment Plant (STP) with a 100 million liters per day (mld) capacity and theTaguig North STP with a 75 mld capacity, while the Ilugin STP with a 100 mld capacity is undergoing construction.
We set the stage for further geographic business expansion through MWPV and MWAP. In MWPV, we forged a strategic partnership with leading property developer, Ayala Land, to undertake the design, build, operations, and maintenance of potable water and used water systems in Ayala Land developments nationwide. We broke into the Mindanao market in the southern Philippines with the start-up of a non-revenue water management project in Zamboanga City and a bulk water supply project in Tagum City. In the region, we expanded our Vietnam operations with the acquisition of our first concession-type project in Cu Chi District where a population of close to 400,000 people are expected to be served with potable piped-water supply for the first time.
Furthermore, we gained initial traction in the third growth leg of the company through Manila Water Total Solutions, which houses our non-regulated after-the-meter services. We improved our performance in the pipe laying business which generated revenues of P136 million, and a net income of P23 million. We blazed a new trail and foundation for growth in a totally new industry with our Healthy Family purified bottled water. Healthy Family had a total bottle sales of 1 million in 2015, a significant step up from our 16,000 sales in 2014. In addition, three new FDA-certified plants with a combined capacity of 43,000 bottles per day were also completed.
ENHANCING THE ORGANIZATION
We continued to build the structure and platforms of Manila Water towards enabling effective execution of our strategic plans. We developed new automated enterprise systems to adapt to new business requirements and bolster productivity, namely, Enterprise Asset Management (EAM) – a comprehensive system that spans the whole asset life cycle, connecting processes and enabling effective decision-making. We enhanced GIS Applications to provide better analytics to the East Zone and Corporate Operations.
“All these efforts work towards our goal of sustaining our commitment of providing world-class water and used water services to our existing customers and our potential consumers.”
In preparation for the next rate rebasing in 2018, we increased our regulatory readiness by creating a new department to focus on regulatory accounting requirements. Furthermore, a new Records and Information Management System (RIMS) now provides for better records management system and will ensure that documents for regulatory review are in order, easily located and retrieved.
We likewise completed the Capex Optimization project which streamlined the entire project life cycle for more effective and efficient project delivery. This prepared our Strategic Asset Management and Corporate Project Management groups towards managing very large and complex projects at a yearly aggregate throughput of as much as P15 billion.
Talent development was another focus area. We implemented initiatives that strengthen our organizational capabilities and ensure the availability of capable talents as we embark on our expansion program. We revived the Cadetship Program with focus on technical disciplines to build a strong pool of specialists geared for careers in the water business. We developed an employee engagement roadmap, guided by employee survey feedback, towards further strengthening the engagement of the Manila Water workforce.
All these efforts are geared towards fulfilling our commitment of providing world-class water and used water services to our customers.
LOOKING AHEAD TO 2016 AND BEYOND: 2X in 20XX
We look with optimism to the next five years as a period of growth for Manila Water. Our goal is to become an enterprise earning twice as much in 2020 as we did in 2015. We aim to achieve this by keeping our East Zone business steady while aggressively growing our new businesses to make them contribute as much as 50% of the consolidated net income of Manila Water at the end of this decade. From being a monolith organization five years ago, we aspire to be a more expansive, diverse, multi-national and multi-service water company.
GERARDO C. ABLAZA
President and Chief Executive Officer